Case 5-1 “Johnson Toy Company
(1) From the standpoint of an individual concerned with accounting controls, discuss and evaluate Johnson Toy Company’s present policies for handling returned items. From the accounting control perspective, the financial records are evidently inaccurate leading to poor overall control, e.g. Greg Sullivan confidently indicated that his records shows 2.6 million Jungle Jim dolls are in stock for recycling; however, Carolyn Coggins expressed the concern that dealers will return the 2 million dolls currently held in their stock. This discrepancy is due to vague and poor return policies provided to management, e.g. field sales reps would customize return policies that is difficult to monitor and may drastically deviate from other sales reps’ policies. (2)Answer Question 1, but from the standpoint of an individual interested in marketing.
From the marketing standpoint, i.e. field sales representatives, they tend to favour less on procedural controls for the reason of wanting/needing the flexibility to bargain with retailers.
(3)Propose a policy for handling returns that should be adopted by the Johnson Toy Company. Be certain to list circumstances under which exceptions would be allowed. Should it apply to the Jungle Jim dolls?
1.High-Volume Customers: defined as purchasing $80, 000 (arbitrary number) or over of merchandise from Johnson Toy Company per year. A.Damaged goods that are functional may be returned to Johnson Toy Company’s plant at Johnson’s expense with full refund. B.High volume customer will receive a straight 2% deduction off of the wholesale selling price to cover defectives— regardless of defectives classified as cosmetically damaged or slow selling items, except when unable to sell due to special circumstances (see Section 3) 2.Low-Volume Customers:
A.Damaged goods that are functional may be returned to Johnson Toy Company’s plant at Johnson’s expense with full refund. B.Low volume customers will NOT receive an automatic deduction for deduction for defectives. Instead, the damaged or defective goods must be defined as: i)Cosmetically damaged goods (considered as functional and sellable conditions): can receive a 25% discount granted upon inspection by Johnson’s sales representative ii)Slow-selling items: NO RETURNS
iii)Non-selling items: For reasons other than physical damage, see Special Circumstances, Section 3) 3.Special Circumstances: When products are considered unsellable for reasons other than functional damages or is a slow-selling product in the off season, e.g. a product receiving bad press (such as the case of Jungle Jim and Jogger Dolls), Johnson Toy Company will allow returns of all such non-sellable items under the following conditions: A.Retailers must pay for the returned merchandise to reach Johnson Toy Company’s plant. B.The customer must use the carrier selected by Johnson Toy Company. C.The full amount of said purchase will be credited to the retailer’s account. D.Credit must be used within 30 days upon receipt of returned goods at Johnson’s plant; credit WILL be void after 30 days. General Conditions
1.All customers are subjected to first review the “Return Conditions” before proceeding. 2.Customer must first obtain a return authorization number from the firm’s sales management team (which should not be field sales reps and all return records should be managed by an individual or team in one central location). The authorization number does not automatically grant a credit. 3.Each return form must include the following information:
- Return authorization Number
- Customer contact name, address and phone number
- Purchase order or Invoice Number
- Product code (SKU), quantity and description of each product with a different SKU - Reason for return
* Customer signature is mandatory in all cases of product returns in compliance for...