caligirl08
Rough_Rock
- Joined
- Apr 9, 2008
- Messages
- 38
Hi there,
I have a question and was wondering if you could help me understand the rationale behind this. I'm not bringing it up to be argumentative at all- I just truly do not understand. My degree's in business and I'm feeling pretty stupid that I'm not getting this...what am I missing? I know I'm simplifying things here, but I don't want to bore anyone with financial models Hopefully this illustrates the concept.
1. Let's say I buy a diamond (Diamond A) for $10,000
The vendor makes a 5% margin, so gross profit on the transaction is $500
2. I try to return the ring, but I'm not able to do so because it was a diamond that the vendor brought it and it's past the return date. However, I can upgrade the diamond.
3. I pick out another diamond that is available on the PS multi-vendor search and exchange Diamond A for Diamond B, which costs $10,500
4. The vendor makes an additional $25 on this sale (assuming 5% margin on the $500 price differential) but vendor spends $50 bringing in the ring and running sarin, idealscope, etc.
5. Ring A goes into the vendor's inventory and the gross profit from both transactions is $475
Wouldn't it have made more sense for the vendor to take back Diamond A (since it ends up back in inventory anyway) and charge a 5-10% re-stocking/handling fee?
In terms of SG&A, nothing changes. Fixed costs are the same and variable costs actually increase in the no-return scenario (time spent bringing in stones, consulting customer).
I'm not understanding unless profit margins on stones are much higher than the 4-7% that's been reported.
Thanks!
I have a question and was wondering if you could help me understand the rationale behind this. I'm not bringing it up to be argumentative at all- I just truly do not understand. My degree's in business and I'm feeling pretty stupid that I'm not getting this...what am I missing? I know I'm simplifying things here, but I don't want to bore anyone with financial models Hopefully this illustrates the concept.
1. Let's say I buy a diamond (Diamond A) for $10,000
The vendor makes a 5% margin, so gross profit on the transaction is $500
2. I try to return the ring, but I'm not able to do so because it was a diamond that the vendor brought it and it's past the return date. However, I can upgrade the diamond.
3. I pick out another diamond that is available on the PS multi-vendor search and exchange Diamond A for Diamond B, which costs $10,500
4. The vendor makes an additional $25 on this sale (assuming 5% margin on the $500 price differential) but vendor spends $50 bringing in the ring and running sarin, idealscope, etc.
5. Ring A goes into the vendor's inventory and the gross profit from both transactions is $475
Wouldn't it have made more sense for the vendor to take back Diamond A (since it ends up back in inventory anyway) and charge a 5-10% re-stocking/handling fee?
In terms of SG&A, nothing changes. Fixed costs are the same and variable costs actually increase in the no-return scenario (time spent bringing in stones, consulting customer).
I'm not understanding unless profit margins on stones are much higher than the 4-7% that's been reported.
Thanks!