Strategy to Maximize Profits for the Clipboard Tablet Company

Introduction

Time has warped again, which allows me an opportunity to utilize the cost, volume and profit analysis to develop a new plan for the next four years. The strategy is to maximize profit for the Clipboard Tablet Company for the next four years. After accessing the strategy from 2012-2015, we will calculate variable cost, variable cost per unit, contribution margin, contribution margin per unit, contribution margin ratio, break-even point in sales dollars and break-even point in units sold to fine tune our strategy. Below is the strategy matrix with the year-by-year decisions made based on price and R&D allocations.

Year by Year Decisions: Pricing & R&D Allocations

2012 2013 2014 2015

X5 Price - $275 Price -$275 Price - $275 Price - $275

R&D % - 15% R&D % - 10% R&D % - 5% R&D % - 5%

Discontinue? No Discontinue? No Discontinue? No Discontinue? Yes

X6 Price - $450 Price - $430 Price - $430 Price $430

R&D % - 34% R&D % - 39% R&D % - 39% R&D % - 15%

Discontinue? No Discontinue? No Discontinue? No Discontinue? No

X7 Price - $190 Price - $175 Price - $175 Price - $175

R&D % - 51% R&D % - 51% R&D % - 56% R&D % - 85%

Discontinue? No Discontinue? No Discontinue? No Discontinue? No

Below is year-by-year assessment using CVP analysis:

Analysis of old strategy

In year-to-year comparison from 2012-2014, there were no changes to variable costs per unit for any of the Clipboard Tablet Company models, by 2015 there were no changes in variable costs per unit for models X6 and X7, X5 model was discontinued. The contribution margin ratio for the X5 remained the same from 2012-2015, but the X6 contribution margin ratio dropped 3% from 2012-2013 and remain the same through 2015. The X7 contribution margin ration dropped ...

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...model R&D that is transferred to the X7model.

Conclusion

The rational for lowering the cost of X5 model in 2012 is to maximize sales while the product is in the growth phase and flood the market sooner. The X5 model’s fixed cost is twice as much as the fixed cost of X6 and X7 models. Another variable in this decision was the X5 model would soon reach the phase out stage of the life cycle. The decision to eliminate R&D of X5 model and transfer it to X6 model is and to increase market shares of the X6 model as the X5 model hits the phase out stage.

From 2014 to 2015, we decided to slowly reduce the R&D of X6 model and increase R&D of X7 model to generate performance in order to compete with other products. Since X7 was in introduction stage the decision was made to increase its R&D until maturity, we also reduced the price of X7 model to increase market shares.