Table 1

Selected Financial and Other Data

Panel A: Volume Data for Hot Dog Oven Business

FY 2009 Units Kilowatt

Quarter Sold Hours

Q1 11,000 12,000

Q2 17,000 11,000

Q3 20,000 9,000

Q4 13,000 8,000

Management uses Units Sold as the cost driver for calculating Shipping costs and Kilowatt Hours as the cost driver for both Utilities and Maintenance costs.

Panel B: Other Summary Data

Cost of Goods Sold has historically amounted to $35 per oven sold, while sales commissions represent 6% of sales. These figures aren't expected to change for fiscal 2010. Storm has also advised the team that advertising expenses must remain flat relative to the prior year, while administrative salaries and insurance expenses are each subject to inflationary increases of 3%. Cost data for the prior four quarters is available for these items in the general ledger, as shown in Table 2 below. Cost data for shipping, electricity, maintenance, and depreciation are available for the prior four quarters in the general ledger as well. The sales and operations teams have also provided relevant volume data over the last four fiscal quarters, as shown in Panel A above.

Management has also planned to build up the balance sheet during the first quarter of fiscal 2010 with capital expenditures of $500,000 for additional trucks to assist in the ground distribution of the product and with a $1 million investment in POG overs. (The division's fixed-asset policy is to take a full year's worth of depreciation on assets purchased during the year, regardless of the date of acquisition.) The trucks are expected to have a useful life of 10 years. For planning purposes, the division doesn't tax-effect its financials because taxes are calculated at a corporate level and allocated to the divisions based upon overall performance. Engineers expect to use 13,000 kilowatt hours during the first quarter of fiscal 2010.

Table 2

Download from General Ledger

Account	Amount	Fiscal Year	Quarter
Insurance	8,737	2009	1
Insurance	8,737	2009	2
Insurance	8,737	2009	3
Insurance	8,737	2009	4
Admin. Salaries	140,777	2009	1
Admin. Salaries	140,777	2009	2
Admin. Salaries	140,777	2009	3
Admin. Salaries	140,777	2009	4
Advertising	210,000	2009	1
Advertising	210,000	2009	2
Advertising	210,000	2009	3
Advertising	210,000	2009	4
Shipping	121,000	2009	1
Shipping	187,000	2009	2
Shipping	220,000	2009	3
Shipping	143,000	2009	4
Depreciation	70,000	2009	1
Depreciation	70,000	2009	2
Depreciation	70,000	2009	3
Depreciation	70,000	2009	4
Utilities	35,000	2009	1
Utilities	33,000	2009	2
Utilities	30,000	2009	3
Utilities	27,000	2009	4
Maintenance	12,000	2009	1
Maintenance	11,800	2009	2
Maintenance	10,000	2009	3
Maintenance	9,600	2009	4

THE CHALLENGE

In planning for the first quarter of fiscal 2010, Storm was interested in three scenarios for the budgeted financials:

(1) Base Case: Assume 12,000 ovens sold at a price of $100 per oven;

(2) Market Penetration Strategy: Assume the company can sell 10% more ovens by offering a 5% discount;

(3) Market Premium Strategy: Assume the company loses 15% of its planned customers if it attempts to sell the ovens at a 15% premium and spends $5 more per unit to make the logo bigger.

Storm asked the team to perform a financial analysis and provide an analytical assessment of the planned performance for the POG oven segment under each of the three possible scenarios.

Requirements

1. Use the "Pikesville Answer Template" Excel file to prepare budgeted income statements for each of the three scenarios mentioned above.
   1. Use the top right portion of the template to collect the data from the case background above that will be needed to complete the income statements.
   2. Use the bottom right portion of the template to calculate variable and fixed costs (as needed) using the high/low method.
   3. Complete the income statements on the left side of the template using the data you collected from the case background information and the variable and fixed costs that you calculated.