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Acct547_Excel1_Arbaugh.xlsx12_21
| ACCT 547 | ||
| Cost Accounting | ||
| Ex. 12-21; Strategy, balanced scorecard, merchandising operation | ||
| 2016 | 2017 | |
| 1. Number of T-shirts purchased | 215,000 | 245,000 |
| 2. Number of T-shirts discarded | 15,000 | 20,000 |
| 3. Number of T-shirts sold (row 1 - row 2) | 200,000 | 225,000 |
| 4. Average selling price | $30.00 | $31.00 |
| 5. Average cost per T-shirt | $15.00 | $13.00 |
| 6. Administrative capactiy (number of customers ) | 4,500 | 4,250 |
| 7. Administrative costs | $1,633,500 | $1,593,750 |
| 8. Administrative cost per customer (row 7 / row 8) | $363 | $375 |
| 1. Is Gianni's strategy one of product differentiation or cost leadership? Explain briefly. | ||
| 2. Describe briefly the key measures Gianni should include in its balanced scorecard and the reasons for doing so. |
Gianni & Sons buys T-shirts in bulk, apllies its own trendsetting silk-screen designs, and then sells the T-shirts to a number of retailers. Gianni wants to be known for its trensetting designs, and it wants every teenager to be seen in a distinctive Gianni T-shirt. Gianni presents the following data for its first two years of operations, 2016 and 2017.
Administrative costs depend on the number of customers Gianni has created capacity to support, not on the acutal number of customers served. Gianni had 3,600 customers in 2016 and 3,500 customers in 2017.
1) Gianni & Sons utilizes the product differentiation strategy. The company mission is to create trendsetting designs, which is the prime indicator of product differentiation. The company is creating value through unique products which targets teenagers for customers.
2) Financial Perspective - Measurements in this category are taken to indicate any change in Operating Income as a result of increasing the selling price of the products. Is the company able to sell the products at a premium price? Ideally, the company would like to continue to sell comparable # of units at a higher price to increase the operating income. Customer Perspective - Companies using product differentiation strategies should pay attention to measurements such as customer satisfaction ratings, obtaining new customers, retaining current customers, and other indicators that the products are unique and have "trend-setting" character. Internal Perspective - Does the company have the ability to create and distribute new designs regularly? Are the products desired by the target market? What resources (time, labor, purchase costs) are needed to design these new products? If the company can feasibly handle the new designs they should be successful. Learning and Growth Perspective - Gianni will need to monitor the needs of the target market, and be able to communicate those needs to the various departments in the company. The designers and sales staff need to be educated on why the product they sell is (a) desired by the target market, and (b) is priced at an appropriate level to influence purchases.
12_22
| ACCT 547 | |||||||||||
| Cost Accounting | |||||||||||
| Ex. 12-22; Strategic analysis of operating income (continuation of 12-21) | 1. Operating Income | ||||||||||
| 2016 | 2017 | 2016 | 2017 | ||||||||
| 1. Number of T-shirts purchased | 215000 | 245000 | Revenues | $6,000,000.00 | $6,975,000.00 | ||||||
| 2. Number of T-shirts discarded | 15000 | 20000 | Costs | ||||||||
| 3. Number of T-shirts sold (row 1 - row 2) | 200000 | 225000 | T-shirts purchase costs | $3,225,000.00 | $3,185,000.00 | ||||||
| 4. Average selling price | $30.00 | $31.00 | Administrative costs | $1,633,500.00 | $1,593,750.00 | ||||||
| 5. Average cost per T-shirt | $15.00 | $13.00 | Total costs | $4,858,500.00 | $4,778,750.00 | ||||||
| 6. Administrative capactiy (number of customers ) | 4500 | 4250 | Operating Income | $1,141,500.00 | $2,196,250.00 | ||||||
| 7. Administrative costs | $1,633,500.00 | $1,593,750.00 | |||||||||
