COST ACCOUNTING

FINAL PROJECT
SUBMITTED TO: Mr. M. Ali khan
SUBMITTED BY: Syed Hussain Raza Bukhari
Adnan Ahmed
Alisha Batool
Ehsanullah Khan
Ismail Arshad

BSAF-3
 1) NIKE COMPANY BACKGROUND :

Nike is a company that designs, develops, and markets footwear, garb, system, and accent
products. It gives diverse classes of footwear such as running, training, basketball, soccer, sport-
stimulated city footwear, and youngster’s footwear. In addition, the agency gives sports
activities-stimulated life-style garb, athletic bags, and accent items. Nike additionally affords a
line of overall performance system and diverse varieties of system designed for sports activities
sports below its emblem name, in addition to markets garb with certified university and expert
crew and league logos

Nike, Inc., formerly (1964–78) Blue Ribbon Sports, American sportswear agency centered

in Beaverton, Oregon. It became based in 1964 as Blue-Ribbon Sports through Bill Bowerman, a
track-and-subject teach at the University of Oregon, and his former student Phil Knight. They
opened their first retail outlet in 1966 and released the Nike brand shoe in 1972. The agency
became renamed Nike, Inc., in 1978 and went public years later. By the early twenty first
century, Nike had stores and vendors in extra than one hundred seventy countries, and its logo—
a curved test mark referred to as the “swoosh”—became identified all through the world.

2) MSSION AND VISION:

Nike mission is what drives us to do the whole thing feasible to increase human potential. We try
this through developing groundbreaking recreation innovations, through making our merchandise
greater sustainably, through constructing an innovative and various worldwide group and
through creating a fantastic effect in groups wherein we stay and work.

Nike’s vision is “To convey proposal and innovation to each athlete withinside the world.”
While its project declaration is to “do the whole thing feasible to increase human potential. We
try this through developing groundbreaking recreation innovations, through making our
merchandise greater sustainably, through constructing an innovative and various worldwide
group and through creating a fantastic effect in groups wherein we stay and work.”

Therefore, there are 3 factors to Nike vision and mission:

  Inspiration: as a customer business enterprise Nike has found out a way to leverage
advertising and marketing to generate and stimulate call for. This is on the center of the
Nike commercial enterprise model. Indeed, Nike spends billions of greenbacks every yr
to reinforce call for for its merchandise
 Innovation: Nike positions itself as a modern business enterprise this is inclined to
innovate its merchandise over and over. This is every other important detail as innovation
implies the substitution of the vintage for the new. Thus, it complements its income over
time, that is a part of Nike flywheel
 To each athlete: Who’s an athlete for the business enterprise? According to Nike “when
you have a body, you're an athlete.” This connects to the inspirational detail. Most of
Nike slogan follows an inspirational tone, and this is a part of its call for era strategy

3) HEADQUARTERS AND BRANCHES:

Nike is headquartered in Beaverton, OR and has 46 workplace locations throughout

forty-three countries.
As of May 2017, Nike had 985 brand shops worldwide. As of May 31,
2020, Nike operated a complete of 1,096 retail shops during the complete world, a mild
decline from 1,152 in 2019. The variety of Nike shops withinside the U.S. amounted to
over three hundred in that year.

4) ORGANIZATIONAL STRUCTURE:
Nike operates its sales and production in nearly 170 countries around the world all of that
conclude 75,000 employees. Nike is one of the top markets in the world with competition with
other large brands like Addidas, Puma and under armor. The success of Nike is because of the
marketing strategies and one of most important factors the organizational structure. The
Organizational structure gives that how much diverse the company is structure.
Geographic Region:
The entire business of Nike is divided into geographic regions those are North America, EMEA
(Europe, Middle East and Africa), China, and APLA (Asia Pacific and Latin America). The
operations are also divided into key elements such as whole sale and Nike direct and also product
category (footwear, Apparel and Equipment).
Nike follow matrix organizational structure this is complicated structure but it is for its own
benefit. This structure is standardized operational process which helps the CEOs to take quick
decision and fast communication between top and lower level which helps the employees to be
aware of what’s going on.
Nike Hierarchy:

