KROGS METALFAB

Section C
Group 4

Ankit Sahu

Harshita Kumar

Nidhi Rai

Rohit Kumar Singh

Suryaprakash Singh

CASE SUMMARY

Product profile : metal windows, framing materials, ladders; recent

addition bronze finished storm windows
2 manufacturing plants Chicago & Illinois ; Chicago plant had greater
share of manufacturing activity
Fire disrupted manufacturing activity at Chicago plant; ~ 50 % of
workers had to be shifted
Ramifications:

Lower manufacturing capacity

decreased output
lower sales in 2013
Higher costs overtime, hotel bills, meals etc.
Losses / Lost profit
Industry grew at 7%

Decision dilemma Insurance claim: clause of lost profit compensation

Chief Accountants conclusion v/s External Consultants analysis

VERDICT

Aggressively expend company resources and pursue the

Insurance Company for the Lost Profit claim

CHIEF
CHIEFACCOUNTANT
ACCOUNTANTANALYSIS
ANALYSIS
CHIEF
ACCOUNTANT
ANALYSIS

Sales in 2012

$5,091,094.00

Profit in 2012

$109,495.00

Predicted Sales in 2013, assuming a 7%

increase
Actual sales in 2013

(A) Lost Sales

$5,447,471.00
$3,857,499.00
$1,589,972.00

Profit in 2012 as a percentage of 2012 sales

(B)

$0.02
($109,495 / 5,091,094)

Lost Profit
(A*B)

$34,195.79

FUNDAMENTAL FLAWS IN PETERS ANALYSIS

Fixed cost considered as proportion- conceptually incorrect

o

53% of Total Cost

Accounts for only excess cost $250,000

Ignores/ fails to leverage Insurance clause of lost profit

o

Significant amount left unclaimed

ACCOUNT ANALYSIS
2012
Total Sales

2013

$ 5,091,094.00

$ 5,447,470.58

Variable Cost :
COGS

$ 4,518,475.00

Selling Expense

Total

$ 4,735,599.00

Variable cost/$sale

0.93

Adm Expense

246,000.00

Fixed Cost/year

246,000.00

Total cost

$ 4,981,599.00

$ 5,313,090.93

Profit

217,124.00
$

0.93

246,000.00

Fixed Cost :

109,495.00

134,379.65

HIGH LOW METHOD

Sales

Year 2012

Total Cost

Highest

603,210.00

486,140.00

Lowest

303,685.00

354,931.00

Variable Cost/$sale

0.44

Fixed Cost/month

221,899.68

Fixed Cost/year

2,662,796.20

5,447,470.58

Fixed

2,662,796.20

Variable

2,386,302.20

Total

5,049,098.40

Estimated Profit

398,372.18

Year 2013
Estimated Sales
Estimated Cost :

REGRESSION 1
Year 2013
Estimated Sales $ 5,447,470.58

Total Expense

Estimated Cost :
Fixed

$ 3,129,792.00

Variable

$ 1,981,245.05

Total

$ 5,111,037.05

Estimated Profit $

336,433.53

Actual Profit

$ (727,836.00)

Lost Profit

$ 1,064,269.53

Total Expense

Linear (Total Expense)

$1,000,000.00
$500,000.00
$$200,000.00

f(x) = 0.36x + 260815.57

$400,000.00

$600,000.00

$800,000.00

REGRESSION 2
Year 2013
Estimated Sales $ 5,447,470.58

Total Expense

Estimated Cost :

Total Expense

Fixed

$ 2,658,576.00

$600,000.00

Variable

$ 2,374,552.43

$400,000.00

Total

$ 5,033,128.43

$200,000.00

Estimated Profit $

414,342.15

Actual Profit

$ (727,836.00)

Lost Profit

$ 1,142,178.15

$$200,000.00

Linear (Total Expense)

f(x) = 0.44x + 221548.16

$400,000.00

$600,000.00

$800,000.00

COGS

REGRESSION 3

f(x) = 0.4x + 199782.32

$ 5,447,470.58

$ 2,658,573.60

Variable

$ 2,374,007.68

Total

$ 5,032,581.28

Estimated Profit $

Selling Expense

$ (727,836.00)

Lost Profit

$ 1,142,725.30

$600,000.00

$800,000.00

Linear (Selling Expense)

$40,000.00
$20,000.00

f(x) = 0.04x + 1265.84

$$200,000.00

414,889.30

Actual Profit

$400,000.00

Selling Expense

Estimated Cost :
Fixed

Linear (COGS)

$500,000.00

$$200,000.00

Year 2013
Estimated Sales

COGS

$400,000.00

$600,000.00

$800,000.00

Administrative Expense
Administrative Expense

$200,000.00

$400,000.00

$600,000.00

$800,000.00

CONCLUSION
Regression method is more appropriate
Company should aggressively pursue claim for
lost profit of $1,142,178
This lost profit also includes excess cost of
$250,000

Thank You!