Post retirement, Fiona and Brendan Flowerpot decided to focus on their passion - growing and selling cut flowers from bulbs purchased in Victoria and South Australia. They grow the flowers on the small holding where they live in Northern Tasmania.The start-up farming operations were funded by their retirement cash savings. Flower Power's farming operations started on 1 May 2019, prior to the outbreak of the Covid-19 pandemic in Australia. The business produces three types of cut flowers grown from the bulbs - Tulips, Daffodils and Dutch Irises. 

Flower Power employs one salesperson who manages the online orders and receives a monthly salary plus a sales commission. The bulbs are planted/replanted mechanically by Fiona and Brendan, and flowers are handpicked with assistance of backpackers and students. Direct labour hours consist of the time Fiona, Brendan, and the casual workforce spent on production activities. The flowers proved very popular in the local market because people spend more time at home as a result of the pandemic, presumably to brighten their living environments. All flowers are sold in bunches to specialist flower shops and retailers across Tasmania. Flower Power has farming equipment with a total practical capacity of 3,500 hours. All the equipment is used continuously in production throughout the calendar year. Current utilities (water and electricity for irrigation) can cope with the existing sales mix at practical capacity. Product sales, cost information and additional information for the 2020 calendar year are shown in the following table:

Tulips

Daffodils

Dutch Irish

Total

Sales price per bunch

$20

$25

$30

Number of bunches sold

1 750

1 250

800

3 800

Direct labour hours per bunch sold

0.875

1.225

0.875

Total direct labour hours - 2020

1 531.25

1 531.25

700

3 763

Machine hours per bunch sold

0.50

1.20

1.025

Total Machine hours - 2020

875

1 500

820

3 195

Fiona and Brendan have not taken a salary since the farming operations started. The business has generated a small profit for 2020. The following costs pertain to the 2020 calendar year:

Accounting staff

1,662.83

Advertising and Marketing Costs

994.91

Bulbs and fertilizer purchased

19,537.20

Depreciation

11,712.10

Direct casual labour (600 hours)

12,393.25

Facility costs (rent, insurance, and levies)

7,938.15

Office supplies (40% fixed)

799.45

Maintenance (80% variable mostly due to equipment repairs)

2,885.53

Plastic planting nets and plastic wrapping for flowers (fixed)

2,821.52

Utilities (30% fixed due to irrigation charges)

3,132.00

Salaries - part time salesperson ($1,500 per month fixed)

20,049.85

Shipping and receiving costs (50% fixed)

5,619.19

Total - 2020 Calendar year

89,545.98

Fiona and Brendan want to grow the business to draw a combined salary in the region of $1,500 per month for the 2021 calendar year, while showing an increase in profit. To facilitate an increased profit, they wish to purchase additional equipment in the amount of $25,000 which will increase total practical production capacity by 500 hours. To facilitate the expansion, they want to take out a personal loan which they wish to repay over the next 3 years from increased profits.

To help improve the profitability of the business, Fiona and Brendan are considering keeping some flowers in field (i.e., not selling the bunches) and allowing fee paying tourists to visit the farm for one week in flowering season. The opportunity cost of not selling the flowers is 50% of sales of the chosen flower type. Catering and photo shoot opportunities will be outsourced to 3^rd parties against a rental fee payable. It is not anticipated that the business will have to incur any additional operating costs to accommodate tourists on the farm. As a result of the higher tourism profile, Fiona and Brendan are concerned about tourists may perceive the environmental impact of some of their production supplies. They also wish to establish an enduring benefit to the wider community from tourists visiting the area.

Fiona and Brendan approached you, a team of management and cost consultants based in Launceston, to assist them in developing a marketing and production plan for 2021. Fiona and Brendan want to continue producing and selling all the existing 3 product lines as their customers buy from them due to the full range of flowers they supply across seasons. In your briefing, Fiona and Brendon raised the following questions:

1. Brendon would like to know which of the existing products they should promote more aggressively in advertising and marketing campaigns on their website.

2. Should they use the existing and new spare machine capacity to plant more Tulips, or Daffodils or Dutch Irises? How many additional bunches of flowers will this produce and what will be the impact on profit?

3. What can be done to reduce the use of plastic netting and wrapping in producing and selling the flowers? What will the cost implications be?

4. What is the opportunity cost associated with allowing fee tourists to visit the farm?

5. Is the proposed tourism venture viable and sustainable? Based on your calculations, what is the probable sustainable benefit to the wider community?

You are required to:

1. Respond to Fiona and Brett's requests by developing an excel workbook. By using your excel workbook, determine the breakeven point in number of bunches for the existing product mix based on the 2020 information.

2. (a) Calculate which of the existing products should be promoted more aggressively than the others, and (b), determine the target profit for 2021 by incorporating the owners' salaries, new equipment, use of existing spare capacity, and proposed tourism expansion.

3. Perform market research into the flower and related industry in Tasmania and Australia (there are +10 growers in Australian, and a couple in Tasmania) and advise Flower Power through a written business report if they (a) should expand by growing more of a specific flower type (sales mix) or (b) should increase profitability through changes in the sales prices or (c) a combination or perhaps something else. Your advice must be supported by your excel workbook calculations and qualitative evidence resulting from your team's research.

Decision making for constrained resources, make versus buy, and new product development.