Charle's Furniture Store has been In business for several years. The firm's owners have described the store as a "high-price, high- service" operatlon that provides lots of assistance to Its customers. Margin has averaged a relatively high 29% per year for several years, but turnover has been a relatively low 0.6 based on average total assets of $800,000. A discount furniture Store is about to open in the area served by Charlie's, and management Is considering lowering prices to compete effectively. Required: a. Calculate current sales and ROI for Charlie's Furniture Store. b. Assuming that the new strategy would reduce margin to 20%, and assuming that average total assets would stay the same, calculate the sales that would be required to have the same ROl as Charlie's currently earns. c. Suppose you presented the results of your analysis in parts a and b of this problem to Charle, and he replied, "What are you telling me? If I reduce my prices as planned, then I have to Increase my sales volume by 50% to earn the same return?" GIven the results of d. Now suppose Charlie says, "You know, I'm not convinced that lowering prices is my only option in staying competitive. What if I were to Increase my marketing effort? I'm thinking about kicking off a new advertising campaign after conducting more extensive market research to better identify who my target customer groups are." In general, explain to Charlie what the likely impact of a successful strategy of this nature would be on margin, turnover, and ROI. e. What are the other alternative strategy that might help Charle malntaln the competitiveness of his business.
Charle's Furniture Store has been In business for several years. The firm's owners have described the store as a "high-price, high- service" operatlon that provides lots of assistance to Its customers. Margin has averaged a relatively high 29% per year for several years, but turnover has been a relatively low 0.6 based on average total assets of $800,000. A discount furniture Store is about to open in the area served by Charlie's, and management Is considering lowering prices to compete effectively. Required: a. Calculate current sales and ROI for Charlie's Furniture Store. b. Assuming that the new strategy would reduce margin to 20%, and assuming that average total assets would stay the same, calculate the sales that would be required to have the same ROl as Charlie's currently earns. c. Suppose you presented the results of your analysis in parts a and b of this problem to Charle, and he replied, "What are you telling me? If I reduce my prices as planned, then I have to Increase my sales volume by 50% to earn the same return?" GIven the results of d. Now suppose Charlie says, "You know, I'm not convinced that lowering prices is my only option in staying competitive. What if I were to Increase my marketing effort? I'm thinking about kicking off a new advertising campaign after conducting more extensive market research to better identify who my target customer groups are." In general, explain to Charlie what the likely impact of a successful strategy of this nature would be on margin, turnover, and ROI. e. What are the other alternative strategy that might help Charle malntaln the competitiveness of his business.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Charle's Furniture Store has been In business for several years. The firm's owners have described the store as a "high-price, high-
service" operatlon that provides lots of assistance to Its customers. Margin has averaged a relatively high 29% per year for several
years, but turnover has been a relatively low 0.6 based on average total assets of $800,000. A discount furniture Store is about to
open in the area served by Charlie's, and management Is considering lowering prices to compete effectively.
Required:
a. Calculate current sales and ROI for Charlie's Furniture Store.
b. Assuming that the new strategy would reduce margin to 20%, and assuming that average total assets would stay the same,
calculate the sales that would be required to have the same ROl as Charlie's currently earns.
c. Suppose you presented the results of your analysis in parts a and b of this problem to Charle, and he replied, "What are you telling
me? If I reduce my prices as planned, then I have to Increase my sales volume by 50% to earn the same return?" GIven the results of
d. Now suppose Charlie says, "You know, I'm not convinced that lowering prices is my only option in staying competitive. What if I
were to Increase my marketing effort? I'm thinking about kicking off a new advertising campaign after conducting more extensive
market research to better identify who my target customer groups are." In general, explain to Charlie what the likely impact of a
successful strategy of this nature would be on margin, turnover, and ROI.
e. What are the other alternative strategy that might help Charle malntaln the competitiveness of his business.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 3 images
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education