The case study utilized to apply managerial costing accounting concepts is a company called Bushman Boots PTY LDT. The case a firm that is having problems with the cost structure of the firm even since a new product called the Bush Bashers was released (BB). A cost analysis is necessary to find the root of the problem at Bushman Boots.
Bushman Boots problem analysis
The manager responsible to analyze the problem at Bushman Boots is Sandra Slaughter, the Sales Manager. By studying the market and performing an analysis of the sales numbers Sandra noticed the company has a product mix problem regarding the positioning, pricing, and profitability of the company’s boots products. The Wonder Walkers (WW) is the company’s traditional product that used to be a very good seller. The pricing structure and cost structure changed when the new product Bush Bashers was introduced. BB is a higher quality product which has actually been selling extremely well.
Despite the good sales the profit margins of the company are down and Sandra wants to find the root of the problem. Since the introduction of the new the product the company has separate production lines for the two products, but the enterprise is still utilizing a cost mechanism based on the prior cost assumption before the arrival of Bush Bashers. One of the key assumptions is that direct labor is the cost driver that determines the overhead rate to be allocated to the cost of the product.
Sandra interviewed a cost clerk working in the accounting department and asks for information about the current system, various data to create new analysis and the pricing methodology. Sandra found that the company is currently still utilizing the old cost system and that the methodology for pricing of its products is to add a 45% markup to the cost of the product to assign a wholesale price and to allow retailers to utilize a 90% markup of their wholesale selling price.