【Questions】
2 Ties Only is a new business, selling high quality imported men’s ties via the internet. The managers, who also own
the company, are young and inexperienced but they are prepared to take risks. They are confident that importing
quality ties and selling via a website will be successful and that the business will grow quickly. This is despite the
well recognised fact that selling clothing is a very competitive business.
They were prepared for a loss-making start and decided to pay themselves modest salaries (included in administration
expenses in table 1 below) and pay no dividends for the foreseeable future.
The owners are so convinced that growth will quickly follow that they have invested enough money in website server
development to ensure that the server can handle the very high levels of predicted growth. All website development
costs were written off as incurred in the internal management accounts that are shown below in table 1.
Significant expenditure on marketing was incurred in the first two quarters to launch both the website and new
products. It is not expected that marketing expenditure will continue to be as high in the future.
Customers can buy a variety of styles, patterns and colours of ties at different prices.
The business’s trading results for the first two quarters of trade are shown below in table 1
Table 1
Quarter 1 Quarter 2
$ $ $ $
Sales 420,000 680,000
less Cost of Sales (201,600) (340,680)
–––––––– ––––––––
Gross Profit 218,400 339,320
less expenses
Website development 120,000 90,000
Administration 100,500 150,640
Distribution 20,763 33,320
Launch marketing 60,000 40,800
Other variable expenses 50,000 80,000
–––––––– ––––––––
Total expenses (351,263) (394,760)
–––––––– ––––––––
Loss for quarter (132,863) (55,440)
–––––––– ––––––––
Required:
(a) Assess the financial performance of the business during its first two quarters using only the data in table 1
above. (12 marks)
(b) Briefly consider whether the losses made by the business in the first two quarters are a true reflection of the
current and likely future performance of the business. (4 marks)
The owners are well aware of the importance of non-financial indicators of success and therefore have identified a
small number of measures to focus on. These are measured monthly and then combined to produce a quarterly
management report.
The data for the first two quarters management reports is shown below:
Table 2
Quarter 1 Quarter 2
Website hits* 690,789 863,492
Number of ties sold 27,631 38,857
On time delivery 95% 89%
Sales returns 12% 18%
System downtime 2% 4%
* A website hit is automatically counted each time a visitor to the website opens the home page of Ties Only.
The industry average conversion rate for website hits to number of ties sold is 3·2%. The industry average sales return
rate for internet-based clothing sales is 13%.
Required:
(c) Comment on each of the non-financial data in table 2 above taking into account, where appropriate, the
industry averages provided, providing your assessment of the performance of the business.
(9 marks)
(25 marks)
点击加载更多评论>>