Management Accounting (ACN202) Sec

6
Submitted by
Name : Afsana Hannan
ID : 1721544
Date : 17/04/21
Table of contents

Topics Page no.

Cover Page 01

Table of contents 02

Description about ‘Foxy Originals’ 03

Assessment of their distribution strategies from a qualitative point 04-05

of view
Identification of all costs, except variable costs for Trade 06
Show distribution
The total available increased amount for the online marketing 07
campaign for FY 2014/15 if Foxy Originals decide not to attend
trade shows & sell jewelries online
The difference in variable costs for both products (necklaces and 08
pairs of earrings) from trade shows and online sales
The variable costs per order incurred at a trade show and the 09
variable cost per order in online order
The unit contribution and the contribution margin rate for each of 10-11
the two product lines &Weighted average contribution margin for
an order
Foxy’s Break-even point for Trade Shows & Online Sales 12

Which distribution channel is projected to be more profitable in 13-14

2015?
As per Ger and Chemel, perform relevant analysis and give a final 15
decision. Support your decision with relevant justifications
References 16

No [Date] [Course title]

 1

Description about ‘Foxy Originals’

Foxy Originals started in the year 1998 by Jen Kluger & Suzie Orol. Both the founders met each other
when they were doing their course in “University of Western Ontario”. Both of them had a passion for
designing because both of their families were doing business related to metal and jewel designing and
manufacturing. Initially, they were selling the jewels to their college friends and others and then started to
sell to retail shops. In three year of operation, the company doubled its sales every year and were in the
fast-growing phase. The products the company was selling are necklaces, earrings, bracelets, and rings.
Their target customers are women in the age group between 18 to 30. They categorized their customer into
three categories. They are reversible enamel ladies, chain loving ladies, and bridge ladies based on their
interest in the jewels & fashion. Their current market in Canada is matured and they wanted to start their
business in the US market which is 10 times bigger than the Canadian market. For the new market, they
have to decide whether trade shows or sales representative method to get to buyers.
1. Assess each distribution strategy from a qualitative point of view.
For the US Trade show

It will give the item more Exposures to possible or Potential purchasers

• A place for retailers to view and source the items from wholesalers and merchants

• CA$ 3000 is the normal enlistment cost for each show

• A Big EVENT with more than 75000 people in interest

• There will be 10 potential shows all through Canada and United States in 2015

• And most significant All the registration ought to be done Within November 2014

• Each show preparations requires almost 5 days

• Each most recent 3 days; 9 hours

As the Owners will be individuals selling the items, their energy and excitement is the thing that
assisted with getting their items in Canadian stores

It will immensely help in systems administration with individuals in the business and sell the
product
• Enable the accomplice to be essential for the biggest style center points in the United States
Since the accomplices are not as acquainted with U.S. patterns and there will be a particularly
different gathering of purchasers in participation it will be hard to foresee what product will sell.

• There could be issue with delay purchasing

Could make deals be dispersed across stores assorted in geology and brand picture.

• They probably won't have the option to show the brand picture they need to show and may
and not all urban areas will worthy

Foxy Originals began it's business by offering/circulating gems to their client utilizing actual
stages, for example, tradeshows in the Canadian Market. Later they utilized the online stage for
appropriating adornments.

Trade Shows :
• Since Foxy Originals' principle target clients were retailers and wholesalers, it was smart to
sell their adornments in Canadian and US trade shows in light of the fact that a large portion of the
retailers would be urged to visit such Trade shows.

• Moreover, as referenced for the situation these exchange shows comprised of more than
75000 of possible purchasers in every one of their occasions. In this manner an immense number of
purchasers used to expand the odds of making more deals.

• Furthermore, selling gems utilizing exchange shows is totally extraordinary contrasted with
selling it utilizing retail shops. This is on the grounds that a representative of a retail outlet will not
have the option to give the individual client assistance that will be offered by Jennifer& Suzie
themselves in the career expos. So a vastly improved relationship can be shaped with the
purchasers/clients and they are bound to return and keep working with Foxy Originals.

• However, there are a few downsides too. The things that would be offered to the retailers
will later be sold by those retailers in other retail locations across Canada and US and they may
neglect to keep up the brand picture of Foxy Originals. So there is consistently hazards implied.

