Supersonic Stereo, Inc.

People:

Pete Lockhart (National Sales Manager)

Bob Basler (Sales Manager - Atlanta district)
Stella Jordan (Executive)
Paul Sand (Sales representative)
Diane Gallo (Sales representative)
Kathy Parks (Sales representative)
Charlie Lyons (Sales representative)

Place:
Atlanta District

Product:

Receivers

Turntables

Speakers

Price:
Selling
Price per
Unit
$ 250
$ 85
$ 125

Product
Receivers
Turntables
Speakers

Promotions:

Advertisements: 5% of Sale

Problem:

Sales Y-O-Y were falling in Atlanta region.

1980

Total sales
Net profit
Net Profit
Margin
% change is
sales
%change in
profit

$
2,641,081
$
13,873

1981
$
2,445,120
$
14,050

1982
$
2,610,029
$
15,381

1983
$
2,514,113
$
16,511

1984
$
2,638,340
$
14,383

0.0053

0.0057

0.0059

0.0066

0.0055

0.00%

-7.42%

6.74%

-3.67%

4.94%

0.00%

1.28%

9.47%

7.35%

-12.89%

Sales representative Charlie Lyons, a highly paid salesperson is asking for a raise or else
hell leave the organization.

Guidelines for Functional Cost Items:

Direct Selling
Customers of
Charlie Lyons
American TV
Appliance Mart
Audio Emporium

Number of calls x

Average time spent

with each customer

Direct selling
per customer

65

55

3575

55

45

2475

50

45

2250

Direct selling As per customers (minutes)

3575

2475

American TV

Appliance Mart

2250

Audio Emporium

Commissions: 6% of gross margin

Number of Units Purchased
Receivers
Turntables
$
Paul Sand
$
1,523
3,342
$
Diane Gallo $
1,876
4,120
$
Kathy Parks $
1,860
3,945
Charlie
$
Lyons
$
1,924
3,813
$
Total
$
7,184
15,220
Salesperso
ns

Speakers
$
3,498
$
3,607
$
3,598
$
4,325
$
15,027

Total
$
8,362
$
9,604
$
9,403
$
10,062
$
37,431

Commissions: Products vs salespersons

Paul Sand

Kathy Parks

Diane Gallo

$4,325

$3,813
$4,120
$1,924
$3,945
$1,876
$1,860

Charlie Lyons

$3,607
$3,598
Charlie Lyons

$3,498

$3,342

Diane Gallo

$1,523

Kathy Parks
Paul Sand

Receivers

Turntables

Customers of
Charlie Lyons

Speakers

Number of Units Purchased

Turntable
s
Speakers
Total by customers
$
$
$
1,906
1,947
4,816

Receivers

American TV
$

962

Appliance
Mart
$

768

Audio
Emporium
$
Total by
product

194

1,924

$
1,333

$
1,297

$
573
$
3,813

$
1,081
$
4,325

Commissions: Products vs Customers

Audio Emporium

Appliance Mart

$1,947

$1,906
$962

$1,333

$768

American TV

$1,297
$1,081

$573

American TV
Appliance Mart

$194

Audio Emporium
Receivers

Turntables

Speakers

$
3,399
$
1,848
$
10,062

Travel: (Total travel cost/Number of calls)*Individual sales calls/Customer calls

Salesperson
Paul Sand
Diane Gallo
Kathy Parks
Charlie Lyons

Travel
$
10,732
$
13,257
$
13,888
$
21,463

Direct cost
$
10,232
$
12,757
$
13,388
$
20,963

Indirect cost
$
500
$
500
$
500
$
500

Travelling cost as per salesperson

$21,463

$13,257

$13,888

Diane Gallo

Kathy Parks

$10,732

Paul Sand

Customers
American TV
Appliance Mart
Audio Emporium

Charlie Lyons

Travel
$ 8,207
$ 6,944
$ 6,313

Travelling cost as per customers

$8,207
$6,944

American TV

$6,313

Appliance Mart

Audio Emporium

Supersonic Stereo
Inc.xlsx

Questions:
Q1: Do you agree with the way functional costs are allocated? What changes would
you recommend?

Based on the data and the guidelines formulated by Stella Jordan and Bob
Basler the functional cost focus on both order getting and order filling costs.
Some of the Functional cost items (FCIs) can be better allocated:
Direct selling lacks data for other salesperson's customers
Travel cost should take in the average distance travelled for orders from
customers.
Packaging should also take into account the dimensions and weight of the
products.
Similarly for warehousing and transportation
I would suggest Activity Based Costing for FCIs instead of taking average
costs.

