The Factors Affecting Eastvaco’s Profitability
Eastvaco is a company that manufactures envelopes and cups. The company has been in existence for over 60 years and is currently facing profitability challenges. In this essay, we will examine the factors that affect the profitability of Eastvaco. We will first look at traditional accounting systems and how they affect profitability. Next, we will look at activity-based costing, cost driver analysis and their impact on profitability. Finally, we will discuss envelope pricing, cup pricing and ROI in relation to profitability.
2. Traditional accounting systems and profitability
Traditional accounting systems often overestimate the production overhead carry that is imputed for both product lines. This results in higher costs being allocated to the product lines than what is actually incurred. As a result, the profitability of the product lines is adversely affected. In order to correct this problem, Eastvaco needs to adopt a more accurate accounting system that allocates costs more accurately.
3. Activity-based costing, cost driver analysis and profitability
Activity-based costing (ABC) is a more accurate costing method that allocates costs more accurately to individual products or services. ABC involves allocating costs based on the activities that are required to produce a product or deliver a service. Cost driver analysis is used to identify the cost drivers that have the most impact on the overall cost of producing a product or delivering a service. By adopting ABC and cost driver analysis, Eastvaco will be able to allocate costs more accurately and therefore improve the profitability of its product lines.
4. Envelope pricing and profitability
Envelope pricing refers to the price charged for envelopes. The price of envelopes is determined by many factors, including the cost of materials, the cost of production, the size and type of envelope, the quantity ordered and the customer’s location. Eastvaco needs to carefully consider all of these factors when determining the price of its envelopes in order to maximise profitability.
5. Cup pricing and profitability
Cup pricing refers to the price charged for cups. The price of cups is determined by many factors, including the cost of materials, the cost of production, the size and type of cup, the quantity ordered and the customer’s location. Eastvaco needs to carefully consider all of these factors when determining the price of its cups in order to maximise profitability.
6. ROI and profitability
ROI stands for return on investment. ROI is a measure of how efficiently a company uses its resources to generate profits. A high ROI means that a company is generating more profits per dollar invested than a company with a low ROI. Eastvaco needs to increase its ROI in order to improve its profitability.
In conclusion, there are many factors that affect the profitability of Eastvaco. Traditional accounting systems often overestimate production overhead carry which adversely affects profitability. Activity-based costing and cost driver analysis can help improve accuracy in allocating costs and improve profitability as a result. Envelope pricing and cup pricing need to be carefully considered in order to maximise profits from those product lines respectively