Drum Brae Accessories Limited makes three types screen protector which it sells to retailers of cell phone accessories. The products, named after their base materials, are the shatter-proof glass (SPG), the premium tempered glass (PTP), and the reinforced plastic (RP). The company’s manufacturing facility is located in
North-East Scotland. Data relating to the products are given in the table below.
SPG PTP RP
Normal annual 200,000 300,000 400,000
sales volume
Unit selling price £2.50 £1.50 £1.00
Variable cost per £1.70 £0.90 £0.70
unit
All three products are sold in highly competitive markets, so the company is unable to
raise its prices without losing unacceptable numbers of customers.
Total fixed expenses for the company as a whole are £385,000 per year. Of this
amount, £21,000 could be avoided if the SPG product were discontinued, £83,000 if
the PTP product were dropped and £70,000 if the company ceased production of the
RP product. The remaining fixed costs consist of common costs such as rent on the
factory building and administrative salaries. This amount could only be avoided if the
whole company were to go out of business entirely.
The company operates a very successful and highly effective just-in-time
manufacturing system and so has no work in process or finished goods inventories.
You are holding brief for your line manager, the Financial Controller, who is on
annual leave. At a meeting with the Chief Executive Officer, you were asked to shed
some light on issues that were debated at a recent management committee
meeting. Specifically, the CEO wants to know the following:
The company’s overall break-even point in total sales value (in
£s)
The break-even point in units for each product.
He is particularly keen to have a closer look at the suggestions put forward by some of
his key managers. The Marketing Manager is of the opinion that it would be a great
success for each product team to achieve sales equal to the individual break-even
quantity of their own product. His argument is that so long as each product’s
break-even sales quantity is achieved, the company’s survival in the competitive
market would be guaranteed.
In her own argument, the Operations Manager had reminded the committee of the
company’s common fixed costs (highlighted in an earlier report). She suggested that
each product should bear its fair share of those common costs, based on sales
value, and that all individual product break-even sales calculations should include
this cost. Her suggestion was warmly welcomed by some other members of the
management committee. It was then proposed that subject to clarification from the
Finance Department, product break-even and profitability calculations will in future
include a share of common fixed costs based on sales. Any product that proves
unprofitable in the circumstance will be dropped!
The CEO expressed some doubts about the merit of the proposals. He has asked
you to prepare a report to guide the management committee in their discussion of
and decisions on these, to be considered at their next meeting. He requires your
report to include an analysis of each option suggested as well as your explanation
and guidance on their implications.
Requirements:
1. Prepare a report to the Chief Executive Officer of Drum Brae Accessories Limited.
Your report should include calculations and tables clearly showing the following:
a) The company’s overall break-even point in total sales value (in £s)
b) The contribution margin and break-even point in value (£s) and units for each
product
c) The overall profitability position of the company if it sells exactly the
break-even quantity of each product.
d) Revised break-even point in units of each product if common fixed costs are
allocated as suggested by the Operations Manager
e) Products that would be retained or discontinued on the basis of the calculation
in (d) above
f) The company’s overall profitability position as a result of the calculation in
(e) above.
2. Discuss the implications of your calculations in requirement 1 above. You should
also comment on the Marketing Manager’s sales targets as well as the suitability
of the Operation Manager’s basis of common overhead allocation. Finally, you
should recommend appropriate decision(s) to the management committee.
Your data tables must be clear and complete with workings that show how your
numbers are derived where necessary. The discursive (non-quantitative) part(s) of
your report should not exceed 1,500 words. You may wish to use numbers from your
data tables as well as from the question to support and illustrate the points that you
put across in your report.
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The following mark grid should help to illustrate to you the amount of effort
expected for each task.
%age
Assessment tasks and criteria of
Marks
1. Calculations and tables to support your report as detailed in requirement 60
1 above.
2. A discussion of the implications of your calculations as detailed in 30
requirement 2 above.
3. Presentation (see below). 10
Total 100
Presentation
Your report should be written in Word. You should use Excel to prepare your
calculations, choosing suitable format and layout for your computations. Then you
must embed all your calculations within your Word file. Do not use appendices – all
calculations, tables and charts must be fully integrated and embedded within your
Word file.
In your report, endeavour to write in proper sentences and paragraphs. Keep the
style formal and simple. Poor grammar, syntax and spelling are unprofessional. So,
before submitting your work, make sure that you proof-read and edit it properly for
correct spelling, grammar and syntax. You may wish to use the in-built grammar and
spelling checker in Word to help you. But when you do, check each suggested option
carefully to make sure that it conveys your intended meaning before you accept it.
Your Word file must use the following layout and format: Arial OR Times New
Roman, font size 12, single-spaced, with 1 inch (or 2.5cm) margins (left, right, top
and bottom). Include your student ID in the header and a page number in the footer
of each page.
Key skills:
This assignment will help you develop the following key skills:
Communication
Numeracy
Independent learning
Ability to use Information Communication Technology (ICT)
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Learning outcomes for the Drum Brae Accessories coursework
The assignment will assess your ability to:
demonstrate an understanding of management accounting techniques and
related topics and their application in organisations
evaluate the effectiveness of managerial information in providing a basis for
planning, control, performance measurement and decision making within
organisations
analyse and prepare business data to facilitate management understanding and
action
prepare management report to aid decision-making
It will also help create the grounding for subsequent career options in Accounting
and Finance
SUBMISSION INSTRUCTIONS:
1. Submission deadline: 4:00 p.m. on Wednesday 24th October 2018.
2. An electronic copy of your work should consist of a Word file with all your
Excel tables, graphs, etc. (as appropriate) embedded in it, plus your Excel file
on its own. In other words, you should have two files. Blackboard now has a
new feature “ Safe Assign” that enables the assessments to be automatically
checked for plagiarism. The assessments will also be uploaded automatically
through Turnitin so there is no requirement for students to do it themselves.
3. You MUST complete and attach a cover sheet to your assignment. This
can be found in the “Assessment Folder” on the QB2002 web page on
MyAberdeen.
General points:
i) Address all the requirements/questions directly and relevantly following all
the instructions, including presentation, formatting and making sure all your
working is shown.
ii) Do not copy the work of others or allow others to copy your work. Plagiarism
is cheating and will be penalised without exception.
This is an individual piece of coursework which accounts for
15% of your overall course mark.
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