SUMMARY OF ADVENTURE WORKS CYCLES SALES DATA
Summary
Adventure Works Cycles is a fictional company that manufactures metal and composite bicycles for sale to commercial distributors in different countries. Being asked by company management to analyze three years of sales and cost data, below are the significant findings and recommendations to company management.
Significant Findings
As suspected, Adventure Works Cycles’ primary source of income is the sale of bicycles (94% of total sales). Broken down by country, the top 3 areas of sales are Australia, the United States, and the United Kingdom. There are 33% of sales coming from Australia, and 30% of sales from the United States. Road bikes sold in Australia is the highest dollar value sold. The second dollar leader of sales for the company are mountain bikes, with sales from Australia being highest.
When looking at the what-if scenarios that we created for the Mountain 200 bike, we can see that when the unit price increases, the gross profit increases as well. So, if the unit cost increases to $2500 and the units sold is increased by 25 bicycles sold, the gross profit would rise substantially to $173,750 from $107,000. Now that may be too high of a goal as it is roughly a 20% increase overall in sales.
Perhaps doing a gradual, steady increase could be looked at the $2,500 unit price as a goal.
The Variable Cost per Unit and Fixed Cost Variation What-if Analysis seems to demonstrate the fact that the point of the highest revenue achieved of $128,000 for the Mountain-200 bicycle would be to use the variable cost of $52,000 and a fixed cost of $500 per unit. Anything after that demonstrates diminishing returns.
By looking at the scenario summary of the Mountain 200 bike, you can see that to get to the requested high sales range of revenue, increasing the price to $2550, selling 90 bicycles, and reducing the variable cost per unit to $565 will yield a gross profit of $118,650 which is an increase over the current gross profit of $107,000.
Recommendations
The first recommendation is to try to negotiate with vendors of raw materials to bring down the total cost of materials and creating a higher profit margin per product. As seen in the Unit Price Variation What-if Analysis, this would increase profits on a per-unit basis.
The second recommendation would be to implement the ideal situation demonstrated in the Unit Price and Quantity Variation What-if Analysis. It would be to increase the sales price gradually to $2500.00 per unit and increase the number of units sold by 25 bicycles, which in turn would generate an increase in the gross profit from $107,000 to $173,750. To do this, the sales staff would increase the sales price incrementally of the bicycle in the Australia market as it is the number one sales territory. It may also be beneficial to either stop selling products in the clothing and accessories categories that are relatively insignificant in total sales unless the reason for carrying the additional product categories is purely for customer service. At 2% for clothing and 4% for accessories of total sales, they hardly deem it a necessary business. On that principle, an additional idea came to mind. Perhaps linking businesses in those divisions with an outside provider might be beneficial to both businesses and cut down on the overall costs of providing those product categories.
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