Costume Jewelry, Inc (CJI) sells medium quality costume jewelry to retail custom
ID: 2478083 • Letter: C
Question
Costume Jewelry, Inc (CJI) sells medium quality costume jewelry to retail customers through mall kiosks. CJI had been in the retail business for many years and had built a loyal customer base. However, Wal-Mart and Target expansion in the CJI market was starting to hurt its dominant market share position at the same time retail market growth had slowed dramatically to almost flat. CJI’s marketing/advertising expenses had soared as it tried to maintain market share and retail discounts had increased as retail customers became more price sensitive. Three years earlier, CJI had entered a niche wholesale market selling lower quality costume jewelry through college bookstores – a popular item for college parties and a fast growing market where CJI was just starting to gain share. Management was pleased to see the revenue and profit budget for the year had been achieved but was concerned that the financials did not give a good view of the two markets CJI was serving:
The manager believed the two distribution channels (kiosk and bookstore) were in very different markets and really should be analyzed separately to understand what management actions were necessary in each. You were asked to do a detailed Profit Variance Analysis to determine how to divide up the bonus sharing pool between the kiosk and bookstore business managers. You go off to accounting and marketing to gather the following additional information you know you’ll need to complete the analysis:
Management notes Marketing/Advertising costs are essentially fixed once they are committed at the start of the year; they can be shifted between businesses and adjusted somewhat to reflect market conditions but do not vary with volume. You also learn administration expense was reduced by cutting back on Bookstore sales training.
Assignment
Complete a Profit Variance Analysis for the company
Write a brief memo to management (maximum 1 page, double spaced, font 12, bullets preferred!) summarizing your findings and recommending management actions, including the distribution of the $10,000 profit sharing bonus to the kiosk and bookstore business managers.
Explanation / Answer
Sales price variance (Actual Price- budget price)* Actual Sales kiosk (20-22)*21000 42000(A) bookstore (30-27)*9000 27000(F) Cost Price Variance (Actual cost – Budget cost) × Actual sales kiosk (8.5-9)*21000 10500(A) bookstore (13-12)*9000 9000(F Sales volume variance = (Actual sales – Budget sales) × Budget price kiosk (21000-18000)*9 27000(F) bookstore (9000-10000)*12 12000(A)