Prepare a brief tabular overview of the sales and margin performance-Financial Fluency

1. YOUR RESEARCH ON :–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.

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•   The sales mix of different items of furniture (wardrobes, tables, chest of drawers, etc) is remarkably consistent from year to year, and across different sales representatives and this can be assumed in any analysis (if indeed required). Although the different products each have their own standard selling price, the average standard selling price is ~£300 and this can be assumed in any analysis (if indeed required).
•   You now wonder whether you need to give the sales team firm guidelines to limit what level and type of discounts they can offer and when. (Perhaps include a draft proposal in my board report ?)
•   To be honest you currently do not know what level of discounting is actually occurring amongst your sales team, and so you have asked Frances to produce detailed sales reports by sales representative (see ‘Excerpts from Management Accounts’) for each of the last two complete financial years :-

  o Year ending 31st December 2013 (the year before you introduced the new sales bonus scheme)

  o Year ending 31st December 2014 (the first full year of operation of the new sales bonus scheme). T

•   The bonus scheme is still in operation and up to this point you have not managed to find the time to review it and have simply let it continue. With the current focus on the company’s poor gross profit performance you now feel that this should be urgently considered and both a review of its operation/effectiveness in its first full year included in the board report, together with your recommendations for either its cessation, modification or ongoing use in its current form.
•   You are hoping that the sales & profitability information Frances has promised to supply will identify what level of ‘goal congruence’ there is between the sales team striving to achieve their personal bonuses, and the company’s desire to drive profitability (maybe use a tabular approach to illustrate this ?)

1. Requirements for Board Report

1. 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
2. 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.