TRADE SHOWS

There would be 10 potential trade shows that the partners would be interested in attending.
Registration for each of these trade shows would cost on average CA$3,000.The booth would
cost $4,000 and could be used for 30 shows. The booth would need to be shipped to each trade
show at an average cost of $1,500. Travel costs would average $1,000 per show for each of the
two partners
Promotional materials and product samples would cost $2,800 per show. The partners estimated
that an average retailer order would consist of 25 necklaces and 12 pairs of earrings. Labor fees,
for a total cost of $8.05 per necklace A pair of earrings cost approximately $5.50 to manufacture.
Retailers would purchase necklaces for $17 and earrings for $12 from Foxy which they would
mark up and then sell to their customers for $34 and $24, respectively. Shipping terms were FOB
shipping point, and the average cost was $15 per order. All products would continue to be sold
for the same amount in both the United States and Canada (i.e., a necklace that sold for CA$34
in Canada would be sold for US$34 in the United States).
The partners expected anywhere from 20 to 45 orders from each trade show. Historically, 50 per
cent of the retail buyers at the trade show reordered products approximately two times a year.
ONLINE SALES
Foxy was charged a specific amount per click (set by the partners) when the reader clicked on
their advertisement. A daily budget was set and, once reached, the advertisement would no
longer be shown that day. If the partners opted to devote more focus to online sales, Foxy’s
annual budget would be equivalent to the amount of the annual recurring cash costs to attend the
additional trade shows.
Ger and Chemel estimated that Foxy’s competitive bid price per click would be $1.05. If, instead
of attending additional trade shows, they allocated all of the recurring annual cash costs of
attending 10 trade shows toward an online marketing campaign, the partners estimated that
between 3 per cent and 5 per cent of all website visitors would make a purchase. On average,
each order would consist of one pair of earrings and two necklaces.Shipping terms were FOB
shipping point and totalled $8 per order, regardless of the size of the order and its final
destination. All items for sale online would be priced the same as they were in retail stores.
CONCLUSION
Decision, when implemented, would increase Foxy’s overall profits by at least $100,000.
Cost-Volume-Profit (CVP) Analysis To work this case you need to know how to calculate
Break-Even, Target Profit and Margin of Safety. The text provides the formulas, but how do you
implement the formulas in a real-world situation?
There are two potential strategies to consider: Trade Show, and On-Line Trade Show Things you
will need to consider or calculate:
Investment They need a booth for their trade show presence; Cost; useful life; depreciation
Fixed Costs Registration Shipping Costs (for the booth) Travel Expenses (for the two partners)
Promotional materials and samples Depreciation expense (from the above investment) Average
trade show order Necklace selling price and number of units Earrings selling price and number
of units Contribution Margin ($ and %) Necklace per unit and per order Earrings per unit and per
order
Total per order Estimated orders per show High estimate and low estimate Reorders: 50%
reorder twice a year Total per order Calculations needed Break-even units (orders) Break-even
sales (dollars) Target profit units (orders) Target Profit sales (dollars) Margin of safety (for high
and low estimate) Prepare a contribution margin format income statement On-Line Things you
will need to consider or calculate: Investment Do they need a booth if they go on-line? Fixed
Costs Assume the same budget as trade shows $93,000 Cost per click $1.05 (given)
Divide $93,000 by $1.05 to get number of clicks 3% to 5% of visitors will make a purchase
Calculate low estimate and high estimate of orders Average on-line order Necklace selling price
and number of units Earrings selling price and number of units Total selling price and number of
units Contribution Margin ($ and %) Necklace per unit and per order Earrings per unit and per
orderTotal per order Be sure to calculate the $ and the %! Estimated orders on-line High estimate
and low estimate
Total per order High estimate and low estimate of sales Calculations needed Break-even units
(orders)
Break-even sales (dollars) Target profit units (orders) Target Profit sales (dollars) Margin of
safety (for high and low estimate) Prepare a contribution margin format income statement
Decision You have the quantitative data you need Don’t forget the qualitative data (read the
case!)