Case Study 5

APPLIED CAPSTONE Case Study 5 Name: Bhavya Domadia (220096921) G. G. Toys Introduction: G.G Toys is a well-known producer of high-quality, long-lasting dolls. The firm immediately became a well-known doll supplier, allowing it to establish a considerable position in the toy industry. It is well-known for its distinctive designs and has two independent manufacturing facilities. The business's signature product, the "Geoffrey Doll," swept the market, building a strong base in the US markets and driving the company to domination. The firm then went on to produce "Specialty Dolls," which are more personalized versions of their Geoffrey Dolls. It enabled the business to demand a larger premium for the doll than it otherwise would have. Despite higher production costs, G.G. Toys maintained the same pricing for Geoffrey dolls, leading them to focus primarily on Specialty Dolls. Problem Statement: What strategies could GG Toys employ to boost profitability in light of increased manufacturing costs and declining product margins? Can GG Toys afford to expand its current product line as profit margins drop year after year? Question 1: Do you recommend that G.G. Toys change its existing cost system in the Chicago Plant? In the Springfield plant? Why or why not? Computation of OVH Cost per Unit OVH Cost Pool Unit Total Cost Capacity Cost Per Unit Plant Management & Facilities Production Units 40000 27000 1.48 Machine Related Machine Hours 112000 11200 10 Production Order related Number of production runs 63000 161 391.3 Set Up Labour Related Number of productions Set ups 13333 160 83.33 Packaging & Shipping Number of Shipments 53000 350 151.42

G.G Toys should switch to activity-based costing in its Chicago factory since the business now employs a proportion of production-run direct labor expenses as the main cost driver. However, unlike the Springfield facility, which makes only one product, cradles, the Chicago plant creates a wide range of things, thus this is not the suitable method. Changing the costing method to ABC is acceptable since the company's overhead expenses are mostly determined by direct labor costs, and different types of dolls demand different machine hours, setups, production runs, and so on. Using ABC, each type of doll will have a different manufacturing overhead, resulting in a different contribution margin. Question 2: Calculate the cost of a Geoffrey doll, the speciality branded doll #106, and a cradle using the cost study conclusions. Cost of a Geoffrey Doll, Speciality branded doll and a Cradle Costs Geoffrey Doll Speciality Branded Doll #106 Cradle Direct Labor Cost 3 3.75 7.5 Direct Materials 5 6 12 Manufacturing Overhead Cost 7.33 24.69 4.15 Total Cost per unit 15.33 34.44 23.65 According to the table estimates, the Geoffrey doll costs $15.335 per unit, the specialty-branded doll costs $34.442, and the cradle costs $23.654. Allocation of Overhead Cost to the Products Overhead Costs Geoffrey Dolls Speciality Branded Doll #106 Cradles Machine Related 37500 12000 0 Plant Management and facilities 11250 6000 4500 Set Up Labour related 833 8330 0 Production Order related 3913 39130 391.3 Packaging And Shipping 1514 33308 7570 Total Allocated Overhead 55010 98768 12461.30 Units Produced 7500 7500 4000 Cost of Overhead per unit 7.33 24.69 4.15

Question 5: What explains the difference between forecasted and actual revenue for the Chicago plant during March of 2000? What other information would you collect to help explain this difference? The disparity in income numbers for the Chicago factory in March 2000 might be attributed to the firm selling more units of a certain product than projected. A higher-priced product may also have sold in greater quantities. To arrive at a clear result, we must compare the expected sales income for all product lines accruing to the Chicago plant with the actual sales figures for each product line throughout the fiscal year. Question 6: Do you recommend G.G. Toys produce the Romaine Patch doll? Why or why not? We have 2 alternative situations in this case:  If the company purchases materials for Romaine Patch doll or  If the company uses scrap material from the production of other dolls. Direct Material Purchased Using Scrap Material Sales price per unit 8 8 Direct Material cost 6 0 Direct Labour cost 3 3 Contribution Margin -1 5 As a result, because the contribution margin is good, the corporation can contemplate producing Romaine patch dolls using spare material from the creation of other doll pajamas. Conclusion: G.G Toys must implement an Activity-Based Costing system at its Chicago factory due to the variety of items it makes. This will help with the proper distribution of overhead costs. It is proposed that the firm change its sales mix, as making more Geoffrey dolls results in a better profit margin. Furthermore, idle capacity generated by the manufacture of festive reindeer dolls should be used to maximize revenue.