Unit Acc203 Management Accounting Submission Date 19 August

1unit Acc203 Management Accountingsubmission Date 19 August 2016 B

Students are required to cover all stated requirements of the assignment and support answers with appropriate Harvard style references. Answers must be uploaded as a Word, Excel, or PDF file, not exceeding any specific word limit. The assignment comprises three questions covering activity-based costing, pricing and plant closure analysis, and budgeting related to a fitness club. The questions involve calculations, discussion of strategic factors, ethical considerations, and financial analysis to evaluate management decisions.

Paper For Above instruction

Introduction

The assignment explores critical management accounting principles through examining activity-based costing (ABC), pricing strategies, and budgeting within different organizational contexts. Each question emphasizes the application of managerial accounting tools to inform decision-making, improve cost allocation accuracy, and enhance strategic planning. In particular, the focus lies in evaluating allocation methods, analyzing profitability under different pricing scenarios, and assessing the financial implications of operational changes, all within realistic case studies involving manufacturing and service organizations.

Question 1: Activity-based costing (15 marks)

Context and Data Summary

East Coast Marine Ltd (ECM) manufactures parts for marine craft and has shifted its reliance to commercial and government markets equally. Historically, the company allocated Material Handling Department costs based on a percentage of direct material dollar value, aligning with homogeneous manufacturing. However, recent audits criticized this approach due to disproportionate cost allocations, prompting a reconsideration of cost drivers.

The newly appointed cost accountant, Eloise Smith, identified key differences in purchase order types, with high-dollar, low-volume government purchases contrasted against low-dollar, high-volume commercial purchases. Additionally, other support departments utilize material handling services but have not borne any costs historically. Specific data includes the salary and on-costs of a dedicated government purchase manager, costs associated with the department’s budget, and estimated purchase orders for the upcoming year.

Smith recommends allocating material handling costs per purchase order, considering that purchase orders differ significantly between government and commercial activities. The forecast incorporates a 5% annual increase in purchase orders and a steady ratio of government orders to total orders at 33%. Material costs grow 2.5% annually, with government-specific direct costs remaining stable. She calculates future costs and evaluates how different allocation methods influence cost attribution to government contracts and overall financial forecasting.

Assignments

  1. Calculate the previous rate used by Smith’s predecessor.
  2. Compute the revised material handling costs per purchase order under the new method.
  3. Discuss why purchase order count might serve as a more reliable cost driver than direct material dollar value.
  4. Determine the financial difference due to the change in allocation method over three years.
  5. Forecast the cumulative dollar impact of Smith’s recommended method for the next three years.
  6. Discuss the ethical implications faced by Eloise Smith regarding her supervisor’s conflicting instructions and outline steps to resolve such conflicts.

Question 2: Pricing & possible plant closure (15 Marks)

Scenario Summary

Handy Household Products Ltd’s Fremantle plant produces two cleaning compounds—standard and commercial—and faces unprofitable sales. The first half-year results show losses on the standard, while the commercial slightly profits. Management considers optimal pricing strategies, cost structures, and potential shutdown implications.

The products’ current selling prices, sales volumes, and costs are detailed, with separate cost breakdowns and fixed vs. variable expenses. Management contemplates adjusting prices, evaluating the profitability of different pricing levels, and the strategic need for plant closure given intense industry competition and declining margins.

Assignments

  1. Determine the unit selling prices that maximize profit for each product based on existing cost data and projections.
  2. Using alternative optimal prices and volumes, assess whether closing down the plant would minimize losses, supporting your conclusion with calculations.
  3. Identify strategic considerations beyond financial metrics that influence the decision to shut or continue operations, such as market trends, capacity utilization, and long-term prospects.

Question 3: Budgeting (10 Marks)

Scenario Summary

Hawthorn Leisure Works (HLW) operates tennis facilities serving 2000 members, generating revenue from memberships and hourly court fees. Changes are proposed to implement a new annual membership fee structure with upfront payments and a promotional pricing strategy to boost cash flow amid seasonal fluctuations and member attrition.

The existing and proposed membership configurations, usage patterns, and expected behavioral shifts are outlined, alongside management’s forecasts of member retention, new acquisitions, and usage levels under the new plan. The goal is to evaluate how these modifications influence cash receipts, revenue, and financial planning.

Assignments

  1. Assess whether the new membership and fee plan will improve HLW’s cash flow planning, based on expected cash flow patterns and membership behavior.
  2. Estimate the change in sales revenue for the upcoming year resulting from the new fee structure, assuming specified member behaviors and average usage.
  3. Identify key factors HLW must consider in a comprehensive evaluation of the plan and describe relevant financial analyses needed.
  4. Explain how adopting the new structure might alter the club’s cash management practices.

Conclusion

The case studies provide an integrated view of applying managerial accounting approaches—activity-based costing, strategic pricing, and budgeting—to real-world business decisions. Ethical issues, cost allocation accuracy, strategic pricing, and cash flow management are critical themes woven through these scenarios, emphasizing the importance of ethical conduct, precise data analysis, and strategic foresight in managerial decision-making.

References

  1. Drury, C. (2013). Management and Cost Accounting. 9th ed. Cengage Learning.
  2. Horngren, C. T., Sundem, G. L., Stratton, W. O., Burgstahler, D., & Schatzberg, J. (2014). Introduction to Management Accounting. 16th ed. Pearson.
  3. Kaplan, R. S., & Anderson, S. R. (2007). Time-Driven Activity-Based Costing. Harvard Business Review, 85(11), 131-138.
  4. Langfield-Smith, K., Thorne, H., & Hilton, R. (2015). Management Accounting: Information for Creating and Managing Value. 7th ed. McGraw-Hill Education.
  5. Anthony, R. N., & Govindarajan, V. (2014). Management Control Systems. 13th ed. McGraw-Hill Education.
  6. Commonwealth of Australia. (2019). Ethical Standards for Accountants. CPA Australia.
  7. Coenenberg, A. G., & Walker, B. (2014). Principles of Cost Accounting. Wiley.
  8. Albrecht, W. S., & Bankier, R. (2014). Financial Management: Theory & Practice. Cengage Learning.
  9. Reeve, J. M., & Warren, C. S. (2017). Financial Accounting. 13th ed. Cengage Learning.
  10. Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2018). Managerial Accounting. 16th ed. McGraw-Hill Education.

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