It also covers the course learning outcomes below:
Define the terms and concepts used by internal management to aid in planning, directing, controlling, and decision-making activities.
Apply analytical tools and technical skills in a variety of management decisions such as costing, pricing, product mix, improving productivity, product design, and performance measurement.
Use accounting data to identify and analyze alternatives with the purpose of making managerial choices to maximize (primarily) economic benefits to a firm.
Evaluate the important characteristics of an effective cost accounting system.
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Stars Hollow Inc. Case Study
Professor Kim Moreno
ACCT 2301 Northeastern University
Spring 2024
Due Tuesday April 9, 2024 11:59 PM ET on Turnitin in Canvas
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Rory Gilmore is the CEO of Stars Hollow Inc., which distributes consumer healthcare
products including nutrition supplements, OTC pharmaceuticals, and personal care products to
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various market segments. Rory has worked for Stars Hollow from the beginning and is proud of
the company’s growth and success. She has worked diligently on developing supply chain
channels and fostering relationships with her various market segments. However, as Stars
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Hollow has grown, Rory has come to realize that she doesn’t understand the profitability of the
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company in the detail that she desires. Without this understanding, Rory believes that she is not
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well equipped to try to improve profitability and strategize for the future.
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Rory has always been an outgoing person (she takes after her mother Lorelai), and she
has tried to focus on customer service. As a result, she really enjoys working with the
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independent stores. She feels that this is a market segment that is often overlooked by the bigger
consumer health care distributors. However, Rory is not sure if this market segment is the most
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lucrative.
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Rory has reached out to you for your help. You both took managerial accounting together,
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but Rory did not focus on the material as well as you did. She is hoping that you can advise her
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on her business. You think that this is a great opportunity for you to put your managerial
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accounting skills to work in an advisory role. Knowing the power of managerial accounting data,
you have asked Rory to put together some sales and cost data by market segment. You also
specifically asked Rory to talk with her employees to get a handle on what activities are driving
costs. She explained to you that a customer places an order for one or more various product lines.
A product line is a single product like Pantene Pro V Shampoo. Each product line is delivered in
one or more separate boxes depending on the size of the purchase order. Stars Hollow employees
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deliver the boxes and put the product on the customer shelves. Each delivery includes one or
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more boxes of product to the customer. Rory is really proud of serving the customers and so she
does not charge the customer for stocking the shelves but luckily not all the customers take
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advantage of this service. Rory has provided you the data you requested in Tables 1 – 3. Rory is
anxious to meet with you to get your insight. In preparation for the meeting with Rory, you
should prepare cogent answers to the following questions, draw relevant insights and provide any
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supporting exhibits and/or graphs that you believe will illuminate your analysis. You should use
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by providing a professional analysis.
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Excel for your analyses. In your advisory role, you need to prepare for your meeting with Rory
REQUIRED QUESTIONS
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1. Rory has been assessing the profitability of each market segment using gross margin
percentage. Compute the gross margin percentage for each of the market segments. 10 points
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2. Rory wants to try to allocate operating costs to each market segment but she is not confident
in her managerial accounting skills. She really wants to keep it simple so she has asked you
to consider allocating operating costs using cost of goods sold as the driver. Calculate the
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allocation rate. Allocate the operating costs using cost of goods sold as the allocation base
and compute the operating income of each market segment. 20 points
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3. Use the activity-based costing information to calculate the allocation rates. Allocate the
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operating costs to each of the market segments using activity-based costing and compute the
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operating income of each market segment. 25 points
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4. Based on all of the data you were provided and your analyses, what insights have you gained
on the profitability of each market segment? Based on your analyses in the above questions,
provide recommendations to Rory to help improve the profitability of Stars Hollow. Be
specific and note the benefits, costs and potential risks to the recommendations that you are
proposing. 35 points
DELIVERABLES
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You should provide a written report that addresses each of the above questions to Rory Gilmore.
Think about your audience and purpose for this report. Your report should be professional and
include both a written analysis and tables in one file. This report should be uploaded to
Turnitin on Canvas by 11:59 PM ET on Tuesday April 9, 2024. I want you to upload one file
that I will grade. It will make it easier for me to grade one file. Therefore, you can embed your
tables into a word doc or pdf making sure that it looks professional. Note that your tables should
be clear with titles, labels…
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You should also upload your excel file with all of your supporting work if I need to refer to it.
The excel file should also be uploaded to Turnitin in Canvas by 11:59 PM ET on Tuesday April
9, 2024.
QUALITY OF WORK 10 Points
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Your report will be graded based on the thoughtfulness, thoroughness and depth of your analysis.
Careless and superficial work will be penalized. You must follow the directions and provide the
deliverables as outlined above with a professional report that includes clear tables/visuals.
ADMINISTRATIVE DETAILS
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Your report should be no more than 2-3 pages not including tables. Include a coverpage. Type
your answers, double-spaced, in 12 point font. Number each page sequentially. Margins should
be 1 inch on all sides. Failure to adhere to these details will result in a grade penalty. LATE
PROJECTS WILL INCUR A SEVERE GRADE PENALTY AND WILL ONLY BE
ACCEPTED WITH APPROVAL.
Retail
Pharmacy
Segment
Independent
Stores
Segment
Sales
$7,416,000
$6,300,000
$3,960,000
Cost of Goods Sold
6,300,000
5,250,000
Gross Margin
1,116,000
1,050,000
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3,150,000
14,700,000
810,000
2,976,000
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$17,676,000
752,700
Operating Income
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Total
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Big Box
Segment
Operating Costs
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TABLE 1
Stars Hollow Inc.
Income Statement by Market Segment
2,223,300
TABLE 2
Stars Hollow Inc.
Information on Business Activities and Drivers
Driver
Processing orders
Number of purchase orders by customers
Processing product lines
Number of product lines ordered by customers
Delivering to Stores
Number of deliveries to stores
Shipping boxes to stores
Number of boxes shipped to stores
Stocking Store Shelves
Hours to stock store shelves
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Business Activity
Independent
Stores
Segment
2,250
Total Operating
Costs by Business
Activity
$200,000
2,940
6,480
22,500
159,600
180
540
1,500
177,500
54,000
36,000
24,000
190,000
540
270
150
25,600
210
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Number of purchase
orders by customers
Number of product
lines ordered by
customers
Number of deliveries
to stores
Number of boxes
shipped to stores
Hours to stock store
shelves
Retail
Pharmacy
Segment
540
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Big Box
Segment
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TABLE 3
Stars Hollow Inc.
Business Activities by Market Segment and Operating Costs by Activity
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