Green Acres Seed Company
The latest financials on Green Acres seed corn sales were $43.2 million in 2010; however, 2010 profits were $339,000 below those of 2009, which caught management’s attention. The management team began to dig a little deeper, and noticed that all of its costs had been increasing over the period 2006 to 2010, specifically unit cost of sales, administrative costs, and sales costs. As a result, management hired a new national sales manager, Peter Jensen, who would be responsible for preparing a report to present his findings and recommendations on a new sales program to the executive committee. In reviewing the case, to follow are some items that Jenson must analyze in preparing his recommendations.
As Mr. Jensen reviews past data, he must determine what is causing the profit problem. Selling expenses and administrative expenses are not the problem because as a percentage of sales they are both decreasing. However, if you look at profit as a percentage of sales, it is roughly half of what it was in 2006 and a third of what it was in 2007. The poor gross margin is most likely a result of several factors that includes sales mix, unit contribution, low prices for genetically modified seed, unbalanced accounts receivable versus accounts payable. This has occurred because of a poor gross margin and increase in cost of goods sold. Also, in reference to exhibit 2, if you divide gross margin by total sales, you will find that the gross margin in 2010 was 75 percent and gross margin in 2006 was 30 percent. Customers / Markets
The farmer dealers make up about 95 percent of the market. This is calculated by dividing total sales for stores into total unit sales. We have 45 percent of dealers buying sacks that weigh 25 pounds or less and 23.6 percent of dealers buying 26-50 pound sacks. This tells us that a large proportion of total sales are to those farmers who are using it for their own fields. This is...
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