Hult International Business School – Group Case Analysis Assignment
(“Managerial Accounting – G.G. Toys Case”)
Course: MBA Financial Statement Analysis (London)
Lecturer: Alek Grzeszczak
Date: Fall 2022
Group / Names:
This group case analysis is to be submitted via myCourses.
Your submission will consist of concise answers to questions: 1, 2, 3, 4, and 6 (ignore question 5)
listed in the G.G. Toys case document. Maximum length of submission: 3 pages of text (at least single
line spacing, Arial 11 font, margins as in this document) plus 1 page for referenced (to your text) excel
exhibits (if any). Best to use this document as template – add 3-4 pages.
Question 1 (4 points)
Do you recommend that G.G. Toys change its existing cost system in the Chicago plant? In the
Springfield plant? Why or why not?
We recommend that G.G. Toys change its existing cost system in the Chicago plant from the traditional
cost based system to the activity-based system because they are producing more than one product.
Producing a variety of products such as the Geoffrey Doll and Specialty-Branded Doll they will be able
to get a more accurate depiction of which product is incurring a specific cost in the manufacturing
overhead. With the manufacturing overhead at the Chicago facility being $268,666 they should switch to
see exactly which product is causing the overhead to become so high. We believe this is the reason why
they saw a decrease in production but the revenue was still higher than expected. They were using the
same production method they used to product Geoffrey Dolls to produce Specialty-Branded Dolls when
the Specialty dolls should have been allocated more cost. Doing this decreased their production by 900
units. They were able to sell the Specialty Doll at a higher price that is why their revenue beat their
forecast by $21,000.
The current traditional cost based system for the Springfield plant is perfect for the facility. They are
only producing one product at the facility which is the cradles so they will not need to allocate cost to
different products to see which product is taking up most the cost. If they used the activity-based cost
method they will have similar numbers for the cost of the cradles because their will only be one product
produced there.
Question 2 (8 points)
Calculate the cost of a Geoffrey doll, the specialty-brand doll #106, and a cradle using the cost study
conclusions.
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Calculating the cost of each individual doll separately we were able to get three different cost for each
product. First we decided to breakdown each item that is in the manufacturing overhead and took all the
totals of each item and divided it by the cost driver to get my pool rate for each expense. We read
through the cost study and analysed which cost driver goes to which cost pool. Understanding that
allowed us to accurately place the cost driver in each pool to come up with for my pool rates. Once we
determined the pool rates we used it to come up with the numbers for each specific product.
Question 3 (5 points)
Compare and contrast the profitability of each doll under the new and old systems. Based on your
recomputed product costs, what actions would you recommend the company consider to enhance its
profitability? What additional information would you like to have to make these recommendations?
The Geoffrey doll will be more profitable under the activity-based cost system than the traditional one.
The profit margin under the new system would be 27% rather than 9% on the old system. The SpecialtyBranded Doll will be more profitable under the old system than the new one. It is more profitable under
that system because the product cost drivers are not appropriately allocated. Under the old system, the
product costs $23.74 to make, but when we use the activity-based costing, it will cost us $34.43. This is
a drastic difference that management must look at and see where they can cut costs for this product to
become more profitable.
Regarding the cradles, the profit margin will be the same because only one product is produced in that
facility. In the future, if another product is made where the cradles are, they may have to consider
switching to the activity-based system. There are some things that management could change with its
cost drivers to reduce cost. The machine-related cost is taken up a lot by the Geoffrey doll, with it
costing $37,500 to produce them. They should look into not having their machines sit idle from October
through June because it will raise their machine-related expenses for the year. This will also affect their
plant management and facility-related costs because they will have the facility sitting idle while not
producing any products for those months. The setup cost for the Specialty-Branded Doll was so high
using the activity-based cost system because a lot of customers like to get the doll customized and have
to charge a setup cost every time doll is changed. The setup cost for it is $8,333.
Management should consider charging a higher price for the doll or figuring out a way to minimize the
setup cost by limiting the number of changes that can be made to the product. The receiving and
production control was also high for the Specialty-branded dolls. They had a high cost at $39,130 for
that product alone. Since this cost requires the same amount of time regardless of the production length,
management should consider increasing the batch sizes of raw materials so that they can cut costs in the
future. Management should use this same method for their packaging and shipping cost. The Specialty2
Branded dolls cost $33,314 for their shipping and packaging cost. Since it doesn’t matter how many
items are in the shipment, management can add more items to the shipment to reduce the product cost.
Additional information that we think we would need is financial statements from previous years. We
would also like to know the cost of what the company has spent on products in the past so we can figure
out trends. We also want an average of how often customers change their speciality-branded doll to
know how we could reduce the setup cost.
Question 4 (5 points)
How should G.G. Toys account for the excess capacity created to produce the holiday reindeer dolls?
Qualitatively, how will this impact your calculated cost of the Geoffrey doll and the specialty-branded
dolls in question number 2? Explain your method and its impact. (Answer qualitatively. Do not recompute any of your product costs in question 2.)
Question 6 (3 points)
Do you recommend G.G. Toys produce the Romaine Patch doll? Why or why not ? (Ignore
manufacturing overhead costs including packaging, shipping, and receiving and production control).
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