ASSIGNMENT 4 - MAKING A PROFITABLE PRODUCT SELECTION

Assignment Description

Assignment Instructions

Materials and Resources

ASSIGNMENT DESCRIPTION

After Day 7 class At Home, you have the opportunity to practice what you learned in class by completing a case study which allows you to explore the course content applied in real-life scenarios. This case study is worth 1.5% of your overall grade.

You will be completing this case study in a group setting. You must show your work to answer the tasks within each of the case studies below and share your responses in a thread. The purpose of this Assignment is to create a community where everyone learns from each other and collaborates to execute mathematical operations accurately, apply a systematic approach to solve problems, and use a variety of thinking skills to anticipate and solve problems.

THE SITUATION

Lightning Wholesale is looking at changing its ski product line for 2014. It wants to carry only two brands of skis. It has received four offers from four different ski manufacturers. The details of the offers are in the first table. It will select the two brands that offer the highest total profit. The accounting department has analyzed 2013 sales and provided the income statement summarized in the second table, which specifies the percentage of each category that is attributed to the sporting goods department.

THE DATA

Last Year's Employee Compensation Information:

	Nordica	Fischer	Ogasaka	Atomic
List Price	$799.95	$914.99	$829.95	$839.99
Discounts:
Retail	40%	40%	40%	40%
Wholesale	5%	11%	6%	7%
Seasonal	3%	5%
Sale	5%		5%	10%
Loyalty	3%		5%
Quantity	3%	4%	5%	2%

	Lightening Wholesale Income Statement
	Year 2013	Allocation of Dollars to Sporting Goods
Sales Revenue	$57,777	20%
Cost of Goods Sold	$50,445	19%
Operating Expenses
Sales & Marketing	$3,234	18%
General & Administrative	$348	14%
Payroll	$1,416	19%
Total Operating Expenses	$4,998
Operating Income	$2,334
(all dollar figures are in thousands)

IMPORTANT INFORMATION

All of Lightning Wholesales retail customers plan to sell the skis at the list price.

Lightning Wholesale prices all of its skis on the assumption that all of its retailers use the standard industry markup of 40% of the regular selling price.

Skis fall into the sporting goods category for Lightning Wholesale.

Expenses are assigned to products based on the percentage of cost method for each category.

Forecasted sales for each brand (if carried by Lightning Wholesale) in 2014 are as follows:

Nordica = 380 units

Fischer = 270 units

Ogasaka = 310 units

Atomic = 300 units

YOUR TASKS

Based strictly on financial considerations, recommend which two brands Lightning Wholesale should carry in 2014.

a. Using the appropriate table, calculate the net price (cost) of each brand of skis. b. To determine the expenses for each brand of skis:

i. Using the appropriate table, calculate the dollar values assigned to sporting goods for each row by multiplying the company total by the allocation percentage. ii. Total the dollar amount of the expenses. iii. Convert the total expenses into a percentage of cost. iv. Calculate the expenses for each brand using the percentage of cost.

c. Using the appropriate table, calculate the wholesale price (the amount at which Lightning Wholesale will sell the skis to a retailer). d. For each brand, calculate the profit per unit. e. Calculate the total profitability for each brand.

2. At the end of the year, if any inventories are left over, Lightning Wholesale clears out all ski products at break-even.

a. Determine the break-even prices for the two recommended brands. b. Determine the markdown percentage that can be advertised for each recommended brand.

You will get the opportunity to discuss this assignment with your classmates and ask your instructor questions at the start of next class. If you have doubts about any of the questions you answer for this assignment, make sure to bring them to your instructors attention.