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Letsgo Travel Trailer - Comprehensive case analysis

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The Solution uses the "Letsgo Travel Trailers: A Case for Incorporating the New Model of the Organization into the Teaching of Budgeting" case by Sally Wright, University of Massachusetts-Boston and addresses the four questions.

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Solution Summary

This post provides a comprehensive solution for Letsgo Travel Trailer case. It discusses the validity and reasonableness of Letgo's sales projections and prepares production, purchasing, and cash budgets for the first six months of 1998. It discusses in details the advantages and disadvantages of the budgets and how can this budget help different people in the organization to take better decision. The sensitivity analysis by preparing the above budgets with different sale figures is done and the advantages of this additional analysis are discussed. In the last part, the performance measures for managers are discussed to design a robust bonus system. This comprehensive cash analysis has approx 2600 words and would be very good exercise for students to practice accounting case analysis and to learn how to write and present case analysis.

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See the attached file for complete solution. The text here may not be copied exactly as some of the symbols / tables may not print. Thanks

Letsgo Travel Trailer

Coachman industries, a direct Letsgo competitor has reduced its material cost by more than 60% and labor cost by 78% by using creative engineering and high accuracy analysis. On the other hand, the Letsgo Travel Trailer Company is experiencing challenges with quality, cash flow and a performance review and reward system. This is happening due to lack of integrative planning across different functions. Each functional unit is trying to maximize their own performance, which in turn is hampering the overall performance. The current appraisal and reward system is increasing this isolated and non-cooperative working of the different functional units.
§ The sales department to improve their sales want to have high finished goods inventory
§ The production department wants to have high inventory of raw material to have uninterrupted production schedule. They are not interested in implementation of Just-in-time inventory methods to reduce the overall cost.
§ The current control and reporting system does not provide enough good quality data to guide management decision process. For example, no record for work in process is kept in the company.
§ The accounts department is making the budget without getting any information from functional units. This way the budgets are not realistic and reflect only an accounting necessity rather than a decision making and control tool.
§ The cash management system of the company is not good and company is facing the cash management problems.

Validity and Reasonableness of Letsgo's Sales Projections:
Table-1: Actual and Projected Sales Growth
Sales % Increase
1992 13,765
1993 14,880 8.10%
1994 15,991 7.47%
1995 17,809 11.37%
1996 19,634 10.25%
1997 23,322 18.78%
1998 28,000# 20.06%
1999 33,600# 20.00%
2000 40,320# 20.00%
2001 48,384# 20.00%
2002 58,060# 20.00%
# Represent projected figure
The Table-1 provides the actual and projected sales growth for Letsgo. The analysis of the table-1 reveals that future sales have been projected to grow at the rate of 20% per annum. The validity and reasonableness of there projections is questionable. There seems to be a very remote possibility of meeting their projections given the current scenario of the Letsgo. The points are raised about the validity and reasonableness of the projections:
1. In the last five years the growth in sales for the company has been around 10% per annum, except for the 1997, the growth was 18.78%. In the case, nothing is mentioned that company has made any drastic changes in its strategy to grow faster. In such a scenario, projected a consistent growth of 20% per annum for the next 5 years is too optimistic.
2. Although the case mentions that retiree sector is likely to grow very fast, but case does not show any market research or robust data analytics done to support the fact that this sector will embrace Letsgo product.
a. Are the projections based on any solid market research regarding the target market (Target market, Potential of the target market, etc.)?
b. The factors considered in producing the sales projections are not provided
3. Coachman Industries is leader in the travel trailer industry and have been doing quite well in reducing their cost of production. In its current state of affairs where each department is looking to achieve its own goals ignoring the overall company objectives, it is very likely that Letsgo will not be able to compete on price in the low price trailer segment. The projections seem to ignore the impact of competition.
4. As the market potential for the low cost trailer market Improve due to growth in number and interest of the retiree segment, the player in the big segment such as Rexhall Industries, Winnebago Industries, Foremost Corporation of America and Thor sales Industries will also jump into the low cost trailer segment and the competition will hot up ...

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