analyis of payton corp furniture

Payton Furniture Corp. is nationally recognized for making  high-quality products. Management is concerned that the company is not fully  exploiting its brand power. Payton’s production managers are also concerned  because their plants are not operating at near full capacity. Management is  currently considering a proposal to offer a new line of affordable furniture.

Those in favor of the proposal (including the vice president  of production) believe that, by offering these new products, the company could  attract a clientele that it is not currently servicing. It could also operate  its plants at full capacity, thus taking better advantage of its assets.

The vice president of marketing, however, believes that the  lower-priced (and lower-margin) product would have a negative impact on the  sales of existing products. The vice president believes that $10,000,000 of the  sales of the new product will be from customers that would have purchased the  more expensive product but switched to the lower-margin product because it was  available. (This is often referred to as cannibalization of existing sales.)  Top management feels, however, that even with cannibalization, the company’s  sales will increase and the company will be better off.

The following data are available:

(In Thousands)

Current Results

Proposed Results  without Cannibalization

Proposed Results  with Cannibalization

Sales Revenue




Net Income




Average total  assets





  1. Compute Payton’s return on assets, profit  margin, and asset turnover, both with and without the new product line.
  2. Discuss the implications that your findings in  part (A) have on Payton’s decision.
  3. Are there any other options that Payton should  consider? What impact would each of these have on the above ratios?

Show your work and use MS Excel or Word for your submission.  The written portion of your assignment should be 4-6 pages in length with  document and citation formatting conformity with the CSU-Global  Guide to Writing and APA Requirements.

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