Greenfinger Garden limited Business Report Paper
Greenfinger Garden limited is a company, which offers gardening services to all its customers. The company’s first owner was Bruce Bush. Under Bruce, the company’s name was The Garden Center. George Greenfinger later bought the company after coming back from Europe where he earned his university degree in landscape architecture. The new owner, George Greenfinger, decided to expand the company’s nursery and discontinue the company’s retail service. He later converted the company to a full-service landscaping company. The company gradually gained a good reputation due to its quality services. As the demand for the company’s services grew, so did Greenfinger’s pride since the company provided full landscaping and maintenance spectrum to all customers, residential or commercial.
The company offers three services namely design, installation and maintenance. The three have been providing the company with a steady income. In addition, the company employs both full time and part time workers. The three services all have good profit margins shown by the latest financial income statement. The owner of the company George Greenfinger wants to expand the business and generate a bigger profit margin compared to the current profit margin.
Analysis of the Company
The company has generally been making profits. The latest financial statement shows a healthy profit margin of twelve percent. The income generated is in categorical documentation. The categories are simply the three services. Each service generates a good profit margin. Design and installation services generate twenty-five percent profit margins each. The maintenance service has a profit margin of forty one percent. The overall profit margin is twelve percent. The twelve percent represents one hundred and forty seven thousand, six hundred and fifty dollars. Total income of the company is one million two hundred and eighty thousand dollars and the total expenditure is one million one hundred and thirty two thousand, three hundred and fifty dollars. The expenditure is due to administration and purchases fee. The administration fee is generally the cost incurred by the company in order to conduct its operations easily and includes the cost of salary, payroll and reception, purchasing and payments, vehicle depreciation, equipment depreciation, IT system cost, office rent and utilities, nursery rent and maintenance cost.
The cost incurred by the design services is mainly due to direct labor, materials, and supplies. The cost incurred by the installation and management services is inclusive of plants and turf purchase, direct labor, materials and supplies payment. These costs are largely recurrent expenditure.
The bottom line of the company’s income is very encouraging. The income statement shows that the company can grow if the right plan is put in place since the twelve percent profit margin is not substantial for exponential growth.
The owners of the company together with the company’s accountant have set out three modes of generating a bigger profit margin. One way is through allocating shared costs to direct labor costs. Direct labor costs are costs incurred due to payment of salaries and wages. The shared costs are costs incurred by all the services lines of the company. Allocating more shared costs will mean that direct labor costs increase. The level of salaries paid to the labor force of the company will increase. This implies that the company will either employ more people or increase the salaries of the current employees. Increasing the number of employees in any service line will mean that the service line is able to meet demand of services on time. Also increasing the salaries of the existing work force will mean that the morale to do work of the employees increases to therefore more work gets done on time. Taking this in to consideration, the service line that is more likely to get the increase in shared cost is the installation service line. This is because the installation service line has the highest cost of direct service line. Thus, allocating more shared costs to this service line will mean that more installation works get done on time. Increase in installation means that the maintenance service line will experience an increase in revenue since more people will need maintenance of their installations.
In addition, if the company management decides to increase the allocation of shared costs according to the service line with the lowest direct labor cost then the maintenance line gets the allocation. Increasing the shared cost allocation to this service line will mean a rise in quality of maintenance work done to installed gardens. The service line already provides a forty-one percent profit margin and increasing it will be a good investment.
A full time equivalent (FTE) employee is the weight unit assigned to represent the workload of the employees working in different departments of an organization or company. An FTE of 1.0 implies an employee is equivalent to one full time employee. Nevertheless, an FTE of 0.5 implies that the employee is a halftime employee. Using these criteria to allocate shared resources will meant that the service line to get the increase is the installation service line. Increasing the shared allocation amount to this service line will mean that the FTE index increases. Increasing the FTE index will result in more labor force. The increased labor force will increase income generated by the service line in terms of increased installation works. However, the increase in installation works can only be due to an increase in customer levels.
The service line with the lowest FTE index is Design service line. The service line’s index is only 1.8. This implies the companies designs only come from less than two full time employees. Increasing shared allocation to the design service line will result more designs produced. The more the designs are the more the customers will be. Therefore, not only will the income generated by the service line increase but also shall installation and maintenance service lines’ income level. Thus, increasing the shared allocation cost to the design service line will have a chain reaction to the other two service lines.
The information Greenfinger gives regarding the specific usage of shared cost by all service lines indicates that his annual salary is eighty-five thousand dollars. He applies eighty percent of his time doing design work. Each installation service line employee earns fifteen dollars and works an average of fifteen hundred hours annually. Their maintenance service line counterparts earn twelve dollars per hour working twelve hundred hours. The cost of material supplies plant and soil costs remain reasonably static throughout the year. Total expenses incurred by design service line are one hundred and thirty five thousand, four hundred dollars. The installation service incurred a total cost of six hundred and eighteen thousand, six hundred dollars while the maintenance service line incurred a total cost of one hundred and sixty five thousand, six hundred dollars. Increasing the shared cost allocation according to the said criterion will entail that the maintenance service line gets the increase. Increasing the shared cost will mean that the maintenance service line reduces the cost incur thus an increase in profit margins.However, an increase in its allocation of shared cost may increase the cost incurred by the service line therefore decreasing the service lines profit margin.
The service line with the lowest expense is the design service line. Increasing the allocation of shared cost towards this service line will either increase the output of company designs but increase the cost incurred. The increase in designs will increase the income level and have a chain effect to the remaining two service levels. The chain effect will result in increased income level to all the service lines. Even if the cost of expense increases to the design serviceline, the overall increase in income to the other service lines will offset this increase and also increase the total income of the company.
Purchasing an extra will be required since more installations and maintenance will be in demand. This will require the company to rent additional nursery space since more installation and maintenance demand will increase. By the end of the five years, the new truck shall have a worth of $19344.54. this is not bad as it can either be sold to regain the cash or continue to be in use.
Any mode of increasing the allocation of shared cost can be effective. The mode should however be applied to the design service line. This is because an increase in the generation of design by the company will increase the number of new customers. This will increase the income generated by the service line. The new customers will need to install the designs. Therefore, the installation service line will experience an increase in income due to increased installations. The installed designs will in turn need maintenance. Thus, there will be an increase in income generated by the maintenance service line.
The recommendation to the Greenfinger Garden limited company is to use the mode of allocation of shared cost according to full time equivalent index and direct labor. They should allocate more shared costs to the design service line because the service line has the lowest full time equivalent index. This means that the current workers in charge of generating the designs for the entire company are working overtime. Increasing the shared cost concerning direct labor to the design service line will mean more workers are in employment thus, reducing the workload on the existing employees. Increasing the FTE index of the design service line will also alleviate the workload on the current employees. The chain reaction effect on the other service line means that expanding the design service line presents the best option for the company to increase its total income.