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Running head: FINAL PROJECT 1

Final Project

Bobby Nichols

Managerial Accounting BUS630

Professor Brian Shaw

January 29, 2012

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FINAL PROJECT 2

IntroductionThe purpose of this paper is to determine how Mattel can better understand its costs via

managerial accounting concepts and applications, to make better choices. Mattel is executing an

idea to cut costs in order to boost profits. The problem here is that a company must be careful

where it cuts costs (Noreen, Brewer, and Garrison, 2011, p. 11). Most companies have

constraints, and this applies to Mattel as well. There is at least one constraint applicable to most

processes, such as costs. Generally, expenses or costs can only be cut so low, and then a

company may start sacrificing quality, given a third-party producer might offer cheaper prices

but cut corners in other areas.

A California toy manufacturer began operating in 1945, which is known today as Mattel

(Hoovers, 2011, p. 1). Robert Eckert is taking over as the CEO (Chief Executive Officer) at

Mattel. In fact, the CEO is taking phases to cut costs via cutting back production at the toy maker

(Bannon, 2001, p. 1). Yet, Eckert is not saying anything about the mechanics of cutting prices,

and how this can be done beneficially. Since hiring Eckert, Mattel eradicated months out of the

approval and design process for the organizations toys, by sending this part of the business to

China. Cutting production may result in little if any savings, when management confuses fixed

outlays with variable outlays (Noreen et al., 2011, p. 75). Design teams at Mattel in the United

States might work on an exclusive toy project for over two months, which is considered to costly

for a toy product in a foreign country.

Mattel paid twelve-million dollars for a settlement over lead-tainted toys, which entered

United States through third-party producers in China. This is one of the biggest toy recalls on

record. The figures for the recalled toys ended up being over nineteen-million dollars.

Manufacturing experts are learning that companies have cut costs so much in China that more

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toy testing is not affordable for many manufacturers, according to theNew York Times (2007, p.

1). Eckert must find out more on how to figure his costs; for example, so he can make his

products competitive and produce toys in his own plants. Through new learning, Mattel must

better manage its cost pattern, mixed cost, and use a contribution-format, because management

must accurately predict outlays for reasonable standards, so it can compete, without any

dependence, to eliminate recalls.

Cost performance at Mattel

Whats more, Mattels capacity to anticipate how outlays impact any alterations in action is

important for decision making, commanding operations, and assessing performance. New

learning indicates managers can maker better decisions, if they know how costs behave given

they know which adjustment to make when necessary (Noreen et al., 2011, p. 75). Some of the

most important categories of outlays are fixed, variable, and mixed. Mixed outlays include fixed

and variable components; for example, this may be illustrated within an equation framework as

Y = A + BX, where (X) is the action, (Y) is the outlay, (A) is the fixed cost ingredient, and (B) is

the variable outlay per item of output.

Finally, how this works is the foregoing costs can be found on the companys income

statement under cost of good manufactured (Noreen et al., 2011, p. 44). Cost of goods

manufactured has increased at Mattel from two-thousand seven-hundred-sixteen point one

million to two-thousand nine-hundred-one thousand point two million, as of ending December

2009 to 2010 (Hoovers, 2011, p. 1).

In addition, variable costs at Mattel are direct materials and direct labor; for example, these

costs are more likely to change given the costs change in proportion to level of output. Other

components of manufacturing overhead are indirect materials; lubricants; supplies; and

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electricity (Noreen et al., 2011, p. 77). Fixed costs at Mattel remain stable in without any

connection to output; this type of costs may be straight-line depreciation or salaries of production

supervisors. Mattel anticipated that it could avoid engineering and cost-analyzer salaries as of

sending this work overseas (Bannon, 2001, p. 1). Mixed outlays at the organization have both

fixed and variable elements, which may be utilities or fringe benefits (Noreen et al., 2011, p. 85).

Mixed Outlays at Mattel

Further, mixed costs are customary at Mattel. The toy maker may have to take a look at

additional costs with a product inspection team now that it is planning on manufacturing more of

its products in-house. Knowledge learned is avoiding these costs may not always save money

because management may lack being careful enough if cutting costs (Noreen et al., 2011, p. 11).

Up till now, foreign producers have been in charge of toy inspections as of approval via design

(Bannon, 2001, p. 1). Mattel hoped to save resources and/or capital by doing this. This company

used its resources to execute inspections to rework lead-based toys that are unsafe. There are

costs involved to do this such as materials and labor (Form 10-K, 2011, p. 61). How the

workings are, the fixed part of mixed costs is the minimum, to make the service accessible.

Variable illustrations on the mixed costs indicate the outlay for the actual usage, as shown under

cost behavior above.

Discretionary and Committed Outlays. Eckert can infer there is no such item as a fixed

cost, in reality. Why the need is, all outlays are variable in a long-term time frame. Inside the

short-term, some fixed outlays are known as being discretionary-fixed costs given management

decisions and movements in output (Noreen et al., 2011, p. 82). Then with committed outlays,

Eckert will look at fixed costs, which are the results of obligations made in the past. For

example, focus groups are examined before a toy's release, to help Mattel identify the strongest

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FINAL PROJECT 5

feature for advertising campaigns, which these are known as discretionary outlays (Bannon,

2001, p. 1).

