I just want to have activity number 4.activity based costing. thanks
Microsoft Word - ACCT6004_Assessment_Brief Group Case Study T3 2018 1 ASSESSMENT BRIEF Subject Code and Title ACCT6004 Management Accounting Assessment Case Study Individual/Group Group Length (2,000 words +/- 10%), if applicable 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 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. 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 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 transferring 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 fabrics 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 3 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 February 1, 2019 Per Unit Ratio Sales $1,039,500 $20.00 100% Less: variable expenses Cost of goods sold $769,230 14.80 74% Sales commissions 62,370 1.20 6% Total variable expenses 831,600 16.00 80% 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. 4 Activity 1: Cost Behaviour and Cost Estimation at Sports-Strength Required: 1) Identify each of the following costs incurred 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 b. $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 February 1, 2019 (Exhibit 2) and answer the following: a. What is Sports-Strength’s operating profit equation? b. 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. 5 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 current customers will allow the sales force to reach the current 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 current 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 breakeven 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)? b. What was Sports-Strength’s margin of safety in units and dollars in the year ending 1 February, 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