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# DAMN HEELS (B)

EXECUTIVE SUMMARY Ms. Coleman launched her first product in December 2009, selling online and in hair salons and restaurants where family and friends worked. Her shoes priced at \$20 were must-have Christmas gifts. She won a business plan competition that month and another the following March, netting \$32,000 and lots of attention from the media, investors and entrepreneurs. In September, she appeared on Dragons Den and accepted a \$50,000 deal from Arlene Dickinson. She is now weighing all distribution offers that have been coming in. She also fit in a visit to China. But the next Move is going to be tricky. She has to take a calculated stand as to which approach she shall undertake and whether expanding into joint ventures and new scheme of products is advisable. this case subtly aims to look into and devise numerical methods to determine the validity of future course of action on the part of Damn Heels.

CALCULATION OF CONTRIBUTIONS PER UNIT CALCULATION OF DIFFERENT EXPECTED COSTS ANALYSIS OF CURRENT PROFITS WITHOUT ANT ADDITIONS EXPANSION PLANS IN CANADA THROUGH COAT CHECKS EXPANSION PLANS IN CANADA THROUGH DH SALES STAFF ANALYSIS OF EXPANSION IN CANADA NEW VENTURE:BEAUTIFUL VENDING ANALYSIS OF BEAUTIFUL VENDING CONCLUSION

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NUMERICAL ANALYSIS

CALCULATION OF CONTRIBUTIONS PER UNIT SELLING PRICE PER UNIT = \$ 20 LESS HST @ 13% = \$ 2.60 = \$ 17.4 LESS VARIABLE COSTS a) weighted average shipping cost p u = \$.35 ( for flats & bag) b) manufacturing cost \$3.05 for flats and \$ 1.89 for bag c) packaging and brand labels \$ .33 per unit total variable costs = \$5.62 per unit CONTRIBUTION PER UNIT = \$ 11.78

HARMONISED SALES TAX: PROVINCIAL SALES TAX @ 8% FEDERAL GOODS AND SALES TAX@ 5%

## CALCULATION OF DIFFERENT EXPECTED COSTS SALES UNITS ESTIMATED = 10,000 PAIRS

TRADE SHOW AT YOUNGE DUNDAS COST FOR THE DAY = \$ 125 CLOTH SHOW COST FOR THE SHOW ( 3 DAYS) = \$ 270 NIKI BEACH PAYMENTS TO NIKKI BEACH = 25 (10)(\$20) X 10% = \$ 500 150 PAIRS TO BE GIVEN AS SALES PROMOTION = 150(\$5.62) = \$ 843 PR FIRM COSTS \$ 1900 FIXED COSTS TOTAL FIXED COSTS =

## ANALYSIS OF CURRENT PROFITS WITHOUT ANT ADDITIONS

SALES 10000 UNITS @ \$20 LESS HST @ 13% = \$ 2.60 NET OF HST LESS VARIABLE COSTS @\$5.62 per unit = CONTRIBUTION LESS FIXED COSTS = PROFIT

## \$2,00,000 \$ 26,000 \$ 1,74,000 \$ 56,200 \$1,17,800 \$ 3638 \$ 114,162

THROUGH COAT CHECKS SALES 2000 UNITS @ \$12 LESS HST @ 13% = \$ 1.56 NET OF HST LESS VARIABLE COSTS @\$5.62 per unit = CONTRIBUTION LESS ADDL FIXED COSTS = PROFIT \$24,000 \$ 3,120 \$ 20,880 \$ 11,240 \$9,640 \$ NIL \$9,640

THROUGH DH SALES STAFF SALES 2000 UNITS @ \$20 LESS HST @ 13% = \$ 1.56 NET OF HST LESS VARIABLE COSTS @\$5.62 per unit = CONTRIBUTION LESS ADDL FIXED COSTS SALARY OF STAFF = PROFIT \$40,000 \$ 5,200 \$ 34,800 \$ 11,240 \$ 23,560

\$ 7,500 \$16,060

SALARY OF STAFF @ 15 PER HOUR FIVE DAYS PER WEEK AND FIVE HOURS PER DAY. \$15 X 5 HOURS X 5 DAYS X 4 WEEKS X 5 MONTHS = \$ 7,500

