Course Code: ACN202 - Section 01 Semester: Spring2021

Term Assignment

Prepared For
Ms. Nimat Zarin
Lecturer
Department of Accounting
Independent University, Bangladesh

Prepared By
Sabrina Islam
ID 1730802

Submission Date
April 18, 2021
 Overview

The founders of Foxy Originals, Jennifer Ger and Suzie Chemel, established the company in
the year 1998 while they were studying at the Western University. As both of them had
experiences of working in the similar industry, they succeeded in their initiative of starting
their own business. Designed and Manufactured in Canada, the company’s sales increased
significantly within a few years.

The company offered varieties of products to their customers such as necklaces, bracelets etc.
to it’s customers. In recent years, the company had tremendous sales growth in US. From
2009, the founders started selling their products through online distribution strategy in
addition to their existing retail locations.

At present they are thinking about whether they should focus on the online sales strategy or
they should give priority on attending trade shows.

Qualitative Assessment
Trade Shows Online Sales
The founders can network with the members Online sales do not give the founders the
of the jewellery industry by attending the opportunity to know the ongoing market
trade shows. trends.
Trade shows offers the buyers the In online sales it might happen that some
opportunity to directly interact with the customers might not make a purchase in
buyers. online due to not having prior knowledge of
the products.
Due to higher work pressure, the founders The founders can give more time to their
can’t main a healthy work life balance. families if they focus more on the online
sales strategy and thus can easily maintain a
healthy work life balance.
Trade shows provide Foxy Originals with Online sales offers the company greater
limited market coverage as the company has market coverage.
retail locations only in US and Canada

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Identification of All Costs (Except for Variable Costs)

Investments
CA$4000 ( Booth cost that could be used for 30 shows)

Total = CA$4000

Fixed Cost

Registration = CA$3000 per show

Booth Shipping=CA$1500 per show

Travelling=CA$2000 per show

Promotional Materials=CA$2800 per show

Total= CA$9300

If the partners decide not to attend the trade shows, $ 93,000 will be available for the
online marketing campaign for FY 2014/15. The calculation is:

Registration Cost = CA$3000 per show* 10 shows per year = CA$30000

Booth Shipping Cost = CA$1500per show* 10 shows per year = CA$15000

Travelling = CA$2000 per show* 10 shows per year = CA$20000

Promotional Activities = CA$2800 per show* 10 shows per year = CA$ 28000

Total Recurring Annual Costs = CA$93000

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The variable costs remain the same under the both strategies.

Variable Cost of the products

Products Trade Show Online Sales
Necklaces 8.05 8.05
Earrings 5.5 5.5

The Variable Costs Per Order

Trade Show
Average Order Variable cost per unit Total Variable
Cost
Necklaces 25 units 8.05 201.25
Earrings 12 units 5.5 66
Total Variable cost per order CA$267.25

Online Sales
Average Order Variable cost per Total Variable Cost
unit
Necklaces 2 units 8.05 16.1
Earrings 1 unit 5.5 5.5
Total Variable cost per order CA$21.6

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 Contribution Margin CalculationsXTrade Show
Products Sales Variable Contribution Margin Per Contribution Margin
Cost Unit Rate
Necklaces 17 8.05 8.95 52.65%
Earrings 12 5.5 6.5 54.17%

XOnline Sales
Products Sale Variable Contribution Margin Per Contribution Margin
s Cost Unit Rate
Necklaces 34 8.05 25.95 76.32%
Earrings 24 5.5 18.5 77.08%

Weighted Average Contribution Margin Rate Per Order

Trade Show
Average Order Selling Total Variable Total CM Total CM
Price Sales cost per Variable Per CM Rate
Per unit Cost Unit
Unit
Necklaces 25 17 425 8.05 201.25 8.95 223.7 52.65%
units 5
Earrings 12 12 144 5.5 66 6.5 78 54.17%
units
Total 27 569 267.25 301.7
units 5

Online Sales
Average Order Selling Total Variable Total CM Total CM

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 Price Sales cost per Variable Per CM Rate
Per unit Cost Unit
Unit
Necklaces 2 34 68 8.05 16.1 25.95 51.9 76.32%
units
Earrings 1 unit 24 24 5.5 5.5 18.5 18.5 77.08%
Total 3 92 21.6 70.4
units
XWeighted average contribution margin rate for an order
Trade Show 52.65%(25/37)+54.17%(12/37) 53.14%
Online Sales 76.32%(2/3)+77.08%(1/3) 76.57%

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Foxy Originals Break-Even Point Calculations

Trade Show
Fixed Costs Contributio Break-Even Point
n Margin
Per Order
Registration CA$3000 per 30000
show* 10
shows per year
Booth CA$1500per 15000
Shipping show* 10
shows per year
Travelling CA$2000 per 20000
show* 10
94333.33/301.75
shows per year
Promotional CA$2800 per 28000 301.75 =312.62 Orders
Activities show* 10
shows per year
Depreciation (CA$4000/30 1333.33
shows)*10
shows per year
Total Fixed Costs 94333.33

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 Online Sales
Fixed Costs Contribution Break-Even Point
(Equals to the recurring annual cash Margin Per
costs of attending 10 trade shows) Order
Registration CA$3000 per 30000
show* 10
shows per
year
Booth CA$1500per 15000
Shipping show* 10
shows per
year
70.4 93000/70.4
Travelling CA$2000 per 20000
=1321.02 Orders
show* 10
shows per
year
Promotional CA$2800 per 28000
Activities show* 10
shows per
year
Total Fixed Costs 93000

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Profitability Analysis of Each Distribution Channel

Trade Show
Particulars Minimum Maximum
Orders ( 20 to 45 orders per show * 10 shows per year) 200 450
Reorders(50% of 200;450)*(Two times a year) 200 450
Total Orders 400 900
Sales ( CA$569*400,900) 227600 512100
Variable Costs(CA$267.25*400;900) 106900 240525
Contribution Margin 120700 271575
Fixed Costs 94333.33 94333.33
Operating Profit 26366.67 177241.67

Margin of Safety( Sales - Breakeven Sales of CA$ 177880.78) 49719.22 334219.22

Margin of Safety in percentage 21.85% 65.26%
XOnline Sales
Particulars Minimu Maximu
m m

Orders 2657.14 4428.57

(Annual Budgeted Cost CA$93000/CA$1.05 per click=
88571.429 clicks; 3% to 5% of 88571.429 clicks leads to a
purchase order

Sales(CA$92*2657.14;4428.57) 244457.1 407428.57

4
Variable Costs(CA$21.6*2657.14,4428.57) 57394.29 95657.14
Contribution Margin 187062.8 311771.43
6
Fixed Costs 93000 93000
Operating Profit 94062.86 218771.43

Margin of Safety( Sales - Breakeven Sales of CA$121533.84 ) 122923.3 285894.75

0
Margin of Safety in percentage 50.28% 70.17%

Conclusion

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From the qualitative analysis it is evident that both these distribution strategies involve
positive and negative sides. While the Trade show distribution requires a much busier and
more demanding work schedule, the Online Sales strategy provides the founders with a work
life balance. The online sales distribution strategy has significant sales growth potential as
well.

Furthermore, the Online Distribution strategy generates higher operating income and higher
margin of safety than the trade show distribution strategy. So, the founders should go for the
online sales strategy.

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