case study 2

Running Head: Case Study

Case Study 2: Saving on Energy Increases Profitability
Case Study 2

Electricity, regardless of the energy source that generates it (coal, fossil fuel, solar, et cetera), is the universal source of energy we use today for a multitude of purposes, including air conditioning, lighting, cooking, entertainment, and a whole lot more. Inasmuch as electrical power did not become available for domestic use until around 1882, when Thomas Edison pioneered electrical power distribution (“Edison”, 1977), there was apparently no reason for early 19^th century building constructions to have any concern for energy efficiency. Today, however, the escalating cost of fossil fuel, and the growing preference for more environment friendly lifestyles are giving rise to the necessity for efficient and energy saving buildings and homes.

Lowering Energy Bills to Increase Profits

Concrete brick or stone materials offer better insulation than wood, enabling lower energy costs spent in air conditioning. Already, Mr. Smokey Robertson may be saving as much as 44% on utility bills since the house is made principally of brick and stone (VanderWerf, P. 1997). Also, the property, as described, has lots of windows, allowing plenty of passage for natural light, and thus, limits the use of artificial lighting during the day – this also cuts down on energy bills. Therefore, the high cost in his energy bills must be the consequence of something else. The floors in the building are made of old oak plank, which over time, may decay and deform. Any damage to the stability of the wood flooring renders it susceptible to leakages and ground moisture (Insulating Under A Wood Floor, n.d.). This is possibly where part of the problem lies. They need a qualified carpenter to check the flooring to determine if there is a need for extra insulation, minor repairs, or a total replacement of the flooring material with one that has better insulation qualities, like ceramic or stone tiles.

The restaurant uses a lot of old model open gas burners in the kitchen, which may also unnecessarily contribute to extra cost. Replacing these with a couple of new gas stove burners with very high BTU’s shall enable Smokey’s to save up on the use of gas. BTU stands for “British Thermal Unit”, and if used in reference to cooking, is simply the amount of heat required to raise the temperature of a pound of water by one degree Fahrenheit (Loppacher, 2005). So, a stove with higher BTU enables one to cook faster and with greater fuel efficiency than older gas stoves. There are various high-power yet utterly low-maintenance gas stoves out in the market today, so finding one that suits Mr. Robertson’s budget and taste should not be a difficult task. Electric stoves are out of the question because they consume a lot of electricity.

Renovating the patio so that it can be used year-round is another means to increase profitability, because it allows for more people to be served at any given time. A professional designer or an architect is the best person to consult in this project because there are government-imposed building codes that must be adhered to when renovating a structure such as a historical house (Environmental Protection Agency, n.d.). Failure to comply with these may only cause more damage and financial loss.

Paving the parking lot permanently with concrete shall rid Mr. Robertson of the nuisance of re-graveling it once or twice each year. The accumulated cost of doing this year after year for the past 15 years and several more years onwards far outweighs the meager trouble of paving it once and for all. After all, no amount of money can compensate for his peace of mind.

On a final note, getting a bank loan for renovation may cost a bit, and construction may also take some time. Notwithstanding this, the long-term cumulative benefits of a smart renovation like greater savings on bills, generally improved income, and personal satisfaction will significantly make the monthly loan interest seem a meager amount, in comparison.

References

Edison, Thomas Alva. (1977). In Encyclopedia Britannica (Vol. 6, p. 310). Chicago: Encyclopedia Britannica.

Insulating Under A Wood Floor. (n.d.). Retrieved August 12, 2007, from http://www.servicemagic.com/article.show.Insulating-Under-a-Wood-Floor.11081.html.

Loppacher, P. (2005, May-June). ProFile: Our expert answers your questions. House Beautiful Kitchens/Baths, Vol.26, No.2, 18.

