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JW Sports Supplies (A)

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James Jones and William West had worked out together almost daily for several years. Both were
professionals pursuing demanding careers, and both saw exercise as an escape from the daily stresses of the
workplace. While they continued to update their workout wardrobes to take advantage of the latest in apparel
technology, they lamented the lack of the perfect gym bag each time they met at the gym. One day, it was that
lack of good storage space for their sneakers; the next, it was the lack of a pocket to conveniently store their

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phones, keys, and other small necessities; and finally, it was the problem of the seams splitting far beyond what
one would consider normal wear and tear. Jones and West were sure they couldn’t be the only ones who found
current gym bags inadequate in meeting their needs. Eventually, they decided to pursue a venture to make what
they considered the ideal gym bag, one that would incorporate the features they both desired and that would
be of a sufficient quality to withstand a regular workout schedule for several years. They each made a modest
investment to start their new company—JW Sports Supplies—and began operating on the side while they
continued their respective professional careers.
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That had been more than five years ago. The company had grown substantially, had achieved annual sales
of over $1.5 million, and had begun to generate a healthy profit (Exhibit 1 provides an income statement for
the most recent year of operation). As Jones and West reflected on their success to date, they contemplated
what might be possible if they could devote themselves full time to JW Sports Supplies. They decided to dive
deeper into the numbers. They wanted to better understand the impact that alternative decisions they could
make about managing costs, changing prices, and different sales volumes would have on the company, so that
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they could better determine whether pursuing their venture full time was even a possibility. They both agreed
that if they could see annual profit climb to around $300,000, they would consider making this a full-time
endeavor.

The two owners decided to begin their analysis by gaining a better understanding of the costs being incurred
to produce and sell the gym bags. They gathered some data to help them in their analysis. First, they compiled
data on actual total costs and number of gym bags produced and sold per month for the past 24 months (see
No

Exhibit 2). They noted that they typically only produced the gym bags once they had an order; they were averse
to tying up cash in inventory, and pursuing this strategy meant that units produced and sold were the same each
month. Second, they compiled detailed data on costs by category for 2 of the 24 months (see Exhibit 3 for a
description of each cost category, and Exhibit 4 for costs by category). They could have gathered this
information for all 24 months, but they decided to start with just 2 months to keep their analysis more
manageable.

Upon gathering the data, they were ready to roll up their sleeves and get to work. They had many questions
to answer.
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This fictional case was prepared by Luann J. Lynch, Almand R. Coleman Professor of Business Administration. It was written as a basis for class
discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright  2017 by the University of Virginia Darden
School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an email to sales@dardenbusinesspublishing.com. No part of this publication
may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—
without the permission of the Darden School Foundation. Our goal is to publish materials of the highest quality, so please submit any errata to
editorial@dardenbusinesspublishing.com.

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Exhibit 1
JW Sports Supplies (A)
Income Statement for Most Recent Year of Operation

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Revenues $1,837,200
Cost of goods sold (COGS) 1,274,000
Gross margin 563,200
Selling, general, and administrative expenses (SG&A) 345,000
Profit before tax $ 218,200

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Source: All exhibits created by author.

Exhibit 2
JW Sports Supplies (A)
Production/Sales Levels and Costs by Month
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Actual
Actual units
cost
Jan 1,000 $ 100,000
Feb 1,100 $ 106,000
Mar 1,175 $ 105,000
Apr 1,250 $ 120,000
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May 1,410 $ 128,000

Jun 1,520 $ 132,000
Jul 1,600 $ 135,000
Aug 1,710 $ 140,000
Sep 1,800 $ 148,000
Oct 1,970 $ 150,000
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Nov 970 $ 150,000

Dec 1,970 $ 120,000
Jan 1,510 $ 140,000
Feb 1,650 $ 130,000
Mar 1,450 $ 115,000
Apr 1,200 $ 112,000
May 1,210 $ 130,000
Jun 1,900 $ 154,000
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Jul 1,890 $ 162,000

Aug 1,200 $ 112,000
Sep 1,210 $ 130,000
Oct 1,600 $ 143,000
Nov 1,700 $ 148,000
Dec 1,850 $ 143,000

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or 617.783.7860
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Exhibit 3
JW Sports Supplies (A)
Description of Costs

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Cost Description

Cost of material used to make the gym bags that could easily be traced to
Direct material each bag. This included the cost of the material, zippers, shoulder strap,
and handles.
Direct labor Cost of paying workers who make the gym bags.
Rent Amount paid to lease the facility where the gym bags were made.

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Depreciation Cost of the equipment used in making the gym bags.
Cost obtained from the monthly utility bill for power to provide lighting
Electricity
and operate machinery.
Cost of materials not directly traceable to each bag (e.g., thread and glue);
Other manufacturing labor not working directly on gym bag assembly (e.g., maintenance and
janitorial costs, setup of equipment, material handling, supplies).
Selling Fixed salary paid to sales representative.
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Sales commission Amount paid to sales representative for each gym bag sold.
Administrative General and administrative costs (e.g., purchasing, accounting, payroll).
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Exhibit 4
JW Sports Supplies (A)
Monthly Costs at Different Volume Levels

Units produced and sold

Cost category 1,200 1,900
No

Direct material $ 36,000 $ 57,000

Direct labor 18,000 28,500
Rent 5,000 5,000
Depreciation 4,000 4,000
Electricity 4,400 5,800
Other manufacturing 19,600 21,700
Selling 8,000 8,000
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Sales commission 12,000 19,000

Administrative 5,000 5,000

This document is authorized for educator review use only by izza shahzad, Bahria University until Oct 2022. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu
or 617.783.7860