Microsoft Word - ACCT6004 MA Assessment Brief_Case Study Group.docx
1
ASSESSMENT BRIEF
Subject Code and Title ACCT6004 Management Accounting
Assessment Case Study
Individual/Group Group
Length
(2,000 words +/- 10%)
Learning Outcomes b. Identify and analyse ethical and organisational issues
confronting contemporary management accountants.
c. Categorise and identify the nature of various types of costs,
cost objects and cost behaviours and use cost estimation
techniques to develop cost functions.
d. Apply cost accounting techniques to calculate the cost of a
ange of cost objects, as well as analyse costs.
e. Apply cost information to planning, control and decision-
making.
f. Critically evaluate the relevance of both quantitative and
qualitative costing information to management decision
making.
Submission Week 10
Weighting 25%
Total Marks 100 marks
Instructions:
A case study document will have been distributed to students in Week 1. Students in each class will
organise themselves into groups of 4. Each group will nominate one of the four activity areas offered
in the case study to work on for the assignment. Students will work in their groups to prepare a
esponse to the case questions of the nominated activity area and will prepare and submit a report,
presented in proper report format (including a reference list) by the end of Week 10.
2
ACCT 6004 GROUP CASE STUDY ASSIGNMENT
‘J&B Sports’ and its Customer ‘Sports-Strength’
Introduction to J&B Sports
J&B Sports manufactures custom club soccer uniforms (jerseys, shorts, socks and jackets) and supplies
local Adelaide clubs and their teams each season. J&B Sports focuses on quick delivery and fast
customer response time. Recently, J&B Sports has experienced a decrease in available cash and an
increase in inventory. Sales revenue has been increasing at a faster rate than expenses, generating a
higher level of profits. Approximately half of J&B’s asset base is financed through debt and half through
equity. The industry faces increasing pressure from imports, particularly from China, which creates a
need to compete on price. However, customers in this market are willing to pay a higher price for
goods that are durable and of high quality. The internet is becoming and increasingly important sales
channel and source of competition at the same time.
The company, which started out as J&B Uniforms, was founded in 1962 by the Hellas family and began
its operations manufacturing work uniforms for local factory workers in South Australia. As
manufacturing declined in the local economy, the family began to look for a market niche to guide the
company’s future growth. Recognising the increasing number of youth participating in organised
sports, and the projected growth in popularity of soccer in Australia, the family decided to focus on
the manufacture of custom soccer uniforms. The family has made a conscious decision not to follow
the textile industry’s trend of transfe
ing manufacturing operations to China and other foreign
countries that offer cheap labour. They have chosen to remain a domestic producer and to focus on
quick delivery and fast customer response within the local market.
The company manufactures and supplies three main products in a typical soccer kit: custom soccer
jerseys (tops), custom soccer shorts and soccer socks.
Sports-Strength - part of J&B’s supply chain
J&B Sports is part of a supply chain whereby they source fa
ics and other raw materials from their
suppliers, and they in turn also use retail outlets such as ‘Sports-Strength’ to take customer orders and
supply custom soccer uniform items on behalf of the manufacturer.
Exhibit 1 – J&B Sports’ supply chain
Martin Cole, senior sales director at Sports-Strength was reviewing the latest corporate income
statement prior to meeting with the company’s chief financial officer. “I don’t understand these
numbers”, Martin thought. “We fell short of our projected sales volume of jerseys by 10%, so I was
Various Fa
ic
and other
Materials
Suppliers
Apparel
Manufacture
(J&B Sports)
Retailers
(eg Sports-
Strength)
End Custome
3
anticipating net income to be 10% lower than expected as well. But that’s not what the numbers are
showing. How can I use this information to help me plan for the coming year?”.
The company had been preparing absorption costing income statements, which it used for external
eporting. To shed some light on the situation, the new internal accountant prepared an additional
income statement using variable costing - a contribution format income statement for the year.
SPORTS-STRENGTH
INCOME STATEMENT (CONTRIBUTION FORMAT)
Year ended Fe
uary 1, 2019
Per Unit Ratio
Sales $1,039,500 $ XXXXXXXXXX%
Less: variable expenses
Cost of goods sold $769, XXXXXXXXXX%
Sales commissions XXXXXXXXXX, XXXXXXXXXX%
Total variable expenses XXXXXXXXXX, XXXXXXXXXX%
Contribution margin 207,900 $4.00 20%
Less: fixed expenses
Selling 116,500
Administrative 51,500
Total fixed expenses 168,000
Operating income $39,900
Exhibit 2 – Sports-Strength’s Contribution Format Income Statement
For simplicity, assume that Sports-Strength sell only one product, soccer jerseys. Sports-Strength buys
each jersey from J&B for $14.80 and sells it for $20. Sports-Strength pays a fixed wage and 6%
commission to sales staff.
