Gross profit shows the ability of a company to competently manage variable costs for the production of its goods and services. Wonder Widget’s exclusive widget took the exact material costs as a regular product, but labor was costly. The company sold more exclusive widgets, focusing only on sales figures, but deeper financial analysis showed negative consequences. More variable costs were spent on producing the exclusive widget than each unit generated a sales profit. In this regard, by reducing its product line to one single product, a company can increase its gross profit and, as a result, receive more profit.
Motorcycle company Harley-Davidson has been steadily reducing its earnings for a decade. The company’s operating and net income by 2020 fell from half a million dollars to several thousand (Macrotrends). Even though the company has high brand awareness and launched a new line of electric and hybrid motorcycles, sales are falling significantly. Despite this, in 2019-2020, the company’s gross profit grew by almost 131% (Macrotrends). It is due to the new line, as well as the high cost of the brand itself related to luxury goods. As a recommendation, this company can be advised to realize the potential of gross profit and direct it to fixed costs. First, more widely, but in a segmented way, to advertise new eco-friendly motorcycles on electricity. Secondly, the company’s development in many foreign markets has been suspended due to economic and political reasons. As such, Harley-Davidson needs to focus on thriving markets while remaining a hard-to-find luxury item and not spending money on factories in low-sales countries. Complicating political laws for foreign manufacturers, coupled with the pandemic, could create insurmountable hurdles for the company. Comparing this example with Wonder Widget’s examples of shrinking product lines, Harley-Davidson needs to reduce its geographic distribution and presence in certain markets in a similar vein.
Work Cited
“Harley-Davidson Financials.” Macrotrends. 2021.