United States Environmental Protection Agency. (n.d.). Federal Environmental Requirements For Construction. Retrieved August 12, 2007, from http://www.cem.va.gov/PDF/fedreqs.PDF

VanderWerf, P. (1997). Energy Comparisons Of Concrete Homes Versus Wood Frame Homes. Retrieved August 12, 2007, from http://www.cement.org/bookstore/profile.asp?id=615.

case study 1

Running Head: Profit Management

Case Study 1:

Profit Management
Case Study 1

Introduction

The decline of profit in a business establishment is basically due to an imbalance in the implementation of its finances, where the expenses outweigh the income generated. To put it plainly, it spends more than it earns. But while the main factor could be a decrease in income from sales, or alternatively, an increase in operating costs (or both), the underlying causes still remain obscure.

The Problem and The Solution

To obtain the precise numerical figures involved in the restaurant’s operations, the finance manager or an accounting officer must be consulted. Once these statistics are in hand, calculating the statement of profit and loss may ensue. Through this, it can be determined how the restaurant is presently performing, profit-wise. As expected, the results (see figure 1 below) reveal that the foodservice is operating a long way from its purported gross profit margin (GPM) and break-even point. The GPM is calculated as follows: gross profit / total revenue=gross profit margin (Break-Even Analysis, n.d.). Subtracting the total variable cost of $43,000 from the total sales revenue of $80,000 derives the gross profit, and thus applying to the equation, yields $37,000 / $80,000 = 0.4625 (Break-Even Analysis, n.d.). Hence, the GPM is 46.25%. At the present month, the restaurant has a net operating income of only $11,000. From the GPM that has been calculated, the restaurant’s break-even point would be pegged at $56,216.22. This amount is the quotient of dividing the total fixed cost (TFC) by the GPM, or $26,000 / 0.4625 and it is the amount the company needs to earn in a month just to pay the bills. Therefore, if the goal of a business were to earn profit, then the restaurant would need to surpass its break-even point, or achieve a more than a 500% profit growth from $11,000 to $56,216.

There are a couple of ways to approach this problem, and one is to try to lower the break-even volume (Break-Even Analysis, n.d.) by finding ways to minimize the variable costs. This consequently leads to a higher gross profit, and, using straightforward computation, it can be seen that a higher gross profit ultimately yields a lower break-even point.

Another way would be to increase the selling prices of their products. Customers usually get dismayed with price hikes, but using only a small fraction of increase, say, about 4 or 5 percent, may be unnoticeable (Break-Even Analysis, n.d.). For example, if the total sales revenue is $80,000, a 5% raise on prices will bring about a boost of $4000. Accordingly, the GPM is enhanced to about 48.81%, and the break-even point significantly reduced to $53,268.32 (see figure 2). That means the restaurant needs $2947.90 less to break-even, or more than a 5% growth in profits. In this way, performance is improved without considerably affecting their customers’ patronage, and the badly needed 500% raise in profits does not seem too far-fetched after all.

Conclusion and Recommendations

As in any other business endeavor, the fundamental principle in order to maintain a profitable operation is to “buy low, sell high.” In this case, looking for cheaper alternative sources of ingredients and stocks for their inventory may in part help solve the restaurant’s financial troubles. Then again, selling prices may also be adjusted a bit to add a little extra income, but if the marketing plan entails giving out promotional offers to boost sales, then a price increase would need to be calculated carefully to make sure that it will not result in a profit loss or in an overprice. Finally, it is recommended that the branch calculate and analyze their profit and loss statement every quarter so as to maintain an accurate representation of the current break-even point and preempt any similar recurrence of financial difficulties in the future.

Figure 1
Restaurant Branch Profit and Loss Statement For the month ended Month,day,year
Total sales revenue	$	80,000
Less total variable costs	$	43,000
Gross profit	$	37,000
Less total fixed costs	$	26,000
Net operating income	$	11,000

Please note, that assuming all expenses remained constant, the figures in the chart below were arrived at by imposing a 5% monthly increase in Total Sales Revenue, repeated over a period of two (2) months.

Figure 2

Reference

Break-Even Analysis. (n.d.). Retrieved August 12, 2007, from http://www.businesstown.com/accounting/projections-breakeven.asp