Activity 1: Cost Behaviour and Cost Estimation at Sports-Strength
Required:
1) Identify each of the following costs incu
ed by Sports-Strength in terms of its cost behaviour –
variable, fixed, mixed or step:
a. Monthly sales staff payroll of $5,000 plus 6% sales commission on jerseys
. $200 monthly rental for credit card processing equipment
c. Cost of goods sold for $14.80 per jersey
d. The cost ($1) of price tags attached to each jersey
e. Inventory insurance that costs $2 per $1,000 of sales
f. Website hosting cost of $100 per month
2) Refer to the Sports-Strength’s Contribution Format Income Statement for the year ended Fe
uary
1, 2019 (Exhibit 2) and answer the following:
a. What is Sports-Strength’s operating profit equation?
. How many jerseys has Sports-Strength sold during the year? If it has sold 10% less than it had
expected, how many jerseys had it planned to sell? Assuming a 30% tax rate, how much more
income after tax would the extra 10% of sales have generated?
4
c. If Sports-Strength sells 55,000 jerseys what total expense will be reported on the income
statement?
d. The Messenger, a local newspaper, has approached Martin Cole with a $20,000 annual ad
campaign. If Martin accepts the ad campaign, what will change in Sports-Strength’s operating
profit equation?
e. Assume Martin Cole accepts The Messenger’s ad campaign and as a result Sports-Strength sells
60,000 jerseys next year. Prepare a contribution format income statement for the year.
Activity 2: CVP Analysis for Sports-Strength
Sports-Strength has just received notice from J&B Sports that the price of a soccer jersey will be
increasing to $15.30 next year. In response to this increase, Sports-Strength is planning its sales and
marketing campaign for the coming year. Managers have developed two possible plans and have asked
you to evaluate them.
The first plan calls for passing on the entire $0.50 cost increase to customers through an increase in
the sales price. Managers believe that $10,000 in additional advertising targeted directly to cu
ent
customers will allow the sales force to reach the cu
ent year’s sales volume of 51,975 jerseys.
The second plan relies on a new advertising campaign that focuses on the sales price remaining the
same as last year. The campaign would include a new database that offers more potential customers
than Sports-Strength has had access to in the past. The cost of the campaign is expected to be $5,000.
Managers believe that the campaign will be more successful in generating new sales than the cu
ent
incentive-based sales and marketing plan. As a result, they want to reduce the sales commission from
6% to 4% of sales and increase sales salaries by $22,000. The campaign is expected to generate an
additional 10% in sales volume.
Required:
Using the information in Exhibit 2 as a starting point, answer the following questions:
a. What is Sports-Strength’s
eakeven point in units and dollars before any of the above changes
take place (ie. given the sale price and cost structure indicated in Exhibit 2) ?
. What was Sports-Strength’s margin of safety in units and dollars in the year ending 1 Fe
uary,
2019?
c. How much would operating income decrease if Sports-Strength did nothing to recover the
increase in cost of goods sold, all other things being equal?
d. Determine the expected operating income under each proposed sales and marketing plan.
e. Why does the first plan result in the reduction in operating income that is greater than the
$10,000 advertising?
f. Which plan do you recommend to management? Write a memo in the proper format which
justifies your recommendation by providing relevant and appropriate supporting information.
Include and explain any qualitative factors which may affect your recommendation.
Activity 3: Job Order Costing and Ethics in J&B Sports
J&B Sports custom makes soccer tops (jerseys), shorts, socks and jackets for individual clubs and
players within the clubs. Players order their name and selected number on the back of each jersey.
Clubs also have specific requirements regarding the sponsors’ logos which need to be added to the
5
clothing. The kits are manufactured in batches and product costs are accumulated for each batch or
job. When the job is completed, the total costs accumulated for the job are divided by the number of
units produced to determine the average cost per unit.
J&B Sports has determined the following unit costs for three of its four products:
Shorts Jerseys Jackets
Direct materials $4.47 $6.85 $44.72
Direct labour XXXXXXXXXX
Manufacturing overhead XXXXXXXXXX.00
Total unit cost $9.87 $11.17 $77