Managerial Analysis

Posted: August 26th, 2021

Managerial Analysis

Name

Institutional Affiliation

Course

Date

Managerial Analysis

1. Flexible budget report

Table 1: Fresh Meadows flexible budget

FRESH MEADOWS Income Statement Flexible Budget Report For The Year Ended 31st December 2017
	Budgeted	Actual	Difference (actual-budgeted)	(Favorable(F)/unfavorable(U)
Boarding days(BD)	22630	14600	8030	F
Sales @27	611010	380000	231010	F
Less variable expenses
Feeds @6.5	147095	105000	42095	F
Veterinary fees @3.5	79205	76650	2555	F
Black smith @0.3	6789	6570	219	F
Supplies @0.7	15841	10000	5841	F
Total variable expenses @11	248930	198220	50710	F
Contribution margin @16	362080	181780	180300	F
Less fixed expenses
Depreciation	50000	50000	0	–
Insurance	12000	12000	0	–
Utilities	15000	12000	3000	F
Repairs	12500	10000	2500	F
Labor	95000	55000	40000	F
Advertising	8000	16000	8000	U
Entertainment	5000	5000	0	–
Total fixed costs	197500	160000	37500	F
Net income	164580	21780	142800	F

            Table 1 above is a summary of Fresh Meadows income statement for the year ending 31^st December, 2017. The financial statement shows the company’s flexible budget report that is used in the analysis and discussion in the subsequent sections of the paper.

• Based On The Static Budget                                                                 
• Decrease Net Income

The keysource of net income decline was due to the reduction of boarding days, resulting in a decrease in the boarding fees. From the static budget, the boarding days reduced from 21900 budgeted days to the actual 14600. It was 33.33 % (7300/21900 x 100) drop. The boarding fees per day also decreased from $60 to $40, a decline of 33.33 % ($20/$60/100). Thus, resulting ina decline is the contribution margin by $123,725.00, representing a 40.50% decline.

• Controlling Expenses

The management did poor management in controlling expenses. A decline in the boarding days would have automatically led to a subsequent decline in the variable expenses, but this was not the case(Fresh, 2017). Boarding fees declined by 33.33%. The variable expenses declined by 43,775 which is 18.09 % ($43,775.00/ $241,995 x 100) decline. However, efforts by the management led to controlling of the fixed expenses apart from advertising by $37,500.00.

• Competitive analysis

The organization’scompetitive advantage was sound, as they made a wise decision to replace workers due to the reduced boarding days. They also reduced the boarding rates to attract more clients and decreased fixed assets, such as utilities, repairs, and labor (Fresh, 2017). Thus, an increase in advertising costs could be due to the company’sdesire toincrease awareness of its products to both existing and potential clients.

• Based on Flexible budget
• Decrease Net Income

The main source of the decline in income was a result of the decrease in the boarding rates and fees. The daily rate charged was $20 ($380,000 ÷19,000). The rate led to a decline in the marginal contribution by $180, 300, which is 47.8 % ($180300/362080 x 100) decline (Fresh, 2017). Fresh meadows are in a competitive industry. Hence, if the management did not reduce the daily boarding rates, the boarding days would have reduced further due to a reduction in clients’ numbers.

• Controlling Expenses

The management of Fresh Meadows effectively controlled both the fixed and variable expenses. Based on the flexible budget, all the expenses decreased and had a favorable difference apart from advertising expenses.As such, the total variable expenses declined by $50,710 between the budgeted and actual costs, while total expenses reduced by $37500 (Fresh, 2017). Therese, the increase in the advertising cost would be aimed at creating awareness and increase market penetration in the industry.

• Competitive Advantage

The management’s decision to gain a competitive advantage was good and sound. Initially, they did not replace the two workers who retired in April, thus reducing the labor costs from $95,000 to $55,000, representing a 57.9% decrease in overall labor costs. Equally, they reduced the boarding rates from $27 to $26.03, purposely to help attract and retain more customers (Fresh, 2017). The management also decreased the fixed assets such as utilities and repairs to cut costs. They issued new advertising brochures to create awareness of the company’s products, which led to an increase in advertising costs.

• Recommendations

The management of Fresh Meadows Company should consider adopting one of these two strategies to gain competitive advantage, remain relevant, and maximize its sales. Primarily, they can become the least cost operator in the industry (Liu and Atuahene-Gima, 2018). If Fresh Meadows has the lowest operating cost, they can underprice its products against its competitors and take their clients away, thus raising its customer base and sales. Competitors with high operating costs will be forced to go out of business, leaving Fresh Meadows Company with even more customers. Secondly, the company can offer its clients quality and superior products beyond what the market provides above the customers’ expectations (Payne et al., 2017). This will brand Fresh Meadows as the best company in the industry, attracting more customersthan its competitors. Hence, with quality products, the company can increase the selling price of its products as the clients will pay a premium for quality boarding services. An increase in the boarding rates led to higher profit margins.

References

Fresh. (2017). Fresh Meadows, 2017. (Coursework).

Liu, W., & Atuahene-Gima, K. (2018). Enhancing product innovation performance in a dysfunctional competitive environment: The roles of competitive strategies and market-based assets. Industrial Marketing Management, 73, 7-20.

Payne, A., Frow, P., & Eggert, A. (2017). The customer value proposition: evolution, development, and application in marketing. Journal of the Academy of Marketing Science, 45(4), 467-489.