Lovely Scent Perfume Company’s Business Recommendations Coursework

The current report is about making business recommendations regarding different courses of action that could be implemented and that would assist The Lovely Scent Perfume Company to recover from its recurring losses. The report is presented to Fredrick Fragrance, the CEO, of the company who has asked his top executives to come up with the best strategy for putting back the company on its profitable track.

Proposition #1 Wally Workshard, the EVP

His recommendation to decrease the price by 20% or $7.00 to $28 per unit will result in an increased sale by 85,000 units. However, the net increase in revenue is only $980,000. The costs remaining the same, the contribution margin reduces to just $8.00 implying the additional sales making a contribution of $680,000 which could be considered as a good sign. The fixed cost remains the same. The net loss that will incur is $1.72million which is not acceptable to the company (See Appendix I).

Proposition #2 Lester Ledger, the CFO

His recommendation to redesign packing would increase variable production cost to $20.75 by an additional $4.75 and fixed cost will increase by $40,000 to $2.79million. The sales would rise by 32% to 264,000 units per year. The contribution margin is $10 therefore the additional sales will make a contribution of $640,000 ignoring the fixed costs. This is lower than the previous proposition however the net loss resulting from this proposition is expected to be $1.334million which is not acceptable to the company (See Appendix II)

Proposition #3 Buster Bumble, the Production Manager

His recommendation to reduce the standard size of the bottle is expected to save $2.65 on variable production costs reducing it to $13.35. This would result in a decline in sales by 4,500 units making sales of 195,500 units. The contribution margin is $18 and a reduction in sales will result in a loss of contribution of $81,000 however the total contribution ignoring the fixed cost will be $3,450,575. The net loss is $549,425 which may not be acceptable to the company as it is lower than the current loss (See Appendix III).

Proposition #4 Gaylord Goodspeak, the Marketing Manager

His recommendation to increase the marketing budget would add $527,000 to the fixed operating costs making a total of $1.777million. Also, the sale price is suggested to be increased by $4.90 per unit which will result in sales revenue of $9.336million. However, the contribution margin is $20 and an increase in sale units by 34,000 will contribute $676,600 ignoring the fixed costs. The resulting net income is $129,600 for the year (See Appendix IV).

Recommendation

From the above analysis, it is that the proposition given by the Marketing Manager seems favorable for the company. The above analysis is based on the contribution analysis which is the benefit that will be gained from each proposition (Wengler, 2006). It is very clear that proposition #4 does not result in a positive contribution of $676,600 in respect of the increased sales expected which may not be higher than proposition #1. But combining results of both contribution margin and profitability proposition #4 seems more favorable. All these propositions represent different scenarios that may result in the possible outcome but it should be clearly understood that the actual outcome of these actions can be different from the projections. However, amid the current situation where the company has incurred a loss of $1million the company should go with the proposition of the marketing manager to put the company back into profitability. Therefore, proposition #4 is recommended.

Works Cited

Wengler, S. (2006). The Economic Value of Key Account Management in Business-to-Business Markets. Wiesbaden: DUV.

Appendix I: Proposition #1 Wally Workshard, the EVP

Appendix II: Proposition #2 Lester Ledger, the CFO

Appendix III: Proposition #3 Buster Bumble, the Production Manager

Appendix IV: Proposition #4 Gaylord Goodspeak, the Marketing Manager