POSSIBLE EXCESSIVE DISCOUNTING
POSSIBLE EXCESSIVE DISCOUNTING
- All of Hallam Ltd.’s products are initially priced to achieve a standard gross profit of 70% when sold at Hallam’s standard selling price to retailers and in the year ending 31st December 2014 and in previous years it is accepted that the standard costing system was accurate.
-  The previous Sales & Marketing Director had consistently taking a stance against allowing the sales team to grant any form of discount, believing that the quality and uniqueness of our product would support a premium price tag without the need for this to be discounted. The one exception to this general stance that the previous Sales & Marketing Director conceded was the need to offer a modest discount of 10% to the two national chains of department stores looked after by the senior sales representative Anthony.
-  In your first year as Sales & Marketing Director (year ending 31st December 2013) you simply maintained this previous no-discount policy, but were constantly ‘nagged’ by some of the more junior sales representatives (particularly Barbara) who reported that their customers were constantly asking for discounts and that they believed they would be able to sell more product if they were allowed some flexibility on pricing.
-  After some consideration you presented a Board proposal to introduce a sales bonus scheme for the sales team, based on year-end cash bonuses if the sales representative increased their sales volume (i.e. number of items of furniture sold) by more than 10% of their previous years achievement. Despite some Board concern about the proposal the scheme was introduced on 1st January 2014, with your promise to “increase the volume of furniture leaving our factory gates by at least 10%”.
-  The bonus scheme promised a £100 year-end bonus for every 1% increase on the previous year’s sales volume (with a minimum of 10% increase required for any payment). Somewhat to your surprise the introduction of the bonus scheme was not received by the sales team with universal support. Barbara and Chris were very enthusiastic about it, whilst Anthony & Diane said they were all for pushing sales but were not sure if a policy of discounting was really necessary to achieve this. Eric admitted that he was unsure about how to proceed.
1. Requirements for Board Report
- a) [4%] Prepare a brief tabular overview of the sales and margin performance for Hallam Ltd (at company level) for Y.E. 31/12/13 and Y.E. 31/12/14 with a short commentary on the relative performance over the two years
- b) [6%] Present a full tabular analysis of the sales and margin performance for each individual sales representative for Y.E. 31/12/13 and Y.E. 31/12/14, including a year-on-year comparison of their performance and the level of bonuses paid. Provide a paragraph of commentary on the performance of each individual sales representative
c) [6%] Comment on the suitability of the current bonus scheme, and present proposals for how the operation of the bonus scheme may be improved.
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