Specific Recommendations on Cash Flow Improvement
The break-even computation and income statements performed in the excel spreadsheet indicate the factor that Harry Huffnpuff Glassblowing is presently incurring at net losses from its operations. Therefore the aim of Harry to receive a return of $25,000 net of taxation from the business cannot be attained. Indeed a break-even of 676 bundles is required to reach such objective, which is considerably greater than the 200 bundles presently produced. In this respect, operational changes are necessary in the company to boost profitability.
The case indicates that the product manufactured by Harry is in high demand and the present operations are not meeting such demand. Therefore if the production time frame, which is presently 40 weeks can be further extended, the sales revenue of the organization can be enhanced. By employing a production manager, which would administer the operations when Harry is on vacation and visiting galleries, the production can be increased. This would raise the contribution of the firm by $5,640 and reduce the net loss by $4,410.
In addition, sales revenue can be also increase by increasing the present production level from five bundles per week to six bundles per week. We are stressing the increased production factor, because since a positive contribution is attained, the greater the production level the higher the contribution that will cover the fixed costs. With respect to cost efficiency analyses of the present production system is necessary in order to identify the value added and non-value added activities.
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Through such exercise management will be capable to identify the areas where costs can be diminished. The adoption of more cost effective machinery, developed through technological advancements is another feasible answer to such cost problem.
References: Drury C. (1996). Management and Cost Accounting. Fourth Edition. New York: International Thomson Business Press. Lucey T. (2003). Management Accounting. Fifth Edition. New York: Continuum. Randall H. (1999). Accounting. Third Edition. London: Letts Educational.