The hierarchy structure is segregated into three parts, Global headquarter, Regional
headquarter and subsidiaries. This hierarchal structure helps to maintain that global
approach and business in control.
 1. Global headquarter: It is the top level where all major decisions are made here about
the company and this level is responsible for to oversees all regional parts. Only EMA is
which managed by regional headquarter in Europe. Global headquarter follow
standardized approach to run business and this level is also responsible to create a culture
environment which is accepted. Globalized brand is also control of this level. Market
research and product development is in control of this top headquarter.
2. Regional headquarter: This is the second level that control operations in regions and
subregions and they are situated in Netherland. E.g., EMEA region which is combination
of 27 nations so that EMEA is sub divided into subregions like North Europe, France,
Central Europe and Middle east etc. this for better management and control.
The second hierarchy level helps the firm to reduce complexity and fast flow of
information. The sub-regions option helps to short the reporting lines means a single
employee or manager in region will report only to that region. This also helps to
understand the market and local demands.
3. Subsidiaries: Nike owns many subsidiaries companies such as Cole Haan, Hurley,
Umbro etc. These subsidiaries operate and take decision by themselves and authorization
of headquarter the top level. But some intervention of regional headquarter is also played
for local marketing. But these companies are free to take decisions and they follow their
own product development and marketing strategies.

The structure of organizations personalities.

Nike CEO: Department which are under control the CEO
 Chief Financial Officer
 Chief Administrative officer General counsel
 Human Resource
 Sports Marketing
 Global design
 Creative

Following are personalities which own self controls different department and they are under
control of CEO.
1. Chief Executive officer: Manufacturing, Sourcing, IT, Procurement, Operations and
technology.
2. President Innovation: Advance product innovation, Sustainable business innovation.
3. Nike President: Global Categories, Direct to Consumer, Geographies and Sales.
4. Product and Merchandising: Footwear development, Apparel, Equipment.
Recommendations and changes for company objectives and strategies: Some of the strategies of
Nike which are weaknesses for the company. We will suggest to turn those weaknesses into
strengths and opportunities.
 Board of directors: Members in board are above 49 ages in board of directors. We will
suggest they should hire young members so they should also reveal their perspectives
which brings new ide.
 Environment with Labor: There is been bad publicity among consumers about the Nike
relation with labors and production area. Company should make good relations with the
labors. This could increase sale.
 Pricing: Nike’s products have very high prices with competition with other brands.
Consumer might stop purchasing Nike’s product and start buying others brand. Nike
should develop a pricing range which could attract the consumers
 Costumers’ valuation: Differentiate the costumers by giving value, bronze, silver and
gold.
 Loyalty program: Give services like replication and no restriction over services.

5) PRODUCT LINE.

Nike manufacture a variety of different products which made it major publicly supplier
company. This company is mainly manufacturer of sports product. When ever we think of
sports product Nike is related name which appears. Products includes Nike shoes, shirts,
tracksuits, sports equipment’s, apparels. Nike markets its products according to its own name
as well as other given names like Nike Golf, Nike pro, Air Jordan etc. But mostly all of its
main products and products which makes more revenue than other are marketed by “Just Do
it” with Swoosh logo.
Footwear:
Shoes are its most top-rated products. Shoes are of wide variety and mostly are sports
performance and aesthetics. Sports shoes for basketball, Football, hockey etc. Fashion shoes like
Mary Janes, Jordan brand. Casual shoes are also produced by Nike.
Equipment’s:
Rather than shoes Nike produce sports equipment baseballs, bats, swimming equipment, gloves,
weights, guards from injury and knee pads.
Accessories:
People use Nike accessories for brand status most of it includes watches, Bags, socks, rubber
bracelets, some football club kits are produced by Nike like Manchester United.
Nike direct store which is also available online can deliver products through online channels.
Nike stylist and performance this service provides a perfect need of consumer both for style and
performance.
Others:
Other products includes Nike produces clothes for Men and Women. Nike also produce a
Hijab which is especially for Muslim’s sports women. Man, and women trainings products.
Availability:
Products are available in stores worldwide; it is also available online from Nike store and
other stores also.
The most Revenue generate component of company:
Footwear are the major Revenue generator for the company they generate almost 65% of
revenue of the company yearly 4% Equipment and 31% Apparel

