The purpose of the memo is to analyze the Net present value of the PBX Company to determine the cause of the losses which were made in the year 2005. In that light I also requests a few subjections that can be made to correct the situation. Losses The company makes approximately a loss of ($874, 125) as the operating losses. This is caused by the high levels of costs incurred to maintain the company. The maintenance costs are incurred from the relevant and irrelevant cost, and fixed and variable costs.
Hence if the costs are reduced the company will reduce the debt rate also become more efficient since the labor turn over rate will also depreciate. It’s worth noting that fixed cost will not necessary affect the stability of the company instead other costs such as the variable cost should be reduced to determine the profit or losses the company shall make. Fixed cost refer to that cost that remain constant irrespective of the level of activities while variable cost refer to the that cost that changes with the level of activities.
Hence the company should strive more on reduction of the variable costs. Considering that the NPV analysis of the company shows that $87425 as the variable cost, it is a clear indication that the company can make fewer losses if the costs are minimized, however the company will still not make profits. So it would also be a good business strategy to reduce the amounts of relevant costs. Relevant costs refer to the future costs which vary with the decision under consideration, while the irrelevant costs remain the same irrespective of the decision made.
The company should there fore utilize the skills that are available before making any decisions. The company decision that are assumed to be ways of exploiting opportunities may differ in there level of cost utilization in relation to the income achieved. Conclusion In conclusion, the losses that are made in the company are as a result of the high levels of cost in the general functioning of the company, the costs are not proportional to the revenue levels of the company.
The high costs levels are mostly incurred as a result of the purchase and lease operations maintenance expenses, in addition the high cost levels are also are also related to the expenses the company uses in trying to exploit all opportunities. In that connection the company should ensure that the opportunities available are well analyzed before taking an action to implement them. Future action As a closing statement the company should ensure major decisions are made by skilled personnel.
I would however request you that you assist the different departments in the company to make some major decisions such as the decisions to make or buy a particular product, recommendation to take an offer, or decision to drop or keep certain products.
1. Mike P. McKeever ( 2007) / planning How to Write a Business Plan – New business enterprises ISBN 1413305628 2. Myron E. McFarland (1963) Ship’s Business and Cargo Loss and Damage – Business and Cargo Loss and Damage