Greengrass Case Study
Greengrass Ltd. is a private UK company formed in 2015 by Sarah Scott. The company manufactures a high-tech robotic lawnmower that is intuitive and is powered and charged by solar panels. It is ideal for medium sized gardens.
The company prides itself on product innovation, quality manufacturing processes and the premium nature of their mowers that enjoy a world-wide reputation with the environmentally conscious gardener.
The business manufactures one model of lawnmower that includes a pest-repellent facility that deters cats, dogs and moles as well as garden vermin. A truly innovative feature!
Due to the high-end nature of the product the lawnmower currently retails at a price of £1,000 and variable costs of production for the mower are about 45% of its selling price..
An analysis of the costs over the last three years is given below. These are all at current prices
Year Output in units Total production cost
2018 37,000 £30,497,000
2019 39,000 £31,536,000
2020 42,000 £32,749,000
In addition to the production cost listed above it is estimated that administrative expenses, tax and finance cost will be £3,311,000 for the forthcoming year
The factory works a 40-hour week for 48 weeks per year and employs 25 people who are directly involved in the mower manufacture process on 5 identical production lines. The company prides itself on its machine utilization efficiency but as the majority of the process Is labour driven (welding, assembly, painting), overheads are absorbed on a labour hour basis. It has been estimated that a mower can go through the manufacturing process from start to finish in approximately 1.1 hours although there may be some possible delays due to bottlenecks and non-value added activities being incurred in the production process along the way. The business estimates that idle time is approximately 5% of the available time
The robotic mower market has a number of key players and although Greengrass is seen as a premium product in the market there are some competitors who adopt different pricing strategies. The competitor’s mowers contain features and innovations and are generally seen as better value for money although the competitor models do not yet have the pest repellent facility and some of the intuitive features which have been copyrighted. In addition, the mowers are sold in customisable colours which is another prime selling feature.
The current factory site exists in a small city in the south of England and is limited in terms of space and transport connections. The company knows that it may have difficulty in increasing capacity at the current site above 48,000 mowers per year. The directors of the company are proud of their growth and wish to maintain it. They recognise that measuring performance is critical and so are considering the ways that they can improve their performance measurement systems to ensure that they stay ahead in a fast moving industry where competition is fierce.
Required:
Produce a business report to Sarah Scott, in good style, that reports on the following issues:
Calculations on the expected level of sales that you believe need to be made to break even. Back this up with further calculations such as margin of safety. Ensure that you justify any calculation assumptions that you make. Comment on the results obtained. (Note, that there are several ways that you can calculate break even and you can do several calculations as long as you provide a clear conclusion.)
(20 marks)
Provide recommendations as to the adequacy of the current prices that the company adopts in relation to the prices charged by its competitors. Suggest any adjustments that you would make to current prices in the light of current market conditions.
(20 marks)
Discuss the potential benefits of implementing a budgeting system in a business such as Greengrass.
(40 marks)
The business is considering moving its operations to a country in eastern Europe as a means to cutting costs. Without undertaking any calculations discuss the factors which should be taken into account before such a decision is made.
(20 marks)
Total 100
