Case 9.1: ABCit Merchandising Sales & Cost Analysis Problems

Background. ABCit Merchandising markets a broad mix of novelty toys and games to retailers throughout the United States. The salesforce is organized into five regions, each comprised of five districts. Alison Wilson is the northern region sales manager for ABCit Merchandising.

Each regional manager is responsible for the effectiveness of their region, including the districts comprising their region, and is compensated according to the achievements of their region. The fiscal year just ended, and Allison has compiled the following data to help her analyze her regions effectiveness.

Northern Region Data for Current Fiscal Year:

Direct Selling Expenses

Additional Comparative Information. When the fiscal year began, market shares for each district were: 30 percent, 32 percent, 34 percent, 31 percent, and 28 percent for districts 1 through 5, respectively. When the fiscal year began, the company anticipated a sales growth of 2 percent to occur in each district. In addition, direct selling expenses were budgeted at 10% of the sales quota for each district.

Although Alison believes her region has had a very successful year, she wants to analyze each district closely. She hopes to use her analyses to identify and correct problems. Alison knows her boss will carefully scrutinize all her analyses so she wants to conduct the proper analyses on the data. Moreover, if Alisons region does not increase sales by 2 percent and stay within the sales budget, her performance appraisal and subsequently her compensation would suffer.

Assignment. Fill in the table below with the following information/analyses and answer the following questions:

1. Sales Analysis:

A. Were there any districts below quota? Which one(s)?

B. Were there any districts that did not meet the 2% sales growth goal? Which one(s)?

C. Were there any districts that lost market share since the start of the fiscal year? Which one(s)?

2. Cost Analysis: [Total the direct selling expenses in each district and determine the percentage of sales in each district that the selling expenses represent by using the following formula: % Direct Selling Expenses = (Total Direct Selling Expenses / Sales) *100 and fill in the table below.]

A. Comparing the actual direct selling expenses against the budgeted direct selling expenses, which districts were under budget? Which were over budget?

3. ROAM Analysis: [Calculate the Return on Assets Managed (ROAM) in each district. First, you will need to calculate the Total Assets Managed in each district by totaling the accounts receivable and inventory in each district and then use this information to calculate the Asset Turnover Rate. Next, you will need to calculate the Profit Contribution in each district by using the following formulas:]

Sales COGS = Gross Profit Margin Direct Selling Expenses = Profit Contribution

Profit Contribution as a % of Sales = (Profit Contribution / Sales) *100

A. Which district had the smallest ROAM? Which variable appeared to hold this districts ROAM down?

	District 1	District 2	District 3	District 4	District 5
Sales
Last Yr. Sales
Sales Quota
Effectiveness Index
Sales Growth Rate %
% Mkt. Share
Last Yr. Mkt. Share
Total Direct Selling Expenses ($)
% Direct Selling Exp.
Budgeted Direct Selling Expenses ($)
Total Assets Managed
Asset Turnover Rate
Profit Contribution
Profit Contrib. as % of Sales
ROAM

Direct Selling Expenses Case 9.1: ABCit Merchandising - Sales & Cost Analysis Problems Background. ABCit Merchandising markets a broad mix of novelty toys and games to retailers throughout the United States. The salesforce is organized into five regions, each comprised of five districts. Alison Wilson is the northern region sales manager for ABCit Merchandising. Each regional manager is responsible for the effectiveness of their region, including the districts comprising their region, and is compensated according to the achievements of their region. The fiscal year just ended, and Allison has compiled the following data to help her analyze her region's effectiveness Northern Region Data for Current Fiscal Year: District 1 District 2 District 3 District 4 District 5 (5000) (5000) (5000) (5000) (5000) Sales 16,400 19,000 20,900 27,500 16,800 Cost of goods sold 9,840 11,020 12.958 16,500 9,240 Compensation 1.230 1.620 1,470 2.280 1.260 Transportation 82 134 84 140 100 Lodging and mcals 34 60 32 82 42 Telephone 16 20 24 28 18 Entertainment 20 16 30 24 24 Training 160 190 210 250 220 District accounts 2,340 2,800 2.900 4,840 2,300 receivable District inventory 4,000 7,000 6,400 10,500 5,000 Number of salespeople 16 18 22 20 Sales quota 16,200 19,500 20,500 28,250 16,600 Sales last year 15,000 18,500 20,500 27.850 16,400 Industry sales 52,904 59,376 61,472 91.667 60,000 Additional Comparative Information. When the fiscal year began, market shares for each district were: 30 percent, 32 percent, 34 percent, 31 percent, and 28 percent for districts through 5, respectively. When the fiscal year began, the company anticipated a sales growth of 2 percent to occur in each district. In addition, direct selling expenses were budgeted at 10% of the sales quota for each district. Although Alison believes her region has had a very successful year, she wants to analyze each district closely. She hopes to use her analyses to identify and correct problems. Alison knows her boss will carefully scrutinize all her analyses so she wants to conduct the proper analyses on the data. Moreover, if Alison's region does not increase sales by 2 percent and stay within the sales budget, her performance appraisal and subsequently her compensation would suffer. Assignment. Fill in the table below with the following information/analyses and answer the following questions: 1. Sales Analysis A Were there any districts below quota? Which one(s)? 8. Were there any districts that did not meet the 2% sales growth goal? Which one(s)? C Were there any districts that lost market share since the start of the fiscal year? Which one(s)? 24 2. Cost Analysis: Total the direct selling expenses in each district and determine the percentage of sales in each district that the selling expenses represent by using the following formula: % Direct Selling Expenses = (Total Direct Selling Expenses / Sales) *100 and fill in the table below.] A comparing the actual direct selling expenses against the budgeted direct selling expenses, which districts were under budget? Which were over budget? 3. ROAM Analysis: (Calculate the Return on Assets Managed (ROAM) in each district. First, you will need to calculate the Total Assets Managed in each district by totaling the accounts receivable and inventory in each district and then use this information to calculate the Asset Turnover Rate. Next, you will need to calculate the Profit Contribution in each district by using the following formulas:] Sales - COGS = Gross Profit Margin - Direct Selling Expenses = Profit Contribution Profit Contribution as a % of Sales = (Profit Contribution / Sales) *100 A Which district had the smallest ROAM? Which variable appeared to hold this district's ROAM down? District 1 District 2 District 3 District 4 District 5 Sales Last Yr. Sales Sales Quota Effectiveness Index Sales Growth Rate % % Mkt. Share Last Yr. Mkt. Share Total Direct Selling Expenses (5) % Direct Selling Exp. Budgeted Direct Selling Expenses ($) Total Assets Managed Asset Turnover Rate Profit Contribution Profit Contrib. as % of Sales ROAM