Contribution Configuration at Mattel

Meanwhile, dividing outlays into variable and fixed components assists to help management

at Mattel anticipate outlays and provide benchmarks (Noreen et al., 2011, p. 96). For example,

most importantly, this allows management to get a better idea of what is going on to improve

decision-making within planning and control as well. As of commitments and contingencies

during 2009, Mattel recorded charges of twenty-seven point four million, which are included in

other selling and administrative expenses inside a traditional approach, to reserve for the ongoing

settlement of a portion of the above-described product liability-related litigation (Form 10-K,

2011, p. 68). New learning reveals that a crucial element of planning is to identify options, and

then select the choices that fit firms strategy to assure success (Noreen et al., 2011, p. 31).

Eckert, the CEO at Mattel does not make these sorts of projections for the toy maker because he

uses a simpler approach with the traditional format (Bannon, 2001, p. 1). What this is, the costs

are not broken down to distinguish between variable and fixed costs.

Direct and Common Fixed Costs. To calculate the contribution, variable outlays are taken

from sales to indicate the contribution margin (Noreen et al., 2011, p. 427). For example, this

would be the salary of someone such as Kevin M. Farr, the Chief Financial Officer, at Mattel

who is over all locations in general (Form 10-K, 2011, p. 115). Traceable or direct fixed outlays

can be tracked down by Mattels accounting department. Benefits of traceable outlays are that if

other segments fail, Mattel is no longer responsible for the costs. In addition, if accountants lack

finding the costs, then they cannot be added on to the expenses. Worst of all, traceable costs can

take time to track down and calculate as well.

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FINAL PROJECT 6

With common-fixed costs, these kinds of costs maintain the operations of more than a

singular business segment. For example, this could be the salary of an executive in charge of all

the quality control at various facilities inside Mattel. Gains are that the common can be allocated

and adjusted to specific divisions. Common costs are depreciation, the outlays of computers,

secretary earnings common to other segments, the disbursements of heaters within facilities,

educational costs, plus research and development costs that might be employed at other facilities,

if a division went under. Items not traceable to Mattel are the costs of promotional agendas

(Form 10-K, 2011, p. 115). For example, disadvantages are common outlays exist whether a

business shuts down or not and lack being charged to segments.

Mattels Analysis

Cost Behavior. Variable costs might to be scrutinized carefully at Mattel because these are

more likely to move than fixed costs (Noreen et al., 2011, p. 75). The downside is that Eckert

and his staff could have to spend additional time to examine these variable costs frequently.

Evidence shows that the latest recall involves toys from a Chinese contractor, and Mattel could

not see any internal fixed and variable costs because the business lacked having this information

(Story & Barboza, 2007, p. 1). Yet, the benefit is that he may be able to prevent what happened

before with product variable costs getting to low as of foreign producers cutting corners, by

bypassing adequate safety measures. Beneficially, fixed costs such as rent are going to be about

the same, unless rent goes up, which this has nothing to do with output. A disadvantage is fixed

costs can be illustrated on an average per unit of output; for example, this wrongly interprets

fixed costs to be like variable costs on account of fixed costs change with different outputs.

Mixed Costs. With the Mattel having its own quality inspectors, then this is going to fall

under mixed costs. A drawback is that Mattel will still have to pay the fixed portion of the mixed

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FINAL PROJECT 7

costs regardless of how much output occurs (Noreen et al., 2011, p. 85). Best of all, Mattel can

find out more about what is going on after setting its own fixed costs by establishing standards.

Evidence supports that Mattel has not been able to establish checks on outside companies that

license its various toy brands (Story & Barboza, 2007, p. 1). For example, this puts the

organization in a position not to have to depend on others, such as the foreign producers, who

sent out unsafe toys with lead-base paint on them. Mattels management is the last group to see

the toys before the customers receive them, instead of third parties sending out toys without even

checking them. If the firm is spending more time sorting through reworked merchandise with

faulty paint, accountants can unacceptably see the variable costs increase, and this tells them

something is wrong with the toys, which might need immediate attention.

Contribution Format.New knowledge maintains that the contribution configuration could

give management at Mattel an income statement, which clearly separates variable and fixed costs

(Noreen et al., 2011, p. 96). Other major toy manufacturers have begun investigations of their

toys from China this summer in reaction to the recalls, as declared by the president of the Toy

Industry Association because these producers could not see falling prices as of quality-inspection

short cuts either (Story & Barboza, 2007, p. 1). As a result, decision-making, planning, and

control are usually better because the costs are easier to see as of being broken down via greater

analysis. Advantages are variable expenses are deducted first from the revenues, so excessive

costs cannot be hidden in costs of goods sold; as well, for example, variable expenses are broken

down into three elements. Potential drawbacks are that this configuration can take more time to

fill out; and if something is incorrect, it might take longer to find out the problem. These

elements are variable administrative, variable production, in addition to variable selling, which

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FINAL PROJECT 8

allows Eckert and his people to tell more about who is incurring the fewest costs and why the

costs are so low.

