Accounting Essay Example | Topics and Well Written Essays - 1000 words - 15

Accounting - Essay Example There is an additional expenditure of packaging cost of $.9 per bottle and promotional expenditure amounting to $25,000. After taking into consideration all the inflows accordingly and deducting the outflows, the total profit amounts to $518,120. In alternative – 3, the approach is quite dynamic of giving a $3 worth of cooler free for every Shiraz bottle. Also, the selling price would be reduced to $12.95. This would increase the sales volume by 40% for 2 months and 7% for the later six months. On the whole, the sales would be 82980 bottles per year. However, as per unit profit is quite low, the profit receivable would also be very low at $136,472. Analysis: In the first year, there is a cash outflow of $8000+$18000+$15000 for Gazebo. In the second year, the payment for reception center of $250,000 has to be paid. The resulting inflows have been recorded accordingly. After estimating the cash flows thus for the ten years, we need to calculate the two normal methods of project evaluation, namely: NPVand IRR. The IRR is arrived at by matching the total outflows and inflows to a particular rate of return. By trial and error basis, we understand that the interest rate is between 9 and 10%. By interpolation, we arrive at the 9.51% rate of interest. Analysis: In the current situation, Chenin and Dessert Wine are quite profitable with $9 and $10 contribution per unit respectively. Here, the point to be noted is that the contribution per unit for Dessert Wine is more than that of Chenin. After deducting the fixed expenses from contribution of sales, we arrive at profit figures of $30,400 and $33,600. In the May offer, even though, the volume is more, the total profit earned is less in the case of Chenin because of its low contribution per unit. Hence, the company should not look into the proposal of halting dessert wine bottles by 600 and taking up 800 bottles order for