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HA2011 Management Accounting, Holmes Institute, Australia

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Solution 1 -Introduction: This current study aims at exploring the managing accounting system of the renowned company Wesfarmers that is operating in the market over the past decades. The study mainly aims to analyze the management accounting part and for this, the study will employ different aspects of the management accounting. 

Question 1: a) Explain the value chain concept and discuss two (2) ways the value chain concept benefits organisations.

Answer: Value chain concept means the series of the activities that the business has to conduct to create a product or service and deliver them to the customers. Therefore, the value chain of the business includes different aspects of the business like human resource management, procurement, marketing and sales and many other aspects like these. Value chain concept is used by the business to evaluate the efficiency of the different processes or activities of the business. It is also used to find out the weaknesses in the current value chain of the business and remove them to ensure that the manufacturing efficiency of the business increases and it able to produce more value for the business in a more cost-effective manner (Investopedia, 2019). 

The two ways by which value chain concept benefits organisation will be discussed here. The first way by which value chain concept benefits organisation is that the value of the business increases and the cost of the business decreases. This makes the business activities more cost effective, which result in lower operating expense margin of the business. This gives the business more scope to the business to make its pricing more competitive and give more value to the business in more affordable pricing. This increases the market share of the business and helps it increase its customer base (Investopedia, 2019).

The second way by which the value chain concept benefits organisation is making the business more sustainable. The value chain concept helps the business identify and remove the ineffective or non-value adding processes from the business. This lowers the expenditure of the business and increases the profit margin, which leads to an increase in the sustainability of the business.

b) Based on Wesfarmers Limited, evaluation of the organisation using the value chain concept. This explanation should include:

i. An identification of the company's mission and objectives.

Answer: The Wesfarmers mission is "to deliver satisfactory returns to shareholders". 

Wesfarmers Limited also has some objectives which will be discussed in this section. The first objective is to increase efficiency in the operation of the business. The second objective is to increase the customer base of the business by fulfilling all customer needs. The third objective is to diversify the business portfolio as much as possible. The fourth objective is to increase the sustainability of the business by efficient long term management of the business. All these have been identified as the objectives of Wesfarmers (Wesfarmers.com.au, 2019).

ii. A description of the competitive strategy (i.e. cost leadership, differentiation or focus) of the company.

Answer: The competitive strategy of Wesfarmers is cost leadership as the business has a high scale of production and procurement, which helps the business achieves the scale of economies. Therefore, this means the business is in a better position to give the customers a higher amount of value than its competitors at the same price level. The operating profit margin of the business is kept on decreasing even when the business is one of the largest revenue earning company. This means the business is lower its profit margin but earning an adequate amount of profit from its overall operation (Wesfarmers.com.au, 2019). Therefore, all these indicate that the competitive strategy of Wesfarmers is cost leadership.

iii. Draw the value chain model for the company.

Answer: 

HA2011 Management Accounting.jpg

iv. Choose any 2 value-adding processes of Wesfarmers from the diagram in (iii), and for each, explain the process. Give some specific examples of what value it contributes to the company's products/services, leading to business decisions for improving customer and shareholder value.

Answer: From the diagram value chain model of Wesfarmers, it can be observed that the company has six main divisions in its value network and each of these six parts have their own subdivisions which work together to generate value to the company. Out of these six parts if any two part is to be considered then marketing and customer experience division in the value chain will be selected. As per the diagram shown in (iii) marketing value adding process of the company comprises of the four subdivisions and these are the promotional channel, marketing channel, effective customer segmentation and the increasing awareness of the business. All these subdivisions of the marketing value adding process adds value to the company. Company by utilizing these four subdivisions of marketing is completing the major task of the company.

As we, all know that without proper marketing a company cannot sustain in the market place because marketing helps to create a brand position in the competitive business environment and in this way, marketing adds value to the company. If this marketing arena of the value adding process is considered in depth, it can be seen that effective customer segmentation of the subdivision is very essential before conducting the marketing activities because without the target audience company cannot convey their messages hence it is very essential to create customer segmentation. Customer segmentation helps to know the requirements from the end of the customers and by adopting different marketing strategies companies reach to the customers to address their needs.

