The reading portion is the missing piece that you need to complete this assignment.

1. Calculate a pro-forma income statement for the first year of CCC (assume Steve Davidson does make and sell 30 canoes). Use a price that you think Steve should charge and briefly explain why you chose this price. Also, use 2 other prices (i.e., one that is lower and one that is higher) to examine how CCCs profit could change based on the price he charges. Please consider using Excel for this analysis.

(Note that the case says that ‘Davidson projected almost $90,000 in sales in 1998 with gross profits of $52,000’. I’m not sure what this means, since it looks like he is starting the business in Aug., 1998. For your analysis, please ignore this information when doing your calculations).
Transcribed Image Text:Davidson's total expenses include: Power equipment Hand tools Cuters, blades, and bits Benches, stands, and cabinets Forms and jigs Offie equipment Markethg & Advertsement 5,530 835 800 1,600 160 3,055 Canoe & Kayak Magazine ($140 X 12 months) Kanawa Magazine (per year) 1,680 340 Industry and Recreatbnal Associatbns Press Release (per year) 300 Rent expense ($351 X 12 months) Other operathg expense (telephone, internet, supplies, insurance, and maintenance) s Total Expense 4.212 8,644 27,156 Exhibit 1 WOOD STRIP CANOE MANUFACTURERS High Price (CAD) $5,040 Mean price 16-17 Boat Company Fof Size Range Customize Low Price Custom Price Models Northwoods 10-17 S1,820 S100-S600/n. Limited to packages Yes $5,500 (USA) Laughing Loon (Cdn) Franklin Cedar 10'-17 $4,258 $2,500 S252/n. $4,250 12'-18-1/2 Quote by the job Quote by the job $250-S1500/f. 4 Yes $2,500 $1,700 $2,200 Canoes (USA) Nashua River Craft (USA) 15' Yes $2,660 $2,660 NA Kevin Martin 15'-17' Yes $5,600 $2,800 $4,700 (USA) Fletcher Canoes 15'-17' Yes $2.600 $2,400 $40-5485/t. $2,600 (Cdn) Bourquin Beats (USA) Bearwood Canoe 16'6"-176" Yes $3,290 $3,430 S50-5725/n. $3,290 15'-16' Limited to $2,595 $2,425 $2,650 $2,595 Сompany (Cdn) Dacron covering Limited to adding sail Cheemaun Canoes (USA) 15'-20' $2,940 $2,940 S1,260 $2,940 15'-20 $4,893 Quote by the job Old Towne Yes $4,473 $4,473 Classic Canoes USA) Nor West Canoes (Cdn) 12'-26 $13,450 $2,165 Quote by the Ljob 22 Yes $3,100
Transcribed Image Text:Davidson wanted assistance starting his company, so he enrolled in the 12-week business program at the Entrepreneurial Manufacturing Generator (EMG) in St. Thomas. The course was based on the case method and taught by faculty and graduates of the Ivey School of Business and Western University Engineering Sciences. After completing the 12-week course, students had the opportunity (once they had drafted an acceptable business plan) to progress to a start-up and mentoring phase conducted on site. CCC would rent space at the EMG for $351 per month. The shared EMG facility gave Davidson access to a wide range of business resources, including the EMG instructors and another woodworking shop. Davidson hoped that the close proximity of these resources would give CCC a competitive advantage. Davidson planned to produce 30 canoes in the first year and average one canoe every ten days, which would leave 65 days to buffer any unforeseen production delays (an experienced craftsman could build 25 to 30 canoes per year). Davidson would have to work seven days a week to maintain the production pace; however, he felt that he could handle a seven-day schedule for two to three years. Although the first canoes were scheduled to take almost 12 days to build, throughput time (the time from start to finish) would decrease as production techniques improved. Davidson knew that he would have to invest in some equipment which would include an estimated $5,530 for power equipment and accessories; hand tools at $835; cutters, blades, and bits at $800; benches, stands, and cabinets for $1,600; forms and jigs for $160; and office equipment for $3,055. Although production costs were expected to decrease as the manufacturing process developed, Davidson projected that variable costs would total $1,161 per canoe and selected annual operating expenses including telephone and internet charges, supplies, insurance, and maintenance would total $8,644. Davidson projected almost $90,000 in sales in the first year, with gross profits of $52,000. Promotion would consist of a Web page, advertisements in canoeing magazines and press releases to industry and recreational associations. The Internet would be the company's primary means of promotion and sale, and Davidson planned on establishing a Web page complete with photographs, diagrams and interactive order forms. The Internet gave CCC access to thousands of prospective clients at virtually no cost. The company was also going to place advertisements in the "buyer's market" sections of the two most popular canoeing magazines, Canoe & Kayak and Kanawa, which were published in the U.S. and Canada, respectively. Canoe & Kayak had a monthly circulation of about 100,000. A one-inch advertisement cost US$140 per month. Kanawa, on the other hand, had a quarterly circulation of about 120,000. An equivalent one-inch advertisement cost Cdn$340 per year. Davidson calculated that he would only have to sell one canoe per 67,000 advertisement exposures if he produced 30 canoes per year. Finally, Davidson was going to issue press releases to Industry and Recreational Associations with the introduction of every new type of canoe at a cost of $300 per year. Based on the promotion strategy, most sales would be direct from the shop to the customers. Professionals with above-average incomes, who canoed as a hobby, would be targeted. Canoeing for these professionals might be the hobby itself or part of another hobby such as fishing, hunting and camping. Although Davidson did not include an estimate of the size of this market segment, he cited statistics from Statistics Canada that Canadians owned over two million boats, including approximately 640,000 canoes. PRICING Davidson included a price list of direct competitors who made wood strip canoes (Exhibit 1). In addition to the 11 companies listed in the business plan, there were many other small manufacturers with sites on the Internet. The price range of hand-crafted canoes sold on these Web sites ranged from under US$2,000 to over US$10,000. Most sites claimed to sell canoes made from cedar, comparable to the canoes made at CCC. The competition also included mass-produced canoes sold by well- known manufacturers such as Coleman and Alumicraft. Mass-produced canoes were lower quality and retailed between $750 and $3,000, depending on the make, model and size. Other types of watercraft, such as windsurfers, sailboats and motor boats, also competed with canoes for sales. Prices for small boats and watercraft started at under $1,000 for low-end windsurfers. The prices of competing products varies widely and, although Davidson thought his canoes would sell at a premium, he did not want to price them too high since there would be no sales force to promote the canoes and most of the sales would be direct to the customer. Davidson was not certain what the impact would be on the price paid by the customer if he chose to use a retailer rather than direct sales. Davidson also wanted to maximize profit to provide him with an income. With these considerations in mind, Davidson analyzed the pros and cons of his pricing strategy and planned to calculate the sales projections and breakeven points for several different pricing scenarios.

