Options for The GOAL of Increasing Contribution

Summary

Fisher Technologies faces a critical decision to double its dollar contribution to fixed costs and profits to secure financing for new production equipment. Three strategic options are analyzed: enhancing sales through marketing, reducing finance costs, and cutting production costs. The analysis reveals that while increasing sales and cutting finance costs may be challenging, reducing production costs by 20% presents the most feasible and effective solution, significantly increasing contribution. This strategic approach not only enhances the firm's financial position but also safeguards jobs and ensures continued service to customers.

Takeaways

• 📈 Fisher Technologies must double its contribution to fixed costs and profit to purchase new production equipment.
• 💰 Failure to increase contribution will prevent the firm from securing a loan necessary for equipment purchase.
• ⚠️ Inability to purchase new equipment could lead to business closure and job losses.
• 📝 Table 1.1 outlines a profit-and-loss statement along with three strategic options for increasing contribution.
• 📊 The marketing option aims for a 50% sales increase, potentially raising contribution by 71% but may be challenging to achieve.
• 💸 The finance/accounting option proposes reducing finance costs by 50%, which increases contribution by 21%.
• 🏭 The operations option suggests reducing production costs by 20%, resulting in a 114% increase in contribution.
• 🔍 The operations management (OM) option is identified as the most feasible and effective strategy.
• 📈 Overall contribution increased from $10,500 to $22,500 through effective strategies.
• 🤝 Success in improving contribution may lead to better chances of obtaining funding from banks.

Q & A

What is the primary goal for Fisher Technologies?

The primary goal for Fisher Technologies is to double its dollar contribution to fixed costs and profit to secure financing for new production equipment.

What are the potential consequences if Fisher Technologies fails to increase its contribution?

If Fisher Technologies fails to increase its contribution, it risks not obtaining a bank loan, which could prevent the purchase of necessary equipment, ultimately leading to the company's closure and job losses for its employees.

What are the three strategic options presented in the video?

The three strategic options presented are marketing, finance/accounting, and operations management (OM).

How much could the marketing option potentially increase contribution?

The marketing option could potentially increase contribution by 71%, or $7,500, if sales are increased by 50%.

Why is the marketing option considered difficult to implement?

The marketing option is considered difficult because achieving a 50% increase in sales may be virtually impossible given the firm's circumstances.

What is the expected outcome of the finance/accounting strategy?

The finance/accounting strategy could reduce finance costs by 50%, resulting in a contribution increase of 21%, or $2,250, which is insufficient for the firm's needs.

What is the most significant contribution increase from the operations management option?

The operations management option provides the most significant contribution increase of 114%, or $12,000, by reducing production costs by 20%.

What conclusion does the analysis reach regarding the feasibility of the different strategies?

The analysis concludes that the operations management option is the most feasible and effective strategy for improving contribution, as the other two options are likely unrealistic.

What has been the effect of implementing the operations management strategy?

By implementing the operations management strategy, Fisher Technologies increased its contribution from $10,500 to $22,500, making it more likely to secure a bank loan.

What key insight does the video provide regarding decision-making for Fisher Technologies?

The key insight is that realistic goal-setting and focusing on feasible strategies, such as operational efficiencies, are critical for improving the company's financial situation and achieving long-term success.