Please see the files attached... for the managerial accounting

Table 1 Blue Ridge Manufacturing Company. Sales information - current year. Sale in units, by customer category Large (n=8) Medium (n=Small (n=82Total (n=986) Product (Towel) type: Regular 27,250 16,600 10,550 54,400 Mid-size 36,640 18,552 10,308 65,500 Hand 35,880 19,966 95,954 151,800 Special 480 3,426 594 4,500 Total Number of units sold 100,250 58,544 117,406 276,200 Number of units dyed 20,536 9,935 12,328 42,799 Number of units embroidered 5,959 6,490 29,394 41,843 Total sales revenue $312,411 $190,432 $310,701 $813,544 Number of purchase orders re 133 845 5,130 6,108 Number of shipments made 147 923 5,431 6,501 Number of invoices sent 112 754 4,737 5,603 Account with balance > 60 day 1 11 122 134 Table 2 Blue Ridge Manufacturing Company. Selling price and unit manufacturing cost information. Manufacturing costs and selling price Quantity in units Sales price/Direct Direct laborManufacturinTotal unit material cost/unit overhead costmanufacturing cost/unit cost/unit Towel: Regular 54,400 $3.80 $0.60 $0.37 $0.22 $1.19 Mid-size 65,500 3.40 0.50 0.33 0.20 1.03 Hand 151,800 2.00 0.39 0.31 0.19 0.89 Special 4,500 4.20 0.67 0.48 0.29 1.44 276,200 Product-customization Quantity Additional Direct Direct laborManufacturinAdditional costs in units selling pricematerial cost/unit overhead costcost/unit unit cost/unit Inking (based on # of passes) 552,400 $0.0000 $0.0030 $0.0045 $0.0742 $0.0817 Dyeing 42,799 $0.1200 $0.1000 $0.0000 $0.0100 $0.1100 Embroidery 41,843 $1.3500 $0.0026 $0.1750 $1.0994 $1.2770 Table 3 Blue Ridge Manufacturing Company. Total Selling, General, and Administrative (SG&A) costs - current year. Account Total costs Costs assigned directly to departments Unassigned Shipping Sales Marketing Admin. Staf Total assigned Salaries & Wages $380,150 $27,000 $150,800 $27,400 $63,100 $268,300 $111,850 Utilities 5,750 1,100 800 200 1,900 4,000 1,750 Depreciation 12,100 2,100 1,300 1,200 3,300 7,900 4,200 Supplies 6,800 2,300 2,300 900 200 5,700 1,100 Property taxes 14,100 14,100 $418,900 $32,500 $155,200 $29,700 $68,500 $285,900 $133,000 a a This amount represents the facility-level support cost that is largely connected to the executive office at the Blue Ridge. As such, these costs are not assigned to departments. Table 4 Blue Ridge Manufacturing Company. Selling and Administrative Activities and resource-consumption percentages. Resource-consumption percentagesa Customer Categories Selling and Administrative Activ Shipping (%) Sales(%) Marketing Admin. (%) StafAssigned (%) Amount # of Activities per act. Allocation Large Medium Entering purchase orders 55 10 $92,210 6,108 15.0965946 2,007.85 12,756.62 Commissions 10 15,520 15,520.00 Shipping activities 65 15 31,400 6,501 4.83002615 710.01 4,458.11 Invoicing 20 13,700 5,603 2.44511869 273.85 1,843.62 Making sales calls 30 10 53,410 53,410.00 Checking credit 10 6,850 134 51.119403 51.12 562.31 Samples, catalog information 5 10 4,595 $813,544 0.00564813 1,764.54 1,075.58 Special handling 5 5 5,050 M-20%, S-80% 1,010.00 Distribution management 10 10 6,220 $813,544 0.00764556 2,388.56 1,455.96 Marketing, by customer type 5 7,760 $813,544 0.00953851 2,979.94 1,816.44 Advertising/promotion 30 8,910 M-25%, S-75% 2,227.50 Marketing 15 50 5 23,150 276,200 0.08381608 8,402.56 4,906.93 Administrative office support 20 13,700 276,200 0.04960174 4,972.57 2,903.88 Licenses, fees 5 3,425 3,425.00 Totals 100 100 100 100 $285,900 $76,961.00 a The consumption of resources is determined by subjective assessment of time spent by department employees in each activity. These time estimates are then used to establish the percentage of department costs assigned (driven) to each activity in order to form activity cost pools. Table 5 Blue Ridge Manufacturing Company. Selling and Administrative Activities and activity-consumption drivers. Selling and Administrative Activity Activity-Consumption driversa Entering purchase orders Number of orders Commissions Sales dollars with medium customers Shipping activities Number of shipments Invoicing Number of invoices Making sales calls Sales dollars with large customers Checking credit Number of accounts > 60 days Samples, catalog information Sales dollars Special handling Percentage (management estimate)b Distribution management Sales dollars Marketing, by customer type Sales dollars Advertising/promotion Percentage (management estimate)c Marketing Number of units sold Administrative office support Number of units sold Licenses, fees Sales dollars with medium customers a Actual volumes of