Business Report for Fine Country Fruit Cakes - Case Study Example

Business Report ‘Fine Country Fruit Cakes’ Introduction Most of the small scale or medium scale enterprises such as the Fine country fruit cakes face a common problem, which usually pertains to the development of business… Although there are many factors that might be used to develop a small scale business, the use of the factors usually depend on the problems faced by an enterprise. We will further discuss about the problems of Fine Country Fruit Cakes. Most of the problems of Fine country fruit cakes are related to addition of more staff and required machinery (which in this case is ovens) to tackle the production (as they are not able to expand the market due to lack of production capacity). Secondly, they do not have the required knowledge to cope up with the production capacity related issues like the one that was raised in the year of 2006, when the company had to sell of their ‘near-to-expiry-date’ products at a discount, which is never good for business because this clearly gives the dealers the edge in the negotiation strategy and most probably if the dealer is smart he would try to snatch a discount from the firm as often as possible, but that will only be in the case if the dealer can sell the ‘near – to – expiry – date’ products early (at least within 2 – 2.5 months). The problems faced by the Fine country fruit cakes are the basic and general problems faced by most of the self-employed people. We will further have a step-by-step solution for these problems by using the knowledge attained from my respectful teachers. the Current Capacity of the Business with respect to the current method of Working The figures provided by the owners of Fine Country fruit cakes were just about enough to calculate the total capacity of business. It is really very fascinating that owners of such a small scale enterprise have enough knowledge to maintain their marketing and production figures… not only that but the time tat they had set for the ovens and the cake making process is absolutely superb and unmatchable. Each one of us at some point or the other has experienced that not even much bigger organizations then this one maintain their monthly and annual sales figures. Most of them don’t even have a systematic production schedule. The data that Fine Country fruit cakes has collected is more than just strong enough to plan further business development to newer levels. To calculate the current capacity of business with respect to the current methods of working we would need to keep in mind the following constants and variables: 1. The firm indulges in production activities from Monday to Friday, i.e., 5 days per week. On Saturdays the owners market their products by meeting newer dealers (for business development) and by maintaining good terms with the already registered client, that is, the old dealers. 2. Since the owners only produce 5 days per week, that means that they produce cakes for 20 days in a month. 3. The owners have forecasted the stability in demand since both the years 2006 and 2007. 4. The production figures are estimated to be the same as in 2006, no down time is estimated. 5. The sales for the 2 KG cakes in the month of February 2006 have been corrected to 680 KGs (340 cakes) as the original sales figures provided a negative balance in stock. 6. The total opening stock of 300 KG has not been taken into account. 7. All the production is done via ten KG batches, which might be 10 cakes of 1 KG or 5 cakes of 2KG. Primarily we would accumulate all of the figures present with us, which will then lead to a viable decision. Cake Size(KG) Cakes/ Batch Batches/ Day Cakes/ Day KG/ Day Cakes/ Week KG/ Week Cakes/ Month KG/ Month 1 KG 10 2 20 20 100 100 400 400 2 KG 5 2 10 20 50 100 200 400 Total 15 4 30 40 150 200 600 800 Fig. 1.1 Once we have calculated the total sale per month for normal months (Fig. 1.1), we will move on to a more complex figure when the output of 2 KG cakes are raised by about 50 % during the festival seasons on Easter March/April and Christmas November/December. Cake Size(KG) Cakes/ Batch Batches/ Day Cakes/ Day KG/ Day Cakes/ Week KG/ Week Cakes/ Month KG/ Month 1 KG 10 2 20 20 100 100 400 400 2 KG 5 3 15 30 75 150 300 600 Total 15 5 35 50 175 250 700 1000 Fig. 1.2 Once we have calculated the seasonal figures (fig 1.2) which will work as the base for higher degree of calculation to find out the solution of the basic complex problem which is to calculate the current capacity of business with respect to the current working methods. We will further move on and create another table that will show us the annual and monthly capacity summarized which will help us lead to a conclusion that will be the answer for this problem. The Annual and Monthly Capacity Summarized Month Jan Feb March April May June July Aug Sep Oct Nov Dec Annual 1 KG Cakes 400 400 400 400 400 400 400 400 400 400 400 400 4800 Weight 400 400 400 400 400 400 400 400 400 400 400 400 4800 2 KG Cakes 200 200 300 300 200 200 200 200 200 200 300 300 2800 Weight 400 400 600 600 400 400 400 400 400 400 600 600 5600 Total cakes 600 600 700 700 600 600 600 600 600 600 700 700 7600 Total Weight 800 800 1000 1000 800 800 800 800 800 800 1000 1000 10400 Fig. 1.3 The Comparison of the Production capacity with demand in 2006 and forecast in 2007 Since we