Gg Toys Case Solution Essay

1057 Words Jun 4th, 2016 5 Pages
1. Estimated cost of a Geoffrey Doll, the specialty-branded doll #106, and a cradle
Based on the internal cost study, the costs of Geoffrey Doll and the specialty branded doll #106 changed drastically. There was no change in the costs of the cradle as the Springfield plant is very labor intensive. Below are the calculations for the total cost of each type of doll & the cradle:

Cost Breakdown (in $) Geoffrey Doll Specialty Branded Doll #106 Cradles
Direct Labor Cost 3.00 3.75 7.50
Direct Material Cost 5.00 6.00 12.00
Total Manufacturing Overhead (details in Appendix) 7.22 25.36 4.22
Total Cost 15.22 35.11 23.72

Revised costs at the Chicago facility are based on Internal Cost Study:
• Labor and Material cost remain the same
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• Availability of new technology for optimization of the process.

3. Difference between forecasted and actual revenue for the Chicago plant

Higher premium earned on sales of specialty dolls offset the impact of lower volume sold on total revenue. The price variance in the Chicago plant overcame the quantity variance leading to a marginal increase in the revenue. This can be attributed to the following:
• Higher production and sales of the highly priced specialty dolls compared to Geoffrey dolls than what the company had originally projected
• Some dolls were sold at a higher price due to higher demand or other market factors

To be able to confirm this observation, the forecast data i.e. the budgeted units and estimated sales price of each doll of the company at the start of this year is required.

4. Production of Romaine patch doll
GG Toys should produce the Romaine Patch doll because of the following reasons:
• High profit margins (63%) from production using the scrap material
• Utilization of scrap material
• They can use the additional facility that they have leased for holiday reindeer dolls to manufacture these dolls and utilize the space from October to June

From Purchased Material From Scrap Material
Direct Labor Cost ($) $3 $3
Direct Material Cost ($) $6 $0
Expected Sales Price ($) $8 $8
Margins -13% 63%


Table 1

Cost Breakdown
(in $) Geoffrey Doll Specialty Branded Doll #106

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