(Approved by AICTE (Govt.

Of India), New Delhi)

ASSIGNMENT ON:
MANAGEMENT ACCOUNTING FOR MANAGERS-III

TOPIC:CASE STUDY ON NIKE COMPANY

SUBMITTED TO:
SUBMITTED BY:
PROF.(CA) PARUL SANA ISMAIL-42
JOBIN ABRAHAM
SHRIVASTAVA
SUGANDHA
LECTURER OF SHRIVASTAVA
MAHESH MOHANAN
MANAGEMENT
SONAL
ACCOUNTING FOR TRIMESTER-II,IPER
MANAGERS PGDM
CASE SUMMARY:
• Nike Inc. produces and sells 500000 units of the LeBron James “Witness” Basketball
shirts.

• It has excess capacity to produce 300000 units of shirts .

• Two questions were asked for this case they are:

1. Whether the Company should accept the order to utilize its excess capacity?

2. Why do you think the manager’s view on the second order was wrong?

COST SHEET OF 500000 UNITS

TOTAL COST PER

PARTICULARS COST SHIRT
VARIABLE MANUFACTURING COST 7000000 14
FIXED MANUFACTURING COST 3000000 6
VARIABLE SELLING AND DISTRIBUTION
OVERHEAD 1500000 3
FIXED SELLING AND DISTRIBUTION
OVERHEAD 200000 0.4
COST OF PRODUCTION 11700000 23.4
PROFIT 5800000 11.6
17500000
SALES(500000*35) 0 35

WORKING NOTES:

COST OF PRODUCTION=ABSORPTION COST(variable manufacturing costs+Fixed

manufacturing cost)+Variable Selling and Administration overhead+fixed Selling
and Administration overhead.

PROFIT= SALES-COST OF PRODUCTION

 COST SHEET OF 100000 UNITS

TOTAL COST PER

PARTICULARS COST SHIRT
VARIABLE MANUFACTURING COST 700000 7
FIXED MANUFACTURING COST 300000 3
VARIABLE SELLING AND DISTRIBUTION
OVERHEAD NIL
FIXED SELLING AND DISTRIBUTION
OVERHEAD NIL
FLAT AGENT'S FEES 80000
COST OF PRODUCTION 1080000 10.8
PROFIT 720000 7.2
SALES(100000*18) 1800000 18

COST PER SHIRT FOR VARIABLE MANUFACTURING COST=700000/100000=7

SO AS OTHER FOLLOWS.

QUESTIONS AND ANSWERS:

1.Whether the Company should accept the order to utilize its excess capacity?

ANS.The company should accept order no.1 of special delivery of 100000 units because in that
case they are earning profit of 720000 which is good for a company in which there is an
opportunity for earning more ,it an advantage in the sense that fixed manufacturing cost will be
incurred so every company want to minimize its fixed cost first.

And variable cost increases as increase in production,so here 100000 units are covering all cost
and more over advantage is of that in manufacturing more company is not incurring selling and
distribution overhead except agent's fees.

so company should accept the order to utilize its excess capacity.

2. Why do you think the manager’s view on the second order was wrong?

ANS. Manager's view on the second order was wrong because it is not a sound decision for
incurring loss of $1.

CONTRIBUTION=SELLING PRICE- VARIABLE COST

-1=13-14

Here is a loss of $1,so manager is thinking that fixed cost will be spread more so it will be
beneficial for company but its not true.Then company will incur more loss because it will sell in
$ 13,which will result in loss.so he is wrong.