5.CS: Case Study: Forecasting the Impact of Revenue and Cost Changes

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Page ID: 22093

Jean-Paul Olivier
Red River College of Applied Arts, Science, & Technology

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The Situation

Lightning Wholesale has just wrapped up the 2013 fiscal year of operations. As with all businesses, revenues, costs, and expenses are forecasted to change in 2014. Top management needs to know the impact of these changes on its 2014 operations. This is best completed by performing a year-over-year analysis of 2013 to 2014.

The Data

This table shows the financial figures for three of the company's operating divisions.

	Three Operating Divisions
	Sporting Goods	Outdoor Clothing	Indoor Clothing
Sales Revenue	$11,555	$10,111	$5,200
Cost of Goods Sold	$9,585	$6,154	$3,531
Operating Expenses
Sales & Marketing	$582	$485	$356
General & Administrative	$49	$35	$42
Payroll	$269	$326	$184

*All figures are in thousands of dollars.

Important Information

All variable costs are accounted for in the cost of goods sold.
All operating expenses are treated as fixed costs.
The table below shows the percent changes forecast for 2014.

	Three Operating Divisions
	Sporting Goods	Outdoor Clothing	Indoor Clothing
Sales Revenue	+8%	+4%	−2.3%
Cost of Goods Sold	+4%	+6%	+2.1%
Operating Expenses
Sales & Marketing	+6%	0%	+3%
General & Administrative	−2%	+1.5%	+2%
Payroll	+2.1%	+3.5%	+2.5%

Your Tasks

1. Top management needs to understand the current 2013 year of operations. Perform the following activities:

a. For each division, calculate the net income, total contribution margin, and contribution rate.

b. For each division, calculate the break-even point in dollars.

c. For all three divisions combined, calculate the total revenue dollars required to break even.

2. Forecast the changes for the 2014 operating year to help management understand how the business is changing.

a. For each division, calculate the forecasted net income, total contribution margin, and contribution rate. Express these figures as a percentage of the 2013 numbers.

b. For each division, forecast the new break-even point in dollars. Express the forecasted break-even points as a percentage of the 2013 break-even points.

c. For all three divisions combined, calculate the total forecasted revenue dollars required to break even and express the total break-even point as a percentage of the 2013 total break-even point.

3. Write a report to management about your findings for each department and the company as a whole for the 2014 year.

Contributors and Attributions

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