| 8. Administrative cost per customer (row 7 / row 6) | $363.00 | $375.00 | Change in Operating Income | $1,054,750.00 | Favorable | ||||||
| MISC. | |||||||||||
| Units req. in 2016 to sell 225,000 T-shirts in 2017 | |||||||||||
| = | (215000/200000) x 225000 | ||||||||||
| = | 241875 | units | |||||||||
| 2. Productivity Component | |||||||||||
| 2. Growth Component | 2. Price-Recovery Component | Cost effect of productivity (Variable costs) | |||||||||
| = | (245000-241875) x 13 | ||||||||||
| Revenue effect of growth | = | (225000-200000) x 30 | Revenue effect of price-recovery | = | $40,625.00 | Unfavorable | |||||
| = | $750,000.00 | Favorable | = | (31-30) x 225000 | = | -$40,625.00 | Favorable | ||||
| = | $225,000.00 | Favorable | Cost effect of productivity (Fixed costs) | ||||||||
| Cost effect of growth component (Variable costs) | = | (4250-4500) x 375 | |||||||||
| = | (225000/200000) x 215000 | Cost effect of price-recovery (variable costs) | = | -$93,750.00 | Unfavorable | ||||||
| = | (241875-215000) x 15 | = | $403,125.00 | Unfavorable | = | (13-15) x 241875 | = | $93,750.00 | Favorable | ||
| = | -$483,750.00 | Unfavorable | Total cost effect of productivity | ||||||||
| Cost effect of growth component (Fixed costs) | = | $483,750.00 | Favorable | = | (93750-40625) | ||||||
| = | (4500-4500) x 363 | Cost effect of price-recovery (fixed costs) | = | $53,125.00 | Favorable | ||||||
| = | $0.00 | Unfavorable | = | (375-363) x 4500 | |||||||
| = | $54,000.00 | Unfavorable | Net Increase in Operating Income due to Productivity | ||||||||
| Total Cost Effect of Growth | Total Cost effect of Price-Recovery | Direct materials | -$40,625.00 | ||||||||
| = | (750000-403125) | = | (483750+225000-54000) | Admin costs | + | $93,750.00 | |||||
| = | $346,875.00 | Favorable | = | $654,750.00 | Favorable | Change in Operating Income due to productivity | = | $53,125.00 | Favorable | ||
| Income Statement Amounts in 2016 | Rev. and Cost Effects of Growth Component in 2017 | Revenue and Cost Effects of Price-Recovery Component in 2017 | Cost Effect of Productivity Component in 2017 | Income Statement Amounts in 2017 | |||||||
| Net Increase in Operating Income resulting from the Growth Component | Net Increase in Operating Income due to price-recovery component | Revenues | $6,000,000.00 | $750,000.00 | $225,000.00 | $6,975,000.00 | |||||
| Revenue effect of growth | $750,000.00 | Revenue effect of price-recovery | $225,000.00 | Costs | $4,858,500.00 | $403,125.00 | $429,750.00 | $53,125.00 | $4,778,750.00 | ||
| cost effect of growth | - | $403,125.00 | cost effect of price-recovery | + | $429,750.00 | Operating Income | $1,141,500.00 | $346,875.00 | $654,750.00 | $53,125.00 | $2,196,250.00 |
| Change in Operating Income due to growth | = | $346,875.00 | Favorable | Change in Operating Income due to price-recovery | = | $654,750.00 | Favorable | ||||
| $1,054,750.00 | |||||||||||
| Favorable | |||||||||||
1. Calculate Gianni's operating income in both 2016 and 2017. 2. Calculate the growth, price- recovery, and productivity components that explain the change in operating income from 2016 to 2017 3. Comment on your answers in requirement 2. What does each of these components indicate?
3. What does each of these components indicate? v The total effect of growth on Operating Income $346,875 is favorable because it shows net positive returns (revenues-costs) from simply selling more units. v The price-recovery component measures change in the output (selling) price compared to changes in input (purchase) prices. This favorable result is mostly due to the decrease in per unit cost in the current year ($15 down to $13). v The productivity component shows the change in costs as a result of a change in the # of input units used in the current year relative to the # of input units that would have been used in the prior year to produce the current year output.
