The decline in margins on our popular Geoffrey doll product has become intolerable. Increasing production costs have dropped our pretax margin to less than 10%, far below our historical 25% margins. If we are going to increase our margins, we need to consider drastically shifting our production towards specialty dolls that are earning a large premium in price over our standard doll line.
1. Do you recommend that G.G. Toys change its existing cost system in the Chicago plant? In the Springfield plant? Why or why not?
2. Calculate the cost of a Geoffrey doll, the specialty-branded doll #106, and a cradle using the cost study conclusions.
3. Compare and contrast the profitability of each doll under the new and old systems. Based on your recomputed product costs, what actions would you recommend the company consider to enhance its profitability? What additional information would you like to have to make these recommendations?
4. How should G.G. Toys account for the excess capacity created to produce the holiday reindeer dolls? Qualitatively, how will this impact your calculated cost of the Geoffrey doll and the specialty-branded dolls in question number 2? Explain your method and its impact. (Answer qualitatively. Do not recompute any of your product costs from question 2.)
5. What explains the difference between forecasted and actual revenue for the Chicago plant during March of 2000? What other information would you collect to help explain this difference?
6. Do you recommend G.G. Toys produce the Romaine Patch doll? Why or why not? (Ignore manufacturing overhead costs including packaging, shipping, and receiving and production control.)