The problem with the traditional format is that it fails to provide some of the same elements

as the contribution configuration. Shortcomings are variable costs and fixed costs are not broken

down for further analysis, as in the contribution configuration. A traditional format may be

beneficial for external reporting, since outsiders may not need the additional information that

managers will desire. It is easier to prepare on account of there are fewer details and problems to

consider. In fact, the traditional format is harder to explain to employees, so problems can be

addressed given the cost data is not in detail.

Strategy Requirements. In order to modify Mattels failing strategy from the past, Eckert

will have to improve his analysis techniques via costs and better information, examining and

doing what works best for Mattel, to assure product costs are kept under control. Research

supports that Hasbro is increasing the level of its safety checks and internal-cost processes in

light of its toy recalls (Story & Barboza, 2007, p. 1). This will help warrant that Mattel remains

competitive and that costs are not too low, as to avoid sidestepping constraints, which previously

involved unsafe toys or products. In fact, Mattels CEO will have set the stage and tone, in order

to make sure accountants at the firm understand the importance of the new agenda.

Conclusion

Mattels capability to predict how disbursements impact transformations in action is

significant for any decision formulation, controlling output, plus appraising performance. Most

importantly, Eckerts mixed disbursements will entail fixed and variable ingredients, while

determining a managerial accounting strategy. What this is the toy creator is going to have to

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take a glance at supplementary expenses with a product inspection team now that it is

anticipating on producing more of its toy products internally at Mattel.

How this works is dividing disbursements into variable and fixed sections facilitates to help

executives at Mattel prepare for outlays and plan for strict-internal standards. Why the need is

this enables executives to get a better concept of what is taking place to ameliorate decision-

making within planning and managing. Then, for an analysis of the contribution format, variable

outlays are taken from sales to indicate the contribution margin, to this end. Therefore, Mattel

should optimally direct its mixed disbursement and expense pattern, plus utilize a contribution-

format, since executives must correctly prognosticate disbursements to rival, without any

reliance, to avoid faulty products.

Recommendations for Mattel

The following suggestions characterize future applications and pertinent ideas explicitly to

Mattels workplace:

Monitor cost behavior. To decrease any implication of extraordinary expense movements,

these deviations are cut three percent a year. Mattel must consider the intentions of anticipating

how outlays will react to changes in activity, by the end of December 31, 2012 (Actions: Chief

Executive Officer and Department Leaders). For example, this means costs are grouped and put

into fixed and variable elements because variable outlays are literally symmetrical to an inherent

output. So, variable outlays per piece are stable (Noreen et al., 2011, p. 54). In total, variable

outlays should stay at the equivalent altitude on account of fluctuations in activity will come

about within a pertinent scope. Then, average-fixed expenses per output decline given the

quantity of output increments.

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Examine mixed costs with the engineering method.To diminish these disbursements by

getting adequate control, problems drop by three percent a year, as of the last of December 31,

2013 (Action: Accounting Department and Production Managers). This type of approach entails

a comprehensive examination of what expense conduct should be from an engineers valuation

of the output approaches for toy fabrication; this will include material, job needs, equipment,

output, as well as utility usage (Noreen et al., 2011, p. 87). For example, Mattel can actuate the

engineering method to figure the costs of producing and properly inspecting specific toys. How

this works is the outlays for toys are estimated by carefully costing particular components

employed to manufacture and check the safety of the toys at Mattels plant.

Focus on the contribution margin. To improve expense-behavior patterns and the

controllability of outlays, disapproval issues by three percent, by December 31, 2014 (Actions:

Cost Accountants). Cost allotment is an urgent concern within managerial accounting, as of

segmental-reportage determinations (Noreen et al., 2011, p. 96). How this occurs at Mattel fixed

outlays will be a lot less controllable than variable. Direct fixed outlays and common fixed

outlays should be clearly distinguished in toy output and inspection. Why this is, direct-fixed

outlays are those fixed outlays that will be acknowledged directly within a specific toy segment

of Mattel. Then, common fixed outlays are those expenses that cannot be identified directly with

a particular toy segment. Qualitative agendas are demonstrated by Mattel and it employees

complying one-hundred percent, to go by careful managerial-accounting assessments,

immediately, no exceptions.

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References

Bannon, L. (2001, November 14). New playbook: Taking cues from GE, Mattels CEO want

toy maker to grow up. Wall Street Journal. Retrieved from

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Form 10-K. (2011, February 24). U.S. Securities and Exchange Commission (Home Page).

Retrieved from

http://www.sec.gov/Archives/edgar/data/63276/000119312511045072/d10k.htm#toc

Hoovers. (2011, February 9). Mattel. Company Records. Retrieved from

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Noreen, E. W., Brewer, P. C., & Garrison, R. H. (2011).Managerial accounting for managers

(2nd ed.). New York: McGraw-Hill Irwin.

Story, L., & Barboza, D. (2007, August 15). Mattel recalls 19 million toys sent from China.New

York Times. Retrieved from

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