case study GG Toys
G.G. Toys – Nele Rieve – E01487695 – 10/14/2014
G.G. Toys is a leading manufacturer of high-‐quality dolls located in the US. The company is popular for its “Geoffrey dolls” but, due to rising product costs, has included customized dolls and cradles in its product mix. Two plants are used for the manufacturing of their products, one in Chicago and one in Springfield. While all dolls are produced in the Chicago plant, the Springfield plant is used to assemble the doll cradles. According to their traditional costing system, the margins of the Geoffrey doll were declining as a result of the increasing product costs, whereas the specialty-‐branded dolls proved to have high margins. However, in order for them to produce these customized dolls, they had to lower the production of the Geoffrey doll. Furthermore, G.G. Toys’ management was considering adding two more products to its mix: the holiday reindeer dolls and handmade Romaine Patch dolls.
As of the time when the case was written, G.G. Toys was using a traditional job-‐order costing system to calculate its manufacturing overhead by using only one cost driver, the production-‐run direct labor costs, as allocation base for both production plants. As overhead costs at the Chicago
G.G. Toys is a leading manufacturer of high-‐quality dolls located in the US. The company is popular for its “Geoffrey dolls” but, due to rising product costs, has included customized dolls and cradles in its product mix. Two plants are used for the manufacturing of their products, one in Chicago and one in Springfield. While all dolls are produced in the Chicago plant, the Springfield plant is used to assemble the doll cradles. According to their traditional costing system, the margins of the Geoffrey doll were declining as a result of the increasing product costs, whereas the specialty-‐branded dolls proved to have high margins. However, in order for them to produce these customized dolls, they had to lower the production of the Geoffrey doll. Furthermore, G.G. Toys’ management was considering adding two more products to its mix: the holiday reindeer dolls and handmade Romaine Patch dolls.
As of the time when the case was written, G.G. Toys was using a traditional job-‐order costing system to calculate its manufacturing overhead by using only one cost driver, the production-‐run direct labor costs, as allocation base for both production plants. As overhead costs at the Chicago