In: Accounting
Silkworm Inc is a manufacturer of construction equipment, machinery and engines. It also sells financial services. You anticipate a substantial increase in its machinery sales. You have the following data.
US $'000 | 2018 | 2019 |
Net sales | 39,867 | 57,392 |
COGS | 30,367 | 43,578 |
SG&A | 4,248 | 5,203 |
and thus in percentage terms:
% of sales | 2018 | 2019 |
Net sales | 100 | 100 |
COGS | 76.2 | 75.9 |
SG&A | 10.7 | 9.1 |
a) Estimate the fixed and variable components of COGS and SG&A
in 2019. What would be your estimate of operating profits for 2020
if predicted net sales for 2020 were US$ 100,000,000? Briefly
comment on whether your analysis makes sense. What are the
advantages and disadvantages of this approach?