Can someone please help with this problem, I just need something short Blair Che
ID: 2573976 • Letter: C
Question
Can someone please help with this problem, I just need something short
Blair Chemical has three divisions. Its consumer products division continually faces strong competition from companies in foreign countries. At the most recent senior management meeting, John Hampstead, head of the division, reported that his division's sales for the year were expected to come in below the break-even point. When the final results for the year were reported, Seaborn Blair, the company president, was surprised to learn that the consumer products division actually reported a profit in excess of $200,000.
Assuming the role of John Hampstead, you have been invited to the president's office to share your insight on this puzzling circumstance, and prior to the meeting, you need to prepare an analysis to explain the results.
Explain how you would address the inconsistency.
Explanation / Answer
As we know that profit from any sale depends on two factors;
1. Total sales revenue and,
2. Costs of the sale.
Suppose I am John Hampstead then I will explain this condition in the meeting as follow;
1. As per information of the question it is clear that John Hampstead has just estimated about the sales for the year that sales may be below break-even point. So it is quite possible that actual sales for the year have been more than estimated sales that is why we see the profit in excess of $200000.
2. Apart from this there is a second possiblity also due to which company has reported actual profit in excess of $200000.
That second point is decrease in variable costs of the sales. It is possible that company have worked efficiently as a result company has reported lower amount of variable costs in reality.
We know that reduction in variable costs will increase contribution and an increase in contribution will ultimately result into higher amount of profits. Thus it is clear that due to decrease in variable costs company reached to the profit in excess of $200000.
So as conclusion it is clear that either higher amount of sales or reduction in variable costs resulted into actual profit in excess of $200000.