Reference no: EM132822984
Company Overview
West Bay Restaurant Supply distributes and ships commercial restaurant supplies such as ovens, fryers, industrial refrigerators, warmers and dishwashers, as well as restaurant furniture and fixtures within the U.S. They operate as a Business to Business (B2B) entity, and they currently serve 500 small businesses, including restaurants and cafeterias. In addition, they install and service the equipment and provide training to ensure proper use of the equipment.
In your role as the finance manager, you support upper management with budgeting, financial planning, and analysis. You examine targets, performance compared with those targets, and relevant external information such as market forces. You provide a financial perspective to the senior management team, which they combine with insights from other functions such as sales, operations, marketing, and human resources. The end result should be the best short-term and long-term resource allocation decisions for the company.
The company's president, Brooke Myers, asked you an analysis and recommendation to help the senior management team make two important decisions, both involving substantial upfront costs and commitments. She would like to see a business memorandum including appropriate financial reports. Your memorandum should explain your observations based on the available information, but it should also identify additional information that would be useful for making the final decisions.
Investment Decision 1: Sales force hiring and training
Should the company recruit, hire, and train 50 more salespeople (in addition to the 100 it currently has) in anticipation of a large expected increase in demand? On average, salespeople are paid $12 per hour with 30% commission. If the demand materializes, West Bay Restaurant Supply can take advantage of it to grow its revenue and profit. If the demand falls short, the company will lose money on the decision.
Investment Decision 2: Energy management system
The company wants to minimize its energy usage to minimize costs as well as to support its corporate social responsibility (CSR) goals. While the management team recognizes that there are substantial upfront costs involved in an energy management system, this investment should reduce energy costs in the long run. There would be an upfront cost of $50,000 for installation and training for the new energy management system. It is estimated that the energy management system would save the company $10,000 per year in energy costs.
Financial Information
Review the Financial Information document to see the company's financial information.
Directions
President Myers has requested that you describe the operating budget process in a business recommendations memorandum that explains the implications of the financial information and provides recommendations.
Spreadsheet: An accountant in your department provided the financial information. You will use this information to support your business recommendations memorandum.
Review the following:
Quarterly operating budget
Quarterly capital budget for the upcoming calendar year
Business recommendations memorandum: In addition to reporting key takeaways about the company's basic financial health, president Myers has requested that you choose one of the options they are considering for the upcoming year and discuss why it would be the best decision based on financial information and resource allocation approaches.
- Highlight 3-5 key takeaways from the operating budget for their impact on resource allocation. Use financial information to support your response. Include the following:
- How should management use this information in informing financing and resource allocation decisions?
- Explain basic concepts of capital budgeting for informing resource allocation strategies Include the following in your explanation:
- Explain cash inflows and outflows as they relate to operating budgets.
- Briefly explain how a capital budget is related to an operating budget.
- Discuss the company's financial status in terms of its ability to meet short- and long-term obligations.