Louise Fairbern's Consumer Profitability Analysis: Scenario 1 Report

This report presents a detailed consumer profitability analysis for Louise Fairbern's business, focusing on scenario 1. It examines the gross revenue, direct costs, gross profit, and indirect costs associated with five customers: Adams, Betz, Chatham, Dedham, and Elm. The analysis includes an assessment of the impact of discounts offered to Adams and Elm, revealing that the business is operating at a loss due to high direct costs and the impact of discounts. The report further breaks down the profitability by business type (consultancy and commercial window treatment), highlighting significant losses in both areas, particularly in window treatment services. Recommendations are provided, including adjusting discount strategies, reducing costs, and potentially re-evaluating the relationship with loss-making clients like Dedham. The conclusion suggests that implementing these recommendations could improve the business's profitability.

LOUISE FAIRBERN_ CONUSMER PROFITABILITY
PART 1 of SCENARIO 1
Consumer Profitability
(Amount in AUD)
Sl.
No. Particulars Adams Betz Chatham Dedham Elm Total
1
Gross
Revenue 234000 188800 357380 147840 73200 1001220
2 Direct Cost 147000 117200 218400 115720 57040 655360
3 Gross Profit 87000 71600 138980 32120 16160 345860
4 Indirect costs
-Overheads 85100 136160 221260
47099 38001 84127 34802 17231 221260
-Balance over
head
allocation 27845 22466 42526 17592 8710 119140
5 Discount 23400 3660 27060
6 Net Profit -11344 11133 12326 -20274 -13442 -21600
The part 1 of the scenario 1 deals with the computation of profitability of LOUSIE FAIRBERN from
his/her business consisting of two department’s namely consulting business and commercial window
treatment business. There are primarily five customers of the business with two served under
consultancy and there under commercial window treatment. Further, the name of the customers
are Adams, Betz, Chatham, Dedham, and Elm. Besides, Adams is provided a discount of 10% for
procuring customers and Elm is provided a 5% discount for making quick payments. Based on this a
simulation has been prepared which has been detailed here-in-below:
PART 1 of SCENARIO 2
On perusal of the above simulation, it may be understood the following:-
(a) Gross revenue of the entire business of Louis is AUD 10,01,220/- and the direct cost associated
with the business is AUD 6,55,360/- comprising more than 65% of the revenue. Further, Gross
profit of the business is nearly 35% which is low
(b) Indirect cost associated with the business stands at AUD 3,40,400/- which is near about 35% of
the business of the Louis. The same has been allocated to different customers on the basis of
revenue earned from making sales/ service to them during the course of business. Post
allocation 25% of the indirect cost to consultancy service and 40% to window treatment
business. Further general 35% has been allocated proportionately to sales. Post allocation, the
following may be observed that profit of the company comes down to 0.5% which in very very
low.

(c) Post allocation of indirect cost, Louis has offered discount to two of its discounts namely Adams
and Elm. A discount of 10% is offered to Adams and a 5% is offered to Elm for quick payment of
services received. Post computation of discount , one may observe that the business is incurring
losses and there is a loss of near about AUD 21,600/- which comprise near about 2% of the
revenue of the business of Louis. Thus, the proposed business is running in loss.
(d) On analysis of service wise i.e. consultancy wise and window treatment service wise it may be
observed that the consultancy service is incurring a loss of AUD 211 while window treatment
service has been incurring losses of AUD 21,389/- which is substantially huge. Thus, in short
both business are running in losses while window treatment services have a bigger share in the
losses. The table has been detailed here-in-below:
(Amount in AUD)
Sl.
No. Particulars Adams Betz Chatham Dedham Elm Total
1
Gross
Revenue 234000 188800 357380 147840 73200 1001220
2 Direct Cost 147000 117200 218400 115720 57040 655360
3 Gross Profit 87000 71600 138980 32120 16160 345860
4 Indirect costs
-Overheads 85100 136160 221260
47099 38001 84127 34802 17231 221260
-Balance
over head
allocation 27845 22466 42526 17592 8710 119140
5 Discount 23400 3660 27060
6 Net Profit -11344 11133 12326 -20274 -13442 -21600
7
Business
wise result -211 -21389 -21600
(e) Ongoing for further indepth analysis of the business consumer wise or client wise. One may
observe that sales to Adams has been at a whooping loss of AUD 11,344 /- which can be
negated by reducing the discounting to 0% -5%. Further, it may be seen that services to Betz has
let the firm to earn substantial margin of AUD 11,133/-. While as far as Chatham , Dedham and
Elm are considered one may see profit /loss of AUD 12,326/-, AUD -20,274 and AUD 13,442/-
which led to overall loss of the company. The table has been detailed here-in-below:

(Amount in AUD)
Sl.
No. Particulars Adams Betz Chatham Dedham Elm Total
1
Gross
Revenue 234000 188800 357380 147840 73200 1001220
2 Direct Cost 147000 117200 218400 115720 57040 655360
3 Gross Profit 87000 71600 138980 32120 16160 345860
4 Indirect costs
-Overheads 85100 136160 221260
47099 38001 84127 34802 17231 221260
-Balance
over head
allocation 27845 22466 42526 17592 8710 119140
5 Discount 23400 3660 27060
6 Net Profit -11344 11133 12326 -20274 -13442 -21600
7
Business
wise result -211 -21389 -21600
Recommendations
(a) No discount should be offered to Adams or if offered it shall be offered at 1%-5%;
(b) Dedham can be forgone as he is major contributor to loss;
(c) More efforts should be made for cost cutting;
(d) Discount to ELM should be reduced and efforts should be made to earn profits.
Conclusion
If the above efforts are carried out, the business of Louis shall turn profitable.