Phionia’s Finicky Feline Gourmet Cat Dinners Case Study

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Case Study

(Budget tables omitted for preview. Available via download)

Business Viability

Overall, the budget presented by Phionia’s Finicky Feline Gourmet Cat Dinners evidences inadequate growth. As Sharma (2010) and Shim and Siegel (2008) both contend, profitability rests largely on maintaining the right balance between managing inventory costs through activity-based costing analyses and having the right amount of raw materials on hand to meet increases in demand. The primary drawback of the company’s plans is that its costs to purchase materials will outpace growth. For example, in June, the total direct materials purchase cost will outpace projected sales. Though the company increases sales over its inventory increases by a 2 to 1 ratio, its overhead costs will still surpass expected earnings. As a contributing constraint, the company is limited in its ability to increase production because it cannot produce more than 6 units per day. Thus, in calculating the viability of this entrepreneurial business venture, the economy faces significant barriers in increasing its economies of scale in production.

The only option that the business has moving forward is to increase its sales price while lowering its overhead price. The current price of $250 per case fails to cover the costs of purchasing materials. However, consistent sales growth signifies the potential to maintain profitability. An investment of $50,000 can aid the company in hiring sales and marketing staff to increase sales; while the company cannot increase its production and significantly increase the number of cases sold, it can utilize the help of marketing professionals to sell its cases at a higher price point. To remain competitive, the company must increase its per case price so that sales will continue to surpass the cost of production.

References

Sharma, N.K. (2010). Business finance. Jaipur, IND: Global Media.

Shim, J.K., and Siegel, J.G. (2008). Budgeting basics and beyond (3rd ed.). Hoboken, NJ: Wiley.