have already calculated the total production capacity in all possible terms (whether it may be by the number of cakes or by the weight), it is now quite easy for us to compare the current production capacity with respect to the sales of past year, as a matter of fact, not only the sales of last year but we will further more compare the production capacity with the forecasted demand and sales figures for the coming year, i.e., year 2007. This will help Fine Country Fruit Cakes to be prepared for unforeseen problems related to production and sales for the next year. Not only will the firm be prepared but with these figures they will also have a great chance to get ahead of the competition and to increase their sales figures by far. Not to mention that Jean and Dave will have more time to spend with their family and kids. To compare the production capacity by the demand in the year 2006 and the forecasted demand for the year 2007 we will first of all need to determine the constants and variables involved in the process of calculation and determination, and then to arrive at a viable conclusion. The following figures would be kept in mind for comparison: 1. The total aggregate demand for the cakes in the year 2006 was greater then the normal aggregate capacity of the business. (This is compared in the below Fig 2.2, page 8) 2. Although the demand was greater then the production but still the instructions show that the previous stock that was carried forward had completely covered the lack of product. But if we analyze the situation closely we could see that there was still a shortage of 2 KG cakes and a surplus of 1 KG cakes (Fig 2.2, page 8). This had been dealt by making an extra batch of 2 KG cakes in the months of March, April, November and December. 3. The annual demand of 1 KG cakes show seasonality when the sales rise during the Easter season March / April and Christmas Season November / December. 4. However, there is less fluctuation in the demand of 2 KG cakes over the year as compared to the 1 KG cakes. Table showing the company records of sales of cakes in the Year 2006: Month 2006 Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec Total 1 KG 80 200 600 320 120 80 120 80 240 480 800 1600 4720 2 KG 160 340 300 240 140 160 240 160 180 260 300 400 2880 Total KG 400 880 1200 800 400 400 600 400 600 1000 1400 2400 10480 Fig 2.1 Here we have the figures as provided by the questionnaire sheet. Although there is a miscalculation in the sheet which is pertaining to the addition of the 1 KG figures which according to the sheet is 4700, but once re – calculated it will lead to 4720. Now we will compare the above table to our sales figures from table 1.3. Month 2006 Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec Total 1 KG sales 80 200 600 320 120 80 120 80 240 480 800 1600 4720 1 KG production 400 400 400 400 400 400 400 400 400 400 400 400 4800 Stock Carried forward 320 200 -200 80 280 320 280 320 160 -80 -400 -1200 80 2 KG sales 160 340 300 240 140 160 240 160 180 260 300 400 2880 2 KG Production 200 200 300 300 200 200 200 200 200 200 300 300 2800 Stock carried forward 40 -140 0 60 60 40 -40 40 20 -60 0 -100 -80 Fig. 2.2 Now since the production capacity has been compared with the sales for the year of 2006, we are now in the need to find out the answer to the next question, which is can the current production capacity be compared to that of the forecast of the sales in the year 2007? The figures provided tell us that the figures expected are: Sale of no. of 1 KG Cakes = 6,000 Cakes Sale of no. of 2 KG Cakes = 3,500 Cakes And presently, judging from the figures we have calculated and accumulated: The production capacity of 1 KG Cakes = 4,800 Cakes The production capacity of 2 KG Cakes = 2,800 Cakes Thus it is clear that we are short of: Short of 1 KG Cakes = 6,000 (Expected Sales) – 4,800 (Current Production) = Shortage of 1,200 Cakes Dave had to sell some of the stock at a discounted price in 2006, During what months did that happen and what were the reasons? The two major reasons why Dave had to sell his cakes at a discounted price were: 1. Although the cakes have an expiry period for about 12 months… Dave noticed that the cakes had started losing their taste and fragrance if kept for longer than 6 months. The dealers that sell Dave’s cakes told him that they need at least a time for 3 months to sell the cakes, and thus Dave had no option but to sell the products before 3 months of it’s manufacturing, and the dealers saw this opportunity and demanded a discount. 2. During some months Dave had over – stocked his products and since he only has a cooling unit’s capacity was only 3,000 KGs he had to sell some of the stock at lower prices. The months during which Dave had to sell of his cakes at lower prices have been mentioned below. We will be calculating the time – period by using the FIFO method, i.e., First – in – first – out method under which the stock that is stored at an earlier period get sold first and the latest stock placed in the cooling unit will remain there until all the other stock before it’s manufacturing date have been sold. Let us make a table to make that understanding clear: Month 2006 Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec Total 1 KG sales 80 200 600 320 120 80 120 80 240 480 800 1600 4720 1 KG production 400 400 400 400 400 400 400 400 400 