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Discuss decrease in profitability and high interest expense in the case below: Established in 1 9 8 0 , Violet Accommodations Limited ( VAL )
Discuss decrease in profitability and high interest expense in the case below: Established in Violet Accommodations Limited VAL is a professional housing company that provide high level of accommodations for its clients. VAL is located in Toronto and operates houses and apartments across Ontario. VAL is known for continually developing new processes and testing new accommodations services to better serve their customers. VAL is a private corporation owned by Li Chun and her family and has a September yearend. The company prepares its financial statements in accordance with accounting standards for private enterprises ASPE During fiscal year Li made the decision to hire a CEO, Fang Jing, to oversee VAL. After more than years, Li felt fatigued by the daily operational demands and sought to shift her focus towards strategic planning, longterm growth, and navigating the challenges posed by ongoing market and economic conditions. Additionally, she had plans to retire in years and intended to transfer all responsibilities accordingly. New CEO, Fang, approached you as a financial advisor to assist her with some challenges that she confronted as her first year of experience. Today is February and you have a meeting with Fang, Li and the controller of the company. The following notes outline the most important discussion between you; Li: Thank you for accepting to assist our new CEO as a financial consultant. The company has confronted gamechanging market and economic issues over the years since the pandemic hit in resulting in increased costs, changes to seasonal fluctuations, reduced revenues, and less predictable outcomes. In order to responding to the changing market and economic conditions, we decided to establish a strategic planning committee and develop new processes and innovative strategic to better serve our customers and navigate through the challenges brought about by the pandemic. You: That is my pleasure. Please let me know what your priorities are, and we can start with them. Fang: Our financial statements show a constant decrease in profitability from until now. Appendix I believe that we need to revise both our pricing strategy and cost structure. The numbers indicate that while the cost per room night has increased significantly over the last three years, our current prices cannot achieve the desired return rate. You: Did you implement any costsaving initiatives during last years such as renegotiating contracts with your ownervendors or optimizing resource allocation, and evaluate their impact on the company's bottom line? Controller: The housing market in Canada is highly competitive and regulated. Our current contract allocates to us and to the ownervendors of company. We've attempted to negotiate with the ownervendors to adjust the split to for us and for them. Li: I had been in contact with several of our owners to renegotiate our deals. However, they have shown no willingness to accept this proposal, as our competitors are already offering them a and deal. You: I see. Any other initiative for managing the operating cost? Controller: We implemented several costsaving plans to manage our operating expenses. For instance, we reduced the overtime hours for housekeepers. With the increase in minimum wages over the past three years, the overtime rate has placed a significant financial burden on the company. During the pandemic, we faced staffing shortages, resulting in increased overtime hours for housekeepers. However, with the employment market returning to normalcy, we have hired additional housekeepers, allowing us to reduce overtime hours. Fang: Still, payroll remains a critical component of our operating expenses. While our sales team performs exceptionally and collaboratively to maximize sales revenues, I believe it's necessary to reassess our monthly sales bonus system. Currently, a significant portion of their payroll is fixed, with a smaller portion being variable based on a percentage of closed deals. This structure adds pressure to the company during low seasons, as we're obligated to pay them a fixed amount regardless of sales performance. Controller: I concur that we should revise our bonus system for the sales staff. Do you have any idea how we can adjust our sales bonus system to encourage the sales staff for closing more deals and also put less pressure on the company during the low season? You: Sure. I will prepare a sample sales bonus system along with an explanation of its benefits. Li: We should reconsider our collection policy and review our customer base. Currently, we have three types of customers: are insurance companies that rent our units for their clients. Payment from these companies is typically made by cheque, a process which takes around three months. are c
Discuss decrease in profitability and high interest expense in the case below:
Established in Violet Accommodations Limited VAL is a professional housing
company that provide high level of accommodations for its clients.
VAL is located in Toronto and operates houses and apartments across Ontario. VAL is
known for continually developing new processes and testing new accommodations services
to better serve their customers. VAL is a private corporation owned by Li Chun and her family
and has a September yearend. The company prepares its financial statements in
accordance with accounting standards for private enterprises ASPE
During fiscal year Li made the decision to hire a CEO, Fang Jing, to oversee VAL. After
more than years, Li felt fatigued by the daily operational demands and sought to shift her
focus towards strategic planning, longterm growth, and navigating the challenges posed by
ongoing market and economic conditions. Additionally, she had plans to retire in years
and intended to transfer all responsibilities accordingly.
New CEO, Fang, approached you as a financial advisor to assist her with some challenges
that she confronted as her first year of experience. Today is February and you have
a meeting with Fang, Li and the controller of the company. The following notes outline the
most important discussion between you;
Li: Thank you for accepting to assist our new CEO as a financial consultant. The company
has confronted gamechanging market and economic issues over the years since the
pandemic hit in resulting in increased costs, changes to seasonal fluctuations,
reduced revenues, and less predictable outcomes. In order to responding to the changing
market and economic conditions, we decided to establish a strategic planning committee
and develop new processes and innovative strategic to better serve our customers and
navigate through the challenges brought about by the pandemic.
You: That is my pleasure. Please let me know what your priorities are, and we can start with
them.
Fang: Our financial statements show a constant decrease in profitability from until
now. Appendix I believe that we need to revise both our pricing strategy and cost
structure. The numbers indicate that while the cost per room night has increased
significantly over the last three years, our current prices cannot achieve the desired return
rate.
You: Did you implement any costsaving initiatives during last years such as renegotiating
contracts with your ownervendors or optimizing resource allocation, and evaluate their
impact on the company's bottom line?
Controller: The housing market in Canada is highly competitive and regulated. Our current
contract allocates to us and to the ownervendors of company. We've attempted
to negotiate with the ownervendors to adjust the split to for us and for them.
Li: I had been in contact with several of our owners to renegotiate our deals. However, they
have shown no willingness to accept this proposal, as our competitors are already offering
them a and deal.
You: I see. Any other initiative for managing the operating cost?
Controller: We implemented several costsaving plans to manage our operating expenses.
For instance, we reduced the overtime hours for housekeepers. With the increase in
minimum wages over the past three years, the overtime rate has placed a significant
financial burden on the company. During the pandemic, we faced staffing shortages,
resulting in increased overtime hours for housekeepers. However, with the employment
market returning to normalcy, we have hired additional housekeepers, allowing us to reduce
overtime hours.
Fang: Still, payroll remains a critical component of our operating expenses. While our sales
team performs exceptionally and collaboratively to maximize sales revenues, I believe it's
necessary to reassess our monthly sales bonus system. Currently, a significant portion of
their payroll is fixed, with a smaller portion being variable based on a percentage of closed
deals. This structure adds pressure to the company during low seasons, as we're obligated
to pay them a fixed amount regardless of sales performance.
Controller: I concur that we should revise our bonus system for the sales staff. Do you have
any idea how we can adjust our sales bonus system to encourage the sales staff for closing
more deals and also put less pressure on the company during the low season?
You: Sure. I will prepare a sample sales bonus system along with an explanation of its
benefits.
Li: We should reconsider our collection policy and review our customer base. Currently, we
have three types of customers:
are insurance companies that rent our units for their clients. Payment from these
companies is typically made by cheque, a process which takes around three months.
are c
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