Introduction
Evian Bottled Water Company is a medium sized company that uses the latest technology to purify and bottle drinking water for sale in retail outlets in the city. The company operates in a fast-growing industry where established companies report double-digit growth driven by customer desire for clean drinking water. Similarly, there is a growing health concern where individuals are preferring drinking water to sweetened beverages. The growth is also driven by a growing middle class that prefers bottled water to tap water.
Water Treatment Technologies
Different companies use different techniques to purify their water depending on the chemical composition and the available capital. Some of the applicable technologies include ultrafiltration, slow sand filtration, activated carbon technologies and reverse osmosis. Disinfection technologies applicable in the market include chlorination, ultraviolet irradiation, ozone, membrane filtration technology, advanced oxidation technologies, ion exchange technology (Staff, 1999).
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Budget Analysis
From the budgeting process, the following information was obtained. The sales budget indicates that the total annual sales will be $196,875. The first quarter sales will be $40,000 followed by $36,000 in the second, $ 60,000 in the third and $60,500 in the fourth. The selling price per unit determines the volumes of sales recorded by the company. As the selling price per unit increases from $1 in the first quarter to $1.20 in the second quarter, sales are expected to decline as customers would prefer cheaper bottled water from competing companies. A decline in the selling price per unit leads to an increase in the volume of sales reported by the company. The production budget indicates that the company will produce 177,000 units throughout the year which can be broken down as follows : 39,000, 32,000, 50,500 and 55,500 in the first, second, third and fourth quarter respectively.
The budgeted direct material for the company shows that the material purchased throughout the year will be 36,240 which can be broken down to 7520, 7140, 101280, 11200 in the first, second, third and fourth quarter respectively. The direct labor for the company throughout the year will be $1,415 and its total overhead cost will be $19,200. The total selling and administrative expenses are $14,843.75. The cost of goods manufactured budget indicates that the company’s cost of direct material available for use is $37,800. The cost of goods manufactured is $ 56,016 and the manufactured cost per unit is $0.316475. The budgeted income statement shows that the company has a net income of $89,610.68.
Recommendations
From the budget analysis and industry information, the company should go ahead and launch the product given that it is likely to report increased net income when it starts selling the water. Similarly, the company has a huge gross margin implying that it can reduce its selling price to capture a wider market share and benefit from the economies of scale accrued from selling more products. The company also has higher chances of growth given that the industry is poised to continue growing into the foreseeable future.
References
Arnold, G. (2010). Handbook of corporate finance . Harlow: Financial Times Prentice Hall.
Beverly, R. (2011). Water treatment process monitoring and evaluation . Denver, Colo.: American Water Works Association.
Staff, N. (1999). Identifying Future Drinking Water Contaminants . Washington: National Academies Press.
