Research Paper on Low Net Income in Green Pastures

Introduction

The leading cause of low net income in Green Pastures was the reduction in the boarding days compared to the projected number. The decline in boarding days resulted in lower-income because less money was collected. During the preparation of the budget, the planned boarding days were 21900 compared to 19000 actual boarding days. This was 2900 days less than the expected. Moreover, the actual boarding fees collected were less compared to the projected boarding fees. The projected boarding fee was $25 ($547,500/21900) which was more than the actual boarding fee by $5. The actual boarding fees were $20 ($380000/$19000).

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Controlling Expenses

Green Pastures management did an effective job of controlling the fixed expenses. The actual fixed expenses were $180,000 which was less than the budgeted fixed expenses by $4000. This was a favorable outcome because the actual expenses incurred were less compared to the budgeted expenses. However, the management failed in controlling the variable expenses of Green Pastures. The budgeted variable expenses were $178,390 while the actual variable expenses were $192,270. The difference in variable expenses was $14,330 ($192,270-$178,390). The outcome was adverse meaning that the management failed to control the variable expenses of the farm effectively.

Decision to Stay Competitive

The decision by the management of Green Pastures to stay competitive was wise. The decision to reduce boarding fees was one of the efforts that the management made to ensure competitiveness in the economy. The management decision to reduce the workforce in March was also effective in ensuring a reduction in wages cost. All decisions made aimed to ensure that Green Pastures remains competitive in the economy. Competitiveness is crucial because it promotes business growth enabling the business to stay competitive despite the market state. For instance, the decisions made by Green Pastures management aimed to keep it competitive.

Flexible Budget Report: Low Net Income

Based on the flexible budget, the main cause of the low net of income was the decrease in actual boarding days compared to the projected boarding days. The boarding days decreased considerably in comparison to the budgeted days. Green Pastures budgeted boarding fee was $25 per day ($547,500/21900). The actual fee, which was less by $5, was $20 per boarding day ($380,000/19000). Consequently, there was a reduction in sales, therefore, a reduction in income. The total sales decreased by $95,000 ($475,000-$380,000).

Controlling Expenses

Green Pastures management did an excellent job of controlling the fixed expenses. The actual fixed expenses were $180,00 which was less than the budgeted fixed expenses ($184,000-180,000). The favorable outcome indicates that the management did an excellent job of reducing the fixed costs. However, the management did a poor job in managing the variable expenses. The actual variable expenses were more than the budgeted variable expenses, and the actual variable expenses were $192,720 while the budgeted variable expenses were $178,390. This indicates that the management was unable to control the variable costs effectively; therefore, there was an unfavorable outcome ($192,720- $178,390). The result can be attributed to the failure of the management to reduce variable expenses in proportion to the reduced boarding days.

Decision to Stay Competitive

Green Pastures' efforts to remain competitive were marked by risky decisions that would help enhance competitiveness. The management decision to reduce boarding fees despite the reduced boarding days was risky because it led to the reduction of sales and net income. However, reducing boarding fees played a crucial role in promoting competitiveness. The management's decision to increase advertising through the issuing of new advertising brochures and an increase in entertainment for the Green Pastures clients was also very useful in helping the company to remain competitive. Increasing entertainment would attract more clients, consequently leading to more income.

Recommended Course of Action

For Green Pastures to increase in growth and its net income, Green Pastures needs to implement various actions. The recommended action that Green Pastures should undertake to achieve this is to reduce the operational costs such as variable expenses, fixed expenses, wages and other expenses. The expected result of reducing costs is the increase in net income and profit. Moreover, lowering prices may also play a crucial role in creating a wide customer base, therefore leading to business growth. Furthermore, the company should also focus on improving service delivery by increasing quality. All these recommended actions will play a vital role in increasing net income.