Supersonic Stereo, Inc

WACC

Group Members
Afran Khalid
Hassan Muhammad
Hina Ahmad
Shah-e-Ramsha Shahid

Section A
Submitted to: Prof F.A Fareedy

Introduction:
1.
2.
3.
4.
5.

Supersonic formed in 1962

Leading manufacturers of stereo equipment.
Initially experienced rapid growth due to their high-quality products.
Supersonic follows a competitive pricing model.
Stereo equipment is sold on a selective basis. Stereo equipment needs strong marketing support
and reliable servicing so only those dealers are selected who can provide these services.
Qualitative Analysis:

1. Dealers are supported by Supersonics national advertisement campaign.

2. Supersonic accounts are distributed among sales reps on the basis of size. New sales reps are
assigned a small number of accounts, as they progress they are assigned big accounts. Also, large
and profitable accounts are assigned to experienced sales representatives.
Quantitative Statements:
1. Advertising averaged 5 % of the total sales.
2. Average base salary for sales force reached $26,500 in 1998 and commissions averaged $9,500.
Total average sales force compensation was $36,000 in 1998.
3. Travel expenses are paid by Supersonic.
4. According to Stella Charlie Lyons who services three accounts and in 1997 earned $38,563.
5. Salaries of other sales representatives are: Sand is $24,500, Gallo $27,500 and Parks is $26,000.

Exhibit Analysis:
Exhibit 1:
1994
Total Sales

1995

(2,514,113-

(2,638,340-

2641,081)/2641081

2,445,120)/2,445,120

2,610,029)/2,610,029

2,514,113)/2,514,113

= -7.42%

=6.74%

= -3.67%

= 4.94%

(15,381-14,050)/14,050

(16,511-15,381)/15,381

=9.47%

= 7.35%

(14,050 / 2,445,120)

(15,381 / 2,610,029) *

(16,511 / 2,514,113) *

(14,383 / 2,638,340) *

* 100

100

100

100

= 0.57%

= 0.59%

= 0.66%

= 0.55%

13,873)/13,873

2,641,081) * 100

= 0.53%

sales

(14,38316,511)/16,511

= -12.89%

(13,873 /

Net Profit
of total

1998

(2,610,029-

=1.27%

as a %age

1997

(2,445,120-

(14,050-

Net Profit

1996

Exhibit 1 shows that sales are fluctuating over the five-year period. In 1997 sales are
dropping by almost 3.67% whereas increasing by 4.94% in 1998. However, we could see

a drop in profits in 1998 by 13%. Profits are also fluctuating over this five-year period.
Net Profit as a %age of total sales has increased from 1994 to 1997 but fell in 1998.

Exhibit 2:
Sales in 1998 are $2,638,340. Exhibit shows that cost of goods sold are too high which are
2,014,485. The following percentages are carried out to show that in most of the contribution in
expenses is made by salaries which is 29%. Then advertising expenses are too high being
21.64%. Order processing has the lowest expense which is 0/13%. Commissions have a
contribution of just 6. 14% in expenses. So, we can make a conclusion that salaries and
advertising expenses are highest.
Sales

2,638,340

Cost of goods sold

2,014,485

Gross margin

$623,855

Expenses
Salaries

(177,000/609,472) *100
= 29.04%

Commission

(37,431/609,472) *100
=6.14%

Advertising

(131,915/609,472) *100
=21.64%

Packaging

(43,642/609,472) *100
=7.16%

Warehousing and transportation

(76,374/609,472) *100
=12.53%

Travel expenses

(59,340/609,472) *100
=9.74%

Order processing

(770/609,472) *100
=0.13%

Rent

(83000/609,472) *100
=13.62%
Total expenses

Net profit (before taxes)

$609,472
$14,383

Exhibit 3:
Exhibit 3 shows the allocation of neutral accounts to financial accounts for Atlanta District.
Neytral accounts have salaries $177,000. Direct selling costs are about $106,500 which means
they are about 60% of the total salaries. Indirect selling costs are 27% of the salaries so it shows
that direct selling costs need to be reduced.
Exhibit 4:

Product

Sales in period

Advertising

Packaging

expenditures
Receivers

(787,750/2,638,340) *100

(40,000/130,000)*10
0

= 29.86%

(6302/43642)*100
=14.44%

=31%
CD Players

(1,026,715/2,638,340) *100

(50,000/130,000)
*100

= 38.9%

(24158/43642)*100
= 55.35%

=38%
Speakers

(823,875/2,638,340) *100
=31.22%

(40,000/130,000)*10

(13,182/43,642)*10

=31%

= 30.20%

CD Players are contributing 38.9% towards sales and their price is lowest being $64. Receivers
has the highest price which is $250 but they are contributing 31% in sales. Cost per unit in
receivers I very high which is $212. Receivers and speakers have the highest gross margin per
unit which is $38 but they have lowest contribution in sales. Both have advertising expenses of
31%. Also receivers have the lowest packaging costs.
Exhibit 5:
Salesperson

Receivers

Paul Sand

(668/3151) *100 (2652/12079)*100

=21.2%

Diane Gallo

Kathy Parks

Charlie Lyons

CD Players

=21.95%

(823/3151) *100

(3270/12079) *100

=26.12%

=27.07%

(816/3151) *100

(3131/12079) *100

=25.89%

=25.92%

(844/3151) *100

(3026/12079) *100

Speakers

Total

=26.78%

=25.05%

Exhibit 6:

Problems:
According to Bob Basler who is the sales manager sales are stagnant and profits are going down.
Charlie Lyons, one of the sales representative of the company is threatening Bob that he will quit
unless he received a substantial salary increase. Because according to Lyons he led the sales
district in sales volume so he should receive an ample reward.
Pete who is the national sales manager will not approve any salary increase as long as Atlanta
Districts performance is so weak.