Case Study Analysis - Pyramid Door

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Most importantly, while the 2006 sales goal may still be ambitious, it is most likely to be attained with Option 2. From our calculations, successful implementation of Option 2 could result - in the period ending December 31, 2006 - in a gross profit of $3,107,000 and net sales of $12,429,200 - which is remarkably close to the $12.5 million sales goal. Using the exact same method, we found Options 1, 3 and 4 to result in 2016 Net Sales of approximately $10 million, $8 million, and $9.5 million, respectively (See Appendix.) As such, these findings strongly suggest that Option 2 would result in the best Net Sales and Net Profit for the company, bringing them extremely close to their goal - or possibly reaching it.

Implementation

Pyramid must work closely with the 27 dealers to ensure a smooth transition. Now that Pyramid will have 27 stores with the “Pyramid” name, the company can work to establish a strong reputation and brand image, through exceptional customer service. To achieve this, Pyramid should enhance communications with buyers post-purchase, to ensure that they are satisfied with the product and the installation process. This would enable Pyramid to monitor the performance of the employees who install their products, while forging relationships with buyers. Considering the key role of word-of-mouth advertising for this industry, such measures are important. Going forward, Pyramid should continue to expand sales and their brand with more exclusive franchises. They might also consider expanding into Home Depot and other home chain centers.

Appendix

Pyramid Door, Inc. Income Statement Projection: For the Period Ending December 31, 2005

Net Sales $9,200,000 (25% of gross profit) Cost of Goods Sold 6,900,000 (75% of gross profit) Gross Profit 2,300,000 Selling, General & Administrative Expenses 1,840,000 Net Profit Before Income Tax $460,000

Pyramid Door, Inc. Income Statement Projection: For the Period Ending December 31, 2005

Net Sales $9,200,000 Cost of Goods Sold 6,900,000 Gross Profit $2,300,000 Selling, General & Administrative Expenses 1,840,000 Net Profit Before Income Tax $460,000

Pyramid Door, Inc. Income Statement Projection: For the Period Ending December 31, 2005

Net Sales - Exclusive Dealers (70%) $6,440,000 Net Sales - Independent Dealers (30%) $2,760,000 Net Sales $9,200,00

Gross Profit (2015)

Independent Dealers Net Sales 2,760,000 Cost of Goods Sold 2,070,000 (75% of 2,760,000) Gross Profit 690,00

Gross profit per dealer = 690,000 / 300 → 2,300

Exclusive Dealers Net Sales 6,440,000 Cost of Goods Sold 4,830,000 (75% of 6,440,00) Gross Profit 1,610,000

Gross profit per dealer = 1,610,000 / 50 → 232,200

Option 1 – 400 independent dealers, 50 exclusive dealers

Gross Profit (2016) Independent Dealers $920,000 (2,300 x 400) Exclusive Dealers $1,610,000 (32,200 x 50) Total Gross Profit $2,530,000

Pyramid Door, Inc. Income Statement Projection: For the Period Ending December 31, 2006 Net Sales $10,120,000 (2,530,000 / .25) Cost of Goods Sold 7,590,000 (10,120,000 x .75) Gross Profit 3,107,300

Option 2 – 273 independent dealers, 77 exclusive dealers

Gross Profit (2016) Independent Dealers $627,000 (2,300 x 273) Exclusive Dealers $2,479,400 (32,200 x 77) Total Gross Profit $3,107,300

Pyramid Door, Inc. Income Statement Projection: For the Period Ending December 31, 2006 Net Sales $12,429,200 (3,107,300 / .25) Cost of Goods Sold 9,321,900 (12,429,200 x .75) Gross Profit 3,107,300

Option 3 – 200 independent dealers, 50 dependent dealers

Gross Profit (2016) Independent Dealers $460,000 (2,300 x 200) Exclusive Dealers $1,610,000 (32,200 x 50) Total Gross Profit $2,070,000

Pyramid Door, Inc. Income Statement Projection: For the Period Ending December 31, 2006 Net Sales $8,280,000 (2,070,000/ .25) Cost of Goods Sold 6,210,000 (8,280,000 x .75) Gross Profit 2,070,000

Option 4 – 300 independent dealers, 50 dependent dealers

Pyramid Door, Inc. Income Statement Projection: For the Period Ending December 31, 2006 Net Sales $9,420,800 (9,200,00 x 1.024) Cost of Goods Sold 6,900,000 Gross Profit 2,520,000

Comparison:

Solution Net Sales Gross Profit

Option 1 10,120,000 2,530,000

Option 2 12,429,200 3,107,300

Option 3 8,280,000 2,070,000

Option 4 9,420,8000 2,520,000