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Blue Nile Case Research: Managerial Accounting

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1.Blue Nile’s Strategy for success in the marketplace is to increase Blue Nile recognition and create more customer traffic. They want to build a brand loyalty among their customers to encourage repeat purchases. Blue Nile has both online and offline advertising. They offer a wide range of high quality diamonds to appeal to more buyers. Also to keep their pricing competitive. a.I would think that Blue Nile relies on operation excellence to keep customers coming back. They continue to improve operations in every step from their website to customer service. b.The 10-K would support this because the net sales have continued to grow pretty rapidly. The gross profits have increased in the past five years as well. 2.Business risks that Blue Nile faces that may threaten its ability to satisfy the stockholder expectations would be a limited operating history. Because of the limited operations history it is more difficult to predict or forecast sales and operating expenses, which tend to be based on estimates used through history of events. Net sales and operating expenses are tricky to predict because they depend on the timing of the orders and the volume of orders received, which can be indecisive. Blue Nile has also incurred fixed expenses that will be difficult to adjust in case of a shortfall in sales.

Thus giving Blue Nile a Quarter that produces less net income than expected. a.Some control activities that the company could use to reduce these risks could be to create a plan to ensure sales. This may be extremely difficult but through marketing, create a higher demand for Blue Nile Diamonds, attract more website sales though promotions and discounts, to also encourage repeat clients. Encourage online sales of diamonds. Make sure that the delivery time is acceptable by customers. b.Yes most of these risks are difficult to control. Blue Nile has to depend on a lot of outside factors to increase net sales. People may not always buy diamonds on the internet; they may prefer to have face to face activity. If they create a new marketing theme to encourage buyers it may not work and they are yet further behind. Also through time they will have more of a history of sales to better predict future sales and what increase sales. 3.Blue Nile is a merchandiser; they do not create mine or cut the diamonds that they are selling. They rely on third party vendors. They have to rely on a small number of firms that control the supply of rough diamonds that supply to Blue Nile’s suppliers.

They do not have a direct relationship with the rough diamond miners or suppliers; they strictly rely on a third party vendor to supply the finished polished diamonds for Blue Nile. They also do not incur any of the costs associated with rough diamond mining and polishing. 4.I would label the costs of sales and selling expenses as a mixed, because they include fixed and variable. a.Variable: Shipping expenses would be an example of variable costs, the price per unit stays the same and the total cost changes with the amount of items shipped. b.Step-Variable would be the customer service costs. These would accumulate only when the customer(s) have a problem and need service. This would not be an everyday expense. These may be incurred if a batch of bad diamonds went out in a specific time period, Blue Nile would have a large chuck of customer service expenses. c.Discretionary Fixed Cost would be their advertising. Advertising is expensed as it is incurred.

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