The Build a Bear company is a prominent global company that produces “make-your-own” stuffed animal toys (Build-A-Bear Workshop). There are more than 370 Build-a-Bear Workshop stores across the world. They are located in the United States, Puerto Rico, Canada, the United Kingdom, Ireland, and France, and franchise stores in Europe, Asia, Australia and Africa (Build-A-Bear Workshop). Moreover, the company has over 5 million members of Stuff Fur Stuff® club loyalty program (Build-A-Bear Workshop). It has strong product, marketing, and guest communication programs that ensure operations of the stores.
Like any other company, Build-A-Bear Workshop has a number of people, each with a different role and area of responsibility. For example, six executives in this company are Sharon John, Craig Leavitt, George Carrara, Maxine Clark, Robert Dixon, Narayan Iyengar, and Lesli Rotenberg (Org Chart Build-A-Bear Workshop, 2019). These people stand at the highest level and predetermine the vector of the company’s development in the future. At a lower level are the people who set it in motion, taking instructions from the people mentioned above. Overall, Build-A-Bear Workshop has several main areas of responsibility, namely CFO, Admin, Legal, Merchandising, Operations, Strategy, Store and Guest Experience, and Digital Technology (Org Chart Build-A-Bear Workshop, 2019). Each of these areas shapes the company’s success, is responsible for the execution of management orders, and has to control each process within the company itself.
The concept of the store is that during customers’ visit to the store, they participate in an interaction in which the stuffed animal of their choosing is built and customized to their specifications. Various stuffed animals, as well as odors, sounds, and clothing, are among the features that customers can use to create their toys (Build-A-Bear Workshop). The targeted market of the company is not limited to age as the hand-made toys are suitable for everyone. By using the company’s service, customers can express their creativity and obtain a unique animal toy.
The Build a Bear company tries to promote ethical manufacturing, thereby implements several programs that provide eco-friendly and free form child labor campaigns. Its initial focus is China and every factory that the organization works with should undergo a vigorous control check in order to provide supplies for Build a Bear (Build-A-Bear Workshop). It also does not have any ongoing ethical conflicts both outside of the US and inside the country (Build-A-Bear Workshop). In terms of the societal impact, the company holds annual charity events and cooperates with different non-profit organizations that help children and their families.
As with any company that produces its product, Build-A-Bear needs to know what the cost of creating one unit of product can pay for its cost of production (Total Manufacturing Cost: What Is It and How to Calculate It, 2019). The standard formula is as follows: Total manufacturing cost = Direct materials + Direct labor + Manufacturing overhead. The first item is direct materials. This is the cost of all components used in creating the product and, therefore, plays the most important or even crucial role in calculating the cost of the toy. Direct labor refers to payments to employees in production. They include both wages and bonuses for the assembly line employees and coverage of various insurance packages and cash payments in case of employee compensation. The last item is manufacturing overhead. Although it is the last item in the formula, its importance in the manufacturing process should not be underestimated. At its core are the costs of delivering goods to the store counter or directly to the customer and providing materials to create a toy. In addition to the delivery price, this also includes the cost of the negotiation process with the shipping company, which sometimes costs a lot of effort and investment.
However, in the case of this company, such a calculation strategy is not entirely correct. The problem is that each toy is made to the customer’s order using a unique tool on the manufacturer’s website. That is why it is impossible to calculate the exact amount of product development due to the uniqueness of each model. The only possible way to calculate is the cost of parts that the company purchased for production, but the figures, in this case, cannot be accurate. On average, referring to the statistics obtained from the people involved in ordering such toys, the cost is approximately $ 20, depending on the equipment and use of sound cards and small accessories, such as clothes and shoes.
Speaking about how the company manages its costs and how much revenue it has from the sale of custom toys, it is worth noting that the information for 2021 is not publicly available on the company website. The last published report is the total for 2020, which will be used as the basis for this part of the paper. The document contains information about the company’s finances for the year and plans for developing the company’s economy, and the expected profits in the coming periods of work (Financial Reports | Build-A-Bear Workshop, 2018). So, the projected profit for the six months should be more than eight million dollars, net of taxes and wages. This amount is relatively modest because of the pandemic, which took place worldwide and did not allow the company to sell toys locally.
Speaking of the closure of its branches, it is also worth noting that this policy, despite the disadvantages in the short term, allowed the company to optimize its production line and enter a new market for electronic sales. This strategy was effective and allowed people to buy goods without leaving home, which brought more profit. In this way, the company was able to go ahead with new technology and improve production and sales, even when it was logistically challenging.
It is also worth noting that judging from the previous sales model, the goods were delivered first to the local store, and then the customer could pick them up a few days later. With the transition to online sales, there was no need for this model, as many physical stores were closed. Instead, toys were delivered to the actual address specified at the time of delivery. This expanded the customer base and eliminated the need for extra steps in delivery. In addition, there was no need for physical money and transferring to the company’s account. Since all purchases are in an online format, it has become much easier to track financial transactions (Financial Reports | Build-A-Bear Workshop, 2018). This approach has greatly simplified the financial reporting model and reduced dependence on physical currency.
The applied method of costing manufacture is FIFO or First-in, First-out. The oldest layers of inventory (based on received date or production date) are utilized before the newer layers in the FIFO method. This strategy is used by the majority of businesses because it provides a better connection of material costs linked with a transaction. The following section would address three reasons for the use of the FIFO method and applies it to the Build a Bear company.
Yet, before discussing the arguments, it is critical to understand the FIFO method in-depth. First In, First Out (FIFO) is an asset management and valuation approach in which assets that are created or obtained first are sold or used at the start. In terms of taxes, the FIFO considers that the resources with the oldest expenses in the income statement would be integrated in the cost of goods sold. The remaining inventory items are compared to the assets that were recently purchased or manufactured. As such, the FIFO has a natural flow that ensures flow of assets.
For the Build a Bear company, the FIFO approach is appropriate as it assists in preserving inventory records in a natural manner. This means that recording is done in the same order as units are purchased or manufactured, making it much easier to understand and relate (BBW). Business entities that apply FIFO are deemed more profitable due to economic swings and the chance that the cost of producing items would climb over time. This trend was seen in 2008 when the company remained profitable despite the worldwide economic crisis. The FIFO method is also suitable for the Build a Bear entity as it helps to call investors. The FIFO approach is now an appealing valuation technique for firms that need to convince investors until the greater tax bill is recognized. Because FIFO results in a lower recorded cost per unit, it shows a higher level of pretax earnings. Companies that apply the FIFO will also face higher taxes if their profits rise.
To conclude, the Bear a Build company is the largest international company that provides toys with unique design for its customers. The company continues to develop online technology and relies on this strategy to generate more profits in the long run. Judging by the graphs presented in the reports, this theory is sound and has positively impacted the firm. Businesses that utilize the FIFO are considered to bring more profit because of economic swings and the chance that the cost of producing products would grow over time. The FIFO approach is widely accepted and relied upon by the majority of businesses. However, it is also worth noting the fact that in addition to the above method for calculating the cost of production, the company also uses a common formula that is applicable in many companies – manufacturers of goods, namely Total manufacturing cost = Direct materials + Direct labor + Manufacturing overhead. Since it is a simple method of measuring cost of goods sold. It also means that the company will be able to obtain more resources which then leads to the flow of potential investors.
References
Build-A-Bear Workshop. “Shop, explore and play at Build-A-Bear®.”
“Build-A-Bear Workshop, Inc.”(BBW).
Financial Reports | Build-A-Bear Workshop. (2018).
Org Chart Build-A-Bear Workshop. (2019).
Total manufacturing cost: What is it and how to calculate it. (2019).