Case Overview:

This case discusses Innovative Sports, a company who sells golf products. In

particular, we are focusing on a product named puttmaster, which is used to help a golfer

get the feel of the correct way to putt. Innovative Sports sells their products through a

distributor to both a retail setting and on TV infomercials. The numbers are given in each

instance on what Innovative Sports revenues and expenses are in retail and infomercials.

We have been asked to analyze the numbers and make a decision on how many

infomercials to schedule in order to maximize our dollars.

Concepts Addressed:

The concepts addressed in this case include contribution margin, opportunity

costs, fixed costs, and variable costs. Contribution margin is the price per unit minus the

variable costs per unit. The selling price per unit of $85.90 minus the variable cost per

unit of $17.35 gives us a contribution margin of $68.55. This gives us the amount as to

which we can make per unit, but not including our fixed costs. Opportunity costs are

those benefits forgone by choosing one alternative over another based on the best

alternative. There are many examples that can help better explain what opportunity cost

are. Michael Noer sums it up in his definition, “In essence, the idea is that if you spend

your money--or your time--doing one thing, you can't be doing something else with it.”

The opportunity cost in this case can be explained by choosing whether or not to go

ahead with the 3rd infomercial and pay the extra cost of another thus increasing revenue or

not thus giving up the chance of increased revenue. Fixed costs are those costs that can

not be ignored and are constant within each time period. Our fixed cost within this
period is the cost of a 30 second infomercial which is $845,000. Variable costs are those

that can be compared to by unit. Our variable costs in this case are $7.80 and are

comprised of these three costs: shipping, processing, and actual costs.

Evaluation of Alternatives:

Please see Appendix 1 (Attached Excel spreadsheet per infomercial).

Recommendation:

After analyzing the data in our Excel spreadsheet, we recommend that Innovative

Sports schedule 3 infomercials. If they schedule any more than 3 they will be losing

money by stealing away too many retail sales. In fact, they may only want to schedule 2

infomercials, as the 3rd infomercial will not net them much income for the amount of time

and money spent to organize it. There are no costs incorporated in this case for labor and

time to get the presentation set up, etc. While no costs are assigned to this in the case,

this may increase the costs enough to offset the minor net income from the 3rd

infomercial. They may be better served to spend their money on an advertising campaign

instead of another infomercial.

References:

Noer, Michael. (2007). Retrieved March 9, 2008, from Forbes, Business Web site:

http://www.forbes.com/entrepreeurs/2007/10/09/opportunity-cost-economics-ent-

dream1007-cx_mn_1009decision.html

Zimmerman, Jerold L. (2003). Accounting for Decision Making and Control (4th

ed.). New York: McGraw-Hill/Irwin.