Group 4 _Krogs Metal Fab Final

8/9/2019 Group 4 _Krogs Metal Fab Final

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KROG’S METALFAB

Section CGroup 4

Ankit Sahu

Harshita Kumar

Nidhi Rai

Rohit Kumar Singh

Suryaprakash Singh


2/11

CASE SUMMARY

• Product profile : metal windows, framing materials, ladders; recentaddition – bronze finished storm windows

• 2 manufacturing plants – Chicago & Illinois ; Chicago plant had greatershare of manufacturing activity

• Fire disrupted manufacturing activity at Chicago plant; ~ 50 % of

workers had to be shifted• Ramifications:

Lower manufacturing capacity decreased output lower sales in 2013 Higher costs – overtime, hotel bills, meals etc. Losses / Lost profit Industry grew at 7%

• Decision dilemma – Insurance claim: clause of ‘lost profit compensation’

• Chief Accountant’s conclusion v/s External Consultant’s analysis

VERDICT

Aggressively expend company resources and pursue the

Insurance Company for the Lost Profit claim


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CHIEF ACCOUNTANT ANALYSISCHIEF ACCOUNTANT ANALYSISCHIEF ACCOUNTANT ANALYSIS

Sales in 2012 $5,091,094.00

Profit in 2012 $109,495.00

Predicted Sales in 2013, assuming a 7%

increase$5,447,471.00

Actual sales in 2013 $3,857,499.00

(A)Lost Sales $1,589,972.00

(B)

Profit in 2012 as a percentage of 2012 sales

($109,495 / 5,091,094)

$0.02

Lost Profit

(A*B)$34,195.79


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FUNDAMENTAL FLAWS IN PETER’S ANALYSIS

Fixed cost considered as proportion- conceptually incorrect

o 53% of Total Cost

Accounts for only excess cost – $250,000

Ignores/ fails to leverage Insurance clause of lost profit

o Significant amount left unclaimed


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ACCOUNT ANALYSIS2012 2013

Total Sales $ 5,091,094.00 $ 5,447,470.58

Variable Cost :

COGS $ 4,518,475.00

Selling Expense $ 217,124.00

Total $ 4,735,599.00

Variable cost/$sale $ 0.93 $ 0.93

Fixed Cost :

Adm Expense $ 246,000.00

Fixed Cost/year $ 246,000.00 $ 246,000.00

Total cost $ 4,981,599.00 $ 5,313,090.93

Profit $ 109,495.00 $ 134,379.65


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HIGH LOW METHOD

Year 2012 Sales Total Cost

Highest $ 603,210.00 $ 486,140.00

Lowest $ 303,685.00 $ 354,931.00

Variable Cost/$sale $ 0.44Fixed Cost/month $ 221,899.68

Fixed Cost/year $ 2,662,796.20

Year 2013

Estimated Sales $ 5,447,470.58

Estimated Cost :

Fixed $ 2,662,796.20

Variable $ 2,386,302.20

Total $ 5,049,098.40

Estimated Profit $ 398,372.18


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REGRESSION 1

$200,000.00 $400,000.00 $600,000.00 $800,000.00$-

$500,000.00

$1,000,000.00

f(x) = 0.36x + 260815.57

Total Expense

Total Expense Linear (Total Expense)

Year 2013


Estimated Cost :

Fixed $ 3,129,792.00

Variable $ 1,981,245.05

Total $ 5,111,037.05


Actual Profit $ (727,836.00)

Lost Profit $ 1,064,269.53


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REGRESSION 2

$200,000.00 $400,000.00 $600,000.00 $800,000.00$-

$200,000.00

$400,000.00

$600,000.00

f(x) = 0.44x + 221548.16

Total Expense

Total Expense Linear (Total Expense)

Year 2013


Estimated Cost :

Fixed $ 2,658,576.00

Variable $ 2,374,552.43

Total $ 5,033,128.43



Lost Profit $ 1,142,178.15


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REGRESSION 3

$200,000.00 $400,000.00 $600,000.00 $800,000.00$-

$500,000.00

f(x) = 0.4x + 199782.32

COGS

COGS Linear (COGS)

$200,000.00 $400,000.00 $600,000.00 $800,000.00$-

$20,000.00

$40,000.00

f(x) = 0.04x + 1265.84

Selling Expense

Selling Expense Linear (Selling Expense)

$200,000.00 $400,000.00 $600,000.00 $800,000.00

Administrative Expense

Administrative Expense

Year 2013


Estimated Cost :

Fixed $ 2,658,573.60

Variable $ 2,374,007.68

Total $ 5,032,581.28



Lost Profit $ 1,142,725.30


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CONCLUSION

Regression method is more appropriate

Company should aggressively pursue claim forlost profit of $1,142,178

This lost profit also includes excess cost of$250,000


11/11

Thank You!

Group 4 _Krogs Metal Fab Final

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