6 Pages Posted: 10 Jun 2009
This case provides students with an opportunity to understand how to analyze costs and profit at the service-line level. Students have a chance to allocate general and administrative costs to service lines in a number of different ways and are directed toward considering drivers of overhead expenses in the allocation process. In addition, students should be challenged to discuss whether it even makes sense, in this setting, to allocate all the general and administrative costs. Finally, students are asked to calculate the incremental contribution margin percentage for each service line, and determine which service line(s) Finnegan should try to expand.
Rev. Jun. 17, 2009
Patrick Finnegan sat back in his office chair and frowned. In front of him lay the latest income statement for Finnegan's Gardens, the landscaping business he had run since purchasing the Garden Center from Mary Jane Bowers more than four years ago. In general, Finnegan did not spend too much time reviewing his company's financial data. As long as profits continued to rise, Finnegan considered finances to be the responsibility of his accountant, Sue Bennett. Recently, however, he had become more focused on the financial results of Finnegan's Gardens. Finnegan had four children nearing college age, and he knew his family would be incurring substantial higher-education costs over the next several years. Finnegan wanted to grow his business, but did not know which of the company's three service lines presented the most lucrative opportunity.
After earning a college degree in landscape architecture, Finnegan spent a summer touring the renowned gardens of Great Britain. Inspired, he returned to his hometown and purchased the Garden Center from Mary Jane Bowers. Finnegan expanded the existing nursery, discontinued retail operations, and transformed the company into a full-service landscaping business. Over time, Finnegan's Gardens gained a solid reputation locally, and demand for the company's services continued to grow. Finnegan took great pride in providing a full spectrum of landscaping and maintenance services to both commercial and residential customers.
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Keywords: cost accounting cost allocation analysis behavior relevant product
Suggested Citation: Suggested Citation
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