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Blackstone had great potential to become one of CMR’s largest accounts, and promised to have continual yearly growth. Blackstone agreed to specify only CMR’s cabinets in all their homes, and CMR assigned a project manager to work exclusively with their new partner. Both companies could see that they would both be benefiting from this partnership from the very beginning, and they were correct. Throughout the first year, Blackstone contributed heavily to CMR’s success, and eventually grew to be about 25% of the residential side of the business. Marcus saw that the residential side of the business had great potential for future growth, and he knew that this was a great way to get his company involved. The additional emphasis on residential work used more of the company’s resources, but it proved to be worth it with the increased revenue and cash
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Indirect labor was assigned to the corresponding segment. SG&A expenses besides indirect labor were then distributed to the segments according to percent of revenue generated. This tells a different story. Whereas in the first scenario the commercial segment was responsible for almost 10% more Net Margin; in the second scenario, residential Net Profit was $274,632 for a Net Margin of 17.2%, while commercial Net Profit was $937,152 for a Net Margin of 13.9%. In this scenario Net Margin from Blackstone is only 13.3% of revenue, which is below the average for residential. The cause of the difference between the scenarios is the high number of administrative personnel assigned to commercial work. From the CMR Enterprises Factsheet, we see that there are 43 administrative personnel, of which only 4 are dedicated to residential work. This leaves 39 employees working on commercial work at an average of $50,000 per year, a total of $1.9 million dollars. Scenario 2 captures this more fully, placing a more realistic percentage of SG&A costs onto the commercial segment. Blackstone’s profitability is slightly less than that of the commercial business, and nearly 4% less than the residential …show more content…
It is obvious that Blackstone provides a significant amount of residential business, which means a substantial cash contribution to support CMR's other business like commercial work. Especially in the initial partnership, CMR first grabbed residential market share and earned 25% more of its residential business and Blackstone benefited from CMR's expertise and correction. However, some potential loss shows the general trend that CMR benefit less and less in the partnership with Blackstone. First, CMR acquires more profit per shop hour in commercial business than residential work. According to Exhibit 7b, the highest residential revenue per shop hour of $48.13 is less profitable than the lowest commercial revenue per shop
Indirect labor was assigned to the corresponding segment. SG&A expenses besides indirect labor were then distributed to the segments according to percent of revenue generated. This tells a different story. Whereas in the first scenario the commercial segment was responsible for almost 10% more Net Margin; in the second scenario, residential Net Profit was $274,632 for a Net Margin of 17.2%, while commercial Net Profit was $937,152 for a Net Margin of 13.9%. In this scenario Net Margin from Blackstone is only 13.3% of revenue, which is below the average for residential. The cause of the difference between the scenarios is the high number of administrative personnel assigned to commercial work. From the CMR Enterprises Factsheet, we see that there are 43 administrative personnel, of which only 4 are dedicated to residential work. This leaves 39 employees working on commercial work at an average of $50,000 per year, a total of $1.9 million dollars. Scenario 2 captures this more fully, placing a more realistic percentage of SG&A costs onto the commercial segment. Blackstone’s profitability is slightly less than that of the commercial business, and nearly 4% less than the residential …show more content…
It is obvious that Blackstone provides a significant amount of residential business, which means a substantial cash contribution to support CMR's other business like commercial work. Especially in the initial partnership, CMR first grabbed residential market share and earned 25% more of its residential business and Blackstone benefited from CMR's expertise and correction. However, some potential loss shows the general trend that CMR benefit less and less in the partnership with Blackstone. First, CMR acquires more profit per shop hour in commercial business than residential work. According to Exhibit 7b, the highest residential revenue per shop hour of $48.13 is less profitable than the lowest commercial revenue per shop