Reference no: EM131218509

COOL RIDE SKIS LTD CASE STUDY

It is the end of 2015 and Grace Miller, senior management accountant for Cool Ride Skis Ltd has been analysing the Victorian division's 2015 results. Both she and the company's Managing Director, Jackson Pham felt that overall 2015 had been quite a successful year for the Victorian division, particularly in light of certain competitive and environmental pressures that the company has experienced.

At the request of Jackson, Grace is currently focusing on the performance of the division's two product lines - snow skis and snowboards. Jackson has asked Grace to prepare a detailed analysis of the performance of these two lines for presentation at a specially scheduled meeting with the manager of the division, Dominic Silk. The focus of this meeting is to identify how well Dominic and the division have performed during the past year, and if necessary, identify any specific areas that require further analysis and need to be considered in the ongoing planning process.

Company Background

Cool Ride Skis Ltd (Victoria) is the Victorian based division of a medium sized Australian snow-sport equipment manufacturer and retailer. Until 1992 Cool Ride Skis Ltd was predominantly a centralised company. However it had experienced quite rapid growth in the 1980's and its managing director, Jackson Pham saw the need for greater decentralisation. Consequently, the company was divided into 4 market-based divisions - Cool Ride Skis Ltd (Victoria), Cool Ride Skis Ltd (NSW), Cool Ride Skis Ltd (Tasmania) Cool Ride Skis Ltd (South Western region).

Cool Ride Skis Ltd (Victoria) manufactures and sells both skis and snowboards. The division has one manufacturing plant, located in an outer Melbourne suburb. It also has 20 retail shops located in different regions throughout Victoria.

Dominic Silk is the manager in charge of the Victorian division. He is responsible for all aspects of his division's performance including production, marketing, advertising, sales and distribution . Consequently Dominic's division is treated as a profit centre.

ASSESSMENT REQUIREMENTS

This assessment has four primary aims:

1. To provide you with an opportunity to develop your understanding of standard costing and variance analysis;
2. To provide you with the means to further refine your analysis and problem solving skills;
3. To provide you with an opportunity to develop teamwork capabilities;
4. To provide you with an opportunity to develop your report writing skills.

YOUR TASK

After considering carefully all the information above you (as assistant to Grace Miller) are going to prepare a report to be presented in a meeting to Grace, Jackson Pham, Michelle Lee and Janek Sidhu. Within the report you need to address the following.

1. Outline and explain the purpose and potential benefits of standard cost systems and variance analysis. (To gain marks your discussion must not simply be a restatement of the Horngren text).

2. Using the information in the case,

(a) Prepare a flexible budget for Cool Ride Skis Ltd for the year ended 31 December 2015.

(b) For each product (skis and snowboards) prepare a complete analysis of the variance between budgeted profit and actual profit, contained in Exhibits 1 and 2. In your analysis include the following variances:
- Sales volume variance (calculate individually for each product)
- Sales mix variance (calculate individually for each product)
- Sales quantity variance (calculate individually for each product)
- Market size and market share variances (calculate individually for each product)
- Selling price variance
(Note that the selling price variance has not been directly covered in lectures).
- Price and quantity variances for each type of direct material
- Rate and efficiency variances for direct labour
- Spending and efficiency variances for each variable overhead category
- Spending variances for each fixed overhead category.