The Factors in Preparing Sales Forecasting - Term Paper Example

Abstract.

The amount of the materials was calculated before considering the underlying conditions given. This was done by multiplying the materials amount in grams per unit with the total sales of each bike type. To determine the amount of materials to be purchased for the suggested months it was essential to first know the type of materials as well as the projected sales. The factors to be considered in preparing sales forecasting include the current market is required to be identified; sales team readiness determination; job costs accuracy; stable sales support infrastructure development. Breakeven point calculation is considered to be an essential financial analysis tool in any given company. The variable and fixed costs for the given product should be known so that the breakeven point calculation is undertaken. This can be used to determine the number of product units required to be sold at a specified price point. Factors to consider when making decision on helmet production include quality; marketing, convenience and quantity

The first section was to determine the amount of materials (steel alloy, aluminum alloy and titanium alloy) to be purchased for the months of October, November and December;

To determine the amount of materials to be purchased for the suggested months it was essential to first know the type of materials as well as the projected sales as indicated in the tables below Table 1 and 2 respectively. Both of this was used to calculate the amount required

Table 1: Material per bicycle

Road

Trek

BMX

Steel Alloy

50

200

750

Aluminium Alloy

650

350

250

Titanium Alloy

150

450

0

Table 2: Projected sales

October

November

December

January

February

March

Road Bikes

1600

1400

1800

1200

1300

1200

Trek Bikes

800

900

1200

1000

1100

940

BMX

300

300

500

260

300

400

Table 3 below shows how the amount of the materials was calculated before considering the underlying conditions given. This was done by multiplying the materials amount in grams per unit with the total sales of each bike type.

Table 3: Amount required in grams

Road Bikes

October

November

December

January

February

March

Steel Alloy

80000

70000

90000

60000

65000

60000

Aluminium Alloy

1040000

910000

1170000

780000

845000

780000

Titanium Alloy

240000

210000

270000

180000

195000

180000

Trek Bikes

October

November

December

January

February

March

Steel Alloy

160000

180000

240000

200000

220000

188000

Aluminium Alloy

280000

315000

420000

350000

385000

329000

Titanium Alloy

360000

405000

540000

450000

495000

423000

BMX Bikes

October

November

December

January

February

March

Steel Alloy

225000

225000

375000

195000

225000

300000

Aluminium Alloy

75000

75000

125000

65000

75000

100000

Titanium Alloy

0

0

0

0

0

0

Based upon the given conditions that the steel alloy was 5% of the total inventory, aluminum alloy had 10% of the total inventory and 35% of total inventory for titanium; the required amount of the materials was calculated as seen in table 4.

Table 4: The actual amount in grams(5%,10% and 35% of the inventory)

Road Bikes

October

November

December

January

February

March

Steel Alloy

2800

35000

45000

30000

32500

30000

Aluminium Alloy

91000

91000

117000

78000

84500

78000

Titanium Alloy

243250

231000

225750

194250

131250

63000

Trek Bikes

October

November

December

January

February

March

Steel Alloy

6800

9000

12000

10000

11000

9400

Aluminium Alloy

15000

31500

42000

35000

38500

32900

Titanium Alloy

448000

488250

519750

478800

321300

148050

BMX Bikes

October

November

December

January

February

March

Steel Alloy

10050

11250

18750

9750

11250

Aluminium Alloy

-5500

2000

7000

1000

2000

Titanium Alloy

0

0

0

0

0

Factors that Damian needs to consider when preparing a sale forecast (Minimum of four factors required);

The current market is required to be identified

Every year is considered not to be the same. For instance, the sales of the past year happened in a business environment that is volatile where there could be a bad economy that facing the companies. Higher competitive activity could be exhibited as a result of some industries being flat. The average sale value could move down since the prices going up or being held may not be allowed by the market place. It is therefore appropriate to do forecast of sales in a quarterly manner particularly in a down economy (John and Kenneth, 2002). In case the revenue growth rate is not attained as expected then the following should be done:

Smaller projects should be added

Some products should be added or deleted

Certain market niches should be apriority

Sales team readiness determination

There will always be more sales done by people who are longer tenured than those who are newer. This is because they are well versed with the company’s competition, industry, and product as well as well established relationship. The average annual length can be determined based on the historical information thus this is the time taken by the tenured sales individual to generate the sales as well as the period taken by the new hire to start the production (John et al., 1996). During the process of sales projections it is essential to set sales forecast that is realistic for every sales representative on the basis of their track record, experience and performance. In case the forecasts is not adequate enough to attain the given plan, there should be a consideration of development of sales skills or hiring of more persons based on different business type (John and Kenneth, 2002).

