Document Preview: Chailes Plant
Macleish Nurseries wholesales non-seasonal plants.
Sales for the previous three quarters
ending September 31,2004, were poor
because of the cold spring and summer. The plants
could be sold at two times cost to
other wholesalers, but the company had 3.5 million
plants that it could not sell in the following
quarter. Also, the firm's banker is asking for
its loan to be paid down to below
$500,000 and the manager, Kathleen Biro, is worried
about whether she will receive her
new share options, which will be released if revenue
meets or exceeds this yeart budget
of $18 million. For some time the company's owners
have been considering selling the business;
they are now very interested in improving profits
in order to enhance the sales price.
Below is the 2004 financial
statement for Macleish for the first three quarters ($000s).
Qr Q2 Q3
Sales revenue
$2,000 $4,000
$5,000
Expenses
Cost of goods sold
XXXXXXXXXX,250
Fixed salaries
XXXXXXXXXX
Variable salaries
XXXXXXXXXX7s0
Rent
XXXXXXXXXX
Ceneral
300 s00 600
.l
Advertising
400 800
,000
Total expenses
2,500 3,900 4,600
Profit
100 400
-500
Units sold (000)
1,000 2,000 2,500
'l
Bank loan
1,500 1,000
,400
Sales in the fourth quarter are normally
equal to sales in the third quarter, and
all
indications are that. this will
be the case for this year as well.
The company has noticed
that its results depend heavily on two factors: advertising
and price. Over time, it has noticed
that any change in advertising from seasonal levels
results in a 2.5-to-l change in sales. In
other words, a change in advertising results
$1
in a change in sales from otherwise
$2.50 normal seasonal levels. In terms of pricing, a
2 percent decrease in the retail price plants
of results in a 4 percent increase in sales
volume. Similarly, a 2 percent increase
in the price results in a 4 percent decrease
in
sales volume.
Write a report recommending
a course of action for Macleish Nurseries.