Strategic Sustainable Accounting Report: Timberland & Skechers

This report, focusing on strategic sustainable accounting, evaluates the production decisions of Timberland and Skechers, highlighting the application of linear programming in optimizing output and profitability. The analysis explores the impact of machine constraints, the viability of new machinery investments, and methods to improve contribution margins. The study utilizes tools like Solver to derive optimal production points, considering factors such as machine hours, direct labor costs, and variable overheads. The report emphasizes the importance of resource management and the application of linear programming models in making effective business decisions. The report also takes into consideration the social and environmental aspects of introducing new machinery. The report concludes by highlighting the importance of production optimization and the use of technology to gain a competitive advantage.

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Strategic Sustainable accounting
Student name
Institution

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Executive summary
The ability of the managers to make optimal decisions is the difference between excellence and
failure in organizations. One area that needs to be given attention is the production process. For
optimum profitability a firm has to produce enough units to supply the market demand at the
lowest cost possible. This can only be achieved by accounting for the use of all the resources in
the production. In most cases this can be a complex decision affected by several variables. Liner
programming is one of the techniques that can be applied by managers to analyse the situation
and ease the burden of deriving the optimal production points. This study did evaluate the
production decisions of Timberland and Sketchers. In both the firms, it was realized that linear
models are an effective part of decision making. For Timberland organization, the use of linear
programming was able to optimise output when machine hours were limited as well as assist the
managers evaluate the financial viability of introducing new machinery. In the case of Sketchers,
liner programming models were vital in estimating the optimal production point both when
maximizing profits as well as when maximizing the contribution margin. With the introduction
of tools like solver, liner programming can now be applied with ease by managers at different
levels to analyse optimal decisions.

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Table of Contents
Introduction......................................................................................................................................4
Question 2- Product mix and tactical decisions...............................................................................4
1. Impact of machine constraint................................................................................................4
2. Limitation of machine hours to 12000..................................................................................5
3. Evaluating viability of renting a new machinery..................................................................5
Question 3- Linear programming....................................................................................................7
1. Optimal production using solver..........................................................................................7
2. Ways to improve the contribution margin............................................................................8
Conclusion.......................................................................................................................................9
References......................................................................................................................................10

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Introduction
Decision making is an important part of production and sale of goods. A production
manager ought to be sensitive to all the factors that affect the production process so as to
enhance profitability. One of the ways to ease decision making is by applying the concept of
linear programming (Brockmann & Anthony, 2016). Linear models can be developed using tools
such as solver to derive optimal production points. The focus of this report is to analyse the
application of linear modelling in decision making in two firms that is Timberland and Skechers.
Question 2- Product mix and tactical decisions
1. Impact of machine constraint
The philosophical approach to efficient management of production make use of the
theory of constraints. This theory directs the managers to focus on the constraints so as to
enhance profitability and sustainability of the organization. In this case study the
constraint resource is the machine hours. For management of Timberland to optimize the
profitability of the firm, there is need to ensure that products that yield optimum profit
per machine hour used are given priority. The table below summarises the calculations of
profits per machine hour.
Type Logo Hoodie Waterproof Pillover jacket Bomber Jacket Snowdown Waterproof Jacket
Contribution $57.50 $111.87 $135.50 $196.25
Contribution per machine hrs $191.67 $203.40 $193.57 $245.31
Preference 4 2 3 1
Production constrained by machine hrs
As per the table, Snowdown waterproof jackets gives the maximum return per machine
hour ($ 245.31) and hence need to be given priority during production. This is followed
by waterproof pillover jacket ($203.4), bomber jacket ($193.57) and finally logo hoodie
jacket ($191.67). This priority list will ensure that the limited resource is utilized
optimally so as to obtain maximum profits.
The limiting factor does not need to be accounted for when the supply of the
machine hours is in abundant. This imply that production is not constrained by the same
and hence the managers do not need to be concerned by how machine hours are utilised.
In this case the production focus should be based on the product that gives the maximum
profits. The table summarises the calculations.

