Chapter 2, Problem 61P

Cost Analysis, Income Statement

Five to six times a year, Kicker puts on tent sales in various cities throughout Oklahoma and the surrounding states. The tent sales are designed to show Kicker customers new products, engender enthusiasm about those products, and sell soon to be out-of-date products at greatly reduced prices. Each tent sale lasts 1 day and requires parking lot space to set up the Kicker semitrailer, a couple of show cars, a disc jockey playing music, and a tent to sell Kicker merchandise, distribute brochures, and so on.

Last year, the Austin tent sale was held in a far corner of the parking lot outside the city exhibition hall where the automotive show was in progress. Because most customers were interested more in the new model cars than in the refurbishment of their current cars, foot traffic was low. In addition, customers did not want to carry speakers and amplifiers all the way back to where they had originally parked. Total direct costs for this tent sale were $14,300. Direct costs included gasoline and fuel for three pickup trucks and the semitrailer; wages and per diem for the five Kicker personnel who traveled to the show, rent on the parking lot space, and depreciation on the semitrailer, pickups, tent, tables (in tent), sound equipment, and the like. Revenue was $20,000. Cost of goods sold for the speakers was $7,000.

Required:

1. 1. CONCEPTUAL CONNECTION How do you suppose Kicker accounts for the costs of the tent sales? What income statement items are affected by the tent sales?
2. 2. CONCEPTUAL CONNECTION What was the profit (loss) from the Austin tent sale? What do you think Kicker might do to make it more profitable in the future?