Revenue,_Cost_Concepts_and_Market_Structure_–_Thomas_Money_Service_Inc.

Revenue, Cost Concepts and Market Structure – Thomas Money Service Inc. Amanda Walker ECO 561 University of Phoenix April 12, 2009 Revenue, Cost Concepts and Market Structure – Thomas Money Service Inc. Thomas Money Service Inc (TMS) has been very successful. Their decision to branch out into equipment financing resulted in a very lucrative business decision. From this decision Future Growth Inc (FGI) was established. There was a high demand for construction and forest equipment. FGI has been very successful until recently. Recommendations need to be made regarding how to increase revenue, how to achieve ideal production levels, how fixed and variable costs should be adjusted and what methods should be used to reduce costs. Increasing Revenue Currently FGI has competition within the industry. There are several companies that offer the same equipment and services they do, each with competitive pricing. FGI needs to find a way to stand out and increase their revenue. A good and fast way to increase revenue is to sell the pieces of equipment they have repossessed. These pieces total over 500 at an average price of $1,732.00. Even though the price is at $1,732.00, there is not a high demand at that price. The highest demand is at $622.30. My recommendation would be to split up the stock and try to sell as many pieces as possible at the price of $622.30. The split should go as sell 100 pieces at $1,732.00 and the rest at $622.30. This would guarantee the sale of all pieces. This would bring in a revenue of at least $422,120.00. This revenue would help out greatly with their declining profits. Ideal Production Levels Since the demand is low for high priced items, it would be better to produce more items at the lower price level. I suggest staying within the price level of $622.30 to $1,634.30. This would allow production to increase because of the higher demand for these priced items. If the demand seems to be steadying at this level, FGI should continue to produce at this level. After three or four years of production, the demand data should be re-evaluated to see what the new demand is. It is my hope that the demand will increase for higher priced items as the economy gets better. Fixed and Variable Costs The goal for FGI is to decrease fixed cost. The current fixed cost is $990.00. By using some of the revenue from the selling of the repossessed equipment, FGI could decrease their fixed cost. They could use some of that revenue to pay on their rent of their building or to pay down any loans taken out on the equipment they have. They could also look at decreasing the current salaries of their employees by 1 or 2 percent. Since sales have been down, this would be a better way to save some money, rather than laying off more employees. FGI could also decrease their commission. These cuts would be tough at first, but in the long run it would be better for the company. Reducing Costs As stated above, a good way to reduce cost would be to cut salaries. This could be a big shock at first to employees, but this would avoid having to lay off any more employees. With an increase in production these employees will be needed. It may even help in being able to hire new employees as they are needed. After three or four years at this production level, salaries and commissions can also be re-evaluated along with the production. The combination of these recommendations will help FGI to increase revenues and aid them in rising above the other companies in their industry. They need to stay competitive and keep reinventing themselves to be successful.