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KROG’S METALFAB
Section CGroup 4
Ankit Sahu
Harshita Kumar
Nidhi Rai
Rohit Kumar Singh
Suryaprakash Singh
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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 Sales $ 5,447,470.58
Estimated Cost :
Fixed $ 3,129,792.00
Variable $ 1,981,245.05
Total $ 5,111,037.05
Estimated Profit $ 336,433.53
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 Sales $ 5,447,470.58
Estimated Cost :
Fixed $ 2,658,576.00
Variable $ 2,374,552.43
Total $ 5,033,128.43
Estimated Profit $ 414,342.15
Actual Profit $ (727,836.00)
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 Sales $ 5,447,470.58
Estimated Cost :
Fixed $ 2,658,573.60
Variable $ 2,374,007.68
Total $ 5,032,581.28
Estimated Profit $ 414,889.30
Actual Profit $ (727,836.00)
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
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Thank You!
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