CASE ANALYSIS

SELL OR PROCESS FURTHER?

BORRAL, SETH JOSHUA C.

DAYRIT, ROSSLYN A.

DE LA CRUZ, GRACE I.

DELOS SANTOS, ALBERT F.

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Scottie Sweater Company The Power of PowerPoint | thepopp.com 2
CONCEPT
MAPPING MATERIAL
MAIN PRODUCT

WOOL YARN

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 START
WOOL
PROCESSING
RAW WOOL

PROCESS
SEPARATION PROCESS

MANUFACTURING
WOOL YARN COST

YES PROCESS
NO
PROCESS FURTHER

SELL

END
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 CLARIFY THE PROBLEM
How does the weather affect the demand for other wool-made products?
Is the demand for Scottie labeled sweater consistent all throughout the year?
Is cold weather the only reason for people to buy sweater?
Since the market for wool yarn is strong, can it be the main reason for the company to stop
processing wool yarn into sweater?
Is the marketing strategy good enough to convince customers to buy their product and have
a consistent income performance?
Can the company make innovations on their products which are in line with the business?
Why does the sales manager insist to sell the wool yarn immediately and close down the
portion for sweaters?
What are the reasons of having losses in the production of sweaters?
What will be the effect to the business if they continue selling sweaters?
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CLARIFY THE PROBLEM
The result of the inquiry was a realization that the main
problem of the company is incurring of losses of their main product,
thus, forcing them to lower the selling price of the sweater from $40
to $30. Meanwhile, the demand for the wool yarnthe intermediate
product used to produce the Scottie-labeled sweateris at high,
therefore giving them an option to sell the wool yarn as it is.
However, as a known sweater-producing company, they must
produce the sweaters from which they gained their fame. So, it goes
down to a question as to whether should they continue producing
sweaters despite of the losses or sell wool yarn as it is and drop its
strength?

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QUANTITATIVE FLOWCHART
START

COST AND
REVENUE REPORTS

DIFFERENTIAL ANALYSIS
SELL IMMEDIATE CONTINUE THE
PRODUCT OF SWEATER
WOOL YARN NO YES INDUSTRY
PROCESS
FURTHER

LOWER HIGHER
CONTRIBUTION END CONTRIBUTION
MARGIN MARGIN
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 START
QUALITATIVE
FLOWCHART IMAGE REPUTATION,
CUSTOMER
PREFERENCE AND
OTHERS

ANALYZE THE
BENEFIT

IS THE
BENEFIT OF
NO QUALITATIVE YES
FACTORS
OUTWEIGH ITS
DISREGARD CONSIDER
COST?
QUALITATIVE QUALITATIVE
FACTORS FACTORS
END
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 The owner decided to take the
necessary action by communicating
with the managerial accountants about

SPECIFY THE the problem. The managerial

CRITERION
accountants should find means to
evaluate and analyze the business as
to when it will gain the most benefit and
incur the least possible cost given
different situations.

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 ALTERNATIVE 1
Sell the wool yarn as it is to other
companies who are producing products
made from it and close down a large

IDENTIFY THE portion used to produce sweaters.

ALTERNATIVES ALTERNATIVE 2
Process the wool yarn further to
continue producing the primary product of
the company from which it is known.

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 The proper decision model
DEVELOP A to use in this situation is the use of

DECISION MODEL differential analysis which would

identify the real performance of
the products by eliminating
unnecessary or irrelevant costs and
finding out the incremental profit
or loss of the products. This will be
done by a presentation from two
managerial accountants who are
proponents of each alternative.
Their computation whether to sell
or process further should help the
owner decide what alternative is
best for the company as a whole.
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 COLLECT 01 COST AND REVENUES

THE DATA
02 DEMAND
The data needed for
the decision model included
cost and revenues reports for 03 CUSTOMER PREFERENCE
sweaters and spindle of yarn
as well as data regarding
market demand for wool 04 WEATHER CONDITION
yarn, customers preference
and weather condition.

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COST AND REVENUE

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 DEMAND

FOR SWEATER FOR WOOL YARN

According to US, their imports of According to lssuu.com, even though
sweaters increased by 17.1 % in 2014. there is a high demand for wool yarn
Therefore, producing sweaters in their as of now, it has been inconsistent
own country would reduce the and restrained.
importations and thereby increasing the
nations economic status. 14
CUSTOMER
PREFERENCE

According to CNBC blog site, consumers are

finally spending more on T-shirts and
sweaters after two years of declining apparel
prices.

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Summer Fall
June, July and August September, October, November
(27.3 degress celsius to 11.3) (22.6 degrees Celsius to -2.9 celsius)
Louisiana and Texas to Alaska Florida to Alaska

WEATHER CONDITION
Spring Winter
March, April, May December, January, February
(21.1 degrees Celsius to -4.10) (19.7 degrees Celsius to -16.3 degrees
Florida to Alaska Celsius)
Hawaii to Alaska

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ALTERNATIVE SELL IMMEDIATELY

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PROCESS FURTHER
ALTERNATIVE
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The company will gain if the spindle of yarn is
process further into sweater.

Selling price of sweater $30.00

Less Incremental Income ( 2.20)
Minimum selling price for sweater $27.80

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 SELL IMMEDIATELY

PROCESS FURTHER

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 SELL IMMEDIATELY

PROCESS FURTHER

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MAKE A DECISION
The owner decided to process it further and
retain the sweater industry being its core
strength after finding out that there is still
incremental contribution margin by processing it
further. Qualitative factors such as publicity and
image reputation being known as a sweater
company will be saved by that decision. After the
temporary warm weather, the company may earn
back more than what it has loss.
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THANK YOU FOR
LISTENING!
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