rendotson
Apr 2, 2008, 05:04 PM
Tropical Joy ia an Atlanta based seller of fruit baskets. The company markets its wares over the internet, selling baskets on a regular basis in fifteen states including three west of the Mississippi River. California, Nevada,and Arizona. The company has experienced tremendous growth during its first two years in business and is currently producing revenues of approximately $50,000.00 per month. Although sales are showing tremendous growth the company continues to report a net loss on operations. The owners have an investor interested in putting $200.000.00 into the business. The funds will be used to finance operations and the opening of a Las Vegas store. The current owners, Maxine Williams and Purvis Scott, have come to ma consulting firm for advice on how to convert the loss into profit. This is a major condition of the funding,proof must be provided that the business can function profitably. Maxine is the creative force behind the business. Her philosophy is sales are paramount; profits will come as volume increases. Purvis has come to the conclusion profits matter. The average margin on sales is 30%, selling price of a basket is $70.00. The contribution margin excludes shipping. Maxine does not want to include them. Shipping east of the Mississippi is $20.00 per basket, $100.00 to California, $70.00 to Nevada and Arizona. Fixed cost are $7000.00 a month. Arizona 4% of sales are west of the Mississippi. Question: What do you recommend to fix this business and Why? Provide anaiysis. Do a capital budget. Should the company be downsized or grow the company?