Case 1: Swish Hoops Swish Hoops Co. was started by Travis James last year. Travis is a young, hip, and creative individual who has always
Case 1: Swish Hoops Swish Hoops Co. was started by Travis James last year. Travis is a young, hip, and creative individual who has always dreamed of owning his own business. He knows Swish needs to be a unique business model to cut it in an increasingly competitive global retail space. The company sells numerous variations ofthe same three products basketball hoops, hoop earrings, and hula hoops. Since it is relatively easy to alter product designs and colours, Swish keeps prices consistent for various offerings ofthe same product. So fa r, Travis's vision has worked- the company has blossomed in the Cranbrook area. There is a great demand for each product and new customers are showing up daily to check out the coolest shop in town. Unfortunately, the store's success has come at a price. Travis used to enjoy ordering in quality basketball hoops, hula hoops, and earrings which he would hand-paint to sell at his little store. Ever since things blew up, he has been busy hiring and managing staff, nding new suppliers to fill his large orders, and trying to keep product quality high. Travis no longer has time to produce goods himself. In fact, he rarely has time to look at a finished product before it is sold to a customer. Travis does feel like the overall quality ofthe art has diminished recently with several new artists on board as sub-contractors, but everything is selling so what's the big deal? The company's website is also q uite busy. It is full ofviral videos- teenagers and young adults love showing off their basketball and hula-hooping skills with the Swish gear! The forums are full of customers discussing the latest fashions and their love forvarious earring designs. Travis had also intended to get into online retailing with his website, but he is sorely lacking time to develop this idea. Furthermore, the company is barely meeting demand as is. Imagine how much worse things would get if a lot of online orders came in! Travis has already noticed numerous forum posts and emails to him requesting order shipments to faraway cities. He is sure that online retailing will boost Swish's profits at some point, but not right now. Travis has made a few changes to manage Swish's rapid growth. First, he has been gradually increasing the prices of his products to help cover growing expenses, as well as avoid a massive waitlist for products. Second, Travis has added new suppliers, so more inventory can be shipped in. However, he is not convinced the quality and order reliability will be as good as he had been getting from his first supplier. So far, there has been a slight uptick in defective inventory and defective finished goods. Afew customers requested refunds and/or exchanges this month, something Travis has never experienced before. Finally, Travis has moved from his small store to a large retail space and storage locker, which costs $4,000 per month {utilities costs are included). He has hired two store staff who work 40 hours a week and are paid an hourly rate of $15.00. He has also hired artists who are sub-contracted and compensated based on how many units they paint/design {basketball hoops are paid the most, followed by hula hoops, followed by sets of earrings]. One of Travis's first hires was his childhood friend, Stan. Stan is currently enrolled in an undergraduate business program at the local college. Although Stan didn't have accounting experience when he started workingforTravis, he has been able to use knowledge from his first-year accounting class to keep the books upto-date. Case 1: Swish Hoops Stan currently gets paid 20% of weekly profits, but Travis is open to changing this compensation agreement since Stan is only working about 25 hours a week due to his school obligations. Comparatively, Travis is putting in over 60 hours a week and has ta ken over several finance/business functions as the business has grown. Because things are so busy, Stan has been recording a full week's sales at once. Purchases are always made prior to the open of business on Monday morning and each week ends on Sunday night. Here are Swish's product sales and purchase numbers for the last three months: Week Ended: Purchases of Basketball Hoops Sales