Projected Operating Profit and Acceptability of Option 3

Running head: ACCOUNTING
Accounting
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1ACCOUNTING
Table of Contents
1. Projected operating profit or loss for option 3 and determination of its acceptability:...............2
2. Advantages and disadvantages of option 3:.................................................................................2
3. Discussion of each option based on the group findings:.............................................................3
References:......................................................................................................................................5
Appendix:........................................................................................................................................6

2ACCOUNTING
1. Projected operating profit or loss for option 3 and determination of its acceptability:
The projected operating profit/loss for each of the three options has been presented in the
form of a table (Refer to Appendix). In this case, the third option is selected, in which the
advertising cost would increase by $200,000 and this would lead to rise in sales volume by 15%.
The base case scenario states that Performance Sports has suffered operating loss of ($30,000);
however, if this alternative is adopted, it would lead to operating profit of $630,600. Hence, from
the profitability point of view, this option could be accepted, as the organisation would be able to
improve its business operations with the help of increased profit level.
2. Advantages and disadvantages of option 3:
Based on the above discussion, the following advantages are inherent in the third
alternative:
 As the cost of advertising increases, the brand visibility of Performance Sports would
increase in tandem as well (Boardman et al., 2017).
 Additional advertising helps in developing lasting relationships with the intended
audience, which would help in increasing its overall sales volume.
 If Performance Sports spends additional amount on advertising, there would be rise in the
volume of sales by 15%. Such additional sales volume would raise its profit margin,
which would help in enjoying competitive advantage in the operating market.
However, this alternative might have negative repercussions on the profitability of
Performance Sports, which are discussed as follows:
 The overall expenses of the organisation would increase, which might reduce its profit
margin (Damodaran, 2016).