Question
GroupCase:Uma'sFuneral Services GrowingupinRosemaryHeights, anuppermiddle-classsuburbanneighborhood,Umahadalwayshada knack for sales and entrepreneurship. At an early age, she was deliveringnewspapers to earn extramoneyfor thelatesttoys. In summerswithschool off, she sold
GroupCase:Uma'sFuneral Services
GrowingupinRosemaryHeights, anuppermiddle-classsuburbanneighborhood,Umahadalwayshada knack for sales and entrepreneurship. At an early age, she was deliveringnewspapers to earn extramoneyfor thelatesttoys. In summerswithschool off, she sold lemonadeat a busy cornera shortwalkfromherhouse.Sheeven hiredherbestfriendto helpout(a10-centcommissionfrom eachglassoflemonadetheysold),whichboostedhersales.
Unsurprisingly,Uma wenton to becomea regionalsalesmanager for a soda businessin WesternCanada.Beinganexpertnegotiator,sheacceptedan$80,000salary witha$1,000bonusforevery
$10,000insales inherregion.Underhermanagement,thelocalsodasalesquickly grewfromabout
$40,000in2018to$120,000threeyearslater. However,Umahasnoticedthatsaleshavebeenshowing achangingtrendinthepasttwoyears.HerearethequarterlysalesforUma's regionoverthepastthree years:
Quarter1,2020 | $28,800 |
Quarter2,2020 | $31,700 |
Quarter3,2020 | $30,100 |
Quarter4,2020 | $28,300 |
Quarter1,2021 | $29,400 |
Quarter2,2021 | $31,600 |
Quarter3,2021 | $31,200 |
Quarter4,2021 | $29,800 |
Quarter1,2022 | $29,900 |
Quarter2,2022 | $32,100 |
Quarter3,2022 | $31,700 |
Quarter4,2022 | $30,000 |
Umawantsadvice onhowherincomemightlookincomingyears. Shehasbeenofferedanewcontract of$95,000with incrementalraisesof2%ayear, butshehasbeentoobusyto think aboutit.
Uma has also noticed something interesting about her living area. Her parents and their friends havegrown older and there has beenmore and more talk about funerals. Uma has noticed that there aren'tfuneralservices availableintheareaandcremations,burials, andmemorialservices typicallyhappenina coupleof neighboringcities. To makemattersworse, thereis almostalwaysa wait to get loved onestheservicestheyneed! Uma has briefly discussed the idea of opening a funeral services business in Rosemary Heights with Bonasera, a childhood friend who works as a mortician in a funeral parlor thirty minutes away. He is excited about the idea and believes there could be major profit in the business in coming years.
Uma believesshecan hire Bonaseraas a part-timeemployee for $40,000(20 work hoursa week).Alternatively,she can ask him to be her businesspartner.She is wondering if himpaying$50,000 for a30%shareofthebusinessisfair.Additionally,hewouldberequiredtocommitatleast20hoursaweektothebusiness forthenextfiveyears(Umaassumes ifthebusinessissuccessful,theywillbeabletohire morestaff). She wants a complete analysis on havingBonasera as a businesspartner,includingallprosandcons.
Uma is thinkingof buyinga plotof land where she could build a cemetery. The 1-acre piece of undevelopedlandcouldbepurchasedfor$400,000.Oncedeveloped,300plotscouldbepre-soldfor
$2,000 each. Alternatively,she couldpre-sell half of the plots and sell the remaining half on an as-neededbasisfor$3,000each.Umaestimatesthatitwouldtakeanaverageof2.75yearstoselleachplot at $3,000. Developing the land would cost $100,000 and take six months (the development costswouldbespreadevenlythroughtheyear).
Through her research on the internet,Uma has discoveredthat memorialheadstonescan be purchasedfor $300 on average. Engraving them typically costs another $100. Uma figures she can offer families anengravedheadstonefor$600.Casketstypicallycost$2,000whichUmawouldmarkupto$2,500.
Finally,embalmingservice couldbeofferedfor$700,withthefuneralceremony beinganadditional
$500.Tostart,Bonaserawouldtakecareofboththeembalmingandceremonies.
Uma has discovered thatthere is a small woodworking factory for sale for $450,000. If she were to buythis factory, she could manufacturecoffins and engrave headstones in-house. The factory would needabout$75,000ofmodificationsandnewequipment tomakeitallwork,butcouldpayoff nicelyonceitwassetup.Thecosts/needsforbuildingacasketwouldworkoutasfollows:
Woodneeded | 10kg |
Woodcost | $4perkg |
Manufacturingtime | 4.25hours |
Manufacturerrate | $40perhour |
Othermaterials | $20percasket |
Additionaltime(clean-up) | 1hour |
Additionaltimerate | $20perhour |
Allocatedmachinecosts | $50percasket |
Headstonescould bepurchase din bulkfor $200each and engravingwould cost $50in-house.Umawould needto spend$10,000ayearon thefactoryto keep itinworkingorder.
After the cemetery is developed, Uma plans to start marketing her new business. She believes thatif shespends$500a month on flyers, shewould book 50 funeralsin the firstyear. However, if she added on TVandradioadvertisingforanadditional$2,000amonth,shecould doublethefirst-year projection.
With continuationof the same marketingstrategies, Uma expects 25% growth in the second year,followed by another 10% in the third year (flat sales after that). Uma wants advice on the optimalmarketingstrategy,ensuring itisethicalandtasteful.
Umahasaskedaroundandfoundthatshecanborrowupto$1,000,000viaabusiness loan.Shehasanoption betweena five-year fixed rateof 5.45%or a five-year variablerate(currently4.85%).Uma isn'tsureabout therisksand rewardsof selectingeach option. Shecurrently has $100,000put asidefor abusinessventure andanadditional$30,000tocoverpersonal expensesforaboutayear.
Umawantsadetailedbudgetandadviceonhowtoevaluate performanceusingabudget.Sheisopentolearning more about why budgeting is important, even though she believes she is quite organized withnumbers.Sheisnotonlycurious about"bigpicture "budgetingbutalsokeepingrecords foreach funeralservice.Inparticular,shewantsto makesuresheisnotlosingmoneyon awholelotofservicesand not realizinghermistakeuntiltheendoftheyear(orevenlater).
Uma has heard about cost-volume-profitanalysis and wants to know how it applies to her business. Thecost accountant at the soda factory is constantly rambling about break-even and margin of safety. Umawantscomprehensive analysis and recommendations on how her business can be run as effectively aspossible.
Finally,Uma has heard that businessesare accepting crypto-currencypayments from customers. Shewantsadviceonif she shouldalsodothis.Shehasneverinvestedin anythinglikeit,buthasgrownmoreinterestedinBitcoinafterseeingafewnewsstories.
AdviseUmaonhercareerpathandtheoutlookofhisproposedbusiness.Produceabusiness report,includingcomprehensiveanalysis,recommendations,andanyquestions youmayneedtoaskUma.
Question:
Based on the set of circumstances provided in the case you choose, please provide the advise and analysis using the managerial accounting method, and communicate relevant information succinctly and efficiently with your clients in the case.
Word limit is 2000 maximum.
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