Need help with part E of this case.
BACKGROUND Tongariro Tents Ltd. (TT) imports lightweight tents into New Zealand and currently sells them to three independent outward bound equipment wholesalers. TT does not currently sell to retail stores or direct to the general public. The managing director, Guy Rope, is concerned that the company has too much spare capacity and is not making adequate returns. He believes that TT must therefore expand the company's customer base As there are a limited number of outward bound equipment wholesalers in New Zealand he is considering whether TT should start selling tents to retailers or even direct to the general public. Moreover, TT is such a small company that it has no control over the price it pays to its overseas tent suppliers Hence, to improve profitability TT needs to concentrate on expansion, better use of its capacity and improved efficiency in sales and distribution. Guy knows that it is no use 'buying' market share with excessive discounts and he is rather concemed that, in an effort to grow the business rapidly, the level of discounts that were offered in order to acquire some customers were excessive. DETAIL Guy therefore asked his management accountant to review last year's financial statements and to produce a customer profitability analysis (CPA). The management accountant is still a trainee and was not entirely sure what Guy wanted, but she used her knowledge of the principles of activity-based costing (ABC) to produce the CPA shown in table 1. Guy arranges a meeting with TT's sales and marketing director, Dolly Peg in order to discuss what the new CPA statement reveals. He is not terribly happy and starts firing questions at Dolly: We threw a party last year when you won the McKinley account, but this CPA now shows us that the account made a $31,767 operating loss last year. Are they getting excessive discounts? BACKGROUND Tongariro Tents Ltd. (TT) imports lightweight tents into New Zealand and currently sells them to three independent outward bound equipment wholesalers. TT does not currently sell to retail stores or direct to the general public. The managing director, Guy Rope, is concerned that the company has too much spare capacity and is not making adequate returns. He believes that TT must therefore expand the company's customer base As there are a limited number of outward bound equipment wholesalers in New Zealand he is considering whether TT should start selling tents to retailers or even direct to the general public. Moreover, TT is such a small company that it has no control over the price it pays to its overseas tent suppliers Hence, to improve profitability TT needs to concentrate on expansion, better use of its capacity and improved efficiency in sales and distribution. Guy knows that it is no use 'buying' market share with excessive discounts and he is rather concemed that, in an effort to grow the business rapidly, the level of discounts that were offered in order to acquire some customers were excessive. DETAIL Guy therefore asked his management accountant to review last year's financial statements and to produce a customer profitability analysis (CPA). The management accountant is still a trainee and was not entirely sure what Guy wanted, but she used her knowledge of the principles of activity-based costing (ABC) to produce the CPA shown in table 1. Guy arranges a meeting with TT's sales and marketing director, Dolly Peg in order to discuss what the new CPA statement reveals. He is not terribly happy and starts firing questions at Dolly: We threw a party last year when you won the McKinley account, but this CPA now shows us that the account made a $31,767 operating loss last year. Are they getting excessive discounts
