The Tennis Gear Company manufactures and sells premium tennis balls through specialty tennis stores. Last year, the comp
Posted: Sun Jun 05, 2022 5:06 pm
The Tennis Gear Company manufactures and sells premium tennis
balls through specialty tennis stores. Last year, the company sold
32,000 tennis balls, with the following financial results last
year:
Sales
$1,920,000
Variable costs
($1,152,000)
Fixed costs
($548,000)
Profit before taxes
$220,000
Taxes at 30%
($66,000)
After-tax profit
$154,000
Management expects sales growth to be flat in the coming year
with revenues and expenses to remain the same as last
year.
The Marketing
Proposal
In order to stimulate growth, the Marketing Manager has provided
a growth proposal to the CEO. This proposal recommends
that the company launches an $80,000 marketing campaign and reduces
the price of all products by 10%. The marketing manager
projects that this could result in sales volume (number of units)
growth of up to 50% from the prior year if the campaign and price
reduction are implemented. Analysis indicates that the
company has capacity to produce the projected additional
units.
Required
-What was the Tennis Gear Company’s breakeven point in number of
tennis balls last year (ie, before the implementation of the
marketing proposal)?
-How many tennis balls would the company have had to sell in the
past year to earn $240,000 in after tax profit (ie, before the
implementation of the marketing proposal)?
-What would the Tennis Gear Company’s new breakeven point be in
units if the Marketing Manager’s proposal is
implemented?
-What is the potential profit before tax that the Tennis Gear
Company could make if the Marketing manager’s proposal is
implemented and the full projected potential increase in sales
volumes is achieved?
-Based on your analysis in the above parts, would you recommend
that the CEO approves the Marketing Manager’s proposal for
implementation? Why or why not?
balls through specialty tennis stores. Last year, the company sold
32,000 tennis balls, with the following financial results last
year:
Sales
$1,920,000
Variable costs
($1,152,000)
Fixed costs
($548,000)
Profit before taxes
$220,000
Taxes at 30%
($66,000)
After-tax profit
$154,000
Management expects sales growth to be flat in the coming year
with revenues and expenses to remain the same as last
year.
The Marketing
Proposal
In order to stimulate growth, the Marketing Manager has provided
a growth proposal to the CEO. This proposal recommends
that the company launches an $80,000 marketing campaign and reduces
the price of all products by 10%. The marketing manager
projects that this could result in sales volume (number of units)
growth of up to 50% from the prior year if the campaign and price
reduction are implemented. Analysis indicates that the
company has capacity to produce the projected additional
units.
Required
-What was the Tennis Gear Company’s breakeven point in number of
tennis balls last year (ie, before the implementation of the
marketing proposal)?
-How many tennis balls would the company have had to sell in the
past year to earn $240,000 in after tax profit (ie, before the
implementation of the marketing proposal)?
-What would the Tennis Gear Company’s new breakeven point be in
units if the Marketing Manager’s proposal is
implemented?
-What is the potential profit before tax that the Tennis Gear
Company could make if the Marketing manager’s proposal is
implemented and the full projected potential increase in sales
volumes is achieved?
-Based on your analysis in the above parts, would you recommend
that the CEO approves the Marketing Manager’s proposal for
implementation? Why or why not?