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Song of Salmon Shipping Company: Staff Cost Proposal Report, Coursework Example

Pages: 1

Words: 388

Coursework

It is the principal recommendation of this report that the Song of Salmon Shipping Company adopts their proposed staffing changes in order to realise a substantial increase in their profit margins. By adopting the staffing changes, the increase in profits will be $37,610, or an increase of over 200%.

Song of Salmon Shipping have stated that there will be changes to the haulage price (an increase from $9.00 to $9.50), the price of fuel per mile (an increase from $2.00 to $2.20), and the related sensitivity factor due to this fuel price increase (an increase from 65% to 75%), regardless of an increase in business growth. If the staffing levels and associated bonuses remain the same, then the number of contracted miles will have to decrease to 75,000 as this will be its staffing operational maximum. When these factors are economically modeled the profit will be calculated at $29,300, with a break-even point of 71,134 (Horngren et al, 2012). The total costs – both fixed and variable and resultant revenue are shown below in Table 1.

Total Costs           $683,200
Total Fixed Costs           $539,200
Total Variable Costs           $144,000
Total Revenue           $712,500

Table 1: costs and revenue – no staffing changes made

Once the proposed staffing levels are economically modeled, as well as a the projected increase in contracted mileage form 80,000 to 87,000 miles, the profit is calculated to be $66,910, with a break-even point of 78,114. The total costs and revenue are shown in Table 2 below.

Total Costs           $759,590
Total Fixed Costs           $588,200
Total Variable Costs           $171,390
Total Revenue           $826,500

Table 2: costs and revenue – staffing changes adopted

It can be seen that there is a relatively even amount of increase for both the variable and fixed costs associated with increasing the staffing levels, and associated benefits; what has been significant with the addition of the staffing proposal is the projected increase in the total revenues. Accounting break-even analysis, and associated sensitivity analysis (Kee 2007), can often result in quite noteworthy changes to revenue and resultant profits, despite the introduction of higher costs and overheads.

References

Kee, R. (2007). Cost-volume-profit analysis incorporating the cost of capital. Journal of Managerial Issues, Winter Vol.19 (4), pp 478 – 485).

Horngren C., Harrison, W., Oliver, M., (2012) Accounting (9th Ed.). Chap 19 – pp 925-944, Prentice Hall.

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