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Type Logo Hoodie Waterproof Pillover jacket Bomber Jacket Snowdown Waterproof Jacket
Contribution $57.50 $111.87 $135.50 $196.25
Preference 4 3 2 1
Production not constrained by machine hrs
Based on profitability, the snowdown waterproof jackets need to be prioritised during
production as they give the maximum profit of $196.25 per unit. This is followed by
bomber jacket ($ 135.5), waterproof pillover jacket ($111.87) and finally logo hoodie
($57.5). When production is not constrained by the machine hours it implies that the
supply of the resource is enough for all the levels of production. Under this circumstance
the production manager will optimise the revenue of the firm by prioritising the
production of items that yield higher profits.
2. Limitation of machine hours to 12000
The availability of only 12000 machine hours means that the total units produced should
not consume more than 12000 hrs while at the same time yielding optimal profit.
Modelling units produced
Type Logo Hoodie Waterproof Pillover jacket Bomber Jacket Snowdown Waterproof Jacket
Units 3916 7500 5000 4000
Revenue $469,920.00 $1,500,000.00 $1,150,000.00 $1,200,000.00
Costs
Direct material $78,320.00 $262,500.00 $175,000.00 $160,000.00
Direct labour $78,320.00 $187,500.00 $140,000.00 $120,000.00
Variable overhead $58,740.00 $140,625.00 $105,000.00 $90,000.00
Fixed overhead $29,370.00 $70,350.00 $52,500.00 $45,000.00
Total $244,750.00 $660,975.00 $472,500.00 $415,000.00
Constraint Total
Machine hrs 1174.8 4125 3500 3200 11999.8 <= 12000
Annual demand 10000 7500 5000 4000
Profits $225,170.00 $839,025.00 $677,500.00 $785,000.00
Objective function
Total profits $2,526,695.00
Using linear programming modelling as indicated by the table above, the management of
Timberland will obtain optimal profit by producing a total of 3916 units of logo hoodie,
7500 units of waterproof pillover jackets, 5000 units of bomber jackets and 4000 units of
snowdown waterproof jackets. This will yield a total profit of $ 2,526,695. The
production is limited by machine hours and also by the available market.
3. Evaluating viability of renting a new machinery
For the introduction of new machinery to be successful in a manufacturing sector its
impact needs to be assessed both economically, socially as well as environmentally
(Brunton, et al., 2013). Economic analysis of the machinery is done through assessing the

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financial impact of the machine. In the case of the Timberland company, there are two
costs that are relevant to the machine: that is the direct labour cost as well as the
purchasing and installation cost. The machine is expected to increase the available
production hours to 13000 from 12000 while at the same time cutting the direct labour
cost by 10%. The purchasing and installation cost of the machine is $ 100000. When this
is modelled using linear programming, the results obtained are summarized in the table.
Type Logo Hoodie Waterproof Pillover jacket Bomber Jacket Snowdown Waterproof Jacket
Units 10000 7500 3821 4000
Revenue $1,200,000.00 $1,500,000.00 $878,830.00 $1,200,000.00
Costs
Direct material $200,000.00 $262,500.00 $133,735.00 $160,000.00
Direct labour $180,000.00 $168,750.00 $96,289.20 $108,000.00
Variable overhead $150,000.00 $140,625.00 $80,241.00 $90,000.00
Fixed overhead $75,000.00 $70,350.00 $40,120.50 $45,000.00
Total $605,000.00 $642,225.00 $350,385.70 $403,000.00
Renting machinery $100,000.00
Overal costs 2100610.7
Constraint Total
Machine hrs 3000 4125 2674.7 3200 12999.7 <= 13000
Annual demand 10000 7500 5000 4000
Profits $595,000.00 $857,775.00 $528,444.30 $797,000.00
Objective function
Total profits $2,678,219.30
By putting in place the new machinery the firm will be able to produce 10000 units of
logo hoodie, 7500 units of waterproof pillover jackets, 3821 units f bomber jackets and
4000 units of snowdown waterproof jackets. This new production capacity will yield a
total profit of $2,678,219.30 which is $151,524.30 higher than the initial profit. Based on
financial grounds its recommendable to install the new machinery as it will improve the
profitability of the firm.
Considerations when introducing a new machinery
New machinery ought to be evaluated not just based on the financial aspects but also
socially and environmentally. One of the responsibilities of businesses to the society is
creating employment opportunities. The introduction of a new machinery to a firm
thereby need to be analysed to ensure it does not cause massive unemployment. Also, the
current employees of the firm should be consulted so that their attitude towards the new
machine is accounted for prior to the purchase (Oliver, et al., 2010). Environmentally,

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introduction of the new machine needs to be evaluated to ensure it is friendly to the
ecosystem.
Question 3- Linear programming
1. Optimal production using solver
Contribution margin is the difference between the gross revenue and the variable costs.
the table below summarises the output mix that optimizes the total contribution margin.
Maximise contribution margin
Shoe type Street Cleat Goldie Side Street Aura Hi-Lites Moda
Units produced 1000 0 3600 0 0 0
Revenue $125,000.00 $0.00 $432,000.00 $0.00 $0.00 $0.00
Costs Total
Direct material $30,000.00 $0.00 $90,000.00 $0.00 $0.00 $0.00 $120,000.00
Direct labour $15,000.00 $0.00 $48,600.00 $0.00 $0.00 $0.00 $63,600.00
Variable overhead $9,000.00 $0.00 $29,160.00 $0.00 $0.00 $0.00 $38,160.00
Fixed overhead $4,500.00 $0.00 $14,580.00 $0.00 $0.00 $0.00 $19,080.00
Total $58,500.00 $0.00 $182,340.00 $0.00 $0.00 $0.00
Constraint
Activity time
Activity Total
Sole preparation 250.000 0.000 900.000 0.000 0.000 0.000 1150 <= 1150
Pattern preparation 188.000 0.000 676.800 0.000 0.000 0.000 864.8 <= 900
Stitching 350.000 0.000 1350.000 0.000 0.000 0.000 1700 <= 1700
Final assembly 300.000 0.000 1080.000 0.000 0.000 0.000 1380 <= 1500
inspection and packaging 125.000 0.000 450.000 0.000 0.000 0.000 575 <= 650
Objective function
Contribution margin $71,000.00 $0.00 $264,240.00 $0.00 $0.00 $0.00
Total $335,240.00
On the other hand, profit is obtained by deducting the total costs from the total revenue
(Farris, et al., 2010). Unlike the contribution margin, when computing profit, we take in
to account the fixed costs. The table summarises the solver output that optimizes total
profits.

