Question 1

Thefollowingdiscussiontook placeata recent Acmemanagementmeeting.

Accountant: I am concerned about the low profitability on our cleaning service business andthe cost of servicing the debt incurred in setting up the infrastructure and buying vehicles. Wemakealotmoreprofit producingBKCleans.

Production manager: I have been in charge of making the BKClean for 20 years and I nowhave a smooth operation. Since we started the BKServe business two years ago, however,things have become more difficult to manage. We seem to have a lot of excess capacity; Iestimatethatourcleaningpeopleandtheirequipmentareidleforabout30%ofthetime,and Iamreally worried about theattrition rate ofemployees.

Human resource manager: We are now employing a different kind of person for the BKServecleaning service; we have gone to a lot of trouble to generate good relations with our factoryworkforce,butthesamespiritisdifficulttoachievewiththecleaningemployees.Forexample,theyareneverallhere, they workdifferent hours and,ofcourse,wepay them muchless.

CEO: I can't see why things should be like this, given that we have expanded into the sametype of business. I think our computerised BKClean system is a world beater. What does ournewmarketing managerhaveto say?

Marketing manager: The market for BKCleans has been stable for a long time but recentlythere are signs that this is changing. Far fewer offices want to organise their own cleaning andI am not sure what will happen to our market if the economy stops growing. At the same timethe cleaning service business is booming and highly competitive and I am not sure thatcustomerscarethat ouroperatives areusingtheBKClean solong as they geta good jobdone.

2

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CEO: Here are a couple of thoughts. I wonder if we should be going into new markets such ascleaning specialised fabrics. I think we are probably spending too much money on marketing.Busakaplc

OperatingAccountatendyear:Cost, revenue,andgrossprofit($000)

SALESREVENUE 11 565

COSTOFGOODS SOLD 8 789

GROSSPROFIT 2 776

OperatingAccountatendyear:OverheadsandOperatingSurplus($000)

Factory costs 500

CorporateHQ 750

TOTALOVERHEAD 1250

OPERATING

SURPLUS 1 526

CashFlow foryear($000)
OUTLAY Materialpurchase	1 393	INCOME Interestonassets	100
Long-termloaninterest	560
Wagecost	4500
Aftersales support	329
Assemblylinecost	900
Vehicles&Equipment	540
Productdevelopment	525
Productmarketing	1091
Hire& Fire	675
Warehousing	187
Totaloverhead	1250	Salesrevenue	11665
Totaloutlay	11950	TotalIncome NETCASHFLOW	11665 -285
BalanceSheet atendyear($000)
FIXEDASSETS Factory4000	4000
Plant10000	10000
Vehicles and EquipmentTOTALFIXEDASSETSCURRENTASSETS Rawmaterials	5000 600	19000
Finishedgoods	1809
Cash TOTALCURRENTASSETSTOTALASSETS OWNERS'EQUITY Long-term debtTOTAL DEBTTOTALLIABILITIES	2000 8000	4409 15409 8000	23409 23409

3

This study source was downloaded by 100000860355038 from CourseHero.com on 03-02-2023 01:15:11 GMT -06:00

ReportonProductsfor Year

Marketshare(%)	BKClean 30	BKServe Low	BKClean Compositionofsupply (units)	BKServe
Orders	3000	4050	Output 3900	4050
BKServeuse	100	na
Warrantyreturns	90	na	Inventory(year beginning) 800	na
TOTALDEMAND	3190	4050	TOTALSUPPLY 4700	4050
			Distributionofsupply
			Warrantyreturns 90	na
			Salesto orders 3000	4050
			BKServeuse100 100
Workingtime(%)	100	115	Inventory(yearend) 1510	na
Labourattritionrate (%)	5	20
Price($/unit)	2100	1300	(Averagepriceof acleaning contract)
Competingprice($/unit)	1800	Similar
Accountatendyear
Wage cost($000)	1500	3000
Assemblylinecost($000)	900
Vehicles& Equipment($000)		540
Aftersales ($000)	329	na
Costof materialused ($000)	488	405
ProductDevelopment($000)	525	na
ProductMarketing($000)	670	421
Hire/Fire($000)	75	600
Warehousing($000)	187	na	SALESREVENUE($000) 6300	5265
TOTALCOST($000)	4673	4966	COSTOFGOODS SOLD ($000) 3823	4966
Unitcost ($/unit)	1198	1226	GROSS PROFIT ($000) 2477	299

Required:

1. AssessBusaka'sdiversificationintocleaningservicesusingstrategymodels,takingintoaccount both supply chain and market factors.

1. StartingwithaSWOTanalysis,setoutthestrategicfuturesforBusakaPLCasyouimagineit would bevisualisedbya) theCEOandb) themarketing manager.