JW Sports Supplies was founded by James Jones and William West with the idea of coming up with the most ideal gym bag. With their investment, they plan on incorporating into their unique product what they each think as essential and desirable features of a gym bag. This venture was entered into and operated by Jones and West while engaged in their professional career. Now, they plan on understanding the cost behavior and cost-volume-profit relationship so they can decide if they are to pursue this venture full-time.
Luann J. Lynch
Harvard Business Review (UV7380-PDF-ENG)
November 28, 2017
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Use management accounting to solve the company’s issue at hand.
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JW Sports Supplies (A) Case Answers
JW Sports Supplies Case Study
Jones and West started JW Sports Supplies Company a couple of years ago. Before they can dedicate their full time to growing the company, they need to understand various costs. The effective management of various costs is an important part of achieving higher profits, growth, and sustainability.
Section I – The Situation
JW Sports Supplies is a relatively new company that specializes in the manufacturing, distribution, and marketing of new sports bags. The company has maintained the same sales revenues for the past few months. Nonetheless, Jones and West believe that the company can achieve a higher level of profitability if they develop a better strategy for managing costs.
Additionally, the two owners believe that they will be ready to dedicate their full time if they increase their revenues by $300,000. The primary costs the two owners are concerned about include direct material, direct labor, rent, depreciation, electricity, other manufacturing costs, selling, sales commission, and administrative. The time frame for developing an elaborate structure for managing costs is the next 24 months.
However, Jones and West are still unsure of the system they will use to manage costs to ensure that the business achieves a higher level of profitability. If the two owners cannot manage costs well, the future of the business will be threatened.
In management accounting, the success and future of a business are determined by how the management balances revenues and expenditures (Ganyam & Ivungu, 2019). If costs are appropriately managed, the business will have more financial resources to support the most critical operations.
JW Sports Supplies Company will achieve a higher level of productivity and growth if the owners develop a system for balancing costs and revenues. As a starting point, the owners need to ensure that all costs can be traced back to their sources.
Section II – Causes/Hypotheses/Proof
The main cause of uncertainty relating to cost management and revenue maximization is the lack of accurate and reliable information. As it turns out, the owners lack compiled information regarding revenues and expenditures. As a result, JW Sports Supplies is struggling to develop elaborate strategies for meeting the set goals and objectives.
Moreover, the lack of accurate information impedes plans for supporting critical business operations and activities. Still, the lack of accurate information means that the owners have a hard time predicting the financial resources needed to support the most critical activities. Consequently, the success and the future of the business remain uncertain.
The lack of accurate information is an internal cause, meaning that only internal stakeholders can address it. Therefore, the owners need to work closely with internal accountants and auditors, especially when collecting and compiling information relating to revenue and expenditure.
Another major issue preventing the owners of JW Sports Supplies from going…
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