6) COMPANY STRATEGIES TO ACHIEVE ITS OBJECTIVE

Product development
Product development is Nike's major intense growth strategy. This intense approach entails the
launch of new products to increase sales revenue. Nike's mission statement, emphasizes
innovation to produced new designs for shoes and other products. New technologies improve
items and help them to compete with other
Market Penetration
Market penetration is Nike's secondary intense growth strategy. The business expands through
boosting sales revenues in existing markets with this method. Nike, for example, is increasing
the number of stores and retailers in the United States to sell more sports shoes in America.
Market Development:
Market development is one of Nike's intensive growth strategies. By focusing on new markets or
market segments, this approach helps the company to grow. For example, Nike increase its
revenue by entering the market of the middle east and Africa
Cost Leadership Strategy:
Nike's generic cost leadership approach helps the company maintain a cost advantage. in this
strategy the company lowers manufacturing expenses to maximize profits or lower selling prices.
For example, in 1990 Nike decreased the selling prices of its athletic shoes. This broad
competitive approach helped the corporation in regaining competitiveness, especially against
Adidas.
Differentiation Strategy:
It is a strategy used by a company to create a product or service that customers would find
superior or distinct from other competitors. The strategy of differentiation allows a company to
differentiate itself from the competitors.in this strategy company sometimes offer a higher cost to
provide a unique product to the customer. For example, the brand integrates cutting-edge shoe
designs. Nike's worldwide success is boosted by the combination of cost leadership and
differentiating generic strategies Based on the differentiation generic approach, one financial
goal is to maximize Nike's profit margins, such as on new sports shoes.

7) COST MANAGEMENT POLICIES

1. Design of Goods and Services:
Nike's athletic footwear and other products are designed in this strategic decision area. The
purpose of operations management is to make sure that product design matches organizational
capabilities and business objectives.
2. Quality Management:
Nike puts a focus on quality in both its processes and products. The goal of this strategic decision
area is to meet consumers' product quality expectations.
3. Process and Capacity Design:
Nike's operations management must prioritize streamlining and production efficiency in this
strategic decision. The goal is to guarantee that output is adequate, effective, and efficient.
4. Location Strategy:
Physical location is the typical concern in this strategic decision area of operations management.
The goal is to reduce costs and increase efficiency by putting employees, suppliers, and the
target market closer together. for example, Nike has sports shoe suppliers in Southeast Asia
because of the lower cost of labor in the region.
5. Layout Design and Strategy:
Nike’s operations management deals with the layout design of its facilities. The objective in this
strategic decision area is to optimize workflow based on human resources, capacity
requirements, technology, and inventory requirements. For example, the firm uses office layouts
where employees can move easily.
6. Supply Chain Management:
Nike has excellent supply chain management, which facilitates efficient production to support
the global sports shoes, apparel and equipment business. The objective in this strategic decision
area of operations management is to align the supply chain with the company’s overall strategic
aims.
7. Inventory Management:
The objective in this strategic decision area is to maintain operations management that minimizes
inventory costs while maximizing its effectiveness and efficiency
 8) CLASSIFICATION OF COSTS

Fixed Costs
• Administrative salaries
• Distribution cost
• Lease expense
• Payroll and benefit related costs
• Depreciation and amortization
• Professional services

Variable costs

 Cost of Sales
 Inventory costs
 Warehousing costs
 Foreign currency hedge gains and losses
 Research, design, and development costs
 Outbound shipping and handling costs

9) COMPANY’S CSR ACTIVITIES

CSR activities take an important role in creating image of a brand.

Following is some of the CSR activities of which nike has concerned about:

 Innovative manufacturing:
Most of the environmental impact of shoes comes from the stuff used to make them. Nike
focuses on creating products with less environmental impact. Innovations such as 3D
printing, While Nike has been investing in 3D printing for a few years now, and it plans to
use 3D technology for the production soon.

