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All numbers are in millions.
Costs of wholesale distribution (per wholesaler)
According to the case, 72% of Crafton's $75million sales are residential sales.
Cost of service to the wholesaler 0.46$
Revenue lost due to wholesaler markup 1.54$
Total cost of wholesale distribution 2.01$
Costs of direct distribution (per location)
Warehouse operation cost 0.70$
Sales personnel salaries 0.28$
Sales managres' salaries 0.04$
Sales administration costs 0.13$
Devivery and transportation costs 0.31$
Inventory cost 0.77$
Accts receivable carrying costs 0.77$
Total cost of direct distribution 3.00$
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ence, residential sales are $54million.
6% of sales to service 7 wholesalers.
Wholesalers received 20% margin at the price to retailers.
Per wholesaler.
Annual fixed cost.
1 manager per 8 sales people.
40% of salesperson and managers costs.
4% of sales.
10% of sales.
10% of sales.
Per location.
Average wholesaler employ 10 salespeople, but only
40% of their time on Crafton.
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All numbers are in millions.
Now (Using wholesalers)
Residential sales 54.00$
Cost of service to the wholesaler 3.24$
Direct distribution
The assumption is that cost and sales of 7 wholesalers are
Warehouse operation costs 4.90$
Sales personnel salaries 1.96$
Sales managres' salaries 0.32$
Sales administration costs 0.91$
Devivery and transportation costs 2.16$
Inventory cost 5.40$
Accts receivable carrying costs 5.40$
Total cost 21.05$
Wholesalers have a 20% mark-up. Going direct will increasHence, sales increase by going direct 10.80$
Cost increase by going direct 17.81$
Profit (loss) increase by going direct (7.01)$
Profit will decrease $7.01million by going direct.
Average sales per warehouse $54million/7=$7.71million. T
warehouses can operate economically.
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72% of the net sales are residential sales.
qual and the sales will remain the same.
For 7 warehouses.
40% of salesperson and managers costs.
4% of sales.
10% of sales.
10% of sales.
net sales by 20%.
6% of sales to service 7 wholesalers. This includesadvertising and 2 regional sales coordinators.
is is greater than $7million, which implies that the
Average wholesaler employ 10 salespeople, but only40% of their time on Crafton. 28 sales people for 7
1 manager per 8 sales people. Average of 3.5 managers
for 28 sales people. Rounded up to 4.
Difference between cost of service to the wholesaler
now and going direct.
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2009 U.S. industry Carpet and Rug marketAll numbers are in millions
According to the case, residential sales are two-thirds of floorcovering industry sales.
Assume residential sales are two-thirds for the Carpet and Rugs category.
Crafton's Net Sales for 2009 72.39$
Total U.S. residential sales market for Carpet and Rugs for 2009 6,223.33$
Crafton's residential sales in Carpet and Rugs for 2009 52.12$
Industry market share of Crafton for residential sales in Carpets 0.84%
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two-thirds from $9335mn
2010 saw a sales growth of 3.6%
from 2009 to result in $75mn net
72% of Crafton's net sales are
residential sales
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