Strategic Cost Analysis for GG Toys Case Study

GG Toys Case Study Introduction: Geoffrey was the most popular and common doll that G.G. Toys created. If G.G. Toys employs this new strategy, it will be able to increase its normal product's profit margins by as much as 27% while simultaneously cutting its production expenses. Under the new accounting technique, the profit margin for the Geoffrey doll has increased, since before the overhead expenses were allocated based on the entire quantity of labour consumed, regardless of production runs. Geoffrey doll manufacture requires fewer production runs, setups, and machine hours. As a result, the company's profit margin yields greater returns. Because of G.G. Toys' decision to provide customized manufacturing in response to the intense competition and retailers' demand, the number of sales of Specialty-Brand dolls has increased significantly. Despite the dolls' low profit margins of 3%, the management was able to generate more money due to the increased sales of Specialty-Brand Dolls. Yet, the higher sales will eventually result in the allocation of overhead expenses to all units produced, hence increasing the overall profit margin. Problem Statement: How could GG Toys boost its profitability in the face of increased manufacturing costs and diminishing product margins? Can GG Toys afford to expand its current product line if its profit margins continue to decline year after year? Questions: 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? G.G Toys should implement Activity-based costing at its Chicago factory since the company's existing cost driver is a proportion of production-run direct labour expenses. Unfortunately, unlike the business in Springfield, which makes just one product, cradles, the plant in Chicago creates a variety of things, therefore this method is inappropriate. Shifting the costing method to ABC is acceptable since the company's overhead expenses rely mostly on direct labour costs and various kinds of dolls need varying machine hours, setups, production runs, etc. Utilizing ABC, varied production overheads will be attributed to each doll type, resulting in variable contribution margins.