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Products and Pricing Strategy

Pewter Discs had a standard product line that was offered through its catalogue; a total of 25 images. These 12 15 images were considered standard size. All products had original designs. Once a model was created, it went into production. Each item was hand-finished with appropriate solutions before shipment. Over the years, this process was perfected and the quality of each reproduction was considered flawless or using conventional business terminology, zero-defects. The per-unit cost (including shipping and packaging) was in the $20.00 range and sold for $59.95 less commission.

Pewter Discs developed their first premium products with several hockey, golf and baseball idols. Although the production process of these items was the same as the standard products, incremental costs associated with marketing each piece had to be taken into account. For instance, the licensing cost for producing the image of a hockey idol was $5 per unit.

A list of product lines such as Canadian hockey images, NASCAR images, golf images, basketball images, etc. was designed and presented to several retailers and they were very interested. These images would be considered the imperative for the companys sales efforts and future success. The traditional product line would be marketed jointly with the new images. These niche products were considered to have exceptional marketability and expected to boost sales volume.

Roberts Vision and Plans

Robert spent several weeks listening to his fathers objectives and plans and was encouraged by what he heard. However, after looking at the companys 2017 to 2019 actual financial statements, he had some reservations about the financial strength of the business. Robert was working as a product manager for an international consumer products company and was earning a good salary; he liked the financial stability. He was married and had two children.

Robert decided that before he leaped into his fathers business, he would closely examine the profile of each financial statement to determine whether or not it was possible to make Pewter Discs a profitable venture. There was nothing much that he could do about the 2020 estimated year-end financial results. The company was already in its fourth quarter and based on some rough estimates, Robert estimated that it would end the year with a $47,000 profit, just $6,000 more than the previous year.

Robert had little reservations about the sales estimates. He felt that revenue would continue to increase in view of the good quality product lines and the good working relationships that Bill had nurtured over the years. However, he felt that the operating costs were a big obstacle for the companys success. Robert made the following statement in a meeting with his father Bill and friend Harry Freeman:

Im very interested in joining the company. However, I have to be assured that I will be given carte blanche about how this business should be managed. We have to make some major changes in our cost structure. Im glad that a more automated production process was installed in 2020. If we use that production process effectively, we could considerably improve the companys bottom line. I have made some financial projections for the year 2021 and would like to review them with you. If you agree with these plans, I think that we have a good chance of turning the financial statements into a healthier state. The challenge will be to change the way we do things. This will have to take place now. If we succeed and are patient, I firmly believe that Pewter Discs will become a leader in the giftware and memorabilia industry. My intention is to increase our return on sales for 2021 and plan for a major $2.0 million investment in 2022.

The following paragraphs describe the planning assumptions for the statement of income and the statement of financial position for the year 2021.

Financial Statements

Pewter Discs three financial statements: the statements of income, the statements of changes in equity and the statement of financial position for the years 2017 to 2020 are presented in Appendix A. Although revenue doubled between the years 2017 to 2020, the companys profit for the year remained relatively flat. Bill was able to increase the companys revenue but had problems in keeping his costs in line.

The statement of financial position indicated that total assets increased substantially from $450,000 in 2017, to $1,132,000 in 2020. In 2017, approximately 67% of the companys assets were financed by debt, a ratio that remained unchanged during the four-year period. This meant that every time assets were purchased, 67% was financed by debt, and the rest, equity.

In 2020, Bill decided to invest $300,000 in his business to purchase new production equipment in order to meet product demand and more importantly, improve plant efficiencies. Bill re-mortgaged his house and obtained $100,000 from the bank for the purchase of these assets.

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