In Wesfarmers, the customer segmentation is very essential because the company deals with various kinds of products and if the company does not design the customer segmentation, it cannot target them. Different consumers have different needs but segmenting a specific group helps the company to serve them better and at the same time gain competitive advantage over the companies which operate in the same industry. By utilizing this marketing segment of the value chain model company gain, Wesfarmers take better decisions to address the requirements of the customers and satisfy the shareholders because customer satisfaction ultimately leads to increase in sale. This increase in sale will help the company to provide greater return to its shareholders (Wesfarmers.com.au, 2019), which is the mission of the company.

Now considering the customer experience value adding process from the diagram (iii) it can be seen that it subdivision into four parts and these are the customer feedback system, customer interaction, customer retention management and the customer score system. All these four parts of the customer experience of the value chain model are very significant and this is due to the fact all these help the company to serve its consumers in a better way. Wesfarmers which is renowned company by utilizing this value added model serve the consumers in a better way because this customer experience part of the value model aid the company to change their products features according to the needs of the customers.

v. Finally, comment on the relevance and usefulness of the information that you find about your theoretical knowledge of the value chain concept.

Answer: From the value added model it can be observed that it aids the company to achieve its objectives because the value added model comprises of the parts which are very essential for a company to sustain in the competitive business environment. The value added model of Wesfarmers is a relevant one because it helps the company to address the requirements of the stakeholders of the company both the internal and the external ones. In addition, the model is useful to the company because by following, this model company can serve better and earn more profits and this extra earning from the company adds value to the company in the form of satisfying the shareholders of the company, which is the mission of the company(Wesfarmers.com.au, 2019).

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Question 2: a) What are the estimated allocation rates for fixed and variable overhead for the current period?

Answer: 

Particulars

Amount ($)

 

 

Direct labour hours (A)

3000

Fixed overhead (B)

120000

Therefore, the estimated allocation rates for fixed  overhead for the current period (B/A)

40

Direct labour cost (C )

75000

Variable overhead ( D)

150000

Therefore, the estimated allocation rates for variable overhead for the current period (D/C)

2

Table 1: The estimated allocation rates for fixed and variable overhead for the current period

b) What is the total overhead cost allocated to Job 20 in October?

Answer:

Particulars

Amount ($)

 

 

Direct labour hours (A)

10

Estimated allocation rate of fixed overhead (B)

40

Therefore, the fixed overhead allocated for Job 20 in October  (A*B)

400

Direct labour cost (C )

250

Estimated allocation rate of variable overhead (D)

2

Therefore, the variable overhead for Job 20 (C*D)

500

Therefore, the total overhead allocated for Job 20 in October

900

Table 2: The calculation of total overhead cost allocated to Job 20 in October

c) What is the total cost of Job 20?

Answer: 

Particulars

Amount ($)

 

 

Direct materials

1000

Direct labour cost

250

Prime cost

1250

Overheads:

 

Fixed overhead cost

400

Variable overhead cost

500

Client contracts in process (Job 20)

3500

Work cost or total cost for Job 20

5650

Table 3: The calculation of the total cost of Job 20

d) Calculate the amounts of fixed and variable overhead allocated to jobs in October.

Answer: 

Particulars

Amount ($)

 

 

Total Direct labour hours ( A)

229

Estimated allocation rate of fixed overhead (B)

40

Therefore, the fixed overhead allocated for all job  in October  (A*B)

9160

Total Direct labour cost ( C)

5725

Therefore, the variable overhead for Job 20 (C*D)

2

Therefore, the total variable overhead allocated for all job in October

11450

Therefore, the total overhead allocated for all jobs  in October

20610

Table 4: The calculation of the amounts of fixed and variable overhead allocated to jobs in October

e) Why would the accountant choose to use two cost pools instead of one? Will this method make a difference in client bills when the job includes more equipment and less labour than other jobs? Explain.

Answer: The accountant chooses to use two cost pools instead of one as the cost drivers of fixed overhead, and variable overhead is different from each other (Bragg and Bragg, 2019). The cost driver of the fixed overhead depends on the labour hours as the fixed overhead is mostly consist of different office costs which are incurred for using them for different reasons for the benefit of the different job of the business. Therefore, the amount of labour hour need for each job can provide a better basis of allocation of cost in this case.