Q2: Prepare a profitability analysis for each sales representative

Sale
Cost
Gross Margin

Salaries (Direct)

Paul Sand

Diane Gallo

Kathy Parks

Charlie Lyons

Total

$
584,170
$
444,802
$
139,368

$
681,450
$
521,390
$
160,060

$
667,385
$
510,662
$
156,723

$
705,335
$
537,631
$
167,704

$
2,638,340
$
2,014,485
$
623,855

24,500
$
10,927
$
2,571
$
2,447
$
8,362
$
10,732
$
29,209
$
9,708

27,500
$
12,265
$
3,643
$
2,861
$
9,604
$
13,257
$
34,073
$
11,350

26,000
$
11,596
$
2,571
$
2,785
$
9,403
$
13,888
$
33,369
$
11,050

28,500
$
12,711
$
3,214
$
2,907
$
10,062
$
21,463
$
35,267
$
11,534

106,500
$
47,500
$
12,000
$
11,000
$
37,431
$
59,340
$
131,917
$
43,642

$
16,989

$
19,863

$
19,338

$
20,185

$
76,374

$
165
$
126,960

$
234
$
146,182

$
165
$
130,166

$
206
$
146,050

Net Profit

$
12,408

$
13,878

$
26,557

$
21,654

$
770
$
526,474
$
83,000
$
14,381

Gross Profit
Margin
Net Profit
Margin

$
0.2386
$
0.0212

$
0.2349
$
0.0204

$
0.2348
$
0.0398

$
0.2378
$
0.0307

$
0.2365
$
0.0055

Salaries
(Indirect)
Sal Order
processing
Sal Packaging
Commissions
Travel
Advertising
Packaging
Warehousing
and
transportation
Order
processing
Total Expense
Rent

profitability analysis for each sales representative

Paul Sand

Diane Gallo

Kathy Parks

Charlie Lyons

$705,335
$667,385
$681,450
$537,631
$584,170

$510,662
$521,390

$444,802

$167,704
$156,723
$160,060

$146,050
$130,166
$146,182

$139,368

$35,267
$126,960
$28,500
$21,654
$12,711 $3,214 $2,907 $10,062 $21,463
$11,534 $20,185 $206
$33,369
$26,557
$26,000
$11,596 $2,571 $2,785 $9,403 $13,888
$11,050 $19,338 $165
$34,073
$27,500
Charlie Lyons
$13,878
$12,265 $3,643 $2,861 $9,604 $13,257
$11,350 $19,863 $234
$29,209
$24,500
Kathy Parks
$12,408
$10,927 $2,571 $2,447 $8,362 $10,732
$9,708 $16,989 $165
Diane Gallo
Paul Sand

Though Charlie has more sales volumes but hit net profit contribution is less than
that of Kathy. Charlie expenses are high which lower his net profit contributions.
Therefore on the basis of profitability analysis Charlie can denied a salary hike.

Q3: Prepare a profitability analysis for Charlie Lyons's customers.

American
Appliance
TV
Mart
$
$
Sales
340,855
245,305
$
$
Cost
260,594
188,659
$
$
Gross Margin
80,261
56,646
Direct selling (minutes)

3575

Audio
Emporium
$
119,175
$
88,378
$
30,797

2475

2250

Total Expense

$
4,816
$
8,207
$
17,043
$
5,578
$
9,762
$
110
$
45,515

$
3,399
$
6,944
$
12,265
$
3,928
$
6,874
$
41
$
33,451

$
1,848
$
6,313
$
5,959
$
2,028
$
3,549
$
55
$
19,751

Net Profit

$
34,746

$
23,195

$
11,046

Commission
Travel
Advertising
Packaging
Warehouse and
transportation
Order and processing

Gross Profit Margin

Net Profit Margin

0.2355
0.1019

0.2309
0.0946

0.2584
0.0927

profitability analysis for Charlie Lyons's customers

Audio Emporium

Appliance Mart

American TV

$340,855

$260,594
$245,305
$188,659

$80,261

$119,175
$88,378

$45,515

$56,646
$30,797

$2,475
$2,250

$8,207

$4,816

$3,575

$3,399
$1,848

$6,944
$6,313

$17,043

$12,265
$5,959

$3,928

$2,028

$9,762

$5,578

$6,874
$3,549

$110 $33,451
$41

$19,751

$55

$34,746

$23,195

$11,046

American TV
Appliance Mart
Audio Emporium

America TV is the biggest customer in terms of volume and sales.