Ron Miron, president of Champions Sporting Goods (CSG), was concerned about the profits earned by CSG during
Question:
Ron Miron, president of Champion’s Sporting Goods (CSG), was concerned about the profits earned by CSG during the fiscal year ending July 31, 2012. He had expected to sell 4,400 ski packages and earn $143,250 before taxes; actual profits earned were only $36,950.
The market for ski equipment is large and competitive. Ron had established a successful operation by specializing in low-cost mail-order ski packages. By offering only two packages, Ron was able to keep overhead costs to a minimum and negotiate favourable discounts from the ski equipment manufacturers. Both the downhill and cross-country ski packages contained skis, boots, poles, and a waxing kit.
Ron hired a consultant, Doreen Wilson, CMA, to analyze the last fiscal year’s results. “I just don’t understand what went wrong,” said Ron. “Things just did not happen the way I thought they would. For example, I was forced to cut our prices midway through the season because one of the big chain stores cut their prices. But I bargained with our suppliers and they gave us a break, which I thought would keep us on target. Then we had to spend a bit more on advertising to let everybody know about our new prices and another clerk had to be hired to speed up the order processing. Still, these two changes account for only $40,000. To top it all off, the Ski Retailers Association magazine just reported that more Canadians bought ski packages this past season than ever before. Early estimates were that 44,000 ski packages would be sold and it ended up that 48,000 packages were sold in Canada last season. My bookkeeper, Teresa, has put together these numbers. [See Exhibits 12A-3 and 12A4.] Please conduct a detailed analysis of last year’s results. Prepare a report that explains why we did not realize our expected profits and include a recommended strategy, detailing information required, which will bring our profits back up.”
Required
Prepare the analysis and the report requested by Ron Miron.
Step by Step Answer:
Management Accounting
ISBN: 978-0132570848
6th Canadian edition
Authors: Charles T. Horngren, Gary L. Sundem, William O. Stratton, Phillip Beaulieu