Flowers Galore (FG) has been in business for several years. FG is open Monday-Friday with hours from 9 a.m. until 6 p.m. Saturdays, FG is open from 9 am until 2 pm. FG is the only flower shop in this small rural town. FG offers custom and pre-made flower arrangements along with an assortment of gifts and greeting cards. Flowers are provided for local weddings, funerals, and other special occasions. Deliveries are offered within a surrounding 20 mile area for special rates (ranging from $5 to $25 depending on the distance).
Anna, the owner of FG, has had the business off and on for the past 5 years. During this period, she sold the business only to get it back a year later when the new owners were unable to make the monthly payments. Anna is now working full time and has hired three part-time employees to operate the business while Anna devotes most of her time to her full-time job. Some of her earnings help keep the business afloat.
For pricing purposes, Anna has marked up flowers 250%, plants 300%, and other items at 200%.
FG has been struggling financially to keep afloat in recent months. Despite decent sales, it has been very difficult for Anna to make the monthly payments such as rent, telephone, and utilities. It has not been unusual for the employees to be paid a week or so late. Anna needs some financial advice. She has provided you with some recent information (see appendix) that should be useful in answering the following questions:
1. Identify the monthly variable and fixed costs for FG (you might have to use the high-low method to separate mixed costs into variable and fixed components).
2. What is FG's average monthly contribution margin percentage?
3. What is FG's average monthly breakeven in terms of revenue dollars?
4. To improve sales, Anna wants to increase advertising by $200 a month. She thinks that this will bring in at least another $400 in sales a month. Should she pursue this idea? Support your answer.
5. Another idea that Anna has is to raise her prices on all items in her store by 5% (with no change in volume). Specifically, what will this do to her breakeven point (do not consider the data from question 4)?
6. For the original data, create a CVP chart.
7. For the new data (increased adverting and increased sales prices), create a CVP chart.
8. Looking at the sales mix of flowers, plants, and other gifts, what would be the new monthly breakeven if the sales mix changed to a 65%, 20%, 15% mix, respectively?
9. Based on your above answers and the data in the appendix, are there any other suggestions that you would make to help improve the likelihood of business success for FG?