JBA COSMETICS LTD.: MAINTAIN OR CLOSE THE WEST STORE?

The objective in this case is to illustrate the use of relevant cost concepts and techniques for the analysis of long-term policy decisions. It was conceived for discussion in the subjects Management Accounting or Cost Accounting in undergraduate and graduate lato sensu programs in Accountancy, Business Administration and Production Engineering. JBA Cosmetics Ltd. Is a small-sized company specialized in the sale of female cosmetics. In 2010, it had three stores, North, South and West. The latter had been presenting unsatisfactory results, despite the growth in the cosmetics sector. Uncomfortable with this situation, the partners had to decide on whether to close the loss-making store or not. Therefore, they had to compare the store’s revenues and attributable costs – variable costs, divisible fixed costs and indivisible traceable costs. The determination of the attributable costs, as the students will be able to perceive when answering the proposed questions, involves a considerable degree of subjectivity. These questions also suggest qualitative factors that should not be ignored in this type of decision. It can be argued that the uncertainties involved in decisions, like the closure of a store, are better conceived through case analysis than through problem solving.