Question

FairLinks Golf Corporation manufactures golf clubs, balls, and other equipment. The company’s latest design for a driver, the Annihilator, caught the attention of several PGA Tour professionals, who raved about its performance publicly (without an endorsement deal in place). The driver, made of vibranium, is lighter than any other driver on the market but generates more force for the average golfer than its counterparts.

At the beginning of the year, FairLinks’ management team developed the following master budget for the Annihilator line:

Master Budget
Annihilator
Sales (# of clubs)			5,000
Sales price per club			$280
Material costs:
	Vibranium	1,000 grams @ $0.06 per gram	$60
	Graphite shaft	1 per club @ $8	$8
	Rubber grip	1 per club @ $10	$10
Labor costs:
	3 hours @ $20/hr		$60
Fixed costs (for the year)			$250,000

After seeing these numbers, the company’s CEO – Cheryl Ford – wondered if there was a way to increase profit from the exciting new line and capitalize on the momentum it had gained in the golfing community. She had two ideas: 1) reduce the selling price to $245, which she believed would substantially increase sales, or 2) rent a new grinding machine for the coming year. The rental would cost $50,000 for the year, but would hopefully reduce materials waste and labor time associated with making each Annihilator. That is, since each one weighed just 350 grams, Cheryl wanted to find a way to reduce the 650 grams (1,000 – 350) of vibranium and other materials that were wasted in the production process, and that doing so would also reduce the time needed to fabricate each club.

Cheryl implemented both ideas, and at the end of the year, the actual results were as follows:

Actual Results
Annihilator
Sales (# of clubs)			5,600
Sales price per club			$245
Material costs:
	Vibranium	700 grams @ $0.06 per gram	$42
	Graphite shaft	1 per club @ $8	$8
	Rubber grip	1 per club @ $12	$12
Labor costs
	2.5 hours @ $20/hr		$50
Fixed costs (for the year)			$300,000

1. What was the master budget profit for the Annihilator for the most recent year?

Answer 1

M/T/W/T/F /S /SU Date. 0 Master budget + Annihilator A Budget Actuals a till sales sales 5,600 $945 Price both $280 l Sales value - $ 14,00,000 $ 13, 12, ooo b $427$8+$12) = 60$ per n b) Material coste 0 160 $ +8$+ 10$) - 785 Per club for 5000 DIN clubs = 390,000 $ for 5600 clubs = 347,200 c) labour costs $60x5000 () $50 x 5600 ( 300,000 $ pi-480,000 – 250,000 $. d) = 300,000 $. d) fixed costs Profit all A60,000 $ 444, 800 $

M/T/W/T/F /S /SU Date. As the for the question Annilator asked for after master budget CEO's ideas profit the numbers are calculated as fallows 7 a = 1 5000 clubs Sales (as given) N in Budget Pelling price as (11% El ou 245$. a per idea wooda i sale value =\ ld, 25,000 $ b material costs X e to raduce, hence y or taking from actuals) 2008 for 5000 clubs - tory2+8+ 12 62 $ per club 310,000 $ 0 habour costs 50$ X 5000 250,000 $ ON

M/T/W /T/F /S /SU Date......... d) fixed costs 250,000 $ Rental for new günding machine 50,000 $ 300,000 & Master budget Profil after coo's Ideas = 365,000 [ 12, 85,000 - 310,000 - 250,000 - 300,000)

The Master budget profit reduces after the CEO ideas pertaining to drastic increase in fixed costs and reduction in sales price.