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Maximise total profit
Shoe type Street Cleat Goldie Side Street Aura Hi-Lites Moda
Units produced 1000 0 3600 0 0 0
Revenue $125,000.00 $0.00 $432,000.00 $0.00 $0.00 $0.00
Costs Total
Direct material $30,000.00 $0.00 $90,000.00 $0.00 $0.00 $0.00 $120,000.00
Direct labour $15,000.00 $0.00 $48,600.00 $0.00 $0.00 $0.00 $63,600.00
Variable overhead $9,000.00 $0.00 $29,160.00 $0.00 $0.00 $0.00 $38,160.00
Fixed overhead $4,500.00 $0.00 $14,580.00 $0.00 $0.00 $0.00 $19,080.00
Total $58,500.00 $0.00 $182,340.00 $0.00 $0.00 $0.00
Constraint
Activity time
Activity Total
Sole preparation 250.000 0.000 900.000 0.000 0.000 0.000 1150 <= 1150
Pattern preparation 188.000 0.000 676.800 0.000 0.000 0.000 864.8 <= 900
Stitching 350.000 0.000 1350.000 0.000 0.000 0.000 1700 <= 1700
Final assembly 300.000 0.000 1080.000 0.000 0.000 0.000 1380 <= 1500
inspection and packaging 125.000 0.000 450.000 0.000 0.000 0.000 575 <= 650
Objective function
profit $66,500.00 $0.00 $249,660.00 $0.00 $0.00 $0.00
Total $316,160.00
In both the cases return is optimized when 1000 units of street cleat and 3600 units of
side street brands are produced by the firm (Borndörer & & Grötschel, 2012). The
production mix are considered optimal as they lead to maximum return given the
production constraints.
2. Ways to improve the contribution margin
The contribution margin allows a firm to evaluate the amount of profits that is generated
from each product brand that a firm deal in (Tsui, 2011). Increasing the contribution
margin of a product brand means the firm have to increase the amount of profit each
product yields. This can be achieved in 3 main ways:
i. Decreasing the cost of direct material, this can be done by sourcing for materials
from firms that sell at a cheaper price or buying in bulk to take advantage of
economies of scale
ii. Reducing the cost of direct labour, this can be achieved by putting in place less
labour-intensive machinery.
iii. Reducing the variable overhead, this can be attained by proper management
strategies that are aimed at cutting down unnecessary variable overheads and
proper utilization of production support services.

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Conclusion
For economical and efficient business operation to be achieved in an organisation,
production optimisation needs to be given at most priority. This will improve the competitive
advantage of the form and hence assists in ensuring sustainability. Proper utilization of the
available resources will ensure the business improves its competitive advantage and hence be
able to offer stronger competition for market share. The emergence of technologies such as
solver tools can be of help when it comes to modelling production so as to derive optimal
production mix.

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References
Borndörer, R. & & Grötschel, M., 2012. Designing telecommunication networks by integer
programming, Berlin: Institut für Mathematik.
Brockmann, E. N. & Anthony, W. P., 2016. Tacit knowledge and strategic decision making. Group &
Organization Management, 27(4), p. 436–455.
Brunton, B. W., Botvinick, M. M. & Brody, C. D., 2013. Rats and humans can optimally accumulate
evidence for decision-making. Science, 340(6128), p. 95–98.
Farris, P. W., Bendle, N. T., Pfeifer, P. E. & R., D. J., 2010. Marketing Metrics: The Definitive Guide to
Measuring Marketing Performance, New Jersey: Pearson Education.
Goldratt, E. M., 2009. Standing on the shoulders of giants: production concepts versus production
applications. The Hitachi Tool Engineering example. Gestão & produção, 16(3), p. 333–343.
Oliver, T. M. et al., 2010. Introducing new technology safely. Qual Saf Health Care , 19(2), pp. i9-i14.
Tsui, T. C., 2011. Interstate Comparison—Use of Contribution Margin in Determination of Price
Fixing. [Online]
Available at: https://works.bepress.com/tatchee_tsui/2/
[Accessed 15 August 2019].