these activities are reported in Table 1, in total and for each customer category. b Twenty percent to medium-sized customers; 80% to small-sized customers. c Twenty-five percent to medium-sized customers; 75% to small-sized customers. $53,961.96 tomer Categories Small 77,445.53 26,231.87 11,582.53 6,236.57 1,754.88 4,040.00 2,375.48 2,963.63 6,682.50 9,840.51 5,823.54 $92,210 15,520 31,400 13,700 53,410 6,850 4,595 5,050 6,220 7,760 8,910 23,150 13,700 3,425 $154,977.04 $285,900 ABC-Based SG&A costs, Sorted by Customer Category Activity Entering purchase orders Commissions Shipping activities Invoicing Making sales calls Checking credit Samples, catalog information Special handling Distribution management Marketing, by customer type Advertising/promotion Marketing Administrative office support Licenses, fees Total Large Customer Categories Medium Small Unit Sales (Table 1) Regular Towels Mid-Size Towels Hand Towels Special Towels Total Towels Of Which: Total Towels Inked Total Towels Dyed Total Towels Embroidered Revenue (Table 2) Regular Towels Mid-Size Towels Hand Towels Special Towels Standard Revenue Blue Ridge Company: ABC Profit Analysis Customer Groups Large Medium Price Small Total Large Medium Small Total Price Towels Dyed Towels Embroidered Customization Revenue Manuf Costs (Table 2) Regular Towels Mid-Size Towels Hand Towels Special Towels Total Manufacturing Costs Cost Large Medium Small Total Customization Costs (Table 2) Towels Inked* Towels Dyed Towels Embroidered Total Customization Costs Cost Large Medium Small Total Large Medium Small Total Cutomer Profitability Revenue Manufacturing Costs Customization Costs Gross Margin Assignable SG&A Costs Customer Profitability (Loss) Facility-Level SG&A Costs Total Operating Profit Profit per Customer SENSITIVITY ANALYSIS Number of customers Number of units Mfg and Custom Cost Large Medium Small Original Data ABC Costs for SG&A Total Costs Total Costs per Towel Customer Profitability (Loss) Profit per customer Large Medium Small Large Medium Small Requirement 3a: New Resource-Consumption Drivers ABC Costs for SG&A Total Costs Cost per Towel Customer Profitability (Loss) Profit per customer Change in Profit per Customer Profit Per-Customer % Change Comment: "Simplifying" the resource drivers on Admin Staff resources shifts costs to the larger customer groups Requirement 3b: New Salaries & Wages Costs Large Medium Small ABC Costs for SG&A Total Costs Cost per Towel Customer Profitability (Loss) Profit per customer Change in Profit per Customer Profit Per-Customer % Change Comment: Reducing some actual costs has a big impact on profit improvements to small customers Requirement 3c: Reduce Purchase Orders and Shipping on Small Customers Large Medium Small ABC Costs for SG&A Total Costs Cost per Towel Customer Profitability (Loss) Profit per customer Change in Profit per Customer Profit Per-Customer % Change Comment: Simply reducing activities doesn't automatically reduce resource costs. Need to manage these costs down! Blue Ridge Company: Traditional Customer-Profitability Analysis Panel A: Allocation of Non-Facility-Level SG&A costs Total SG&A Costs* Divided by Total Towels SG&A Cost per Towel *The total SG&A costs here do not include the $133,000 of unassignable Facility-Level SG&A costs Large Customer Groups Medium Volume of Towels Sold Total Revenue Manufacturing Costs Customization Costs Gross Margin SG&A Costs** Customer Profitability (Loss) Facility-Level SG&A Costs Total Operating Profit **SG&A Cost per Towel x Volume of Towels Sold Panel B: Allocation of Total SG&A Costs Total Selling & Admin Costs* Divided by Total Towels SG&A Cost per Towel *The total S&A costs here include the $133,000 of Facility-Level SG&A costs Large Volume of Towels Sold Total Revenue Manufacturing Costs Customization Costs Gross Margin SG&A Costs** Customer Profitability (Loss) **SG&A Cost per Towel x Volume of Towels Sold Customer Groups Medium Analysis sts mer Groups Small Total Small Total mer Groups ACC 512 Group Case 2: Blue Ridge Manufacturing 1. Introduction Blue Ridge Manufacturing (Blue Ridge) is one of a dozen companies that produces and sells towels for the US ''sports towel\" market. A ''sports towel\" is a towel that has the promotion of an event or a logo (e.g., sports team name) printed on it. They are called sports towels because their most popular use is for distribution in connection with major sporting events such as the Super Bowl, the NCAA Final Four Tournament, the Augusta National Golf Tournament, and the US Open Tennis Tournament. Towels with college, NBA, and NFL