Management Accounting (ACN202) Sec 6

Submitted by Arif Islam ID 1610257

Nowrin [Date] [Course title]

 1

Contents
Assess each distribution strategy from a qualitative point of view. .............................................................. 2
Identify all costs, other than variable costs, for the trade show distribution strategy. Categorize these costs
as investments or fixed costs (per trade show and for FY 2014/15) ............................................................. 2
If the partners decide not to attend the trade shows, what is the total available increased amount for the
online marketing campaign for FY 2014/15? ............................................................................................... 3
Calculate the variable costs per order incurred at a trade show and the variable cost per order in online
order. ............................................................................................................................................................. 3
For each distribution strategy, calculate the unit contribution and the contribution margin rate for each of
the two product lines (necklaces and pairs of earrings). What is the weighted average contribution margin
rate for an order at the trade show and online order? .................................................................................... 4
 2

Assess each distribution strategy from a qualitative point of view.

For the US trade show
It will give the product more exposure to potential buyers
• A place for retailers to view and source the products from wholesalers & importers
• A huge event with more than 75000 people in attendance
• There will be 10 potential shows throughout Canada & United States in 2015
• All the registrations must be done within November 2014
• CA$ 3000 is the average registration cost for each show
• Each show preparation requires 5 days
• Each last 3 days; 9 hours
As the owners will be the people selling the products, their energy and enthusiasm is what helped
to get their products in Canadian stores
• It will immensely help in networking with the people in the industry & sell the merchandise
• Enable the partner to be part of the largest fashion hubs in the United States
Since the partners are not as familiar with U.S. trends and there will be
such a diverse group of buyers in attendance it will be difficult to predict
what merchandise will sell
• There could be trouble with back ordering
Could cause sales to be scattered across stores diverse in geography
and brand image
• They might not be able to show the brand image they want to display & might & not all
cities will acceptable

Identify all costs, other than variable costs, for the trade show
distribution strategy. Categorize these costs as investments or fixed costs
(per trade show and for FY 2014/15)

Investments Fixed Costs

Booth: $4,000 (lasts 30 shows) Registration: $3000/show
Booth Shipping: $1,500/show
Travel Tickets: $2,000/show
Product/Promo: $2,800/show
 3

If the partners decide not to attend the trade shows, what is the total
available increased amount for the online marketing campaign for FY
2014/15?
The total cost of one show is : $3000 + $1500 + $1000 + $2800 = $8300
Therefore the cost of 10 shows: 10 X $8300 = $83000

Do the variable costs for both products (necklaces and pairs of earrings)
differ between trade shows and online sales? By how much does it
differ, if it does differ?
Trade Show Online Sales
Necklace: $8.05 per necklace Necklace: $8.05
Earrings: $5.50 per pair Earrings: $5.50
Commission: $1.05 per click
Difference is $1.05 commission per click

Calculate the variable costs per order incurred at a trade show and the
variable cost per order in online order.
For the trade show
Item Calculation Total
Necklaces $8.05 x 25 necklaces $201.25
Earrings $5.50 x 12 pairs $66
Total $267.25

For Online sales

Item Calculation Total
Necklaces $8.05 x 2 necklaces $16.1
Earrings $5.50 x 1 pair $5.50
 4

Shipping $8 per order $8

Total $29.6

For each distribution strategy, calculate the unit contribution and the contribution
margin rate for each of the two product lines (necklaces and pairs of earrings).
What is the weighted average contribution margin rate for an order at the trade
show and online order?

Trade Shows

Necklaces Earrings
Sales price $17 Sales price $12
Less: COGS ($8.05) Less: COGS ($5.50)
Unit Contribution $8.95 Unit Contribution $6.50
CMR (8.95/17) = 52.6% CMR (6.50/12) = 54.2%

Online Sales

Necklaces Earrings
Sales price $17 Sales price $12
Less: COGS ($8.05) Less: COGS ($5.50)
Less: Commission $1.05 x 2 = ($2.1) Less: Commission $1.05 x 1 = ($1.05)
Unit Contribution $6.85 Unit Contribution $5.45
CMR (6.85/17) = 40.3% CMR (5.45/12) = 45.4%

Weighted average contribution margin rate for an order at the trade show:

Necklace: 25, Earrings: 12, Total: 37

[52.6% (25/37)] + [54.2% (12/37)] = 53.12% (In Units)

Weighted average contribution margin rate for an order at the online sales:
 5

Necklace: 2, Earrings: 1, Total: 3

[40.3% (2/3)] + [45.4% (1/3)] = 42% (In Units)

Calculate Foxy’s Break-even point for each distribution strategy.

Trade show

Fixed cost
Registration: $3000 x 10 shows $30000
Booth shipping: $1500 x 10 shows $15000
Travel tickets: $1000 x 10 shows $10000
Product/ promo: $2800 x 10 shows $28000
Total fixed costs: $83000

Break-even sales dollars: Total cost/ Weighted Avg. CM = 83000/53.12% = $ 156250

Online sales

Fixed cost
Marketing campaign: $8300 x 10 $83000
Shipping cost: $8 per order $8
Total fixed costs $83008

Break-even sales dollars: Total cost/ Weighted Avg. CM = 83008/42% = $197638

Which distribution channel is projected to be more profitable in 2015?

Trade show:

Expected number of orders/ Year

Average sales per show: (20+45)/ 2 = 32.5

Reorders: (32.5 x 50%) x 2 = 32.5

Total sales per show: 32.5 x 2 = 65

 6

Total sales per year: 65 x 10 = 650

Necklace sales: ($17 x 25) = $425 – COGS ($8.05 x 25) = $223.75

Earrings sales: ($12 x 12) = $144 – COGS ($5.50 x 12) = $78

Total = $301.75

Gross sales $301.75 x 650 $196138

Less: Fixed costs ($93000)
Total profits $103138

The total profits for online sales is $100000

As per Ger and Chemel, perform relevant analysis and give a final decision.
Support your decision with relevant justifications.
From all the calculation and answers we can conclude that the trade show is more profitable by $ 3138