of Basketball Hoops Beg. Inventory 3 units on hand @ $145 each Jan 7 15 units @ $145 each 17 units @ $450 each .Ian 14 15 units @ $145 each 16 units @ $475 each Jan 21 20 units @ $145 each 20 units @ $475 each Jan 28 20 units @ $145 each 19 units @ $500 each Feb 4 25 units @ $150 each 21 units @ $500 each Feb 11 25 units @ $150 each 21 units @ $500 each Feb 18 25 units @ $150 each 20 units @ $500 each Feb 25 20 units @ $150 each 20 units @ $500 each Mar 3 20 units @ $150 each 19 units @ $500 each Mar 10 20 units @ $160 each 18 units @ $500 each Mar 17 15 units @ $160 each 19 units @ $500 each Mar 24 20 units @ $160 each 17 units @ $500 each Mar 31 20 units @ $160 each 16 units @ $500 each * Each basketball hoop purchase includes shipping, insurance, and taxes; each basketball hoop costs $100 to paint/design. Week Ended: Purchases of Hoop Earrings Sets Sales of Hoop Earrings Sets Beg. Inventory 68 sets on hand @ $2 each Jan? 250 sets@$2 each 228 sets @$10 each Jan 14 250 sets @ $2 each 252 sets @ $10 each Jan 21 250 sets @$2 each 263 sets @$10 each .Ian 28 250 sets @ $2.10 each 271 sets @ $10 each Feb 4 275 sets @ $2.10 each 230 sets @ $11 each Feb 11 275 sets @ $2.10 each 246 sets @ $11 each Feb 18 250 sets @ $2.10 each 249 sets @ $11 each Feb 25 250 sets @ $2.25 each 247 sets @ $11 each Mar 3 250 sets @ $2.25 each 246 sets @ $11 each Mar 10 250 sets @ $2.25 each 251 sets @ $11 each Mar 17 200 sets @ $2.25 each 221 sets @ $12 each Mar 24 250 sets @ $2.25 each 218 sets @ $12 each Mar 31 250 sets @ $2.35 each 212 sets @ $12 each * Each purchase of a set of hoop earrings includes shipping, insurance, and taxes; each set costs $3 to paint/design. Case 1: Swish Hoops Week Ended: Purchases of Hula Hoops Sales of Hula Hoops Beg. Inventory 21 units on hand @ $5 each Jan 7 100 units @ $5 each 89 units @ $28 each Jan 14 100 units @ $5 each 95 units @ $28 each Jan 21 100 units @ $5 each 102 units @ $28 each Jan 28 100 units @ $5 each 103 units @ $28 each Feb 4 100 units @ $5 each 105 units @ $28 each Feb 11 100 u nits @ $5.25 each 90 units @ $30 each Feb 18 100 units @ $5.25 each 91 units @ $30 each Feb 25 100 u nits @ $5.25 each 87 units @ $30 each Mar 3 100 units @ $5.50 each 88 units @ $30 each Mar 10 100 units @ $5.50 each 85 units @ $30 each Mar 17 50 units @ $5.50 each 82 units @ $30 each Mar 24 200 units @ $5.25 each 88 units @ $29 each Mar 31 0 units 87 units @ $29 each "' Each purchase of a hula hoop includes shipping, insurance, and taxes; each hula hoop costs $10 to paint/design. Travis is worried that Stan's journalizing system is not the most reliable or accurate. He feels as if some sales and purchases are being missed due to lost paperwork since Stan can't record transactions in a timely manner. He is also worried that hoop earrings can easily be stolen in the hustle and bustle ofthe store. Travis wants to implement a better inventory management system and is looking for specific recommendations on what elements/policies the company should have in its system and why they're important. Travis is planning to significantly increase finished goods inventory in the next months, as he remains optimistic about growing local and online demand for all products. Currently, Stan is expensing all inventory purchases as Cost of Goods Sold expense in the month Swish orders them. His reasoning is everything sells anyway, so it doesn't really matter when you expense a piece of inventory. Travis hasn't had time to look at things more carefully, but he is concerned about the March 11tl'-17th week where profit spiked. Stan's tuition for next semester was due on March 18th and he took home a larger paycheck than usual. Travis wants this anomaly checked for error or manipulation. Also, Travis has done some light reading on the First-In-First-Out and Moving-Weighted-Average inventory costing systems. He wants a detailed explanation ofthese systems and, if adopted, how Swish's profits may have looked in the past three months. Once again, specific recommendations would be appreciated. Required: Identify all accounting issues raised in this case and make recommendations forTravis, especially in areas of concern to him. You are encouraged to referto course information as well as other sources. Present your work in professional report form
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