team logos, and promotions for commercial products, such as soft drinks, beer, and fast-food chains, are also big sellers. The company designs, knits, prints, and embroiders towels. Blue Ridge knits all the towels it sells. It tracks costs for towel production separately from the cost to customize the towels. Seventy-five percent of the company's orders include logo design, while the balance of towel orders is print-only and requires the payment of a license fee for the logo used. About 15% of Blue Ridge's orders include embroidery. Towels are made in three sizes: regular (18'' x 30''), hand (12'' x 20''), and mid-size (15'' x 24''). The normal production cycle for an order of white towels is 3 days. If a customer wants a colored towel, the basic white towel made by Blue Ridge is sent for processing to a dyeing firm, which extends the production cycle of an order by an average of 3 days. Occasionally, customers order towels in sizes other than the three standard sizes. These towels are classified as ''special\" orders. The company produces a medium-quality towel. It has had some difficulty with the ''staying power\" of the material printed on these towels, a problem attributed to the towel quality, the ink used, and the printing process. Customers have complained that the ink ''lays on the surface\" and that it tends to crack and peel off. Blue Ridge recently made a break-through in developing an ink that soaks into the towel, that won't wash out, and that is non-toxic. A big advantage of this ink is that it avoids EPA disposal requirements because the ink can safely be ''washed down the drain.\" Due to the characteristics of its new ink, Blue Ridge is considering upgrading the quality of the basic towel as both the towel and the ink will last longer; the resulting product will sell at a higher price. If it takes this step, the company will evaluate expanding its marketing and sales area beyond its primary area of the southeastern area of the US. Its objective would be to market its products nationally. 1 2. Customers The company sells its products to 986 different customers. These customers differ primarily in the volume of their purchases, so management has classified each customer into one of three groups: large (of which there are 8 customers), medium (154 customers), and small (824 customers). Large customers are primarily national chains, small customers are single-store operations (including pro shops at golf courses), and medium-sized customers are small chains, large single stores, or licensing agents for professional sports teams and manufacturers of consumer products. Table 1 gives the product and customer-size statistics for the current year. Blue Ridge has a different sales approach to customers in each of its three classifications. A small group of in-house sales people sell directly to large customers. Independent manufacturer representatives, on commission, call on the license holder or the manager of a store in the medium-customer group. Ads placed in regional and national magazines and newspapers target customers in the small-customer segment, who call in or mail in their orders. Blue Ridge does not give discounts and it ships all orders free on board (FOB) point of origin (i.e., customers pay their own freight costs). 3. Manufacturing Blue Ridge has a modern knitting and printing plant in the foothills of North Carolina's Blue Ridge Mountains. While upgrading its plant facility, Blue Ridge decided to use that occasion to introduce an activity-based costing (ABC) system to better estimate product costs for each type of towel produced. This system is fairly sophisticated and management has confidence in the accuracy of the manufacturing cost figures for each product line. Table 2 shows the company's unit selling prices, unit manufacturing costs, and per-unit customization costs. Company management is committed to adopting advanced manufacturing concepts and modern management practices such as benchmarking and just-in-time (JIT). The corporate culture necessary for the success of such options is evolving and worker empowerment is already a major employee initiative at the company. In addition, workers are scheduled several hours away from regular work assignments each week for training programs regarding the preparation and use of budgets, workplace improvements, and using outputs from the newly installed ABC system. 