Microsoft Word - ACCT6004_Assessment_Brief Group Case Study T3 2018
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ASSESSMENT BRIEF
Subject Code and Title ACCT6004 Management Accounting
Assessment Case Study
Individual/Group Group
Length (2,000 words +/- 10%), if applicable
Learning Outcomes
. 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 range 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 By 11:55pm AEST/AEDT Sunday of Module 5 (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 3 to 4 (no less than 3 and no more than 4).
Students will work in their groups to prepare a response to ALL of the case questions and will
prepare and submit a report, presented in proper report format (including a reference list) by
the end of Week 10.
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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 an 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
esponse 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
eg Sports
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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 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 reporting. 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
$769,230
14.80
74%
Sales commissions XXXXXXXXXX, XXXXXXXXXX%
Total variable expenses XXXXXXXXXX, XXXXXXXXXX%
Contribution margin 207,900 $ XXXXXXXXXX%
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.
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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
ehaviour – 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?
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.
f. Discuss (max 500 words) the results shown in part e above. Should the ad campaign be
accepted? Comment on the distribution of costs between fixed and variable for Sports
Strength. How can the information on cost behavior and the contribution margin
statement be used by management to make decisions and to plan? Give two specific
examples of decisions and plans that could be made with this information.
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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
e 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
y $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