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Read all the information provided before you begin.Today’s date is the 1 November 2012. analyses and evaluates the issues facing the board of Jot. You are the consultant to Jot. ©The Chartered Institute of Management Accountants Page 1 . You should make recommendations where appropriate. an independent toy company Prepare a report that prioritises.
Distribution costs will be substantially less if products are manufactured in Voldania. For the products under consideration the Chinese manufacturer estimates that labour time per unit for them will average 0. However. 1. The intention is that Jot would gradually switch production from China to Voldania in ever increasing quantities over the initial 5-year period. Financial information: Production in units Year 1 Year 2 Year 3 Year 4 Year 5 60. Tani estimates that the saving will be around 60% of the Chinese cost. However the focus on machining. Voldania will use as many machines as possible resulting in 40% more machining costs than in China.40 per unit on average in China throughout the next 5 years.000 140.A variety of issues have arisen.6 hours per unit 3. The labour rate charged per hour in Voldania in year 1 is €5 and will inflate at 2% per annum thereafter.000 220. ©The Chartered Institute of Management Accountants Page 2 . Tani Grun has put together some financial information as below and she comments as follows: ‘The prices we can get for products made in China as opposed to made in Voldania are the same.’ Jot has a five-year planning horizon and so ignores profits and cash flows after that period and would review the situation again at some future point. I have researched the costs as thoroughly as I can.000 180. Tani has investigated Voldanian prices by asking to a supplier to do an example quote of a product that is currently made in China for Jot. She asked for a detailed breakdown of costs charged. results in 25% less labour time being used in Voldania compared to China. The production approach will be very different in the two countries. 2. so we can ignore the revenue side completely. Labour rates charged per hour in China are €1.75 in year 1 (adjusted to the Euro currency) but are expected to rise by 12% per annum thereafter.000 Notes: the ‘costs’ below refer to the charge made by the manufacturer to Jot and as such are the costs to Jot rather than the costs to the manufacturer. on which the board would like your analysis and opinion: Near-shoring proposal in Voldania Jot has been considering outsourcing part of its manufacturing to Voldania. Labour rates are to be accurate to three decimal places in any calculations. a country in Eastern Europe and the board has asked that you consider this proposal from a financial.000 100. strategic and operational viewpoint. Machining costs charged (based on past analysis) will be €1. but inevitably there are many estimates included. Distribution costs from China will average at €3 per unit in the first year and are expected to inflate at 6% thereafter due to ever increasing crude oil prices.
Sales of the product have been strong. Recharging takes 2 hours and so some consumers have taken to leaving the toy plugged in to charge whilst they go out of the house. Fault in new flying spaceship toy A fault has been reported by a number of customers and consumers regarding Jot’s newly launched flying spaceship. Most have reported the toy becoming too hot to touch and 2 have reported smoke coming from the toy after it had been left charging for more than four hours. He also asked for a personal donation of €25. No further order has yet been placed. To date there have been 12 reported incidents.4. The product costs JOT €24 to make and distribute. Jot has 3. This work can be done quickly and in Europe and the figure above includes any additional distribution costs.200 units in inventory ready for shipment to retailers. ©The Chartered Institute of Management Accountants Page 3 . is unsettled by this idea. Material costs are not thought to be significantly different in the two markets and hence have been ignored. Boris Hepp though. There have been no reported incidents of fire. Grot seemed very keen to support Jot’s activities and stated that it was Voldanian policy to encourage overseas companies to manufacture within Voldania. Attaching the toy using a lead and an adapter to the mains electrical supply recharges the batteries. He says that many customers (including all the major retailers) are complaining bitterly and so Jot would be better to write the product off completely so as not to further damage an already bruised reputation. A new designer (Indy Kaplia) employed by Jot earlier in the year designed the toy and made the error. The spaceship uses rechargeable batteries that are recharged whilst in situ inside the toy. Launch of new range of toys for 9 – 11 age group Alana Lotz has just returned from a toy fair for toy companies where the latest ideas concerning the toy world were discussed.000 units has already been made and delivered.000 which he promised would help him ensure that Jot’s application didn’t get delayed in bureaucracy. There is no blame attached to the manufacturer. She reached the conclusion that the sophistication of children was increasing all the time and that it was time for Jot to reach beyond its traditional market segments. This has meant the toy is often left charging for substantially longer than the two hours required. The initial manufacturing order of 6. As part of Tani’s investigations she contacted the Voldanian government and spoke to an official called Grot in the inward investment division.200 units at a price of €84. Jot’s customers have sold 1. He thinks that if Jot spends another €10 per unit on improved insulation the products will then be safe to ship out to customers. The product cost to the retailers was €40. Michael Werner has indicated that all may not be lost. Following these complaints a brief investigation has revealed that the insulation around the electrical circuitry was not designed to be sufficiently fire and heat resistant for the length of time the toy has sometimes been left to recharge by some consumers.
She feels that parents that have previously bought Jot products are likely to support it by buying again for the same children that they bought Jot toys for when they were younger. to make a noise and even light up but this is a whole new area that we know nothing about. one of Jot’s suppliers in China. as it is unable to meet all orders this year. ‘Look. acceptability and feasibility of the idea. Michael Werner is considering what to do.000.’ John Grun is a little sceptical about this plan. a well-known and successful application. Children in this age group demand a greater sophistication from their toys. ‘This is the second problem this month. Alana also thinks the smart phone market is going to continue to grow and that children aged between 9 and 11 increasingly have access to a smart phone. Gull has been expanding rapidly and is rumoured to have been prioritising production to higher margin orders. She would like this to be checked however by reference to the costs of initial development of Angry Birds. It indicated that Gull would not be able to meet its obligation to deliver the 2. we shouldn’t be making so many mistakes. If this supplier cannot fulfil its contract then we should not use it again. they are not satisfied with lights and noises and want something more.400 units that had been ordered for delivery on 4 November 2012 (3 days from now). we can move into a new era and a new market with this product and so look ahead with confidence. Investigations are at an early stage but Alana thinks that applications are affordable for Jot with the initial design of the program costing as little as €30. Michael is wondering whether it is best to send all 75% to Jot’s main customers or whether Jot should share out the product more equally so that the independent toyshops at least get something of what was ordered on time.Alana has suggested that Jot should develop a range of toys for the 9 – 11 age group of children. Surely it should pay for the error by way of compensation. where children would have to be able to spell and be numerate to proceed through the levels of the game. Alana said ‘this is a very exciting potential development for Jot. Gull has said that it can provide 75% of the order on time with the other 25% to be delivered on 15 December.’ he said. Gull is adamant that this is the best that it can do. Boris Hepp is unimpressed. The idea is to start with a smart phone application that has both gaming and educational aspects. Late delivery of Christmas product An email has arrived this morning from Gull. We know how to make a toy shuffle about. this just isn’t what we do.’ You have been asked to assess the suitability. ©The Chartered Institute of Management Accountants Page 4 .
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