Accounting

ACCT640 – Managerial Accounting

Fall 2013

Case #2 – Performance Drinks: Applying Activity Based Costing

Written by:

Tim Bergsma, CMA, CFE

Assistant Professor – Accounting

Davenport University

Donald W. Maine – College of Business

Email: tbergsma@davenport.edu

Background:

Performance Drinks, LLC is owned by Dave N. Port. Performance Drinks produces a variety of sports centered drinks. They began operations in 1993 shortly after Mr. Port graduated with his M.B.A. from Davenport University. The company saw early success as sports and fitness nutritional products gained new popularity in the 1990’s. Financially the company is sound and has been wise in controlling their growth over the years. However, within the last 18 months Mr. Port has noticed a drop in overall company profitability. This is especially troubling considering that the company has continued to experience top-line growth. Mr. Port and his management team have been considering developing a new product line. However, those plans have been put on hold until they can figure out why their profits are shrinking.

Performance Drinks makes four different kinds of sports drinks. Those drinks are as follows:

* Basic

* Hydration

* Intensity

* Post-Workout

Each of these drinks contains a slightly different nutritional profile and is targeted for different users and uses. The Basic drink has the least nutritional benefit and is targeted for general consumption. The Hydration product targets endurance athletes and specializes in hydration replacement. The Intensity product was designed with energy enhancement in mind. It serves the needs of extreme athletes who need long durations of sustained energy. Lastly, the Post-Workout product is a nutritional replacement product that is generally used following exertion.

You are the Controller for Performance Drinks. You feel as though you have a good handle on the financial reporting and the overall company performance....