ACT302 Strategic Management Accounting- Coronavirus Health Crisis

ACT302 Strategic Management Accounting- Coronavirus Health Crisis

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ACT302 Strategic Management Accounting

Task

Answer all the questions

Complete requirements for all the questions & show your calculations in the text box provided 4 questions – 50 marks

Question 1 – (11 Marks)

Shifty Box company uses Activity Based Costing (ABC) system in their business. You can find some relevant information in the table below.

Activity area

Cost driver rate in 2019

Order processing

$50 per order

Line-item ordering

$4 per line item

Store deliveries

$55 per store delivery

Carton deliveries

$2 per carton

Shelf stocking

$18 per stocking-hour

Kathrine Murphy recently was employed as the financial controller of the company. She has been asked to prepare a profitability report for the senior management. She wishes to use ABC system to examine individual customer profitability within each distribution market. She focuses first on the single-store distribution market particularly in two customers (Box Smart, Seemless box). The following table relates to these customers in October 2019.

Box Smart

Seemless Box

Total orders

14

11

Average line items per order

10

19

Total store deliveries

8

11

Average carton shipped per store delivery

23

21

Average hours of shelf stocking per store delivery

0.2

0.6

Average revenue per delivery

$2500

$1900

Average cost of goods sold per delivery

$2200

$1750

Required:

  • Compute the Activity-Based costing and operating profit for each customer as of October 2019 (7 marks).
  • Comment on your findings (4 marks).

Question 2 – (12 Marks)

Part A – (4 Marks)

Currently due to the coronavirus health crisis there is a great demand for medical face masks. Smooth Equipment company is considering purchase of a piece of land to build a manufacturing plant to produce medical face masks. The purchase price for the land is $100,000 and preparatory work will cost $34,200.

The manufacturing plant would be useable for 10 years. Company consultants recommend the new plant would cost the company $20,000 per year less to operate than the company’s current production line. The current production plant also will last 10 more years. For a face mask manufacturing project, the company can borrow money at 4 per cent from the federal government.

Required:

Calculate the net present value of the new manufacturing plant.

Note: Use annuity present value of 8.111 for your calculations.

Part B – (4 marks)

Explain three limitations of the payback method that the management of Smooth Equipment need to be aware of?

Part C – (4 Marks)

Suppose the manager of Smooth Equipment is using capital budgeting to evaluate two alternative business opportunities. Both require comparable investments and have comparable average cash flows. However, the cash flows of one business appear to be more volatile than those of the other (ie. the cash flows of this opportunity vary more about its average). Is this an important consideration in capital budgeting? Justify your answer.

Question 3 – (13 Marks)

Part A – (5 marks)

Superior Sanitiser is manufacturer and supplier of hand sanitisers. Due to the corona virus health crises there is a great demand for their products in the current marketplace. The glass bottles are produced in the bottle division, and then transferred to the liquid division, where they are filled with sanitiser liquid.

The company’s best-selling product is ‘Kenkey Hand Sanitiser’. The standard cost of the bottle of Kenkey is shown in the following table:

Bottle division

Liquid division

Direct material

$10

$20

Direct labour

$20

$10

Variable Overhead

$25

$32

Total standard cost

$68

$80

Bottle division can also sell the bottles directly to glass bottle wholesalers. The sales price for a unit of bottles is $85. The liquid division sells its finished product for $6.00.

Required:

Assume that there is no spare capacity in the Bottle division:

i. Use general rule to calculate the transfer price for bottles (1 mark).

ii.Calculate the transfer price if it is based on standard variable cost with a 10% mark-up (1 mark).

Assume that there is spare capacity in the bottle division.

i. Use the general rule to calculate transfer price for bottles (1 mark),

ii. Explain why your answers to requirements 1(a) and 2(a) differs (2 marks)

Part B – (3 Marks)

Explain how can management team of Superior Sanitiser use target costing to reduce costs and plan profits?

Part C – (2 marks)

At Superior Sanitiser, managers of profit centres and investment centres have considerable autonomy in deciding whether to accept or reject orders for goods or services, and whether to source their materials and components, or services, from inside or outside the organization. They also have considerable autonomy over setting and accepting transfer prices. Describe the difference between market-based and cost-based pricing that managers of Superior Sanitiser, might choose to use?

Part D – (3 marks)

Some argue that control is the essential management process that everything else hangs off. Why is control such an important part of management accounting systems? Or is it not really the central function of organisations? While discussing, write arguments for and against?

Question 4 – (14 Marks)

Part A – (10 marks)

NT Department of Health rents their facilities to professional health workers for training sessions. Duration of each session is two hours. Anticipated annual volume is 1,000 sessions. The Health Department has invested $2,410,000 in their facility and  expects a return on investment (ROI) of 22%. Budgeted costs for the coming year are shown in the table below:

Per Training Session

Total

Direct Materials

$19

Direct Labor

$410

Variable overhead

$51

Fixed overhead

$930,000

Variable selling and administrative expenses

$38

Fixed selling and administrative expenses

$510,000

Required:

i. Determine the total cost per training session (5 marks).

ii. Determine the desired ROI per training session (2 marks).

iii. Calculate the markup percentage on the total cost per training session (1 mark).

iv. Calculate the target price per training session (2 marks).

Part B (4 marks)

In what situation does Department of Health place the greatest focus on its target cost?

How is the target cost determined? What is the basis formula to determine the target selling price in cost-plus pricing?

ACT302 Strategic Management Accounting

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