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Accounting for Decision Making and Control 8th Edition by Jerold Zimmerman
Edition 8ISBN: 978-0078025747Accounting for Decision Making and Control 8th Edition by Jerold Zimmerman
Edition 8ISBN: 978-0078025747 Exercise 45
Kinsley Sons
Kinsley Sons is a large, successful direct-mail catalog company in the highly competitive market for upscale men's conservative business and business-casual dress wear. On sales of $185 million they had earnings of $13 million. Most of the sales are from customers receiving the Kinsley catalog and placing orders through a toll-free (1-800) phone line. The remainder of their sales are from the www.kinsley sons.com Web site, where customers place orders directly. Kinsley is organized into four departments: buying, catalog sales, Web sales, and distribution. Prices and margins are the same for catalog and Web sales.
The Web sales department is considering a major advertising and marketing campaign to drive additional sales to the Web site. Kinsley's market demographics, affluent professional males between 25 and 45, are very active Web buyers. The Web sales department expects the campaign to generate $56 million of additional Web site sales and profits of $4 million (before including the costs of the campaign). The annual cost of the advertising and marketing campaign is $2.8 million. The campaign also will have a favorable spillover effect on catalog sales through the 1-800 telephone line because the marketing for the Kinsley Web site will prompt additional catalog purchases. Additional profits of $600,000 are expected from catalog purchases resulting from the Web campaign.
In reviewing the proposal, the manager of catalog sales predicts that half of the additional Web sales and profits will come at the expense of catalog sales. That is, about $28 million of additional Web sales and $2 million of profits will come from Kinsley's existing catalog customers. Assume that all the data presented above are accurate, unbiased estimates.
Required:
a. Should Kinsley Sons undertake the additional advertising and marketing campaign for its Web site? Support your conclusion with data and/or figures.
b. What critical/important assumptions underlie your recommendation in part ( a )?
Kinsley Sons is a large, successful direct-mail catalog company in the highly competitive market for upscale men's conservative business and business-casual dress wear. On sales of $185 million they had earnings of $13 million. Most of the sales are from customers receiving the Kinsley catalog and placing orders through a toll-free (1-800) phone line. The remainder of their sales are from the www.kinsley sons.com Web site, where customers place orders directly. Kinsley is organized into four departments: buying, catalog sales, Web sales, and distribution. Prices and margins are the same for catalog and Web sales.
The Web sales department is considering a major advertising and marketing campaign to drive additional sales to the Web site. Kinsley's market demographics, affluent professional males between 25 and 45, are very active Web buyers. The Web sales department expects the campaign to generate $56 million of additional Web site sales and profits of $4 million (before including the costs of the campaign). The annual cost of the advertising and marketing campaign is $2.8 million. The campaign also will have a favorable spillover effect on catalog sales through the 1-800 telephone line because the marketing for the Kinsley Web site will prompt additional catalog purchases. Additional profits of $600,000 are expected from catalog purchases resulting from the Web campaign.
In reviewing the proposal, the manager of catalog sales predicts that half of the additional Web sales and profits will come at the expense of catalog sales. That is, about $28 million of additional Web sales and $2 million of profits will come from Kinsley's existing catalog customers. Assume that all the data presented above are accurate, unbiased estimates.
Required:
a. Should Kinsley Sons undertake the additional advertising and marketing campaign for its Web site? Support your conclusion with data and/or figures.
b. What critical/important assumptions underlie your recommendation in part ( a )?
Explanation
Verified
Verified
Opportunity cost:
It is cost forgone wh...
Accounting for Decision Making and Control 8th Edition by Jerold Zimmerman
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