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In: Business and Management

Submitted By o0jamie0o
Words 395
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CoolSchool and Scrubs plc background
CoolSchool and Scrubs both manufacture uniforms. Both companies are struggling due to the current economy and are planning to merge. CoolSchool’s main production area is school uniforms. This is a seasonal product as they deliver their products to schools a week before the start of the school year. Scrubs produces uniforms for hospital staff. Both companies have consulted with their financial department and received a report stating the benefits of the merger. However, there is some concern with respect to the differences in managerial accounting procedures. The main differences are stated below.
CoolSchool delivers to a fixed number of schools each year. The schools provide CoolSchool with the exact enrolment number two weeks before the start of school year. Since it takes more than a week to produce all the uniforms, CoolSchool uses last year’s enrolment number for each school to start production, when the final number comes in two weeks before start of term the company compares the production to the final number and produces extra if necessary. If they have made too many uniforms they keep them until the next year, assuming the uniform logo, colours... do not change.
Scrubs delivers to a fixed number of hospitals. The hospitals require new uniforms every 4 months. Scrubs knows the staff numbers and is able to perfectly predict the number of new uniforms that need to be delivered every 4 months.
Unplanned orders
Occasionally both companies get a small one-off order, like special uniforms for a school event or a small number of uniforms for new staff. While CoolSchool is eager to accept these offers to boost customer satisfaction, Scrubs refuses. Scrubs argues that these orders disrupt the normal production process. In the future after the merger, Scrubs would prefer not taking these orders either. Especially, since schools don’t want to pay the full price for specialoccasion uniforms and Scrubs claims these orders are not profitable.
Cost tracing, cost allocation and pricing
CoolSchool has been producing uniforms for many years and has developed historical cost standards that are used to determine the price, based on a 25% mark-up. These standards consist of all cost that can be traced to the cost object. The Company makes most of the uniforms well in advance and is able to predict if the standard will be met.

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