Pete\'s B Case - Notes for laura allan PDF

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Notes for laura allan...

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Pete's B Case Information

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Suggestion by supplier - Buying a new inventory system will lower COGS to 55% of sales - Net sales from income statement - Jan 31 2013: 132,600 - Gross Earnings: 53,040 - Currently his COGS is 60% of his sales - COGS go down to 72930. That is a 6630 decrease - The one con of this inventory system is the cost - New system will cost $4200 per year

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Ways to increase sales - Pete has budgeted $5000 for advertising - Lowering average product price from $3 to 2.85 (down 5 percent) - One cent commission to employees for each product sold

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New Delivery Idea - With the delivery service, Pete will be able to service 5% of the 12000 students (600) - It will increase the average money spent by each student from 50 to 150 (600*150) - This will last for 8 months - Needs 2 delivery vans which cost him 21,500 per van - Two new employees, each salary is 42,000 - Creating and maintaining the new system will cost 18,000 per year - The VCRR will increase by 15% - Another 10,000 per year to advertise to students.

1. Net Sales: 132600 132600 x 55% = 72930 COGS difference: 79560 - 72930 = 6630 6630 - 4200 =2430 Added benefit of 2430 per year I would advise him to do this as it will make him more profitable. 2. Marketing expense: 2000 Added marketing expense: 5000 Net marketing expense: 7000 (2000+5000) Average price per product is $3 but will be lowered by 5% 3 - (3*0.05) = 2.85 132600/3 = 44200 44200*1.1 = 48620 48620 * 2.85 = 138567 48620 * 0.01 = 486.2 1.8 * 48620 = 87516 Gross earning would be less than previous years. Therefore, would not advise this option.

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5% * 12000 = 600 Original Revenue: 600 * 50 = 30,000 New Revenue: 600 *150 = 90,000 He would make 60,000 more by targeting students

Costs: 21500 * 2 = 43,000 + 42000 * 2 = 84,000 + 18,000 * 1 =18000 + 10,000 for additional marketing Extra Revenue minus Extra Costs 60,000 - (43000+84000+18000+10000) = -95, 000 Currently, we would be losing money so I would not advise this....