1. Compare and contrast the operations and cost structure of the retail and DC channels. Describe the items included in cost of goods sold and SG&A costs and how they compare across channels. Do the differences described in the case make sense to you? Which of the categories of cost of goods sold and SG&A should vary with volume? Which should remain fixed?
The company Newport Home, Inc. a retailer that specializes in selling home furnishings through a retail channel and a direct-to-customer channel has many similarities and differences between the two channels regarding the costs and sales. The two channels are designed to center on quality, creativity, and style. The retail store opened its first store in 1960 and now operates 154
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The warehouse costs for the two companies are based on inventory needs and the other costs are directly distinguishable. Freight costs for the retail channel are higher since they have freight costs to the warehouse, retail stores, deliveries from vendors, and return freight costs. The direct-to-customer channel only has freight cost from the warehouse. Buying, receiving, inspection costs, and all non-occupancy costs associated with the distribution network make up the selling, general and administrative costs for the company. The highest costs for both channels are the cost of sales and labor. The retail channels labor cost include warehouse labor and store-level labor. The direct-to-customer channels labor cost include IT, warehouse, and call center labor. The differences in the case seem to make sense for the most part on how the company allocated the cost and how the operations of the channels work. The Marketplace seems to have other options that could benefit the channels better. The following costs should be determined by volume; merchandise cost and freight cost. Most of the labor cost would be fixed but could also be based on volume, especially if overtime is needed. Occupancy (rent, depreciation and maintenance), administrative, promotional and advertising would all be fixed costs.
2. Explain why the retail channel has planned overstock. Could the company avoid planned overstock inventory in the retail