Question

1. What do the trends in cost of goods sold, total marketing expense, and total general and administrative expenses for years 6, 7, and 8 suggest?

	Year 6	Yr 6 %	Year 7	Yr 7 %	Year 8
# of Games Sold	800,000		890,000		1,010,000
Average Price per Game	$23.00		$24.00		$24.15
Sales Revenue	$18,400,000	100.00%	$21,360,000	100.00%	$24,391,500
less: Returns & Allowances	30,000	0.16%	29,000	0.14%	31,000
Net Sales Revenue	18,370,000	99.84%	21,331,000	99.86%	24,360,500
less: Cost of Goods Sold (Sch 1)	9,766,440	53.08%	10,800,680	50.56%	12,587,618

Schedule 7 - Marketing Expenses
	Year 6	Yr 6 %	Year 7	Yr 7 %	Year 8
Advertising	$1,000,000	5.43%	$1,180,000	5.52%	$1,210,000
Allocated Overhead	300,000	1.63%	295,000	1.38%	312,000
Depreciation	30,000	0.16%	30,000	0.14%	30,000
Distribution Expansion Costs	0	0.00%	50,000	0.23%	0
Other Expenses	80,000	0.43%	102,000	0.48%	103,000
Research and Development	600,000	3.26%	550,000	2.57%	580,000
Salaries & Commissions	2,000,000	10.87%	2,490,000	11.66%	2,900,000
Sales Promotion	178,000	0.97%	300,000	1.40%	200,000
Supplies & Equipment	100,000	0.54%	30,000	0.14%	25,000
Training-Sales Reps	200,000	1.09%	160,000	0.75%	400,000
Travel	700,000	3.80%	840,000	3.93%	1,080,000
Website & IT	170,000	0.92%	167,000	0.78%	170,000
Total Marketing Expenses	$5,358,000	29.12%	$6,194,000	29.00%	$7,010,000

Schedule 8 - General & Administrative Expenses
	Year 6	Yr 6 %	Year 7	Yr 7 %	Year 8
Allocated Overhead	$150,000	0.82%	$152,000	0.71%	$151,000
Bad Debts	145,000	0.79%	175,000	0.82%	179,000
Board Fees & Expenses	200,000	1.09%	232,000	1.09%	271,000
Depreciation	30,000	0.16%	30,000	0.14%	30,000
Other Expenses	120,000	0.65%	115,000	0.54%	130,000
Professional & Consulting Fees	180,000	0.98%	185,000	0.87%	213,000
Salaries	1,000,000	5.43%	1,100,000	5.15%	1,220,000
Supplies & Equipment	20,000	0.11%	15,000	0.07%	8,000
Total G & A Expenses	$1,845,000	10.03%	$2,004,000	9.38%	$2,202,000

Answer 1

Cost of goods sold and total marketing expenses has a upper trend and general and admin expenses is mostly fixed with rare variation.