4. Financial performance The company is currently profitable, overall. The production-related ABC data that the company has at its disposal has led recently to a number of operational improvements and improvements in the pricing structure for the company's products. At the same time, management realizes that the entrance of lowcost producers into the market may adversely affect long-term financial performance. To avoid a 2 competitive market based strictly on price cutting, the company is making a strategic decision to redefine the market by upgrading products (such as its break-through technology in improved inking, as described earlier). In addition, Blue Ridge needs to establish strategic alliances with key customer groups. Thus, attention is now turning to whether additional strategic insights might be available by building an ABC model for assigning non-manufacturing costs to customer groups. Currently, the company has no reliable information regarding the relative profitability of each of its customer categorieslarge, medium, and small. Intuitively, management recognizes that different customers demand different levels of sales and administrative support. Unfortunately, the company currently has no basis for identifying which of its customer groups generates significant profits or which of them may be losing money (e.g., due to excessive customer-support or purchasing-related costs). Before the purchase of the new information system it was not deemed feasible to track sales-related costs by customer groups. However, with the introduction of the ABC module in its software system it is now possible for the company to estimate customer profitability, at least at the customer-size (group) level. As part of a team of new accounting hires, you have been asked to learn how to work with the ABC software, particularly for the purpose of allocating SG&A (Selling, General, and Administrative) costs to customer groups. Your team is to then prepare and interpret an ABC analysis of SG&A costs by customer group at Blue Ridge. Table 3 shows the assignment of administrative and selling costs in the company's general ledger to different departments. Resource-consumption cost drivers and activity-consumption cost drivers were obtained as a result of a study performed by a team composed of key managers and employees from different departments; results are presented in Tables 4 and 5. Table 4 provides a list of selling and marketing activities, and the drivers to use in assigning the resource costs of each department to each major activity. Table 5 then displays the drivers that can be used to assign the cost of activities to the cost objects, customer groups. 3 Basic requirements: 1. Using data from Tables 1-5 of this case, construct an ABC model for Blue Ridge's SG&A costs. Determine the ABC-based SG&A cost for each of Blue Ridge's three customer groups (note that the cost object in this analysis is customer groups). Create a customer group cost report for Blue Ridge, be sure to expand each customer category to display the individual cost elements of small, medium, and large customers. (See Appendix A for a sample template) 2. The ABC analysis you completed in Requirement #1 above focuses solely on the allocation of SG&A costs to customer categories. a. Combine those costs with the production cost and revenue date from Table 2 to perform a customer profitability analysis. (Assume that the manufacturing cost assignments using the ABC model are accurate). An Excel Profitability Analysis template (Appendix B) can be used to streamline your profit-analysis work. b. Based on your analysis, what observations can you make about customer profitability and overall company profitability at Blue Ridge? What recommendations do you have for Blue Ridge management? 3. The preceding customer profitability analysis rests on a number of key assumptions that you made when you built your ABC model. The questions below ask you to perform several sensitivity (i.e., \"what-if\") analyses. For each of the following independent cases, summarize (in Excel spreadsheet) the cost and profit differences you observe relative to your original solution. Comment on these results. What changes surprised you? What seems to be an important factor to understand about each change described below? a. Assume that additional discussions of the allocations for the ABC model revealed that the resources consumed were different from the initial study results. To determine the impact of the changed assumption, rework the original ABC model so that the resource-consumption percentages for the Administrative Staff Department in Table 4 are as follows: Shipping activities, 25%; Checking credit, 25%; and, Administrative Office Support, 50%. Determine the amount of SG&A cost assigned to each of the three customer groups. Based on these cost assignments, what is the indicated profitability for each customer group, both in total dollars and on a per-customer basis? In terms of the latter, determine for each customer group the absolute dollar change in profit per customer and percentage profit change per customer from the original case solution. 