Abc Maintenance Co.

Introduction

ABC Maintenance Company Inc. operates in the Commercial segment of the Cleaning industry since 1986. In 2005, a residential cleaning division was opened to meet a growing demand. Mr. Knox, ABC’s shareholder, is now looking for ways to improve future profitability of the company and is wondering if the new department is profitable to remain operational. In order to address the issues, a Cost-volume-profit (CVP) analysis is required to evaluate the current financial situation which will allow management to make critical decisions such as, setting service fees, determining the service mix, and maximizing productivity. Also, an analysis of the current standard costs will be done to determine if the standards are adequately established for both divisions. Finally, the company’s present workforce will be reviewed to determine if any adjustments can be implemented in order to increase value and profitability.

Situational Analysis

A. Current mission and vision

Mission: To provide customers with high-quality cleaning services at a competitive price.

Vision: To be the leader in the cleaning services industry, capturing 50% of Commercial market share and 20% of Residential market share in three years, by improving efficiency and minimizing resources

B. External Analysis

1. Industry Analysis

The cleaning service industry can be divided into two main segments, Residential and Commercial. Residential services involve general home cleaning and more specialized services, such as window and carpet cleaning. In contrast, the Commercial segment involves services on a larger scale. The Canadian market is valued at $24.8 billion with an annual growth of 2.6% (Appendix I). The industry is fragmented with many small local companies, regional and national companies (i.e. franchises or chains). Annual revenues range from $30K to $5,000K. The average revenue and net profit are $171,300 and $38,000, respectively (Appendix I).

ABC’s main competitor, in the commercial...