Problem 1.1 [8 marks] This year, merchandise is sold for $700,000 in cash, $1,100,000 on account, and an extra $90,000 received as a donation. The cost of the merchandise sold is $1,250,000. What is the amount of the gross profit? Shields Corporation purchases 5 flashlights for $5 each and sells them to customers for $9 each. What is Shield's total gross profit? Problem 1.2 Case Study: Reducing Operational Costs in a Logistics Company [15 marks] A regional logistics company was facing rising operational costs, which were cutting into its profit margins and limiting its ability to expand. The main cost drivers were fuel expenses, inefficient routing of delivery trucks, and high maintenance costs for its aging fleet. In addition, there was limited visibility into delivery operations, leading to delays and increased customer complaints. The company's COO, Jane, recognized that without making significant changes, the company would struggle to stay competitive in a rapidly evolving industry. To address these challenges, Jane implemented a three-part strategy focused on reducing fuel costs, optimizing delivery routes, and improving fleet management. First, the company invested in route optimization software, which allowed dispatchers to plan more efficient delivery routes based on real-time traffic data and fuel consumption rates. This not only reduced fuel expenses but also shortened delivery times. Second, Jane initiated a fleet renewal program to phase out older, less fuel-efficient vehicles and replace them with newer models that had better fuel economy and lower maintenance costs. Third, the company adopted a telematics system to monitor vehicle performance in real-time, allowing the fleet management team to address maintenance issues before they became costly breakdowns. This system also provided insights into driver behavior, enabling the company to offer training to improve fuel-efficient driving practices. After six months, the company saw a significant reduction in operational costs. Fuel expenses dropped due to more efficient routing and better driving practices, while maintenance costs were reduced thanks to the newer vehicles and proactive fleet management. Delivery times improved, leading to fewer customer complaints and enhanced customer satisfaction. The company's operational improvements not only cut costs but also positioned it for future growth as it became more efficient and reliable. Questions: What were the key cost drivers in the logistics company, and how did the COO address these issues? How did technology, such as route optimization software and telematics, contribute to reducing operational costs and improving efficiency?

Problem 1.1 [8 marks] This year, merchandise is sold for $700,000 in cash, $1,100,000 on account, and an extra $90,000 received as a donation. The cost of the merchandise sold is $1,250,000. What is the amount of the gross profit? Shields Corporation purchases 5 flashlights for $5 each and sells them to customers for $9 each. What is Shield's total gross profit? Problem 1.2 Case Study: Reducing Operational Costs in a Logistics Company [15 marks] A regional logistics company was facing rising operational costs, which were cutting into its profit margins and limiting its ability to expand. The main cost drivers were fuel expenses, inefficient routing of delivery trucks, and high maintenance costs for its aging fleet. In addition, there was limited visibility into delivery operations, leading to delays and increased customer complaints. The company's COO, Jane, recognized that without making significant changes, the company would struggle to stay competitive in a rapidly evolving industry. To address these challenges, Jane implemented a three-part strategy focused on reducing fuel costs, optimizing delivery routes, and improving fleet management. First, the company invested in route optimization software, which allowed dispatchers to plan more efficient delivery routes based on real-time traffic data and fuel consumption rates. This not only reduced fuel expenses but also shortened delivery times. Second, Jane initiated a fleet renewal program to phase out older, less fuel-efficient vehicles and replace them with newer models that had better fuel economy and lower maintenance costs. Third, the company adopted a telematics system to monitor vehicle performance in real-time, allowing the fleet management team to address maintenance issues before they became costly breakdowns. This system also provided insights into driver behavior, enabling the company to offer training to improve fuel-efficient driving practices. After six months, the company saw a significant reduction in operational costs. Fuel expenses dropped due to more efficient routing and better driving practices, while maintenance costs were reduced thanks to the newer vehicles and proactive fleet management. Delivery times improved, leading to fewer customer complaints and enhanced customer satisfaction. The company's operational improvements not only cut costs but also positioned it for future growth as it became more efficient and reliable. Questions: What were the key cost drivers in the logistics company, and how did the COO address these issues? How did technology, such as route optimization software and telematics, contribute to reducing operational costs and improving efficiency?

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter4A: Nopat Breakeven: Revenues Needed To Cover Total Operating Costs

Section: Chapter Questions

Problem 1EP

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