A Case Study Of Solartronics Inc.: Financial Analysis And Forecasting Free
A Case Study of Solartronics Inc.: Financial Analysis and Forecasting
Solartronics Inc. is a small company based in Texas that produces solar panels for residential and commercial applications. The company has been in business since mid-1977 and has survived some tough years in the solar industry. However, in January 2023, the company faced a significant decline in sales and profit compared to its budgeted expectations. This case study aims to analyze the reasons behind the poor performance of Solartronics Inc. and provide some recommendations for improving its financial situation and future prospects.
A Case Study of Solartronics Inc.: Financial Analysis and Forecasting
Problem Statement
The main problem that Solartronics Inc. faced in January 2023 was that its actual sales were only $165,000, which was 34% lower than its budgeted sales of $250,000. This resulted in a net loss of $9,000, which was far below the expected average monthly profit of $30,000. The company also experienced unfavorable variances in direct labor, variable overhead, and fixed factory overhead costs, which increased its operating expenses and reduced its gross margin. The company needed to identify the root causes of these variances and take corrective actions to improve its profitability and cash flow.
Analysis
To understand the reasons behind the poor performance of Solartronics Inc., we need to look at some additional data that would be useful in analyzing the firms January performance. These include:
Revenue variance: This measures the difference between actual and budgeted sales revenue. It can be further broken down into selling price variance, which measures the effect of changes in selling prices on revenue, and mix and volume variance, which measures the effect of changes in sales mix and quantity on revenue.
Expense variance: This measures the difference between actual and budgeted operating expenses. It can be further broken down into spending variance, which measures the effect of changes in input prices or efficiency on costs, and volume variance, which measures the effect of changes in activity level on fixed costs.
Market share variance: This measures the difference between actual and budgeted market share. It can be further broken down into industry volume variance, which measures the effect of changes in total market demand on sales, and market size variance, which measures the effect of changes in market size on sales.
Based on these data, we can perform a variance analysis for Solartronics Inc. using the following assumptions:
The budgeted selling price per unit was $500.
The budgeted sales mix was 50% residential and 50% commercial.
The budgeted sales quantity was 500 units (250 residential and 250 commercial).
The actual selling price per unit was $495.
The actual sales mix was 40% residential and 60% commercial.
The actual sales quantity was 333 units (133 residential and 200 commercial).
The budgeted direct labor rate was $20 per hour.
The budgeted direct labor hours per unit were 4 hours.
The actual direct labor rate was $22 per hour.
The actual direct labor hours per unit were 4.5 hours.
The budgeted variable overhead rate was $10 per direct labor hour.
The actual variable overhead rate was $11 per direct labor hour.
The budgeted fixed factory overhead was $40,000 per month.
The actual fixed factory overhead was $45,000 per month.
The budgeted market share was 10%.
The budgeted market size was 5,000 units.
The actual market share was 8%.
The actual market size was 4,167 units.
04f6b60f66