Reference no: EM132305902 , Length: word count:2500
Management Accounting Assignment - Case Study Project
Learning Outcomes -
a) Explain fundamental management accounting concepts and terms. Apply management accounting techniques that underpin cost management strategies in organisational contexts.
b) Evaluate financial performance measurement processes, pricing and product mix decisions.
c) Evaluate contemporary approaches to measuring and rewarding performance using financial and non-financial indicators and systems such as the balanced scorecard and benchmarking.
d) Evaluate ethical issues in a management accounting context.
Purpose: This assessment is designed to assist students to combine the technical skills learned with the theoretical aspects of a variety of management accounting topics. The assessment will allow students to demonstrate their ability to analyse the information provided for a given scenario and present their findings as they relate to the requirements of this assessment.
Topic: Management accounting problem (case study).
Background - Raven Industries manufactures carpets, furniture and cushions in three separate divisions. The company's profit statement is presented below:
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Raven Industries Profit statement for the year ended 31 December
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Carpet division $
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Furniture division $
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Cushion division $
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Total $
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Sales revenue
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3,000,000
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3,000,000
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4,000,000
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10,000,000
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Cost of goods sold
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2,000,000
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1,300,000
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3,000,000
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6,300,000
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Gross profit
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1,000,000
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1,700,000
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1,000,000
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3,700,000
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Operating expenses:
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Administration
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300,000
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500,000
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400,000
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1,200,000
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Selling
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600,000
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600,000
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500,000
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1,700,000
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Total operating expenses
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900,000
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1,100,000
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900,000
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2,900,000
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Profit from operations before taxes
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100,000
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600,000
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100,000
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800,000
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Additional information regarding Raven Industries operations is as follows:
- Included in the cushion division's sales revenue is $500,000 that represents sales made to the furniture division. The transfer price for these sales was at variable cost.
- The three divisions' cost of goods sold comprise the following costs:
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Carpet division $
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Furniture division $
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Cushion division $
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Direct material
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500,000
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1,000,000
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1,000,000
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Direct labour
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500,000
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200,000
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1,000,000
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Variable overhead
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750,000
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50,000
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1,000,000
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Fixed overhead
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250,000
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50,000
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0
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Total cost of goods sold
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2,000,000
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1,300,000
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3,000,000
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- Administrative expenses include the following:
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Carpet division $
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Furniture division $
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Cushion division $
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Direct expenses:
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Variable
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85,000
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140,000
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40,000
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Fixed
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85,000
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210,000
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120,000
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Head office expenses (all fixed):
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Directly attributable
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100,000
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120,000
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200,000
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General (allocated based on sales dollars)
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30,000
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30,000
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40,000
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Total
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300,000
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500,000
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400,000
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- All selling expense is incurred at the divisional level. It is 80% variable.
Robert Cleveland, the manager of the Cushion Division, is not pleased with the company's report on operating performance. Cleveland claims: I believe that the Cushion Division is much more profitable than what has been presented in these management reports. I am required to sell these cushions at cost and therefore based on that cost I earn a certain profit. I can sell these cushions on the outside market at my regular mark-up, but because I am a team player I sell at cost for the benefit of the company as a whole. I believe that my division's performance should be based on the contribution my division would make if I were to sell at market prices; this should be reflected in a set of revised operating statements for internal reporting purposes. Why are we not including these as part of the reporting and performance packs being sent to the Executive?
Required:
1. Robert Cleveland believes that the transfers from the Cushion Division to the Furniture Division should be at market price rather than at cost, for performance measurement.
a) Is Cleveland correct? Explain your answer.
b) Describe another approach that the company could use to set transfer prices, other than manufacturing cost and market price.
2. Using transfer prices based on market prices, prepare a revised profit statement, by division, for Raven Industries that will facilitate the evaluation of divisional performance. Use the contribution margin approach.
3. Based on the above analysis and your own research prepare a report to the CEO outlining your recommendations in relation to the transfer pricing and performance measurement approach which would help optimise the performance and efficiency of the company. Clearly outline the benefits and challenges of your suggested approach.
Task Details: Groups are to analyse the information provided, make appropriate calculations, develop recommendations and draw conclusions from their analysis. Submissions are to be in the form of a professional business report and include a title page, executive summary, table of contents, introduction, body, conclusion and reference list.
Attachment:- Assignment File.rar