Stable sales support infrastructure development

The entire company can be strained by the sales growth. There is much time spend by managers at conferences and trade shows thus there is help required in terms of inquiry response. The sales efforts can be optimized by tightening up the infrastructure. Other managers as well as personnel should be involved in sales where they should be able to share report leads and competitive information. Furthermore, they should collaborate in terms of industry trend via meetings on a weekly basis.

Job costs accuracy

The real job costs should be accurate where the sales people should be checked to make sure they are accurate in there reporting. The prices for equipment rates, crew rates, overhead and labor prices should be up-to- date and accurate (John and Jon Schroeter, 2003). In the accurate estimations, the review based on the real cost conditions should be included.

Calculation of the breakeven point for the proposed helmets and whether Island Wheels should proceed with the proposal of introducing helmets;

Breakeven point calculation is considered to be an essential financial analysis tool in any given company. The variable and fixed costs for the given product should be known so that the breakeven point calculation is undertaken. This can be used to determine the number of product units required to be sold at a specified price point (Garrison et al., 2011; Kenneth and John, 1994). For our case, the calculation of breakeven point of the company in terms of sales volume, we are required to know the variables values as:

• The fixed cost: termed as the sales volume independent costs like rent
• Variable costs termed as the sales volume dependent costs like product manufacturing cost
• The product selling price

Therefore, the breakeven point calculation can be as follows:

The following formula was used in the calculation of the given company’s breakeven

In this case:

The fixed costs are:

Cost of rent per month

37500

Extra production supervisor cost

85000

two extra production staff cost

55,000

Fixed overhead cost

46200

Variable costs

cost of helmet manufacturing per month

77100

Variable overhead cost

42900

Variable marketing cost

6000

Variable packaging cost per helmet

15000

Price

expected selling price per unit

195000

The calculations are as below:

Cost of rent per month

450000

cost of helmet manufacturing per month

25.7

Extra production supervisor cost

85000

two extra production staff cost

55,000

Variable overhead cost

14.3

Fixed overhead cost

46200

Variable marketing cost

2

Variable packaging cost per helmet

5

Expected sales in units

3000

expected selling price per unit

65

Breakeven point

35344.44

Based on the above calculations, it can be suggested that the Island Wheels should proceed with the proposal of introducing helmets since the breakeven point can be lowered with no price rise and based on the fact that the cost variables are reduced.

Determine whether financially, Island Wheels should go ahead and produce the seat posts;

As the company owner, it is evident that any decision made on the sales volume, costs incurred, product pricing are seen to be interrelated (Horngren et al., 2014). Breakeven point calculation is seen to be a single cost-volume profit analysis component, but it is a critical initial step in the sale price point determination and hence the profit is guaranteed. The analysis of cost volume profit is known to estimate the level of profit of the company effect, sales volume and costs of the company (fixed and variable) (Hammid, 2000). There is much focus of these three variables on a single variable which is profit. It is very useful in terms of decision making by the managers. Therefore, this must be considered before making a decision on the seat posts production.

Factors to consider, other than financial, in deciding whether to produce helmets and seat posts (at least four factors to be identified)

Quality

The helmet can be produced by the company if it will be of a high quality compared to what will be sourced or bought from other companies or vendors. In this case, it will be assumed that the charge on it will be a bit higher to justify the labor as well as materials. In case the company is not specialized in the kind of product, then they should opt for getting from a specialized company.

Quantity

The quantities of the products will always dictate the decision on the buying or making the product. For instance, if only one or few helmets are required, then it will not make sense to make it from scratch. In other cases however there can be a high demand which could lead to having a reason of making the product. In cases where the company requires thousands of products, it will be wise in terms of cost effective to contract a company to make the product.

Convenience

It is seen to be convenience to manufacture products than buying at the moment the company will be performing at a high level of attaining demand. If the supplier generating the products required is in a different nation as well as is not able to deliver on short notice, it will be wiser to manufacture the product. There may be a significant change in the convenience of buying or making products relative to the business level as well as the space and surplus labor amount available.

Marketing

Making of the products by the company is considered to be a very critical marketing strategy. The company that makes the helmets as well as selling them will give its clients a strong brand and added value.

Conclusion

To determine the amount of materials to be purchased for the suggested months it was essential to first know the type of materials as well as the projected sales. The factors to be considered in preparing sales forecasting include the current market is required to be identified; sales team readiness determination; job costs accuracy; stable sales support infrastructure development. As the company owner, it is evident that any decision made on the sales volume, costs incurred, product pricing are seen to be interrelated. Breakeven point calculation is seen to be a single cost-volume profit analysis component, but it is a critical initial step in the sale price point determination and hence the profit is guaranteed. Breakeven point calculation is considered to be an essential financial analysis tool in any given company. The variable and fixed costs for the given product should be known so that the breakeven point calculation is undertaken. This can be used to determine the number of product units required to be sold at a specified price point. Factors to consider when making decision on helmet production include quality; marketing, convenience and quantity