Question

The reading portion is the missing piece that you need to complete this assignment.

1. Calculate a pro-forma income statement for the first year of CCC (assume Steve Davidson does make and sell 30 canoes). Use a price that you think Steve should charge and briefly explain why you chose this price. Also, use 2 other prices (i.e., one that is lower and one that is higher) to examine how CCCs profit could change based on the price he charges. Please consider using Excel for this analysis.

(Note that the case says that ‘Davidson projected almost $90,000 in sales in 1998 with gross profits of $52,000’. I’m not sure what this means, since it looks like he is starting the business in Aug., 1998. For your analysis, please ignore this information when doing your calculations).

Davidson's total expenses include:
Power equipment
Hand tools
Cuters, blades, and bits
Benches, stands, and cabinets
Forms and jigs
Offie equipment
Markethg & Advertsement
5,530
835
800
1,600
160
3,055
Canoe & Kayak Magazine ($140 X 12 months)
Kanawa Magazine (per year)
1,680
340
Industry and Recreatbnal Associatbns Press Release (per year)
300
Rent expense ($351 X 12 months)
Other operathg expense (telephone, internet, supplies, insurance, and maintenance) s
Total Expense
4.212
8,644
27,156
Exhibit 1
WOOD STRIP CANOE MANUFACTURERS
High
Price
(CAD)
$5,040
Mean price
16-17 Boat
Company
Fof
Size Range
Customize
Low Price Custom Price
Models
Northwoods
10-17
S1,820 S100-S600/n.
Limited to
packages
Yes
$5,500
(USA)
Laughing Loon
(Cdn)
Franklin Cedar
10'-17
$4,258
$2,500 S252/n.
$4,250
12'-18-1/2
Quote by the
job
Quote by the
job
$250-S1500/f.
4
Yes
$2,500
$1,700
$2,200
Canoes (USA)
Nashua River
Craft (USA)
15'
Yes
$2,660
$2,660
NA
Kevin Martin
15'-17'
Yes
$5,600
$2,800
$4,700
(USA)
Fletcher Canoes
15'-17'
Yes
$2.600
$2,400
$40-5485/t.
$2,600
(Cdn)
Bourquin Beats
(USA)
Bearwood Canoe
16'6"-176"
Yes
$3,290
$3,430
S50-5725/n.
$3,290
15'-16'
Limited to
$2,595
$2,425
$2,650
$2,595
Сompany (Cdn)
Dacron
covering
Limited to
adding
sail
Cheemaun
Canoes (USA)
15'-20'
$2,940
$2,940 S1,260
$2,940
15'-20
$4,893 Quote by the
job
Old Towne
Yes
$4,473
$4,473
Classic Canoes
USA)
Nor West
Canoes (Cdn)
12'-26
$13,450
$2,165
Quote by the
Ljob
22
Yes
$3,100

