Case - Going Postal:  Analyzing Operating Income of the Wheels of Fortune

Case Questions:

1. Initial observation of the potential causes of the drop in operating income. 

2. Impact on operating income:  Perform an analysis to identify the root causes of the differences in operating incoming from 2016 to 2017 for Wheels of Fortune.

a. Standard variable cost and contribution margin per bicycle (percent & dollars): Utilizing the standard cost components and the selling price per bicycle, calculate the standard variable cost and contribution margin per bicycle at standard.

b. Sales mix impact: Analyze the impact of the shift in sales mix by determining the sales mix variance. Discuss the results and the effect the shift had on operating income.

c. Manufacturing variance impact: Calculate direct materials (price & usage), direct labor (rate & efficiency), and variable overhead variance.

d. Selling and general administration impact:  Prepare an analysis of the impact the increase in selling and administration costs has on Wheels of Fortune operating income. 

e. Operating income reconciliation: Prepare a schedule reconciling operating income from 2016 to 2017 integrating your calculations from items b-d above.

f. Contribution Margin Income Statement at Standard Cost: For decision-making purposes, prepare a contribution margin income statement using standard costs information and any manufacturing variances calculated in items b - d.

g. Margin of safety and breakeven:  Assuming the company can assemble bicycles at standard variable cost, calculate breakeven (sales dollars & units) and margin safety (percent & per unit) for 2016 and 2017.

3. Recommendations: Based on your analysis, generate short and long-term recommendations to improve the company's operating income. Your analysis should integrate information from the schedules you created. A reader with limited financial expertise (e.g. Lance) should be able to comprehend your analysis and associated recommendations.

Attachment:- Assignment Files.rar