Colin Drury, Management and Cost Accounting Traditions Ltd Traditions Ltd Adapted by Jayne Ducker, Antony Head, (Sheffield Hallam University) and...

Adapted by Jayne Ducker, Antony Head, (Sheffield Hallam University) and Susan Richardson (University of Bradford Management Centre); updated by Martin Quinn

This case study is taken from Ducker, J., Head, A., McDonnell, B., O'Brien, R. and Richardson, S.(1998), A Creative Approach to Management Accounting: Case Studies in Management Accountingand Control, Sheffield Hallam University Press, ISBN 086339 791 3.

Traditions Limited is a family-owned and managed, traditional department store situated in Breezyfield,a city in the north of England. The Store was established some sixty years ago by the current owners'father, who passed on the business to his three sons on his death. All three sons are still deeplyinvolved in the running of the business, even though they are now in their sixties, and none of themhave children to whom to pass on the business. The Store occupies 100,000 square metres of the mainshopping district in the city centre. The management team of Traditions Limited pride themselves on running a store which retains the standards of service and customer relationships usually associatedwith a bygone era, despite the massive growth in online retailing.

The Store has four retailing departments (Furnishings, Kitchenware, Menswear and Toys) and aRestaurant. Each department is managed by a departmental manager and recently Samantha wasappointed to the post of departmental manager of the Toy Department. She is in her early thirties andis studying on a part-time basis at Sheffield Hallam University for a degree in Accounting andManagement Control (she is currently in her final year).

Albert is the departmental manager of Menswear and he is also Samantha's great uncle. He used to bea Sergeant in the Police Force and will be celebrating his 65th birthday shortly. Samantha and Albert donot agree on many issues and often argue. Kitchenware is managed by Joseph and Furnishings ismanaged by Arthur. Joseph and Arthur joined the Store round the same year, beginning their careers inretailing as junior sales assistants and working their way up to their current management roles. Bothare now in their middle fifties and pride themselves on knowing their regular customers by name.

Claude, who previously worked for Traditions for a number of years as a chef, was promoted to manager of the Restaurant some time ago. Claude achieved some fame a number of years ago whenhe entered and won a potato-sculpting competition. His prize was an all-expenses-paid weekend inParis and he was interviewed by local television. This attracted favourable publicity for TraditionsLimited. However, Claude does have an explosive temper and has been known to 'lash out' at his twoassistants, Tracy and Paul. He sets very high standards for the Restaurant and will throw-away cookeddishes which do not meet these standards. He spends the majority of his time in the kitchen andintensely dislikes 'paperwork', constantly complaining that it stifles his creativity. The 'French Cuisine'menu offered by the restaurant is extensive and creative, but it is generally felt within the company

that the prices charged sometimes barely cover the food cost, although this cannot be substantiatedbecause information is not collected.

Claude revises menus weekly, ordering food supplies from local suppliers on a daily basis. There is nostock control system in operation in the Restaurant. The kitchen equipment is quite old and has notbeen regularly maintained. For example, the dough mixer keeps breaking down and the safety catch onthe steamer is missing.

Claude claims that, if he were given additional capital to refurbish and equip the kitchen, he would beable to generate even more business for the Restaurant. In addition, new European Union regulationsconcerning cook-chill facilities mean that Traditions Limited will soon have to spend a considerableamount of money in upgrading the kitchen's food keeping facilities.

The storage of stock presents problems for Traditions Limited. Merchandise and stock is delivered toone store-room for all departments other than the restaurant, where deliveries are made directly to thekitchen area. Deliveries are not checked or counted in any way and items are placed on any shelveswhich are free. As a result, staff often find it difficult to locate products and thus customers are often

Purchases for resaleOpening stockClosing stock

400.0 255.0 263.0

Non-management 75.0 wages

Departmental 21.0 expenses

Colin Drury, Management and Cost Accounting - Traditions Ltd

left waiting for long periods. All staff are allowed into the stock-room and, on odd occasions,customers have been known to wander in by mistake.

All records of the Store are maintained on manual systems.

In the past the Store has operated profitably. However, the most recent financial statements revealeda small loss for the previous trading period. This came as quite a shock to the owners and is causinggreat concern.

Prior to this news, and in a move which seems to have been totally unrelated to it, the family membersdecided to appoint a Managing Director in order to take some of the workload from their own shoulders. They appointed Vijay as the Store's first Managing Director and when he takes up hisappointment he will be the first 'non-family' member to be employed in a senior managerial role. He iswell qualified for the job, having gained valuable retail experience with Sparks and Mention plc, aleading department store chain with a first class management training programme and an excellentgrowth and profits record. His first post with Sparks and Mention plc was as a graduate trainee and heprogressed to store manager of one of the company's stores in the affluent south east of England.

As a result of the reported loss for the previous trading period, the family members called a meeting ofthe Store's employees to discuss the situation. This type of meeting was unprecedented in the historyof the Store. Prior to the meeting, a suggestion box was set up and attendees were asked to putforward suggestions for improving the profitability of the Store.

One suggestion for improving the profitability of the Store was the closure of the Toy Department,another suggestion was the closure of the Restaurant and a third suggestion was an across the boardprice reduction of 5% in order to stimulate demand. In each case the source of the suggestion was not identified.

Unfortunately, when the family members asked for information to assist in evaluating thesesuggestions, this was hampered by the lack of management information produced within thecompany. Apparently, the recording systems were geared to maintaining records for governmentregulatory bodies, such as Customs and Excise and the Inland Revenue, and to assist the companysecretary in the production of the year-end financial statements.

Since Samantha is studying for an accounting degree, she was asked to tackle the job of seeking outinformation which might be helpful. The information she produced is set out below. It identifiesrevenues and costs incurred during the previous trading period. The family members were soimpressed with the information she produced that they asked her to consider taking on the additionalrole of management accountant in the company.

The company staffs all the Departments by using a core of full time staff to cover a minimum demandlevel and a flexible workforce of part time staff to work as and when required, with no guaranteedminimum or maximum number of hours for part-time staff.

On the assumption that the costs for this trading period will not change significantly from those of theprevious period, prepare marginal costing statements to show contributions for each department andcontribution and profit for the Store overall on the basis of:

1. a) all departments remaining in operation;