Marlin Company Case Study

Executive Summary

Marlin Company is a company that produce three products - sinks, mirrors and vanities. The company has created a budget sales report to predict the sales of the coming month. They planned to reach a total sale of $500,000 with $36,400 operating income, planned breakeven point to be $430,000.

The actual sales report that they have reached the goal of $500,000 in total sales, however, they have a operating loss of 8,600. By comparing the actual sales with budget sales, we found a shift in sales from high margin contribution products - vanities, sinks to low margin contribution product - mirrors.

The shift in sale has caused a high variable expense and low total profit for the month. Because of the change of sales mix, breakeven point has increased to $520,000, and they only have a total sale of $500,000, way below the breakeven point.

It is recommended the company to change their selling strategy. Consider Giving a higher commission paid to sales person for selling high margin contribution products, for example vanities; give less commission for sales of low margin contribution product such as mirrors.

Moreover, the company can adjust the price of each product according to the price elasticity of each product to make them more profitable.

Comparing the Budget Sales with Actual Sales

Marlin Company sells three products - sinks, mirrors, and vanities. The following two tables show the different between planed budget sales by product and in total for the coming month and the actual sales by product for the coming month.

Planned Budget Sales

Product

Sink Mirrors Vanitites Total

Percentage of total sales 48% 20% 32% 100%

Sales $240,000 100% $100,000 100% $160,000 100% $500,000 100%

Variable expenses 72,000 30% 80,000 80% 88,000 55% 240,000 48%

Contribution margin $168,000 70% $20,000 20% $72,000 45% $260,000 52%

Fix expenses $223,600

Operating income $36,400

Given the information of actual sales by product are: sinks, $160,000; mirrors, $200,000; and vanities, $140,000. Total sales are as expected: $500,000.

Actual Sales

Product

Sink Mirrors Vanitites Total

Percentage of total sales 32% 40% 28% 100%

Sales $160,000 100% $200,000 100% $140,000 100% $500,000 100%

Variable expenses 48,000 30% 160,000 80% 77,000 55% 285,000 57%

Contribution margin $112,000 70% $40,000 20% $63,000 45% $215,000 43%

Fix expenses $223,600

Operating income $(8,600)

From above data we can see, even though the total sales are the same for two tables, the actual operating income for this month is a loss of $8,000 instead of a profit of $36,400. The variable expenses is a lot greater than planned. Contribution margin drops from $260,000 to $215,000, and result in a lower contribution margin ratio of 43%. The planned contribution margin ratio is 52%

Comparing the Breakeven Point

Computing