Davidson wanted assistance starting his company, so he enrolled in the 12-week business program at the Entrepreneurial
Manufacturing Generator (EMG) in St. Thomas. The course was based on the case method and taught by faculty and graduates
of the Ivey School of Business and Western University Engineering Sciences. After completing the 12-week course, students had
the opportunity (once they had drafted an acceptable business plan) to progress to a start-up and mentoring phase conducted
on site. CCC would rent space at the EMG for $351 per month. The shared EMG facility gave Davidson access to a wide range of
business resources, including the EMG instructors and another woodworking shop. Davidson hoped that the close proximity of
these resources would give CCC a competitive advantage.
Davidson planned to produce 30 canoes in the first year and average one canoe every ten days, which would leave 65 days to
buffer any unforeseen production delays (an experienced craftsman could build 25 to 30 canoes per year). Davidson would
have to work seven days a week to maintain the production pace; however, he felt that he could handle a seven-day schedule
for two to three years. Although the first canoes were scheduled to take almost 12 days to build, throughput time (the time
from start to finish) would decrease as production techniques improved. Davidson knew that he would have to invest in some
equipment which would include an estimated $5,530 for power equipment and accessories; hand tools at $835; cutters, blades,
and bits at $800; benches, stands, and cabinets for $1,600; forms and jigs for $160; and office equipment for $3,055. Although
production costs were expected to decrease as the manufacturing process developed, Davidson projected that variable costs
would total $1,161 per canoe and selected annual operating expenses including telephone and internet charges, supplies,
insurance, and maintenance would total $8,644. Davidson projected almost $90,000 in sales in the first year, with gross profits
of $52,000.
Promotion would consist of a Web page, advertisements in canoeing magazines and press releases to industry and recreational
associations. The Internet would be the company's primary means of promotion and sale, and Davidson planned on
establishing a Web page complete with photographs, diagrams and interactive order forms. The Internet gave CCC access to
thousands of prospective clients at virtually no cost. The company was also going to place advertisements in the "buyer's
market" sections of the two most popular canoeing magazines, Canoe & Kayak and Kanawa, which were published in the U.S.
and Canada, respectively. Canoe & Kayak had a monthly circulation of about 100,000. A one-inch advertisement cost US$140
per month. Kanawa, on the other hand, had a quarterly circulation of about 120,000. An equivalent one-inch advertisement
cost Cdn$340 per year. Davidson calculated that he would only have to sell one canoe per 67,000 advertisement exposures if he
produced 30 canoes per year. Finally, Davidson was going to issue press releases to Industry and Recreational Associations with
the introduction of every new type of canoe at a cost of $300 per year. Based on the promotion strategy, most sales would be
direct from the shop to the customers. Professionals with above-average incomes, who canoed as a hobby, would be targeted.
Canoeing for these professionals might be the hobby itself or part of another hobby such as fishing, hunting and camping.
Although Davidson did not include an estimate of the size of this market segment, he cited statistics from Statistics Canada that
Canadians owned over two million boats, including approximately 640,000 canoes.
PRICING Davidson included a price list of direct competitors who made wood strip canoes (Exhibit 1). In addition to the 11
companies listed in the business plan, there were many other small manufacturers with sites on the Internet. The price range of
hand-crafted canoes sold on these Web sites ranged from under US$2,000 to over US$10,000. Most sites claimed to sell canoes
made from cedar, comparable to the canoes made at CCC. The competition also included mass-produced canoes sold by well-
known manufacturers such as Coleman and Alumicraft. Mass-produced canoes were lower quality and retailed between $750
and $3,000, depending on the make, model and size. Other types of watercraft, such as windsurfers, sailboats and motor boats,
also competed with canoes for sales. Prices for small boats and watercraft started at under $1,000 for low-end windsurfers. The
prices of competing products varies widely and, although Davidson thought his canoes would sell at a premium, he did not
want to price them too high since there would be no sales force to promote the canoes and most of the sales would be direct to
the customer. Davidson was not certain what the impact would be on the price paid by the customer if he chose to use a
retailer rather than direct sales. Davidson also wanted to maximize profit to provide him with an income. With these
considerations in mind, Davidson analyzed the pros and cons of his pricing strategy and planned to calculate the sales
projections and breakeven points for several different pricing scenarios.

Accepted Answer

Recommended Marketing Strategy: 
Although the canoe market looks attractive, it will be difficult…