400 400 400 4800 Stock Carried forward 320 200 -200 80 280 320 280 320 160 -80 -400 -1200 80 Cumulative 320 520 320 400 680 1000 1280 1600 1760 1680 1280 80 2 KG sales 160 340 300 240 140 160 240 160 180 260 300 400 2880 2 KG Production 200 200 300 300 200 200 200 200 200 200 300 300 2800 Stock carried forward 40 -140 0 60 60 40 -40 40 20 -60 0 -100 -80 Cumulative 40 -100 -100 -40 20 60 20 60 80 20 20 -80 Fig. 3.1 The cumulative is the added figure of remaining stock each month, i.e., the total of Stock carried forward will match the remaining stock of December 2006. We will calculate further the cumulative stock of 1 KG by using the FIFO Method in its actual calculative way: (Tim Sutton, Edition 2004, and Pg. 34-65) Month Material Produced 1 KG Batch no. Material Issued 1 KG Batch No. Balance Material 1 KG Batch No. Jan 400 1 400 1 Jan 80 1 320 1 Feb 400 2 320 1 400 2 Feb 200 1 120 1 400 2 Mar 400 3 120 1 400 2 400 3 Mar 120 1 400 2 80 3 Mar 320 3 April 400 4 320 3 400 4 April 320 3 400 4 May 400 5 400 4 400 5 May 120 4 280 4 400 5 June 400 6 280 4 400 5 400 6 June 80 4 200 4 400 5 400 6 July 400 7 200 4 400 5 400 6 400 7 July 120 4 80 4 400 5 400 6 400 7 Aug 400 8 80 4 400 5 400 6 400 7 400 8 Aug 80 4 400 5 400 6 400 7 400 8 Sep 400 9 400 5 400 6 400 7 400 8 400 9 Sep 240 5 160 5 400 6 400 7 400 8 400 9 Oct 400 10 160 5 400 6 400 7 400 8 400 9 400 10 Oct 160 5 80 6 320 6 400 7 400 8 400 9 400 10 Nov 400 11 80 6 400 7 400 8 400 9 400 10 400 11 Nov 80 6 80 8 400 7 400 9 320 8 400 10 400 11 Dec 400 12 80 8 400 9 400 10 400 11 400 12 Dec 80 8 400 9 400 10 400 11 320 12 80 12 Fig. FIFO 1KG (Tim Sutton, Edition 2004, Pg. 34-65) As we can see by the above figure (FIFO 1KG) that the stock of 1 KG was beginning to get past the 3 months period in the months of July, August, September, October and November. Now we will do the same for 2 KG Cakes: Month Material Produced 2 KG Batch no. Material Issued 2KG Batch No. Balance Material 2 KG Batch No. Jan 200 1 200 1 Jan 160 1 40 1 Feb 200 2 40 1 200 2 Feb 40 1 300 2 -100 2 Mar 300 3 200 3 Mar 300 3 -100 3 April 300 4 200 4 April 240 4 -40 4 May 200 5 160 5 May 140 5 20 5 June 200 6 20 5 200 6 June 20 5 140 6 60 6 July 200 7 60 6 200 7 July 60 6 180 7 20 7 Aug 200 8 20 7 200 8 Aug 20 7 140 8 60 8 Sep 200 9 60 8 200 9 Sep 60 8 120 9 80 9 Oct 200 10 80 9 200 10 Oct 80 9 180 10 20 10 Nov 300 11 20 10 300 11 Nov 20 10 280 11 20 11 Dec 300 12 20 11 300 12 Dec 20 11 380 12 -80 12 Fig. FIFO 2 KG (Tim Sutton, Edition 2004, Pg. 34-65) As we may easily judge by the chart of FIFO 2KG that there was no month on which the owners had to sell the 2KG cakes at a discount. Jean believes that they could get more business from craft shops and tourist centres. The Advantages and Disadvantages of this market… Let us make a table to compare the regular shop-keepers and Tourist Centers: (Graeme Drummond, 2005, Pg. 1-50) Advantages of Tourist centres over regular customers Theme Tourist Spots Regular Customers Profit Margins The fresh dealers at tourist spots will pay higher price for the products and expect fewer discounts. The regular customers expect heavy discounts. Time Management Newer outlets will not order the products at a very short span of time. The regular dealers already order products within a short span of time mostly during festival seasons. Product Range These tourist spots require small packaging and hence will be a booming market for the 1 KG cake which takes lesser time to be baked. This will enhance the turnover. Even the regular customers prefer 1 KG cakes but not as many as it might be sold on tourist spots. Seasonal Variation The season is quite low during winters. These dealers require higher quantity in March, April, November and December. More Demand These outlets will definitely increase the demand. These are the present consumers. Season The demand will drop in Winter Season The demand will rise in Winter Season (November/December) Chances of Export If one of the tourists decides to do business with your company and take your products to other areas, he might just double the sale that is currently present. Same can happen here, but chances are tremendously less. Table Adv.1 Advantages of Regular Customers over Tourist Spots: Theme Tourist Spots Regular Customers Lower goodwill of product People visiting the tourist spots will mostly be outsiders, who won’t remember the cake once they go back to their hometown. The regular customers increase goodwill. No Experience It’s just a guess that this product will be a hit amongst new buyers. It’s already growing at a steady rate. Seasonal The production will be quite tough to handle because once the summer season is over the demand will drop flat. The demand is constant except for holiday seasons. More range The company would require more variety of cakes which will make it tough to operate and produce. The present variety is sufficient. Table Adv.2 This could help the Fullbright’s to increase the production capacity by adding one more oven because right now the family has a problem and that is lack of sale during summer season and this option will definitely help the family. References Tim Sutton, Edition 2004, Pg. 34-65: Sutton, Tim, 2004, ‘Corporate Financial Accounting and reporting’, Page 34-65. Graeme Drummond, 2005, Pg. 1-50: Drummond, Graeme, 2005, ‘Introduction to Marketing Concepts’, Pg. 1-50 Read More