Instructions: A case study document will have been distributed to students in Week 1. Students in eachclass will organise themselves into groups of 3 to 4 (no less than 3 and no more than 4).Students will work in their groups to prepare a response to ALL of the case questions and willprepare and submit a report, presented in proper report format (including a reference list) bythe end of Week 10.Introduction to J&B SportsJ&B Sports manufactures custom club soccer uniforms (jerseys, shorts, socks and jackets) andsupplies local Adelaide clubs and their teams each season. J&B Sports focuses on quick deliveryand fast customer response time. Recently, J&B Sports has experienced a decrease in availablecash and an increase in inventory. Sales revenue has been increasing at a faster rate thanexpenses, generating a higher level of profits. Approximately half of J&B’s asset base isfinanced through debt and half through equity. The industry faces increasing pressure fromimports, particularly from China, which creates a need to compete on price. However,customers in this market are willing to pay a higher price for goods that are durable and ofhigh quality. The internet is becoming an increasingly important sales channel and source ofcompetition at the same time.The company, which started out as J&B Uniforms, was founded in 1962 by the Hellas familyand began its operations manufacturing work uniforms for local factory workers in SouthAustralia. As manufacturing declined in the local economy, the family began to look for amarket niche to guide the company’s future growth. Recognising the increasing number ofyouth participating in organised sports, and the projected growth in popularity of soccer inAustralia, the family decided to focus on the manufacture of custom soccer uniforms. Thefamily has made a conscious decision not to follow the textile industry’s trend of transferringmanufacturing operations to China and other foreign countries that offer cheap labour. Theyhave chosen to remain a domestic producer and to focus on quick delivery and fast customerresponse within the local market.The company manufactures and supplies three main products in a typical soccer kit: customsoccer jerseys (tops), custom soccer shorts and soccer socks.Sports-Strength – part of J&B’s supply chainJ&B Sports is part of a supply chain whereby they source fabrics and other raw materials fromtheir suppliers, and they in turn also use retail outlets such as ‘Sports-Strength’ to takecustomer orders and supply custom soccer uniform items on behalf of the manufacturer Martin Cole, senior sales director at Sports-Strength was reviewing the latest corporateincome statement prior to meeting with the company’s chief financial officer. “I don’tunderstand these numbers”, Martin thought. “We fell short of our projected sales volume ofjerseys by 10%, so I was anticipating net income to be 10% lower than expected as well. Butthat’s not what the numbers are showing. How can I use this information to help me plan forthe coming year?”.The company had been preparing absorption costing income statements, which it used forexternal reporting. To shed some light on the situation, the new internal accountant preparedan additional income statement using variable costing – a contribution format incomestatement for the year. Activity 1: Cost Behaviour and Cost Estimation at Sports-StrengthRequired:1) Identify each of the following costs incurred by Sports-Strength in terms of its costbehaviour – variable, fixed, mixed or step:a. Monthly sales staff payroll of $5,000 plus 6% sales commission on jerseysb. $200 monthly rental for credit card processing equipmentc. Cost of goods sold for $14.80 per jerseyd. The cost ($1) of price tags attached to each jerseye. Inventory insurance that costs $2 per $1,000 of salesf. Website hosting cost of $100 per month2) Refer to the Sports-Strength’s Contribution Format Income Statement for the year endedFebruary 1, 2019 (Exhibit 2) and answer the following:a. What is Sports-Strength’s operating profit equation?b. How many jerseys has Sports-Strength sold during the year? If it has sold 10% less thanit had expected, how many jerseys had it planned to sell? Assuming a 30% tax rate, howmuch more income after tax would the extra 10% of sales have generated?c. If Sports-Strength sells 55,000 jerseys what total expense will be reported on theincome statement?d. The Messenger, a local newspaper, has approached Martin Cole with a $20,000 annualad campaign. If Martin accepts the ad campaign, what will change in Sports-Strength’soperating profit equation?e. Assume Martin Cole accepts The Messenger’s ad campaign and as a result Sports-Strength sells 60,000 jerseys next year. Prepare a contribution format incomestatement for the year.f. Discuss (max 500 words) the results shown in part e above. Should the ad campaign beaccepted? Comment on the distribution of costs between fixed and variable for SportsStrength. How can the information on cost behavior and the contribution marginstatement be used by management to make decisions and to plan? Give two specificexamples of decisions and plans that could be made with this
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