Analysis of Ekland Industries Performance, Q1-2
Overview Roland Anderson is the manager of Ekland Industries, Division of Ystad. He is being considered for the position of the CEO for the entire company. He realizes that his plant has the capacity to produce double what they are currently producing, and is unhappy with the results of first quarter. He decides to double production in the hopes his numbers will show better.
Analysis - First, in the scenario, we do see some economies of scale that should be mentioned. At 25,000 units, the cost per unit is about $65; when that amount is doubled, it drops to $45. However, looking at Q1 we see sales costs as $20/unit; but the reporting directions kept the unit sales and marketing costs identical, which is highly unlikely since to double volume, there would likely need to be more sales calls made, increased costs, etc. Still, when analyzed using the Contribution Income analysis, we actually find that Ekland performed worse in Q2 than in Q1, with a negative 24% in contribution margin and a -51% in net operating income, even though net income reported using a standard balance sheet showed a dramatic increase.
Reporting The contribution margin income statement shows all variable expenses being deducted so that when fixed expenses are subtracted a net proft or loss is shown for that period. Many feel it is superior because it shows the amount available to cover fixed costs and generate a profit or loss. For instance, if there are