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Chapter 12: Problem 28

Crystal Clean Services, LLC, provides cleaning services for office buildings. The firm has 10 members in the LLC, which did not change between 2007 and 2008 . During 2008, the business expanded into four new cities. The following revenue and employee information is provided: \begin{tabular}{lrr} & \multicolumn{1}{c}{2008} & \multicolumn{1}{c}{2007} \\ \hline Revenues (in thousands) & \(\$ 38,000\) & \(\$ 32,500\) \\ Number of employees (excluding members) & 380 & 260 \end{tabular} a. For 2007 and 2008, determine the revenue per employee. b. Interpret the trend between the two years.

Short Answer

Expert verified
Revenue per employee decreased from $125,000 in 2007 to $100,000 in 2008, indicating reduced productivity per employee despite revenue growth.

Step by step solution

01

Calculate Revenue per Employee for 2007

To calculate the revenue per employee for 2007, we divide the total revenue by the number of employees (excluding LLC members). Revenue for 2007 is \( \$ 32,500,000 \) and the number of employees is 260. Thus, \( \text{Revenue per Employee (2007)} = \frac{32,500,000}{260} = 125,000 \).
02

Calculate Revenue per Employee for 2008

For 2008, revenue per employee is determined by dividing the revenue by the number of employees. Revenue for 2008 is \( \$ 38,000,000 \) and the number of employees is 380. So, \( \text{Revenue per Employee (2008)} = \frac{38,000,000}{380} = 100,000 \).
03

Analyze the Trend Between 2007 and 2008

Comparing the revenue per employee from both years shows a decrease from \( \\( 125,000 \) per employee in 2007 to \( \\) 100,000 \) in 2008. Although total revenue increased, the number of employees also increased significantly, suggesting that the expansion into new cities included a strategy to scale operations, potentially leading to initially lower productivity per employee.

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Revenue per Employee
Revenue per employee is a metric that can tell us a lot about how effectively a company is generating income relative to its workforce. For Crystal Clean Services, we can calculate this by dividing the total revenue by the number of non-member employees. This metric helps us understand the average monetary value each employee contributes to the company鈥檚 revenue.
  • 2007: Revenue = \(32,500,000, Employees = 260
  • Revenue per Employee = \( \frac{32,500,000}{260} = 125,000 \)
In 2008, the calculation shows a different picture:
  • 2008: Revenue = \)38,000,000, Employees = 380
  • Revenue per Employee = \( \frac{38,000,000}{380} = 100,000 \)
From these calculations, we observe a decrease in the revenue per employee from 2007 to 2008. This change can often signal a shift in how the business is operating in terms of efficiency and expansion.
Trend Analysis
Trend analysis is crucial for understanding the direction in which a business is headed. It involves comparing metrics over time to discern patterns or changes. In this exercise, it is used to evaluate the change in revenue per employee between 2007 and 2008. Here鈥檚 what was observed:
  • In 2008, the revenue per employee decreased while overall revenue increased.
  • This suggests that while the business has scaled up significantly, adding more cities and likely more clients, the average productivity per employee has decreased.
This decline in revenue per employee might indicate initial challenges associated with rapid growth, such as the costs of expansion, training new staff, or possibly operational inefficiencies that need to be addressed.
Trend analysis helps businesses prepare and adapt their strategies to ensure sustainable growth.
Business Expansion
Growth through expansion into new territories can be a strategic move for increasing revenue and market presence. For Crystal Clean Services, expanding into four new cities in 2008 was such a strategy. Such expansion brings both opportunities and challenges:
  • Opportunities include access to new markets, diversified revenue streams, and enhanced brand presence.
  • Challenges often involve increased operational complexity, the necessity for additional investment, and potential fluctuations in employee productivity, as seen in the revenue per employee metric.
Even though the overall revenue increased from 2007 to 2008, the expansion also required significant resources, impacting productivity metrics. For a successful expansion, businesses need to ensure strategic planning to manage new operations efficiently while maintaining or improving productivity per employee.

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Most popular questions from this chapter

Glenn Powell is to retire from the partnership of Powell and Associates as of March 31 , the end of the current fiscal year. After closing the accounts, the capital balances of the partners are as follows: Glenn Powell, \(\$ 260,000\); Tammie Sawyer, \(\$ 125,000\); and Joe Patel, \(\$ 140,000\). They have shared net income and net losses in the ratio of \(3: 2: 2\). The partners agree that the merchandise inventory should be increased by \(\$ 30,000\), and the allowance for doubtful accounts should be increased by \(\$ 6,200\). Powell agrees to accept a note for \(\$ 165,000\) in partial settlement of his ownership equity. The remainder of his claim is to be paid in cash. Sawyer and Patel are to share equally in the net income or net loss of the new partnership. Journalize the entries to record (a) the adjustment of the assets to bring them into agreement with current market prices and (b) the withdrawal of Powell from the partnership.

Jacob Boling and Harlan Bishop, with capital balances of \(\$ 43,000\) and \(\$ 57,000\), respectively, decide to liquidate their partnership. After selling the noncash assets and paying the liabilities, there is \(\$ 76,000\) of cash remaining. If the partners share income and losses equally, how should the cash be distributed?

Allyn Seth, Jim Kerr, and Laura Driver arranged to import and sell orchid corsages for a university dance. They agreed to share equally the net income or net loss of the venture. Seth and Kerr advanced \(\$ 225\) and \(\$ 150\) of their own respective funds to pay for advertising and other expenses. After collecting for all sales and paying creditors, the partnership has \(\$ 975\) in cash. a. How should the money be distributed? b. Assuming that the partnership has only \(\$ 255\) instead of \(\$ 975\), do any of the three partners have a capital deficiency? If so, how much?

Pitt and Leon are partners, sharing gains and losses equally. They decide to terminate their partnership. Prior to realization, their capital balances are \(\$ 15,000\) and \(\$ 20,000\), respectively. After all noncash assets are sold and all liabilities are paid, there is a cash balance of \(\$ 24,000\). a. What is the amount of a gain or loss on realization? b. How should the gain or loss be divided between Pitt and Leon? c. How should the cash be divided between Pitt and Leon?

Lamar Kline and Kevin Lambert decide to form a partnership by combining the assets of their separate businesses. Kline contributes the following assets to the partnership: cash, \(\$ 10,000\); accounts receivable with a face amount of \(\$ 123,000\) and an allowance for doubtful accounts of \(\$ 7,300\); merchandise inventory with a cost of \(\$ 85,000\); and equipment with a cost of \(\$ 140,000\) and accumulated depreciation of \(\$ 90,000\). The partners agree that \(\$ 5,000\) of the accounts receivable are completely worthless and are not to be accepted by the partnership, that \(\$ 8,100\) is a reasonable allowance for the uncollectibility of the remaining accounts, that the merchandise inventory is to be recorded at the current market price of \(\$ 74,300\), and that the equipment is to be valued at \(\$ 67,000\). Journalize the partnership's entry to record Kline's investment.
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