## ANALYSIS OF CANADIAN EXPANSION DETAILS

CLEARLY THE DH SHALL GO FOR OWN STAFF AS IT IS ADDING MORE PROFIT TO THE BOTTOMINE THAN GOING FOR THE COAT CHECKS ASSISTANCE EVEN IF IT MEANS HIGHER STAFF SALARY. THIS WOULD ENSURE MORE MARKET PRESENCE IN THE LONG RUN AND ADD MORE MARKETING BUZZ TO THE IMMEDIATE TERM. it is highly advised that the company must adopt the strategy of installing new sales staff even if it is costly as selling through others entails supplying at heavy discount. the discount far outstrips the salary component.

further it must be understood that setting up STAFF will help bringing more customers to the fold and help retaining old ones. But selling through others will not ensure that in the Long Run. so Selling through Staff is advisable as it will help the company to expand its market and also help expanding its bottomline in the LONG RUN.

NEW VENTURE

BEAUTIFUL VENDING INITIAL CAPITAL COST = \$ 15,000 TO BE REPAID BY EMI IN 36 MONTHS @ 3.5% ANNUAL EMI AMOUNT = {\$15,000 ( 3.5%) 3 + \$15,000 }/36= \$461.4166 INCORPORATION COST = \$ 200 COMPANY LOGO = \$ 200 PRINTER = \$ 300 LANDING COST OF EACH MACHINE = \$ 800 TO \$ 900. INSTALLAION COST PER MACHINE = \$500 ATTENDANT COST PER DAY = \$10.25 PER HOUR X 5 HRS = \$61.25 PER DAY ATTENDANT COST PER WEEK= \$61.25 PER DAY X 3 = \$183.75 PER WEEK DEPRECIATION OF MACHINES PER ANNUM = \$ 900/10 YEARS = \$ 90 DEPRECIATION PER MACHINE FOR A 20 WEEK PERIOD = \$ 90(20/52) = \$ 34.61

REVENUE PER DAY = \$2 ( 20) = \$ 40 REVENUE PER WEEK = \$ 40 (2.5) = \$ 100 REVENUE FOR A 20 WEEK PERIOD PER MACHINE = \$ 100 ( 20) = \$ 2000 REVENUE FROM TEN MACHINE PER WEEK = \$100 ( 10) = \$ 1000 TOTAL REVENUE PER 20 WEEK PERIOD = \$ 2000 (10) = \$ 20,000 SHARE OF REVENUE BY CLUB OWNERS = \$ 20000 ( 20%) = \$ 4,000 NET REVENUE GENERATION = \$ 20,000 - \$4,000 = \$ 16,000 PAYMENT OF EMI'S AND DEPRECIATION COSTS ARE FIXED COSTS. ATTENDANT COSTS ARE VARIABLE IN NATURE.

NET INCOME GENERARED FOR A 20 WEEK PERIOD IS SUMMARISED AS BELOW: GROSS REVENUE LESS SHARE OF CLUB OWNERS@ 20% = NET REVENUE LESS DEPRECIATION OF MACHINES @34.61 ATTENDANT COST FOR 20 WEEK @\$183.75 PER WEEK = NET INCOME BEFORE TAX EMI TO BE PAID FOR THIS PERIOD @\$461.4166 \$ 20,000 \$ 4,000 \$ 16,000 \$346.1 \$3675 \$11978.9 \$2307

ANALYSIS OF NEW VENTURE it is apparent from the calculations that Damn Hills would benefit a great deal from entering into the joint venture if they intend to do so. this venture has great potential for revenue enhancement and provided that the machines would last for 10 years from the date of acquisition, it will be highly lucrative and value addition to the already finely balanced business. For a 20 week period DAMN HEEL'S can add \$11978.9 to its profits before tax and its a sure way of enhancing product portfolio.

CONCLUSION There was the consideration of entering into the US market but there is no hard evidence what kind of immediate impact DAMN HEELS can have in there. Even if the market is lucrative in the look of it, it has to be explored and researched before going in and therefore its a foregone conclusion that local market must be explored and expertise be developed before venturing outside. one more aspect which is worth exploring is that the type and kind of capital it will require to be invested in the US market. the source and availability of the capital to be invested has to be looked into and the cost of maintaining it must also pass general availability in the market. So it is advisable right now to take control of the local market and make inroad into it and then consider expanding into the Foreign Market.