PLEASE ANSWER AND EXPLAIN IN DETAIL THE WORK ON THE GUIDE*** ALL THE QUANTITATIVE DATA IS IN THE CASE BELOW***

FOXY ORIGINALS: THE ONLINE EXPANSION BUDGET OF $93,000

TRADE SHOWS

There would be 10 potential trade shows that the partners would be interested in attending.

Registration for each of these trade shows would cost on average CA$3,000

The booth would cost $4,000 and could be used for 30 shows.

The booth would need to be shipped to each trade show at an average cost of $1,500.

Travel costs would average $1,000 per show for each of the two partners

Promotional materials and product samples would cost $2,800 per show.

The partners estimated that an average retailer order would consist of 25 necklaces and 12 pairs of earrings.

Labor fees, for a total cost of $8.05 per necklace

A pair of earrings cost approximately $5.50 to manufacture.

Retailers would purchase necklaces for $17 and earrings for $12 from Foxy

which they would mark up and then sell to their customers for $34 and $24, respectively.

Shipping terms were FOB shipping point, and the average cost was $15 per order.

All products would continue to be sold for the same amount in both the United States and Canada (i.e., a necklace that sold for CA$34 in Canada would be sold for US$34 in the United States).

The partners expected anywhere from 20 to 45 orders from each trade show.

Historically, 50 per cent of the retail buyers at the trade show reordered products approximately two times a year.

ONLINE SALES

Foxy was charged a specific amount per click (set by the partners) when the reader clicked on their advertisement. A daily budget was set and, once reached, the advertisement would no longer be shown that day. If the partners opted to devote more focus to online sales, Foxys annual budget would be equivalent to the amount of the annual recurring cash costs to attend the additional trade shows.

Ger and Chemel estimated that Foxys competitive bid price per click would be $1.05.

If, instead of attending additional trade shows, they allocated all of the recurring annual cash costs of attending 10 trade shows toward an online marketing campaign, the partners estimated that

between 3 per cent and 5 per cent of all website visitors would make a purchase.

On average, each order would consist of one pair of earrings and two necklaces.

Shipping terms were FOB shipping point and totalled $8 per order, regardless of the size of the order and its final destination. All items for sale online would be priced the same as they were in retail stores.

CONCLUSION

decision, when implemented, would increase Foxys overall profits by at least $100,000.

Cost-Volume-Profit (CVP) Analysis

To work this case you need to know how to calculate Break-Even, Target Profit and Margin of Safety. The text provides the formulas, but how do you implement the formulas in a real-world situation?

There are two potential strategies to consider: Trade Show, and On-Line

Trade Show

Things you will need to consider or calculate:

Investment

They need a booth for their trade show presence; Cost; useful life; depreciation

Fixed Costs

Registration

Shipping Costs (for the booth)

Travel Expenses (for the two partners)

Promotional materials and samples

Depreciation expense (from the above investment)

Average trade show order

Necklace selling price and number of units

Earrings selling price and number of units

Contribution Margin ($ and %)

Necklace per unit and per order

Earrings per unit and per order

Total per order

Estimated orders per show

High estimate and low estimate

Reorders: 50% reorder twice a year

Total per order

Calculations needed

Break-even units (orders)

Break-even sales (dollars)

Target profit units (orders)

Target Profit sales (dollars)

Margin of safety (for high and low estimate)

Prepare a contribution margin format income statement

On-Line

Things you will need to consider or calculate:

Investment

Do they need a booth if they go on-line?

Fixed Costs

Assume the same budget as trade shows $93,000

Cost per click $1.05 (given)

Divide $93,000 by $1.05 to get number of clicks (visits to website)

3% to 5% of visitors will make a purchase

Calculate low estimate and high estimate of orders

Average on-line order

Necklace selling price and number of units

Earrings selling price and number of units

Total selling price and number of units

Contribution Margin ($ and %)

Necklace per unit and per order

Earrings per unit and per order

Total per order

Be sure to calculate the $ and the %!

Estimated orders on-line

High estimate and low estimate

Total per order

High estimate and low estimate of sales

Calculations needed

Break-even units (orders)

Break-even sales (dollars)

Target profit units (orders)

Target Profit sales (dollars)

Margin of safety (for high and low estimate)

Prepare a contribution margin format income statement

Decision

You have the quantitative data you need

Dont forget the qualitative data (read the case!)

Note: Doing both is not an option!

Support your decision with quantitative and qualitative data!