The Clipboard tablet Co. has been selling three tablet models namely: X5, X6 and X7 for the past 5 years. The company’s organizational analysis through the use of CVP analysis shows the development of certain strategies aimed at making the company competitive.
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As the company moves into the future, there is a need to review strategies deployed in the past to move the company into the future. As a result, this report intends to analyze past strategies used in time warp 4 and 5 to come up with a conclusive strategy for the future.
Clipboard Tablet Co., in the year 2016, will have two models of tablets for sale in the market. This is because the company will have to come up with a new tablet model, which will most likely be the X8. This tablet model will aim at replacing the X5 and X6 models which will be phased out because of changing market dynamics. Based on the past CVP analysis and strategies deployed within time warp 3, we notice certain aspects of the company that will be greatly affected and reviewed as follows:
In the process of undertaking CVP analysis under time warp 3, we notice that sales units of X5 and X6 phones were on the decline since the year 2012. These tablet models were performing dismally compared to the newly introduced tablet model of X7. The CVP analysis results indicated that the sales and popularity of the X5 and X6 models were declining and thus there was a need for development of a new tablet model.
Finances and resources used in the development of the old X5 and X6 models would be channelled into the development of new products. This is because the popularity and demand of the old models have been sluggish. For instance, in SLP 3 during the CVP analysis, we notice that the demand for X6 tablet dropped by 50% from the year 2013 to 2014 (Drury, 2011).
As a result, the company should develop a new clone model or a new tablet in order to recover sales lost through the dwindling sales of the X5 and X6 models. The tablet industry is a highly competitive and technological industry and therefore, trends do change swiftly and easily.
As a result, Clipboard tablet Co. needs to change its product line swiftly to meet with the changes occurring in the industry (Stice, 2010). Product development should be a priority in this industry and the company needs to come up with the new tablets to replace its ageing product line.
Under SLP 4, the Clipboard Tablet Co.’s major strategy was to increase revenues in order to meet market demand and organizational goals. In terms of revenue increase, the company was advised to reduce expenditure and costs on X5 and X6 models, so as to price the tablets at a lower cost for consumers to purchase it.
Moreover, additional costs and finances should be dedicated to the marketing and sale of the X7 model so that the tablet can contribute significantly to the revenues of the company. Coming up with different pricing models will ensure that the company gets the best price for its tablets. For instance, due to increased demand, the company should increase the sale price for its X7 model and lower the prices for its ageing models of X5 and X6 tablets.
It is imperative that the company is shielded from unnecessary losses that occur due to loss making products (Cafferky, 2010). As a result, the company should cut down on its costs and increase costs only when revenue increases. Under SLP3, we noticed that the company’s revenue were declining at a fast pace compared to expenditure of the company. As a result, the company needs to undertake a lot of cost cutting measures.
For instance, in the year 2012, the company had expenditures to the tune of $ 546mn while revenues were $ 1.32bn. The same trend was witnessed in 2013, when the company spent around $ 664mn while the revenues of the company stood at $ 1.32bn.
The Company spent a lot of money on the development and production of the three tablets. For instance, in the year 2012, the company spent over $ 700mn as operational costs. The profits for 2012 stood at over $ 400mn and this figure did not change drastically in the year 2013 as profits stood at $ 356mn. The R&D expenditure for the company has remained unchanged in the last 4 years standing at $ 22mn per annum, despite the decrease in sales.
The CVP looks into the cost of financing the production of certain specified units of tablets. In this case, we witness that the cost of producing one unit of X5 tablet increased from $ 98.36 in 2012 to $ 145 in the year 2015. While in the case of X6, the costs increased from $ 194.6 to $ 260 by the end of 2015.
This was not the same case for the X7 tablet which maintained a cost of $ 60 for the production of X7 tablet in the years 2014 and 2015. In terms of financing production, the company’s expenditure increased while volume of sales dropped (Drury, 2011). The exception happened in the year 2013 when the unit cost of producing X6 tablet rose to $ 196.4 while the units sold also increased by around 9%.
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Making use of both the SLP3 and SLP 4, we come up with an integrated strategy that could be used by the company in gaining competitive advantage. In the SLP 3 the main emphasis of the analysis was on the company’s performance in terms of profit and loss, product development and performance. While in the SLP 4 we make use of CVP analysis to come up with an optimum way of maintaining and increasing sales based on the expenditure and the product line.
However, in both strategies, we notice that the issue of cost has been emphasized and this makes it easy for the company to narrow down on the main issues that needs to be addressed by the company. From the year 2012 to 2015, the cost of producing one unit of either X6 or X6 tablet increased by 50% and 33% respectively. However, the volumes of production of the same tablets have been on the decline due to low demand and ageing product line (Cafferky, 2010).
As a result, the company needs to reduce its cost of production so as to save the company a lot of millions. In case the strategy of decreasing production costs does not work for the company, it will be prudent for the company to halt production on the X5 and X6 tablet models. Alternatively, the company could reduce the sale prices for its tablet brands as a means of spurring growth in revenue and sales.
When we look at the performance of the company, the Clipboard Company has been faced with declining product sales and losses from its sales in the year 2014 and 2015. The decline in sales should have been countered with new products being introduced into the market such as improved versions of the X5 and X6 tablets. The CVP analysis uncovered the problem of increased expenditure even though sales volumes were not enough to get to the break-even point.
As a result, there is a need to streamline production and introduce new tablets in the market that will ensure the company stays competitive in the market (Kinney, 2012). Outsourcing production or contract manufacturing would be one of the best strategies that the company could adopt. Through use of this model, the company will outsource tablet manufacturing to companies while the company undertakes sales and marketing.
This would ensure a fixed price and levels of production which could end up saving the company lots of money. For instance, through this model, the company would have suspended production of X5 and X6 tablets in the year 2015 (Stice, 2010).
As a result, the company would have been able to save around $ 280 million and other indirect costs related to X5 and X6 tablets production. Poor sales of the X5 and X6 tablets are also hurting the Clipboard brand since it means the company cannot use the success of these tablets to spur growth within its tablet range.
Cafferky, M., & Wentworth J. (2010). Breakeven Analysis: The Definitive Guide to Cost-Volume-Profit Analysis in Business. London: McGraw Hill Publishing.
Drury, C. (2011). Management and Cost Accounting. Boston, MA: Routledge.
Kinney, M., & Raiborn, C. (2012). Cost Accounting: Foundations and Evolutions, 9th ed.: Foundations. Chicago, IL: John Wiley and Sons.
Stice, J., & Swain, M. (2010). Accounting: Concepts and Applications: Concepts and Applications. New York, NY: Lippincott Williams & Wilkins.