Supersonic Stereo

Case Study
Topic 6

Total Sales and Profit for Atlanta District 20_0 to 20_4

20_0 20_1 20_2 20_3

Total sales 2,641,081 2,445,120 2,610,029 2,514,113
Net profit 13,873 14,050 15,381 16,511

Unit sold
Sales Calls Orders Receivers
Sand 85 60 668
Gallo 105 85 823
Parks 110 60 816
Lyons 170 75 844
Totals 470 280 3,151

Receivers CD Players Speakers

Selling price per unit 250 85 125
Cost per unit 212 64 87
GP 38 21 38
Number sold in per. 3,151 13,079 6,591
Sales in period 787,750 1,026,715 823,875
Advertising expenditures 40,000 50,000 40,000
Packaging 6,302 24,158 13,182

Customer
Average Time
Sales Calls Orders
Spent
American Tv 65 55 40
Appliance Mart 55 45 15
Audio Emporium 50 45 20
170 145 75

SOLUTIONS:
#1_Prepare a profitability analysis for each sales representative

Sand Gallo Parks

Sales
Receivers 167,000 205,750 204,000
CD Players 225,420 277,950 266,135
 Speakers 191,750 197,750 197,250
Totals 584,170 681,450 667,385

COS
Receivers 141,616 174,476 172,992
CD Players 169,728 209,280 200,384
Speakers 133,458 137,634 137,286
Totals 444,802 521,390 510,662
As a percentage of sales 76.14% 76.51% 76.52%
Gross margin 139,368 160,060 156,723

Expenses

Direct Selling
Salaries 24,500 27,500 26,000
Commisions 8,362 9,604 9,403
Travel 10,370 12,810 13,420
Total 43,232 49,914 48,823

Advertising (5% of sales)

Receivers 8,350 10,288 10,200
CD Players 11,271 13,898 13,307
Speakers 9,588 9,888 9,863
Total 29,209 34,073 33,369

Order processing 165 234 165

Warehouse & Transport 16,989 19,863 19,338
Packaging 9,708 11,350 11,050

Total expenses 99,303 115,432 112,745

Contribution 40,065 44,628 43,978

Expenses as % of sales :
Salaries 4.19% 4.04% 3.90%
Commisions 1.43% 1.41% 1.41%
Travel 1.78% 1.88% 2.01%
Total Direct Selling 7.40% 7.32% 7.32%
Ad. Receivers 1.43% 1.51% 1.53%
Ad. CD Players 1.93% 2.04% 1.99%
Ad. Speakers 1.64% 1.45% 1.48%
Total Advert 5.00% 5.00% 5.00%
Contribution of sales : 6.86% 6.55% 6.59%

#2_Prepare profitability analysis for Charlie Lyons customer

 American TV Appliance Mart Audio Emporium
Sales
Receivers 105,500 84,250 21,250
CD Players 128,605 89,930 38,675
Speakers 106,750 71,125 59,250
Totals 340,855 245,305 119,175

COS
Receivers 89,464 71,444 18,020
CD Players 96,832 67,712 29,120
Speakers 74,298 49,503 41,238
Totals 260,594 188,659 88,378
As a percentage of sales 76.45% 76.91% 74.16%
Gross margin 80,261 56,646 30,797

Expenses
Direct selling
Salary 12,255 8,550 7,695
Commision 4,816 3,399 1,848
Travel 7,930 6,710 6,100
Advertising
Receivers 5,275 4,213 1,063
CD Players 6,430 4,497 1,934
Speakers 5,338 3,556 2,963
Order Processing 110 41 55
Warehouse & Transport 9,762 6,874 3,549
Packaging 5,578 3,928 2,028

Total Expenses 57,493 41,767 27,234

Contribution 22,768 14,879 3,563

#3_Do you agree with the way functional costs were allocated? What changes would you recommend?
We recommend to improve the functional cost allocation on Travel cost, since the allocation is based on calls cou
the representatives travel to sell the product.
For pakcaging expenses and warehousing, should be consideres product dimension and distance traveled to deliv

#4_How would you handle Charlie Lyons' request for more money?
Should be rejected since he already paid bigger than the other representatives, but in term of contribution is not

#5_Should the sales force be paid according to their contribution to profit instead of gross margin?
Yes, since there is so many variable of expenses to be considered other than cost of sales

#6_What are the implication of paying ccommissions only after quota has been reached?
It will reduce the total cost, hence improve the Atlanta district’s financial performance but the unreachable targe
20_4
2,638,340
14,383

Unit sold
CD Players Speakers Total
2,652 1,534 4,854
3,270 1,582 5,675
3,131 1,578 5,525
3,026 1,897 5,767
12,079 6,591 21,821

Total

22,821
2,638,340
130,000
43,642

Number of Units Purchased

Receivers CD Players Speakers Total
422 1,513 854 2,789
337 1,058 569 1,964
85 455 474 1,014
844 3,026 1,897 5,767

Lyons Totals

211,000 787,750
257,210 1,026,715
 237,125 823,875
705,335 2,638,340

178,928 668,012
193,664 773,056
165,039 573,417
537,631 2,014,485
76.22% 76.35%
167,704 623,855

28,500 106,500 Number of calls times average time spent with each customer
10,062 37,431 6% of gross margin
20,740 57,340 Travel cost divided by number of calls, then multiplied by individual salesperson
59,302 201,271

10,550 39,388
12,861 51,336
11,856 41,194
35,267 131,917

206 770 Number orders times US$2,75

20,185 76,374 Number units times US$3,50
11,534 43,642 Number units times US$2

126,494 453,974
41,210 169,881 all profits

4.04% 4.04%
1.43% 1.42%
2.94% 2.17%
8.41% 7.63%
1.50% 1.49%
1.82% 1.95%
1.68% 1.56%
5.00% 5.00%
5.84% 6.44%
 Totals

211,000
257,210
237,125
705,335

178,928
193,664
165,039
537,631
76.22%
167,704

28,500
10,062
20,740

10,550
12,861
11,856
206
20,185
11,534

126,494

41,210

you recommend?
ince the allocation is based on calls count. The travel expenses should be considered by how many times

imension and distance traveled to deliver the product.

tives, but in term of contribution is not significant compared to others

gross margin?
an cost of sales

performance but the unreachable target will lead to any dysfunctional behavior on sales representatives.
y individual salesperson