Assessment item 3
Case Study Part 2 builds on Case Study Part 1 and continues your consideration of the application of strategic and sustainable management accounting concepts and practices to The a2 Milk Company.
Question 1 – Sustainability (20 marks) (Maximum report length: 1,000 words)
Operating in the dairy industry, The a2 Milk Company impacts the environment in a number of different ways and there are certain initiatives that the firm can take to minimise these impacts. The firm also impacts a number of different stakeholder groups and there are a number of key social concerns that management must be cognisant of. Prepare a report which identifies and summarises the key environmental and social concerns relating to the operations of The a2 Milk Company. Your discussion should consider a range of different stakeholder groups and a number of different environmental and social issues from across the firm’s value chain.
As part of your report, suggest three potential environmental and social objectives that the firm could strive to achieve. For each of these objectives, suggest at least 2 measures that the firm could use to measure their progress towards the objectives (the template below should be used to summarise your findings for this task). This table should be presented within the body of your report and your recommendations should be thoroughly discussed.
|Dimension||Objective||Possible Performance Measures|
This report must be supported by reference to a range of relevant academic and other research sources.
Question 2 –Transfer Pricing (10 marks)
Icecream is a recently added product line of The a2 Milk Company. As part of the production of of icecream, the icecream mixture is transferred from the mixing department to the freezing department for further processing. The following table summarises hypothetical data relating to the cost to the mixing department to produce each litre of icecream mixture. The unprocessed icream mixture can be sold by the mixing department to external parties for $2.00 per litre.
|Icecream mixing department (cost per litre)||Freezing department (cost per litre)|
|Direct Materials||$0.50||$0.10 (does not include cost of transferred icreacream mixture)|
- If negotiated transfer pricing was used, what is the minimum transfer price that the icecream mixing department manager would likely accept and why? What is the maximum transfer price that the freezing department manager will likely be willing to pay and why? Would cost-plus pricing be appropriate for transfer prices in this situation? If so, what cost base should be used? (4 Marks)
- Calculate the transfer price for sales between the mixing and the freezing if cost-plus pricing, based on absorption cost with a 40% markup, is used. Determine the contribution margin per unit for the icecream department if this transfer price is used. (1.5 Marks)
- Calculate the transfer price for sales between the mixing and the freezing departments if cost-plus pricing, based on variable cost with a 50% markup, is used. Determine the contribution margin per unit for the icecream department if this transfer price is used. (1.5 Marks)
- Discuss whether the transfer prices determined above in requirements 2 and 3 is likely to be acceptable to the icecream mixing department. (1 Mark)
- Discuss how the application of the general transfer price could be used in this situation. Provide examples which illustrate how the existence of spare capacity within the icecream mixing department would be relevant (2 Marks).
Ensure that your answers for the above are discussed and supported by relevant calculations/workings.
Question 3 – Capital Investment Analysis (10 marks)
The a2 Milk Company is considering an expansion to their existing icecream production plant. Key points in regards to the new plant are as follows:
- The initial cost of the expansion will be $20 million. The new plant will have a useful life of 10 years (assume straight line depreciation).
- In the first year of operation, the new plant is expected to:
- increase the firm’s revenues by $9.5 million. These revenues are expected to increase by 9% p.a. over the life of the plant. On average, cost of sales is 55% of sales revenue
- increase the firm’s other costs by $400,000. These costs will increase by 4% p.a. over the life of the plant.
- In year 1, the firm will engage a marketing firm to conduct research to better understand customer preferences towards a2 icecream. The cost of this study will be $100,000. This is a one off expenditure.
- In year 6 of operation, the plant will require a one-off overhaul. This is expected to cost $200,000.
- The firm’s tax rate is 30%.
- The firm requires a 9% required rate of return on all potential investments.
- In relation to the above proposal, calculate the:
- Annual after tax cash flows and annual after tax profit
- Payback period
- Net present value and internal rate of return
- Accounting rate of return (4 Marks)
- Provide an overview of the key environmental factors that the firm should consider in evaluating the proposal (3 Marks)
- Based on an assessment of financial considerations and other factors, provide a recommendation as to whether the firm should go ahead with the proposal. Illustrate and discuss how sensitive your recommendations are to changes in projections of the financial impact of the new capital investment. (3 Marks)
Ensure that your answers for the above are discussed and supported by relevant calculations/workings.
This assessment task will assess the following learning outcome/s:
- be able to apply sustainability concepts in the context of accounting and business practices.
