Electro Inc Analysis

Summary

Electro Inc. has had sales growth of over $340 million in the past ten years, however, has disappointing financial statements for 1986. The issues that can be discussed related to Electro’s financial difficulties are as follows:

1. The Mercury Project

2. The Series A Project

3. Management

Issue #1 – The Mercury Project

Management Accounting Concept: Data Analysis

This project designed for world markets has had major set backs due to the $2 million repairs related to the monitor. With target sales of 5,000, costs should be reevaluated to determine a better mix for production.

Analysis

Qualitative

With 2,000 units sold, which is less than forecasted, each screen had to be replaced. This is the first product for the world market and Electro is quickly falling behind and creating reputational issues for itself. There is no reliability for quality from the outside supplier, which is greatly affecting our bottom line, as well as outside perception.

Quantitative

Mercury is currently being in two facilities, Montreal and Toronto. Using data analysis, Exhibit 1 shows the varying profit levels depending on production mix. Using the base case at 1,000 units produced in Montreal and 4,000 in Toronto, Mercury would cost Electro -$184,000 (Exhibit 1). By using data analysis, constrained to 5,000 units and 120,000 EWUs, the optimal mix would be 2,000 and 3,000 units at Montreal and Toronto respectively. However, this brings in only $542,000 (Exhibit 1), taking off the constraints of producing 5,000, the best scenario would be to produce 4,000 units in Montreal. This would increase profits to $2,176,000, and because sales targets have not been met. Electro can afford to produce less in order to make more profit.

Recommendation

It is recommended that only 4,000 units of the Mercury project be produced, all at the Montreal facility. The outside supplier should be reevaluated, and the screens should be made in house to ensure quality, and our reputation as a reliable and quality brand.

Issue #2 Series A

Management Account Concept: Quality Assurance

Series A was developed for the higher end of the market, which Electro has not explored until now. With a budget of $25 million already being surpassed, even though the project is not completed, raises issues for the proposed selling price, sales forecasts and entering a new market.

Analysis

Qualitative

Cousin’s suggests that the reason Electro has not expanded to the higher market is by choice and that in order to continue growth the company must explore it. However, the target market for Series A, Governments, large corporations and universities, will already have contracts and relationships in place. Not only this, but their buying power is significant, they are able