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ACC 3303 - Case 2 Roxbury Manufacturing Company

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Question;Roxbury Manufacturing Company is a privately owned business. Products manufacturedby Roxbury had been doing very well until the year 2011. The last two years have seen asteady decline in sales and profit. If this declining trend continues, the company mightcome under financial distress. Income statements for the last two years are given below.Year 1PercentYear 2PercentSalesLess Variable ExpensesTotal Contribution MarginLess Fixed ExpensesNet Income before taxes$ 5,000,000 100$ 4,500,000 100$ 3,750,00075$ 3,375,00075-------------------------------------------------------------------$ 1,250,00025$ 1,125,00025$ 1,000,000$ 1,000,000--------------------------------------------------------------------$ 250,000$ 125,000==========================================Mr. Creighton, the owner of the company is baffled that only a ten percent decline insales has resulted in a twenty percent decline in profits. He asks you to explain to himhow in spite of maintaining efficiency in operations by keeping variable expenses andcontribution margin at the same percentage level, he has experienced a greaterpercentage decline in profits.

 

Paper#39548 | Written in 18-Jul-2015

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