G.G. Toys Case Study
February 28, 2012
The five most pressing issues G.G. toys is facing are the decline in pre-tax margins of the Geoffrey doll, the costing system being used in the Chicago plant, how to efficiently use the excess materials and machinery used to create the reindeer doll for three months, whether or not to produce the “Romaine Patch” doll and the last being what caused an increase in sales in the Chicago plant in March 2000 despite a decrease in production.
The first issue is the continuously declining pre-tax margins of the Geoffrey doll. This margin has dropped from 25% to 10%. This being one of their popular dolls requires the company to consider altering their current production schedule towards dolls that are producing a higher margin.
The second is the costing system currently being used in the Chicago plant. G.G. Toys should change its existing cost accounting system from traditional costing to activity-based costing because it is calculating its manufacturing overhead on only one cost, direct labour. Since overhead at the Chicago plant is high, the cost accounting system must be accurate. Different types of dolls require different amounts of machine hours and other variable costs. By using Activity-based costing, each doll would have a different manufacturing overhead allocated to it. This would sort production into categories giving each a unique contribution margin.
The third issue to discuss is how to efficiently use the equipment purchased for the production of the reindeer doll. During the months the reindeer doll is produced leaves the space lying idle from October to June. I think that producing only the reindeer doll will not be efficient. This doll does not use the machinery just bought for an efficiently. I think if the firm produced more toys and considered creating a holiday line it would prove to bring them in more profits. Making more dolls for different occasions using the same machinery and