ACCT6004 Management Accounting - Group Case Study Assignment

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.

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 16%, so I was anticipating net income to be 16% 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.

Required:

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

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.