 Diverse workplace:
The brand focuses on building a strong culture and a highly diverse workforce. Nike promotes
cultural awareness and help advance the growth of their employees.

 Gender Equality:
 Nike give equal value to women. In manufacturing supply chain of Nike, about 60% of employees are
women. Nike work with suppliers who share their values of equality. 

 Reuse waste material

Nike is innovating its manufacturing process & supply chain so that it could reuse the waste
material generated in production. It is also using environmentally preferred rubber, recycled
polyester & certified leather to lower the environmental impact.

 Donations of the brand:

In 2014, nike donated $6.2 million to charities & schools. Nike is also trying to reach kids in
different parts of the world to make them active from a young age.

In 2015, nike invested $78.2 million to community initiatives.

In 2020, Nike donated $89.8 million to drive positive changes for poor communities and
specially for kids around the world.
 10) THE INVESTOR SECTION
TOP TEN INVESTORS OF NIKE
 MUTUAL FUND HOLDERS
  WHAT INVESTORS SHOULD KNOW
Some of the thing’s investors should be aware of that impact of Nike's financial and its stock
include currency fluctuations, consumer tastes, geopolitical tensions, new technology, and
personnel among others.
Analysts agree, though, that Nike is poised for continued growth, which should have an impact
on the company's share price. That's because it is consistently focused on product and marketing
innovation. The company remains committed to upgrading its digital footprint through its Nike
Direct business, through which the company sells and launches new products online and also
makes improvements to its supply chain.
China is another key factor investors should keep an eye on. Because it is one of the company's
largest growth markets, any detrimental news out of the country could have a big impact on
share prices. For example, the stock took a hit after the company announced it had to shut down
half of its stores in the country in February 2020 because of the coronavirus outbreak. The
company reduced the hours at its other locations in China because of lower foot traffic.

 ANNUAL REPORT

 LAST FISCAL YEAR (2020-)

  AN OVERVIEW OF NIKES INCOME OVER THE YEARS

BEAVERTON, Ore., June 25, 2020 - NIKE, Inc. (NYSE: NKE) today reported financial results
for its fiscal 2020 fourth quarter and full year ended May 31, 2020.
 Fourth quarter reported revenues were $6.3 billion, declining from prior year as the
majority of NIKE-owned and partner stores in North America, EMEA and APLA were closed
due to the COVID-19 pandemic.
 NIKE digital sales increased 75 percent in the fourth quarter, or 79 percent on a currency-
neutral basis*, with strong double-digit increases across all geographies and was approximately
30 percent of total revenue.
 For the fiscal year, Greater China revenues increased 8 percent, or 11 percent on a
currency-neutral basis, marking its sixth consecutive year of double-digit currency-neutral
growth despite the headwinds from COVID-19 in the second half of the year.
Our fourth quarter results were significantly impacted by physical store closures across North
America, EMEA and APLA, where 90 percent of NIKE-owned stores were closed for roughly
eight weeks in the quarter to protect the health and safety of teammates and consumers and help
slow the spread of the COVID-19 pandemic. Our wholesale partners largely followed the same
pattern and as a result, product shipments to wholesale customers were down nearly 50 percent
resulting in lower total revenue and higher inventory. During the widespread physical store
closures, we accelerated our connection and engagement with our consumers leveraging the
strength of our digital ecosystem.
Fourth Quarter Income Statement Review

