Report to the Board of Directors of Clean cloths Ltd

Report to the Board of Directors of Clean cloths Ltd

Introduction

Clean clothes one of the leading manufacturer of detergents for both industrial and domestic use. For over the years company is providing quality services to both of his customers. However, during the last, the management of the company after analyzing the financial statement of Supersnake product realized that this production is going in a deep loss, and with stiff competition, the management is not sure of product demand in near future (Carkner, 2000). On the other hand, domestic products of the company are performing exceptionally well in the market. In prevailing situation, the management of the company has appointed me as the new accountant, has handed me the responsibility of analyzing the current situation, and suggest whether to shut down the product line, or to continue the operation for one more year, and then shut down the product line.

Discussion

Plan A

According to the plan A, the management of the company is planning to shut down the production of Supersnake product, as by that it can stay away from probable budget loss. As per the available information the company is expecting to sell on average 600000 units for £5 per unit, and this makes total sales of around 3,000,000 during the next fiscal year (Herman, 2006). However, according to the available information if company plan to shut down the product line, then it has to bear extensive loss on several business operations for instance, as per the report at the end the year 4, the company has 1000000 units of closing stock of current product. Each unit consists of around 10 meters of raw material and extensive labor time, and effort. Thus by shutting down the product line company has no option except to sell the entire stock at 50 percent less of original selling price (Ken singer, 2012).

In addition to this, inventory stock at the end of year 4 also comprises of 200,000 units of packaged material that were additionally manufactured during the process of completion of sales target. However, since, these units are printed, and then company has no alternative except to sell them as a piece of scrap if it plans to shut down the product line on immediate bases. On the other hand, the biggest dilemma that company would come across would be of selling of machines that were specially purchased for the production of Supersnake product.

According to my observation, these machines cannot be used for the production of other products, thus, company has to resell the machines at around £ 200000, and that would lead to an extensive loss that companies have to bear, mainly because the machine was purchased at £700,000 of ten years life, and would be depreciated at straight-line method (Traynor, 2008). Moreover, this product was initiated five years age, and according to company position, the depreciation amount is included on the variable cost distributed across the production of the ...