• Also, going to these exchange shows are consistently costly. For example, enrollment
charge of CA$3000, $4000 corner cost for each 30 shows, and so on This cash might have been
spent somewhere else for instance, burning through cash on innovative work to improve the nature
of gems.

Online Sales:

• Due to the development of conveyance channel (expansion of online deals with expos)

Charming Originals extended around the world. Beforehand they just could discover clients from

Canada and U.S however in the online stage they can arrive at clients from anyplace all throughout
the planet utilizing their site. Eventually the quantity of deals expanded

prompting more prominent benefits.

• Moreover, Foxy Originals had the option to advance their gems viably utilizing diverse
social medias like Facebook, Instagram, Printerest. They utilized numerous limited time crusades
like free giveaways and rebate codes which could be utilized in the Foxy Originals' site.

• However, few out of every odd clients would be affected to attempt Foxy Originals' gems
just by seeing them on the web. This is on the grounds that they may not know about the brand
notoriety of Foxy Originals and numerous clients like to purchase extravagances by truly
contacting them.
  Lastly, by amassing more in online deals is turned out to be hard for Jennifer and & Suzie
to allocate apportion time, exertion or costs for retail deals.

2. Identify all costs, other than variable costs, for the trade show distribution
strategy. Categorize these costs as investments or fixed costs (per trade
show and for FY 2014/15)

For the year 2014/2015

1) Registration fees per trade show = $3000

2) Booth Cost for 30 trade shows = $4000
3) Depreciation for a booth: ($4000/30) = $133.33
4) Shipping Cost for booth per show = $1500
5) Travel Cost for each show: ($1000*2) = $2000
6) Cost of promotional materials & product samples per show = $2800

Categorization of the costs from above:

Investments Fixed Costs

Booth: $4,000 (lasts 30 shows) Registration: $3000/show
Booth Shipping: $1,500/show
Travel Tickets: $2,000/show
Product/Promo: $2,800/show
3.If the partners decide not to attend the trade shows, what is the total available
increased amount for the online marketing campaign for FY 2014/15?

The total cost of one show is : $3000 + $1500 + $1000 + $2800 =$8300
Therefore the cost of 10 shows: 10 X $8300 = $83000

4. Do the variable costs for both products (necklaces and pairs of

earrings) differ between trade shows and online sales? By how much
does it differ, if it does differ?

Trade Show Online Sales

Necklace: $8.05 per necklace Necklace: $8.05
Earrings: $5.50 per pair Earrings: $5.50
Commission: $1.05 per click
Difference is $1.05 commission per click

Explanation:

By analyzing the case it is visible that the cost of producing a single necklace and a pair of earrings would
cost the same while selling it both in trade shows & online. However, there is an extra cost incurred in
online sales that is the cost per click model used for advertising, “$1.05 per click”.
This would not be included in the variable costs as it is a semi-variable cost since a limit has been set for
the maximum number of clicks by customers. Thus there is no difference in the variable costs incurred in
trade shows & online sales.

5. Calculate the variable costs per order incurred at a trade show and the
variable cost per order in online order.

For the trade show

Item Calculation Total
Necklaces $8.05 x 25 necklaces $201.25
Earrings $5.50 x 12 pairs $66
Total $267.25
For Online sales
Item Calculation Total
Necklaces $8.05 x 2 necklaces $16.1
Earrings $5.50 x 1 pair $5.50

Shipping $8 per order $8

Total $29.6
6.For each distribution strategy, calculate the unit contribution and the contribution
margin rate for each of the two product lines (necklaces and pairs of earrings).
What is the weighted average contribution margin rate for an order at the trade show
and online order?