1 (As noted in Table 4, \"Invoicing\" activity and the \"Licence, Fees\" activity originally received 1 Be careful how you calculate the percentage change from the original case solution; for example, the profit might change from a negative to a positive amount (or vice versa), and this will affect the proper calculation of the percentage change. You might want to use \"conditional IF\" statements in Excel to accomplish this task. 4 resource costs from only a single department: Administrative Staff. Under Requirement 3a, costs from the Administrative Staff Department are to be assigned only to the following activities: Shipping, Credit checking, and Administrative Office support. This adjustment will leave the \"Invoicing\" activity and the \"Licenses, Fees\" activity without any role in the revised ABC analysis; the costs previously assigned to these activities will be assigned elsewhere.) b. Assume that for budgeting purposes, management has reduced some of the salaries in these departments. To assess the effect of these reductions on customer group profitability, rework the original ABC model so that the Salaries & Wages costs (Table 3) for the Sales Department are $140,000 instead of $150,800, and that the salaries for the Administrative Staff Department are $60,000 instead of $63,100. Determine the amount of SG&A cost assigned to each of the three customer groups. Based on these cost assignments, what is the indicated profitability for each customer group, both in total dollars and on a per-customer basis? In terms of the latter, determine for each customer group the absolute dollar change in profit per customer and percentage profit change per customer from the original case solution. c. Rework the original ABC model under the assumption that the number of purchase orders from small customers (Table 1: 5,130) and related shipments (Table 1: 5,431) are reduced by 50% (for example, by encouraging these customers to order less frequently and to buy in larger volumes). 2 Determine the amount of SG&A cost assigned to each of the three customer groups. Based on these cost assignments, what is the indicated profitability for each customer group, both in terms of total dollars and on a per-customer basis? In terms of the latter, determine for each customer group the absolute dollar change in profit per customer and percentage change in profit per customer from the original case solution. 4. As a contrast to the customer profitability analyses prepared above, in which SG&A costs were allocated to customer groups using an ABC approach, prepare a traditional customer profitability report in which SG&A costs are allocated to customer groups based on volume of towels sold. Prepare your analysis both under the assumption that the $133,000 of facility-level SG&A costs (a) are not, and (b) are included in the costs to be allocated. Interpret these results relative to those prepared above under ABC, as prepared for Requirement #2 above. 2 When reducing the number of shipments by 50% for this part of the analysis, round the new shipments level down to 2,715. 5 5. Consider how the Blue Ridge Manufacturing Company competes in its industry. What is its competitive strategy? 3 What is the role of ABC costing in helping the firm become more competitive and more profitable? Other requirements: 1. Each group creates a folder which includes two files: a. An excel file that shows the details of the analyses (cell reference should be used at all time). Format the cells to 2 decimal digit if applies but do not round the cells. b. A word document that starts with a cover page (Course, name of the project, names of the group members, semester) and answers the above questions. Please format the word document to be 1.5 line-spaced with Times New Roman font 11. 2. Each group should name the folder "ACC 512 -- Group #" and upload the zipped folder on Moodle. 3. Group work is required. A more than 50% performance evaluation on \"Worst\" leads to a failure on personal group project grade. 3 Competitive strategy is hardly a mutually exclusive decision. Consider what competitive strategy the company mainly adopts now. In the future, the company may change the emphasis between two strategies. 6