Crestfield Furniture Industries

Crestfield Furniture Industries, Inc. (A)

Introduction

Crestfield Furniture Industries, Inc. is a manufacturer of medium-to-high priced wood bedroom, living room, and dining room furniture. The company was formed in the 1900's and is very selective in choosing retail outlets. Crestfield sells its furniture through 1,000 high-quality department stores and independent furniture specialty stores nationwide, but all stores do not carry the company's entire line. Crestfield's year-end net sales in 2003 were $75 million with a before-tax profit of $3.7 million. Crestfield is currently considering their 2004 advertising program, proposed by their ad agency, Hervey and Benham.

Problem Statement

Crestfield Furniture Industries, Inc. is faced with the problem of allocating their company funds within their promotional budget and their budget as a whole.

Alternatives

1. Crestfield could increase expenditure for consumer advertising by $225,000 in 2004.

2. Crestfield could split the estimated 2004 increase of $300,000 between sales expenses and promotional budget.

3. Crestfield could keep budget at existing figures for 2003.

Recommendation

Crestfield could split the estimated 2004 increase of $300,000 between sales expenses and promotional budget.

Analysis

Following the suggestion of John Bott, Vice-President of Sales, Crestfield should split the estimated 2004 increase of $300,000 between sales expenses and promotional budget. Crestfield recorded sales of $75 million in 2003; this will most likely result in a 6 percent sales increase in 2004, which means a $300,000 increase over the previous budget. Of the $300,000 increase, $135,000 should be allocated to sales for the new representative and the rising sales expenses and administrative costs that follow. The additional $165,000 can be made available for various types of promotion.

The new representative is necessary as 50 new accounts will be added to Crestfield's clientele in 2004. With only 10 existing representatives and two regional sales managers, Crestfield is limiting the number of sales they can attain. With new lines and accounts being added, Crestfield is in danger of spreading their sales department too thin. Expenses for this new representative including salary and expenses would be at least $70,000 for 2004. The remaining $65,000 will cover the rise in administrative costs and sales expenses