2001 Budget Executive Summary
General To hit Mr. Westports profit goal of $70000, our 2001 budget is very aggressive in expense reductions (especially in direct labor) and somewhat optimistic on revenue given the pressure from plastic tables. Margin widens 5% points from 28% to 33%.
Sales We have forecasted a slowing in sales growth due to increaed competition from plastic tables. The 4% price increase might need to be dropped if we see soft orders in Q2.
Materials Our leg supplier has committed to hold prices for 2001 and we expect wood to be up 2-3%.
Direct Labor We continue to work to reduce our direct labor per table (“DLT”). It looks like we decreased DLT from 1.6 to 1.5 in 2000. Our plan calls for continued reduction to 1.4 in 2001. Before leaving Thompson Tables and joining us, John indicated they were running around 1.25 per table (a $2.50 per table cost advantage versus our 1.5 hours).
Overhead Will implement cost reductions (yet to be determined) to hit profit target of $70,000.
G&A Need to find cost cuts to hit profit target. Does not include any budget for R&D on plastic table product. We strongly recommend Mr. Westport authorize the $75,000 investment in product development requested this summer.
Risks Primary risks are that increasing competition from plastic tables continues to pressure sales volume and pricing. Also, goal to improve productivity from 1.5 hrs per table to 1.4 hours is aggressive on top of gains in 2000.
Help with variance analysis structure and question memo at end. Thanks
(See attached file for full problem description)