Trade Shows

Necklaces Earrings
Sales price $17 Sales price $12
Less: COGS ($8.05) Less: COGS ($5.50)
Unit Contribution $8.95 Unit Contribution $6.50
CMR (8.95/17) = 52.6% CMR (6.50/12) = 54.2%

Online Sales

Necklaces Earrings
Sales price $17 Sales price $12
Less: COGS ($8.05) Less: COGS ($5.50)
Less: Commission $1.05 x 2 = ($2.1) Less: Commission $1.05 x 1 = ($1.05)
Unit Contribution $6.85 Unit Contribution $5.45
CMR (6.85/17) = 40.3% CMR (5.45/12) = 45.4%

Note: In the case it is mentioned that Foxy Originals would charge the same prices for necklaces &
earrings as the retailers charged in their retail outlets

Weighted average contribution margin rate for an order at the trade show:

Formula:

Contribution Margin

Total no. of unit sale

Necklace: 25, Earrings: 12, Total: 37

[52.6% (25/37)] + [54.2% (12/37)] = 53.12% (In Units)

Weighted average contribution margin rate for an order at the online sales:
Necklace: 2, Earrings: 1, Total: 3

[40.3% (2/3)] + [45.4% (1/3)] = 42% (In Units)

7. Calculate Foxy’s Break-even point for each distribution strategy.

Trade show

Fixed cost
Registration: $3000 x 10 shows $30000
Booth shipping: $1500 x 10 shows $15000
Travel tickets: $1000 x 10 shows $10000
Product/ promo: $2800 x 10 shows $28000
Total fixed costs: $83000

Break-even sales dollars: Total cost/ Weighted Avg. CM = 83000/53.12% = $ 156250

Online sales

Fixed cost
Marketing campaign: $8300 x 10 $83000
Shipping cost: $8 per order $8
Total fixed costs $83008

Break-even sales dollars: Total cost/ Weighted Avg. CM = 83008/42% = $197638

8.Which distribution channel is projected to be more profitable in 2015?

Trade show:

Expected number of orders/ Year

Average sales per show: (20+45)/ 2 = 32.5

Reorders: (32.5 x 50%) x 2 = 32.5

Total sales per show: 32.5 x 2 = 65

 Total sales per year: 65 x 10 = 650

Necklace sales: ($17 x 25) = $425 – COGS ($8.05 x 25) = $223.75

Earrings sales: ($12 x 12) = $144 – COGS ($5.50 x 12) = $78

Total = $301.75

Gross sales $301.75 x 650 $196138

Less: Fixed costs ($93000)
Total profits $103138

The total profits for online sales is $100000

9.As per Ger and Chemel, perform relevant analysis and give a final decision. Support
your decision with relevant justifications.

From all the calculation and answers we can conclude that the trade show is more profitable by $ 3138.

After analyzing both the distribution strategies it is visible that by selling jewelries to online customers
using Foxy Originals website would enable the two partners to generate greater profits. This may be
possible due to the massive amount of orders being received from online throughout the year which is
limited in terms of trade shows. (3542.86 orders VS 650 orders) even though per order in a trade show
includes more necklaces and earrings it’s still very less compared to the online sales. The reason is very
simple. By selling online Foxy is able to reach customers all around the globe but in trade shows they are
only limited to sell their jewelries to the retailers of Canada & US only. Moreover, according to the case
both the partners have to invest a lot of time & effort for attending a single trade show and this hassle
could be avoided in the online platform.

This is why I prefer online sales over trade shows but however, both the partners need to keep in mind that
the competition for online sales are increasing day by day so they must maintain the promised quality they
offer to all their customers and they will need to keep innovating their products such as new designs for
necklaces and earrings.

From all the computation and answers we can presume that the trade show is more productive by $ 3138.

In the wake of breaking down both the delivery systems it is obvious that by offering adornments to online
clients utilizing Foxy Originals site would empower the two accomplices to produce more outstanding
benefits. This might be conceivable because of the enormous measure of requests being gotten from online
during the time which is restricted regarding trade shows. (3542.86 orders VS 650 orders) despite the fact
that per request in an expo incorporates more accessories and studs it's still exceptionally less contrasted
with the online deals. The explanation is straightforward. By selling on the web Foxy can arrive at clients
from one side of the planet to the other however in career expos they are simply restricted to offer their
adornments to the retailers of Canada and US as it were. Also, as per the case both the accomplices need to
contribute a great deal of time and exertion for going to a solitary expo and this problem could be stayed
away from in the online stage.

This is the reason I favor online deals over career expos yet in any case, both the accomplices need to
remember that the opposition for online deals are expanding step by step so they should keep up the
guaranteed quality they offer to every one of their clients and they should continue to improve their items
like new plans for accessories and hoops.