Denver Furniture Corporation Case Summary

The Denver Furniture Corporation (DFC) is considering a new business proposal that purports to increase the company's sales revenue and efficiency by introducing a new product line. The product line would be a cheaper than their current offerings, which is planned to increase the company's total market share by offering products to a new segment. The price and quality differences are worrying to some of the management because DFC's current branding is based off of good quality products. Also, there's the possibility that the new products, while reaching new customers, will also cause existing customers who would have bought the more expensive option to downgrade. This is known as "cannibalization". By examining the two projections of the proposal, as well as the company's current position, the best course of action can be aimed at.
Following data is given from the proposals and on the current state of the company. The data given of the proposal with the effect cannibalization represents a sort-of worst-case scenario.
With the above data, we can calculate the return on assets ratio, the asset turnover ratio, and the profit margin. The return on assets ratio presents a picture of the profitability of the company by giving the number of dollars made in …show more content…
If the factory has excess capacity for the company's sales volume, they could increase their efficiency by selling their capital, which also gives a momentary cash boost. This option is far less risky. Another option is to use their excess capacity to start building completely new products which are complementary to their furniture products in order to increase sales. For example, Apple sold more computers with the launch of iPod because the existence of the iPod increased the value of an Apple computer. DFC could sell things, pillows or throws for example, which go together with their existing products to increase their