BLUMENGARTEN (BLG) – Phase 5
To: Professor Teri Ziegler
From: Group P2
Subject: Year 4 and 5 Analysis for BLG
Date: October 21, 2011
The purpose of this memorandum is to compare the income summaries from the first 3 years of operation for comparison and analysis and to make predictions for year 5. Attached are supporting materials for further analysis.
* BLG Year 4 Income Summary, page
* Growth Comparison Chart, page
* Target Profit Analysis, page
* Sensitivity Analysis, page
* Flexible Budget for Year 5, page
* Returns on Hours and Investments, page
The Target Profit Analysis (pg. XX), provides the number of containers that BLG ...view middle of the document...
By contrast, if the consultation fee was increased by $50 per client, BLG only need sell 130, 146, and 41 units of small, medium and large containers (pg. XX). This goal requires less active sales to achieve a target profit of $40,000. However, the increase in consultation fee may deter existing clients from hiring BLG. From the long-term prospective of growing their business though, BLG should increase the consultation fee because a reduction in material cost is also a reduction in the revenue from the design fee. As the business continues to grow, the presence of existing customers will not necessitate container replacement from year to year, making the increased sales more difficult to achieve.
The provided Flexible Budgets for Year 5 (pg. Xx) display the resulting net income from three different levels of activity. These levels were determined by the high and low end expectations made by the owners for year 5. A third activity level was calculated using the average of those expectations. The average expectations provide BLG with a projected budget and net income within their range of reasonable expectations. BLG can more easily make decisions or changes in year 5 with the aid of these flexible budgets.
The flexible budgets are also used to measure the returns on the business. The Hourly Analysis (pg. XXX) displays the net income from years 2, 3, and 4 and the projected sales provided by the flexible budgets (pg. XXX). Also provided for each year are the calculated returns on investment for the total costs and the total hours worked. The resulting ratios are within a very small range. The return from hours at year 2 is...