- be able to use strategic management principles and technologies in making and assessing business decisions for profit and not for profit organisations;
- be able to generate, evaluate and use quantitative and qualitative information to measure financial and non financial performance of an organisation;
- be able to generate, evaluate and use information for planning and controlling operations within an organisation;
- be able to analyse the impact of the international business environment, global competitiveness and societal and cultural expectations on management accounting in regional, national and multinational organisations; and
- be able to develop and evaluate computer spreadsheet models which aid business decision analysis.
Marking criteria and standards
|Explain management accounting concepts in a strategic context.||Effectively determines key concepts and applies the concepts in a strategic management framework.||Key concepts are identified and applied to a strategic management framework.||Key concepts are identified and limited application within a strategic management framework.||Key concepts are identified and some application to the strategic management framework.|
|Identify and apply sustainability concepts to strategic management accounting problems or issues. Provide reasons for their use, citing the benefits for reporting on these activities by companies.||Communicates and applies sustainability concepts with clarity and depth. Discussion is supported by extensive research and examples.||Communicates and applies sustainability concepts with sound understanding of concepts. Discussion is supported by relevant research and examples.||Communicates and applies sustainability concepts with limited understanding of concepts. Discussion is supported by relevant research and examples.||Sustainability concepts are identified but with limited research and discussion of examples.|
|Ability to obtain the correct answer for each of the practical questions and sub-questions and workings to support your answer. Ability to make judgements and draw appropriate conclusions based on the quantitative analysis of data and computer spreadsheet models.||Correct answer obtained. Uses the quantitative analysis of data as the basis for deep and thoughtful judgements, drawing insightful, carefully qualified conclusions from the results. Excel worksheets are professionally presented and all calculations are performed using appropriate formula functions.||Correct answer obtained. Uses the result to make a competent judgement, drawing reasonable and appropriately qualified conclusions from the results. Excel worksheets are professionally presented and all calculations are performed using appropriate formula functions.||Correct answer obtained. Uses the result as a basis to make sound judgements and draws a plausible conclusion. Some efforts are made to professionally present Excel worksheets and all calculations are performed using appropriate formula functions.||Correct answer obtained. Uses the result as a basis to make basic judgements and draws a plausible conclusion. Most calculations are performed using appropriate Excel functions.|
|Effectively and appropriately present your material and results and clearly convey your understanding of the results to the reader. All references and resources acknowledged and professionally presented using APA (6th ed) referencing.||Output is well researched, logically argued, and well written in a manner that very effectively conveys the key outcomes and recommendations to the end user. All references and sources acknowledged and professionally presented.||Well researched and well written argument with references and sources acknowledged and output professionally presented.||Well written with a logical argument and with references and sources acknowledged and professionally presented.||Written in clear language with references and sources acknowledged and professionally presented.|
Your response is to be in a formal written structure and format. It is compulsory for you to lodge both a Word file which is to include all your answers and your calculations, and an Excel file with the calculations.
When asked to present your discussion in report form (i.e. Question 1), you must:
- Provide a brief executive summary.
• Structure your report to include introductory, body and concluding sections. Use appropriate headings and sub-headings as relevant sign-posts.
The following guide is also useful in providing further information on effective report writing:
Preparation and submission requirements
All references must be clearly acknowledged in accordance with the APA (6th ed) style.
This assignment requires a Microsoft Word document as well as a Microsoft Excel spreadsheet solution and both of these must be submitted online using EASTS. Failure to submit both of the files by the due date constitutes non-submission and late penalties will apply.
Your spreadsheet solutions must be cut and pasted into the Word document. This Word document is what will be marked and returned to you. Remember that in the business world the professional presentation of information is fundamental and accordingly marks will be deducted for poor presentation. An electronic version of your source spreadsheet is required to enable markers to open the file and test your efficient use of spreadsheet formula. Your spreadsheet must have a separate worksheet (tab) for each question answered.
Review the rules regarding plagiarism and if you are not sure contact your lecturer or student learning skills advisor for advice. There is no excuse for presenting the work of others as your own; this includes cutting and pasting material from the web without properly referencing the source. In this subject there have historically been large numbers of students caught either plagiarising or failing to reference properly.
The CSU Library site provides an on-line guide to APA (6th ed) style referencing. This is the referencing style adopted by the School of Accounting and Finance. The guide can be found at: http://student.csu.edu.au/study/referencing-at-csu
Any difficulties in submitting your assignments online electronically using EASTS should be immediately reported by email. Include your name and student number in the header or footer of all documents submitted. Retain a copy of your assignment for your records.
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