The Body Shop Case Study

Dato’ Sarah

:

Assalamualaikum WBT, good morning and thank you to all of you. Before we start our meeting, I would like to pass to our company secretary, Ms Farah.

Ms Farah

:

Thank you chairman. I would like to propose our agenda. First agenda is to produce our new product which is Charcoal Gold based products. Second agenda is presentation of budget costing, third agenda is to set of price and our last agenda is performance of our company. I will pass back to our chairman.

Dato’ Sarah

:

Thank you Ms Farah. I would like to call one of our director, Dato’ Fauran to present on behalf of other directors about their ideas on our new coming products.

Dato’ Fauran

:

Thank you, Dato’ Sarah. We will continue our meeting with first agenda which is to produce our new product which is based on combination of two materials of Charcoal and Gold. I have make some research, Korea Skincare market will release the product based on these two materials. So that, I decided to produce these products also and want to become the product leader in Malaysia.

In order to make it real, I would like to propose to produce it in limited edition and we will release it by batch. For the first market, we will release “Charcoal Gold Body Shower Gel” and “Charcoal Gold Body Scrubs”. I am very sure it will be the biggest phenomena in Malaysia.

Dato’ Sarah

:

Wow, brilliant idea Dato’. But, I think we need to confirm our fund first. Now, our company performance was not good. I would like to call our CFO, Ms Farah to table the budget costingand set the price to all of our directors and continue with our Financial Manager and Assistant Financial Manager to present our company performance for Quarter 2 2017.

Ms Farah

:

Thank you, Dato’ Sarah. Yes, is it true. Our company now freeze out of profit. We did not have enough money to support our new coming product due to our sales was dropped by 15% in Quarter 1. However, in Financial Department, we have been discussed among our management that we will find the solution and my Financial Manager will present to the Board and come out with the proposal for funding after this.

So, here are (showing hand to slide) our budget slide about our new product, Charcoal Gold Body Shower Gel. Our rate direct material per unit is RM30 for Charcoal and RM90 per gram for Gold and direct labour is RM10.Whereby the company factory overhead; we assume the cost incurred is RM8 per unit. The margin before machinery depreciation and administration cost is RM82. Due to the budget cost stated, we propose to sell the product to our customers at RM250 per unit.

While for Charcoal Gold Body Scrubs, our rate direct material per unit is RM20 for Charcoal and RM70 per gram for Gold and direct labour is RM10.Whereby the company factory overhead; we assume the cost incurred is RM8 per unit. The margin before machinery depreciation and administration cost is RM52. So, we propose to sell the product to our customers at RM190 per unit.

Dato’ Sarah

:

How much the quantity will be supply to all outlets?

Ms Farah

:

As our director mentioned, it will be in Limited Edition and Exclusive product, we estimate it will be produced 74,000 units per products.  So, it will be limited 1,000 units for each outlet as we have 74 outlets. Therefore, we will enjoy Quarter 3 sales amounted RM18.5 million for Charcoal Gold Body Shower Gel and RM14.06 million for Charcoal Gold Body Scrubs.

Dato’ Fauran

:

Perfect! Perfect, we will control the market. Is meaning we are going to focus on cost leadership strategy.

Dato’ Sarah

:

Now, if no objection, I would like to proceed with forecast the vote as to approve the budget.

Co. secretary help to count the vote (all accept the budget)

:

Alright, we decide to approve the budget and Ms Farah, please continue for your second presentation about the set of price.

Ms Farah

:

Thank you, Dato’ Sarah. Before this our company is implementing the cost mark-up. But after we upgrading the system, the cost shall be calculated using new technique which is I think it is marginal costing.

Dato’ Sarah

:

Why do you think that our company should implement the marginal costing?

Ms Farah

:

Good question. First, it is simple way to understand and easy to operate by costing team. Secondly, the effect of alternative production of sale policy can make more readily appreciated and assessed. Lastly, the decision making will yield the maximum return to our company. We can manage and set our direct and indirect expenses.

Dato’ Sarah

:

How about the disadvantages if we implement this marginal costing?

Ms Farah

:

We might ignore the time factor. Comparison of performance between two periods on the basis of contribution alone will give misleading result. Misleading result as there is difficult to divide all cost into fixed variable cost.

Dato’ Fauran

:

So, why you suggest to change the strategy? We will get higher profit, we using cost mark-up.

Ms Farah

:

Using the new pricing strategy, we can capture market interest. Thus, we can gain more profit and customer royalty.

Dato’ Sarah

:

If there are no more arguments, I would like to cast whether to accept a new pricing strategy or to reject?

Co. secretary help to count the vote (2/3 out of accept the new strategy)

Dato’ Sarah

:

So we decide to accept the new pricing strategy which is marginal costing. Next agenda is presentation of company performance. I would like to call Ms Aini, Financial Manager to table the performance to our directors.