Chipman Union Case Analysis

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  • Topic: Marketing, Discounts and allowances, Profit
  • Pages : 2 (280 words )
  • Download(s) : 1
  • Published : December 23, 2011
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CU Potential Sales & Profits from Oder-Eater Hosiery|
| |
Display Boxes| 15000|
Case Size (packages)| 24|
Total Potential Package Sales| 360000|
Average Sale price/package| $6.00 |
Average Gross Profit/package| $1.30 |
Inventory Turnover Times Annually| 2.54|
Potential Sales/year| $5,486,400.00 |
Sales through food & drugstores (75% of potential sales)| $4,114,800.00 | Potential Profit from sales/year| $1,188,720.00 |

Expenses over the first 3 years| | | |
| | | |
Non-Promotional|  |  |  |
 | Year 1| Year 2| Year 3|
Advertising for 25% unaided awareness in the US| $1,000,000 |  |  | 3 salespeople/year| $210,000 | $210,000 | $210,000 |
Display Boxes| $1,500,000 |  |  |
Consulting| $100,000 |  |  |
Combe License (1st year)| $60,000 |  |  |
Combe Royalty = 5% of 2nd year sales|  | $274,320.00 | $274,320.00 | Commission to brokers (=5% of sales through food & drugstores)| $205,740.00 | $205,740.00 | $205,740.00 |  |  |  |  |

Promotional Expenses|  |  |  |
 |  |  |  |
Cash Refund Offer| $75,000 | $75,000 | $75,000 |
25-cent Coupon| $136,500 | $136,500 | $136,500 |
Off-invoice allowance for food & drugstores| $822,960.00 | $822,960.00 | $822,960.00 | Advertising allowance of 5% for 55% of sales| $150,876.00 | $150,876.00 | $150,876.00 |  |  |  |  |

Total Expenses| $4,261,076 | $1,875,396 | $1,875,396 |

From the above calculations, we observe that if CU gives out all the suggested promotions (discounts and allowances), the total expenses exceed the potential gross profits/year (Note: Instead of netting the promotions from the sales, they are equivalently treated as expenses). This would not allow the firm to break even. Removing the off-invoice allowance brings the expenses below the gross profits (except for year 1).
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