End of Case Study The following rubric provides guidance for marking the group case study. 

01 May   End of Case Study The following rubric provides guidance for marking the group case study. 

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
Total 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.

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.

eg Sports

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 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
Sales Less: variable expenses Cost of goods sold Sales commissions Total variable expenses Contribution margin Less: fixed expenses Selling Administrative Total fixed expenses Operating income			Per Unit	Ratio
		$1,039,500	$20.00	100%
	$769,230		14.80	74%
	62,370		1.20	6%
		831,600	16.00	80%
		207,900	$4.00	20%
	116,500
	51,500
		168,000
		$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:

§  Identify each of the following costs incurred by Sports-Strength in terms of its cost behaviour – variable, fixed, mixed or step:

1.       Monthly sales staff payroll of $5,000 plus 6% sales commission on jerseys

2.       $200 monthly rental for credit card processing equipment

3.       Cost of goods sold for $14.80 per jersey

4.       The cost ($1) of price tags attached to each jersey

5.       Inventory insurance that costs $2 per $1,000 of sales

6.       Website hosting cost of $100 per month

 

§  Refer to the Sports-Strength’s Contribution Format Income Statement for the year ended February 1, 2019 (Exhibit 2) and answer the following:

 

1.       What is Sports-Strength’s operating profit equation?

2.       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?

3.       If Sports-Strength sells 55,000 jerseys what total expense will be reported on the income statement?

4.       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?

5.       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

6.       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

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:

1.       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)?

2.       What was Sports-Strength’s margin of safety in units and dollars in the year ending 1 February, 2019?

3.       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?

4.       Determine the expected operating income under each proposed sales and marketing plan.

5.       Why does the first plan result in the reduction in operating income that is greater than the $10,000 advertising?

6.       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 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	2.40	1.92	14.40
Manufacturing overhead	3.00	2.40	18.00
Total unit cost	$9.87	$11.17	$77.12
Sales price per unit	$12.00	$14.80	$125.00

 

PA – 1247 Shorts 100 $717 JE – 1397 Jerseys 200 1,802 JA – 426 Jackets 50 3,046     $5,565

On May 31, J&B Sports Work in Process Inventory consisted of the following items: Job Units                                   Accumulated Cost

During June, a total of $191,591 in direct materials and $74,208 in direct labour costs were incurred. Units finished and sold during June were as follows:

Product	Units Finished	Units Sold
Shorts	13,500	14,000
Jerseys	3,200	3,100
Jackets	2,500	2,500

Required

1.       Given that J&B Sports uses direct labour dollars as its application base, what is the company’s predetermined overhead rate?

2.       Taking into consideration only these three products:

1.       Calculate the total manufacturing cost for June. ii. Calculate the Cost of Goods Manufactured for

§  Calculate the Ending Work in Process Inventory for

1.       Calculate Gross Profit for

2.       For each of the three products, state whether there are more, fewer, or the same number of finished units in Finished Goods Inventory on June 30 than there were on June

3.       J&B Sports board of directors has adopted a long-term strategy of maximising value of the shareholders’ investment. To achieve this goal, the board established the following five-year financial objectives:

§  Increase sales by 10% per year

§  Increase income before taxes by 15% per year

§  Increase dividends by 12% per

The managing director added a fourth financial objective last year: maintaining cost of goods sold at a maximum of 70% of sales. The company failed to achieve this goal in the year ending 1 February 2019, and it appears that it will again not  be achieved in the current year. Because employee bonuses are tied to performance on all four objectives, the new internal accountant is concerned about company morale. She decides that if she overestimates the amount of ending work in process inventory and reclassifies the fabric inspection costs as administrative rather than manufacturing overhead costs, cost of goods sold for the year will fall below the 70% maximum level. She makes the adjustments and presents the managing director a set of financial statements that meet most of the financial objectives.

1.       Explain why the adjustments the accountant made are unethical, referring to the Australian Accounting code of

2.       What additional costs, both monetary and nonmonetary might J&B Sports incur because of the accountant’s actions?

Activity 4: Activity Based Costing at J&B Sports
The new internal accountant at J&B Sports is concerned about the current method of allocating overhead to production, using a volume-based allocation base (direct labour cost) and one plant-wide overhead rate. She decided to undertake an activity analysis across the manufacturing processes of the company and to identify the relevant cost drivers of these.  She determined that J&B Sports had the following four activity pools and associated activity drivers:

Activity Pool	Activity Driver
Product design	Number of product lines
Warehousing/Packaging	Number of batches
Cutting	Number of cuts
Sewing	Direct labour hours

Once the activity pools were established, manufacturing overhead costs are assigned to these:

	Product Design	Warehousing/ Packaging	Cutting	Sewing
Indirect labour	$40,000	$40,000	$7,500	$15,000
Depreciation		7,396		34,696
Indirect materials	37,512	110,869	135,861	101,064
Rent
Utilities				41,330
Insurance
Other	6,377	12,297	3,747	14,730
Total	$83,889	$170,562	$147,108	$206,820

Data was also collected on the activity drivers for each activity pool:

Activity Pool	Total Activity
Product design	3 product lines (jerseys, shorts, jackets)
Warehousing/Packaging	9,170 batches
Cutting	56,580 cuts
Sewing	86,175 direct labour hours

Chris Desmond, J&B Sports’ operations manager, recently received a sales brochure for a new electric cutting tool. Based on the tool’s specifications, Chris believes that J&B Sports could increase the batch size on jersey production to 50 jerseys, up from the current 35 jerseys.

While the cutting tool would be used on shorts and jackets as well, other production factors prevent increasing the batch sizes for these products.
The new tool would increase annual operating costs by $14,082. Before deciding whether to purchase the cutting tool, Chris wants to know how the new tool will affect the cost of producing the company’s three main products.

Required

1.       Calculate the activity rates for each of the four activity pools before the new tool was purchased.

2.       Classify each activity using the ABC cost hierarchy

3.       Calculate and present a schedule of the total annual cost included in the cutting activity cost pool assuming the cutting tool is

4.       Calculate the cost per cut assuming the cutting tool is

5.       Identify any other activity rates that will be affected by the purchase of the new cutting tool and explain how they will be

6.       Explain to Chris why unit costs for all three products will change after the purchase of the new cutting

7.       Do you recommend that Chris purchase the new cutting tool? Write a memo in the proper format which justifies your recommendation by providing relevant and appropriate supporting Include and explain any qualitative factors which may affect your recommendation.

End of Case Study

The following rubric provides guidance for marking the group case study.

Assessment Rubric – Case Study – Group (100 marks)

Assessment Attributes	Fail (0-49%)	Pass (5064%)	Credit (6574%)	Distinction (7584%)	High Distinction (85- 100%)
Knowledge and understanding of the cost concepts and techniques used in the case study.	Shows very little to no understanding of how to apply the costing system technique to the case study questions.	Shows limited understanding of how to apply the costing system technique to the case study questions.	Thorough knowledge or understanding of the costing system techniques relevant to the case study.	Highly developed