 Revenues for NIKE, Inc. decreased 38 percent to $6.3 billion, down 36 percent on a
currency- neutral basis, primarily due to owned and partner physical store closures across
North America, EMEA and APL A due to COVID-19, partially offset by growth in
Greater China.
 Gross margin decreased 820 basis points to 37.3 percent as higher full-price average
selling prices, despite increased wholesale discounts, were more than offset by higher
product costs including factory cancellation charges, increased inventory obsolescence
reserves and the adverse rate impact of supply chain fixed costs on lower wholesale
shipments primarily due to COVID-19.
 Selling and administrative expense decreased 6 percent to $3.2 billion, which included an
incremental $178 million increase in bad debt expense. Demand creation expense was
$823 million, down 19 percent to prior year as retail and brand marketing spend was
shifted as sporting events were canceled or delayed due to COVID-19. Operating
overhead expense decreased 1 percent to $2.4 billion driven primarily by lower total
wages and travel and related expenses, partially offset by higher bad debt expense.
 The effective tax rate was 1.7 percent, compared to 20.4 percent for the same period last
year. This is primarily due to the mix of earnings taxed in the U.S. and favorability
attributable to items such as the use of foreign tax credits.
 Net loss was $790 million and diluted net loss per share was $0.51 driven by lower
revenue and gross margin as a result of the COVID-19 impact on operations, partially
offset by lower selling and administrative expenses.

Fiscal 2020 Income Statement Review

 Revenues for NIKE, Inc. fell 4 percent to $37.4 billion, down 2 percent on a currency-
neutral basis due to the impact of COVID-19 on business operations, primarily in the
fourth quarter. In the first half of fiscal 2020, prior to COVID-19, NIKE, Inc. revenue
was up 9 percent, or 11 percent on a currency-neutral basis, reflecting strong, broad-
based consumer demand, higher full-price sales realization and a double-digit increase in
digital sales.
 In fiscal 2020, digital sales increased 47 percent, or 49 percent on a currency-neutral
basis, with all geographies growing strong double-digits.
 Greater China revenues increased 8 percent, or 11 percent on a currency-neutral basis,
marking its sixth consecutive year of double-digit growth on a currency-neutral basis.
 Gross margin decreased 130 basis points to 43.4 percent as higher full-price average
selling prices, despite higher discounts due to COVID-19, were more than offset by
higher product costs including tariffs in the U.S., as well as factory cancellation charges,
increased inventory obsolescence reserves and the adverse rate impact of supply chain
cost on a lower volume of wholesale shipments in the fourth quarter.
 Net income was $2.5 billion and diluted earnings per share was $1.60, down 36 percent,
driven by lower revenue and gross margin impacted by COVID-19 in the fourth quarter
 and higher selling and administrative expenses, partially offset by a lower tax rate and a
lower average share count. This also includes the one-time, non-cash charge associated
with the strategic distributor partnership transition in South America, which reduced
earnings per share by $0.25.

May 31, 2020 Balance Sheet Review

 Inventories for NIKE, Inc. were $7.4 billion, up 31 percent compared to the prior year
period, primarily reflecting the impact of NIKE-owned store closures in North America,
EMEA and APLA as well as lower wholesale shipments in the fourth quarter due to
COVID-19.
 Total liquidity at May 31 was $12.5 billion with robust cash and equivalents and short-
term investments of $8.8 billion, $4.1 billion higher than last year primarily due to
proceeds from a $6 billion corporate bond issuance in March, partially offset by share
repurchase activity in the first ten months of the year, cash dividends and investments in
infrastructure. In addition, NIKE secured a new $2 billion credit facility adding to the
existing credit facility of $2 billion to ensure appropriate liquidity and flexibility during
the COVID-19 pandemic.

11) MAJOR CAPITAL INVESTMENT PROJECTS:

Just to name a few, Nike has made some increasingly high investments throughout these
years.
Nike invested and now owns Jordan Brand and their only subsidiary Converse. Nike also
acquired a digital sales company Data Logue, which is a machine learning technology
company based in New York. Prior to these, Nike bought and owned Cole Haan (luxury
shoes, handbags, accessories and coats) in 1988, Bauer Hockey in 1995-2008, Hurley
(action sports and youth lifestyle footwear, apparel and accessories) in 2002, Starter in
2004, and Umbro in 2007.

REFRENCES
 https://www.statista.com/statistics/241685/net-profit-of-nike-since-2005/
 https://news.nike.com/news/nike-inc-reports-fiscal-2020-fourth-quarter-and-full-
year-results
 https://notesmatic.com/nike-csr-and-sustainability/