7/28/2019 Crafton-1

1/6

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$

7/28/2019 Crafton-1

2/6

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.

7/28/2019 Crafton-1

3/6

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.

7/28/2019 Crafton-1

4/6

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.

7/28/2019 Crafton-1

5/6

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%

7/28/2019 Crafton-1

6/6

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