Crafton Carbuckle began a corporate consulting firm, Creative Consumer Consultan
ID: 2460326 • Letter: C
Question
Crafton Carbuckle began a corporate consulting firm, Creative Consumer Consultants, Ltd., in 2004. The firm specializes in assisting corporate clients analyze markets and promotional campaigns. Most clients are mid-sized local corporations who do not have highly developed in-house marketing departments.
CCC has proved to be highly successful primarily because of the strong personal attention given to the clients by the project managers. Since inception, CCC has expanded to four world-wide offices with locations in New York, NY; Chicago, IL; Little Rock, AR; and Paris, France. The home office is in New York.
Except for the Little Rock office, all offices have been in business for at least four years and have a well established clientele. The Little Rock office was established just last year and is struggling to attract large clients. The office in Little Rock is an experiment by the company to determine the feasibility of locating future offices in smaller business communities.
Each office is headed by an office manager who is responsible for all activities in that office. The managers are paid a reasonable salary plus a bonus with two inputs. The first input is the net income of the manager's office and the second is the sharing of a portion of the overall company profits. Managers have a high level of independence to make decisions and are held accountable for the results.
You have been hired to help them evaluate their existing offices, to evaluate their branch managers, to create a proper segmented income statement, and to advise them as to what they should do for expansion. The current year's segmented operating results are shown below.
All numbers are in 000's of $.
Revise the table above assuming that non-traceable costs are not allocated. Remember that common/non-traceable costs should NEVER be allocated. Include an improved version of the table I gave you, too. They should be things of beauty and a joy forever that incorporate any appropriate margins and ratios that will help your reader and your writers do a better job of understanding what’s going on here. You may need to expand the table to reflect the note so your writers don’t get the wrong amounts when they are discussing the case.
Total New York Chicago Paris Little Rock Billings (Revenue) 50,000 22,000 10,000 16,000 2,000 Traceable Consulting Costs 33,500 14,000 6,000 12,500 1,000 Non-Traceable Consulting Costs 10,000 4,400 2,000 3,200 400 Gross Profit on Sales 6,500 3,600 2,000 300 600 Traceable Other Costs 1,000 300 200 500 0 Non-Traceable Other Costs 2,500 1,100 500 800 100 Net Income 3,000 2,200 1,300 (1.000) 500Explanation / Answer
Solution-
Little Rock has lowest consulting cost(Traceable) 50%,highest GP ratio 30% and NI ratio 25% on the other side Paris has highest consulting cost(Traceable) 78% and lowest GP ratio 2% and negative NI ratio -.01%.
Little rock has only 2,000 of billing and Paris has 16,000.
As per above table,
Little rock should concentrate on attracting more client as it has good GP ratio and NI ratio and lower traceable cost.
Paris should work on decreasing its traceable cost significantly (15-20% ) and thus be increasing its GP and NI ratio.
Chicago can concentrate on decreasing its cost by a few % and increase its sales.
New York can decrease its traceable cost and thus increase its GP and NI ratio.
Detail Total New York Chicago Paris Little Rock Billings (Revenue) 50,000 22,000 10,000 16,000 2,000 Traceable Consulting Costs 33,500 14,000 6,000 12,500 1,000 Traceable Consulting Costs/Billings (Revenue) 67% 64% 60% 78% 50% Gross Profit on Sales 6,500 3,600 2,000 300 600 GP Ratio 13% 16% 20% 2% 30% Traceable Other Costs 1,000 300 200 500 0 Traceable Other Costs/Billings (Revenue) 2% 1% 2% 3% 0% Net Income 3,000 2,200 1,300 -1 500 NI ratio 6% 10% 13% -0.01% 25% Non-Traceable Consulting Costs 10,000 4,400 2,000 3,200 400 20% 20% 20% 20% 20% Non-Traceable Other Costs 2,500 1,100 500 800 100 5% 5% 5% 5% 5%