CMR Enterprises
The problem with this case is…….
CMR operates in two segments, commercial and residential.
Blackstone is a large residential customer who accounted for 2.4%i of CMR’s total revenues and 13.2 %ii of CMR’s total residential revenue. * iii
CMR’s CEO wants to grow sales to $70 million, ten times current sales, within ten years. He needs to decide whether to increase prices threatening the relationship with Blackstone, maintain prices as they are, or discontinue business with Blackstone.
Analysis conducted…….
As of December 15, 1998 CMR budgeted $63.04iv of revenue per shop hour. However, CMR only collected $37.27 v per shop hour. Given their target of $65 per shop hour, this is a problem. CMR needs revenues of $366,795vi in order to meet its goal.
The two price points will consist of: Price 1- the current price at $37.27 per shop hour, where revenue equals $210,314. Price 2 - the price increase to $65 per shop hour, where revenue equals $366,795. Given this new revenue amount, Blackstone will now account for 4.1%vii of CMR’s total revenues.
Labor costs (at $16/hours) are $90,288viii for the actual hours spent working.
Material costs for Price 1 is $54,681.64ix and $95,366.70x for Price 2.
Estimated cost of goods sold is $144,969.64xi for Price 1 and $185,654.70xii for Price 2.
The contribution margin is for Price 1 is $65,344.36xiii and $181,140.30xiv for Price 2.
Total SG&A in December is $2,900,000. SG&A for Blackstone for Price 1 is $69,600xv and $119,975xvi for Price 2.
At Price 1 CRM is losing $3,447.72xvii. If CRM increases to Price 2 then they will capture a profit of $61,164.49xviii.
The Blackstone account is estimated to grow to $400,000 in the following year. Blackstone continues to forecast additional growth (70 houses the following 12 months).
If I were responsible for solving the problem, I would…….
With Blackstone’s projected growth, Blackstone’s account is necessary for CMR to assume a larger footprint in the residential
CMR operates in two segments, commercial and residential.
Blackstone is a large residential customer who accounted for 2.4%i of CMR’s total revenues and 13.2 %ii of CMR’s total residential revenue. * iii
CMR’s CEO wants to grow sales to $70 million, ten times current sales, within ten years. He needs to decide whether to increase prices threatening the relationship with Blackstone, maintain prices as they are, or discontinue business with Blackstone.
Analysis conducted…….
As of December 15, 1998 CMR budgeted $63.04iv of revenue per shop hour. However, CMR only collected $37.27 v per shop hour. Given their target of $65 per shop hour, this is a problem. CMR needs revenues of $366,795vi in order to meet its goal.
The two price points will consist of: Price 1- the current price at $37.27 per shop hour, where revenue equals $210,314. Price 2 - the price increase to $65 per shop hour, where revenue equals $366,795. Given this new revenue amount, Blackstone will now account for 4.1%vii of CMR’s total revenues.
Labor costs (at $16/hours) are $90,288viii for the actual hours spent working.
Material costs for Price 1 is $54,681.64ix and $95,366.70x for Price 2.
Estimated cost of goods sold is $144,969.64xi for Price 1 and $185,654.70xii for Price 2.
The contribution margin is for Price 1 is $65,344.36xiii and $181,140.30xiv for Price 2.
Total SG&A in December is $2,900,000. SG&A for Blackstone for Price 1 is $69,600xv and $119,975xvi for Price 2.
At Price 1 CRM is losing $3,447.72xvii. If CRM increases to Price 2 then they will capture a profit of $61,164.49xviii.
The Blackstone account is estimated to grow to $400,000 in the following year. Blackstone continues to forecast additional growth (70 houses the following 12 months).
If I were responsible for solving the problem, I would…….
With Blackstone’s projected growth, Blackstone’s account is necessary for CMR to assume a larger footprint in the residential