Ron Miron, president of Champion’s Sporting Goods (CSG), was concerned about the profits earned by CSG during the fiscal year ending July 31, 2012. He had expected to sell 4,400 ski packages and earn $143,250 before taxes; actual profits earned were only $36,950. 

The market for ski equipment is large and competitive. Ron had established a successful operation by specializing in low-cost mail-order ski packages. By offering only two packages, Ron was able to keep overhead costs to a minimum and negotiate favourable discounts from the ski equipment manufacturers. Both the downhill and cross-country ski packages contained skis, boots, poles, and a waxing kit.

Ron hired a consultant, Doreen Wilson, CMA, to analyze the last fiscal year’s results. “I just don’t understand what went wrong,” said Ron. “Things just did not happen the way I thought they would. For example, I was forced to cut our prices midway through the season because one of the big chain stores cut their prices. But I bargained with our suppliers and they gave us a break, which I thought would keep us on target. Then we had to spend a bit more on advertising to let everybody know about our new prices and another clerk had to be hired to speed up the order processing. Still, these two changes account for only $40,000. To top it all off, the Ski Retailers Association magazine just reported that more Canadians bought ski packages this past season than ever before. Early estimates were that 44,000 ski packages would be sold and it ended up that 48,000 packages were sold in Canada last season. My bookkeeper, Teresa, has put together these numbers. [See Exhibits 12A-3 and 12A4.] Please conduct a detailed analysis of last year’s results. Prepare a report that explains why we did not realize our expected profits and include a recommended strategy, detailing information required, which will bring our profits back up.” 

Required 

Prepare the analysis and the report requested by Ron Miron.

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Exhibit 12A-3 Champion's Sporting Goods Master Budget for the Year Ended July 31, 2012 Cross- Downhill Total Country Package Package Sales volume 3,100 1,300 4,400 Total sales revenue $542,500 $455,000 $997,500 Cost of goods sold Shipping 221,000 263,500 484,500 54,250 45,500 99,750 Total variable costs 584,250 413,250 317,750 266,500 Contribution margin $224,750 $188,500 Fixed costs: Advertising & promotion 210,000 Administration 60,000 Net income before $143,250 taxes Budgeted Data Per Package Selling price Cost of goods sold Shipping Total variable costs per package Cross- Downhill Country $175.00 $350.00 $ 85.00 $170.00 17.50 35.00 $102.50 $205.00 Exhibit 12A-4 Champion’s Sporting Goods Actual Results for the Year Ended July 31, 2012 Cross- Downhill Total Country Package Package Sales volume 3,100 980 4,080 Total sales revenue $511,500 $333,200 $844,700 Cost of goods sold Shipping 257,300 54,250 151,900 34,300 409,200 88,550 Total variable costs 311,550 186,200 497,750 Contribution margin $199,950 $147,000 346,950 Fixed costs: Advertising & promotion 230,000 Administration 80,000 Net income before $ 36,950 taxes Actual Data Per Cross- Downhill Package Average selling price $165.00 Average cost of goods sold Country $340.00 $83.00 $155.00 Shipping Total average variable costs per package 17.50 35.00 $100.50 $190.00