Question

% % of Total Revenues of Total Revenues of Total Difference Revenues 2019 vs. 2018 2020 2019 2018 Water Sales $ 1,117,200 85% $ 1,064,000 84% $ 1,200,000 86% $ (136,000) Late Fees $ 78,540 6% $ 77,000 6% $ 68,000 5% $ 9,000 Hydrant fees 122,010 9% $ 124,500 10% $ 122,000 9% $ 2,500 Total Revenue $ 1,317,750 100% $ 1,265,500 100% $ 1,390,000 100% $(124,500) Cost of water sold 415,290 32% 381,000 30% 278,000 20% 103,000 Payroll expense 690,652.50 52% $ 648,500.00 51% $ 450,000.00 32% $ 198,500.00 Overhead expense 248,939.90 19% $ 262,042.00 21% $ 200,000.00 14% $ 62,042.00 Miscellaneous expense 198,066.00 15% $ 66,022.00 5% $ 78,000.00 6% $ (11,978.00) Total Expenses $ $ 1,552,948 1,552,948 11 118% $ 1,357,564 107% $ 1,006,000 72% $ 351,564 Total Income (loss) (235,198) -18% $ (92,064) -7% $ 384,000 28% $ (476,064) Customers 28,832 27,200 25,000 2,200 WATER sales per customer 38.75 $ 39.12 $ 48.00 $ (8.88)

Give your recommendation about how the management of Waterton might improve the financial performance in 2020 versus 2019 based on your initial budget projections for 2020 (3-5 sentences minimum). What is going to happen in 2020 based on what you see in your projections? Think in terms of how management might specifically address the trends in its revenue and expenses in order to increase net income.

Answer 1

2019 V 2020

Recommendation 1 : The management of Waterton should try to Analyse the increase in Miscellaneous Expenses and ways to reduce that

While analyzing 2019 and 2020 , the major increase happened to the item Miscellaneous Expenses from 5% of the total revenues to 15% of the total revenues which is $ 1,32,044. If this would be avoided , the loss can be reduce to $ 1,03,154 which would be approximately -7.83% (in 2019 it was -7%) of the Total Revenue.

Recommendation 2 : Try to Increase the customer base

If customer base (number of customers) gets increased , then the revenue from water sale will get increased. Thereby improving the net revenue.

Recommendation 3 : Analyse payroll expenses and Cost of water sold

If possible to reduce the above two , should bring improvement in the net income for 2020.

What is going to happen in 2020 based on what you see in your projections?

2020 would be more or less similar to 2019 in case of Revenue , if the management is not able to limit the costs the net loss would be higher compared to 2019.

Think in terms of how management might specifically address the trends in its revenue and expenses in order to increase net income:

In this case payroll expenses and Miscellaneous Expenses   shows a steep increase in 2020 over 2018 and 2019. If the management able to identify and curb this expenses coupled with increase in customer base will result a better net income for the waterton.