Then in the case of variable overhead which primarily includes the fringe benefits of the employee cost driver is considered to be the amount of labour cost as the fringe benefit is assumed allocated in the same pattern as of the allocation of the wages of the labours of each job.

Yes, this method makes a difference in client bills when the job includes more equipment and less labour than other jobs as labour hours and cost will decrease which will reduce fixed and variable overhead cost of this job. Therefore this decrease in labour cost, fixed overhead and variable overhead, and increase the inventory cost of the job. Also, these changes will make differences in the client bills of this job.

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Question 3: a) Identify cost pools and assign costs to them, considering the three cost objects of interest.

Answer: 

Cost  Pools

Assignment of Cost

 

Amount ($)

Director And Staff Salaries

60000

Animal Shelter Employees' Salaries

100000

Veterinarians And Technicians

150000

Animal Trainers

40000

Food And Supplies

125000

Building-Related Costs

200000

Supplies Used For Veterinarian Services

75000

Table 5: Identification of Cost Pools and Assign Costs to Them

b) Determine a cost driver for each cost pool and explain your choice.

Answer:

Cost  Pools

Cost driver

Justification

 

 

 

Director and staff salaries

Total Square foot

Director and staff salaries are an administrative cost, and it is assumed that the director and staffs have spent their time and effort according to the capacity of three branches of the business.

Animal shelter employees' salaries

Animal days

 Animal shelter employees' all effort and time go into taking care of the animals. Therefore, animal days are considered to be the right cost driver for their salaries.

Veterinarians and technicians

Animal visits

 Veterinarians and technicians are services are linked with the animal who visit this Malekula Council for getting health care and veterinarian services for the animals. Therefore, these animal visits are considered appropriate cost drivers   

Animal trainers

Training classes

 The animal spent half of their timing in classes; it is assumed that for each animal training, time spent outside classes is equal

Food and supplies

Total Square foot

 Food and supplies are an administrative cost, and it is assumed that the total food and supplies are a need in each facility according to their capacities. Therefore, for food and supplies, an appropriate cost driver is found to be a total square foot.

Building-related costs

Total Square foot

Building-related costs are directly linked with the building of each facility. Therefore, it has been assumed that this cost will be directly linked with the capacity of each facility. For this reason, the total square foot is considered to be an appropriate cost driver for it.

Supplies used for veterinarian services

Animal visits

Supplies used for veterinarian services are needed to give veterinarian services to the animal visiting the facility. Therefore, the number of animal visits is considered to be an appropriate cost driver for this Supplies used for veterinarian services.

Table 6: Determination of cost drivers for each cost pools and explanation of the choices

c) Calculate the allocation rates for each cost pool and cost driver. Interpret the allocation rate for each cost pool.

Answer: 

Cost  pools

Amount ($) (A)

Cost driver

Amount ($) (B)

Allocated  rate

interpretation

 

 

 

 

 

 

Director and staff salaries

60000

Total Square foot

10000

6

This shows for each square foot of total capacity of the business, 6 dollars has been incurred by the business 

Animal shelter employees' salaries

100000

Animal days

27375

3.7

$3.7 of salaries of animal shelter employees' will be incurred by the business for each animal for each day in a year.

Veterinarians and technicians

150000

Animal visits

5000

30

 Veterinarians and technicians' salaries amounting to $30 will be incurred for giving health care and veterinarian services to each animal for each visit

Animal trainers

40000

Training classes

125

320

 $320 incurred for giving each training classes and other training  by the animal trainers

Food and supplies

125000

Total Square foot

10000

12.5

 $12.5 food and supplies cost is incurred for giving food and supplies to each people living in each square foot of the facilities.

Building-related costs

200000

Total Square foot

10000

20

 $20 Building-related costs incurred for maintenance of each square foot of the facilities of the business

Supplies used for veterinarian services

75000

Animal visits

5000

15

 $15 supplies used for veterinarian services cost incurred for giving supplies to fulfil service of the veterinarian to each animal for each visit

Table 7: Calculation of the allocation rates for each cost pool and cost driver and Interpretation of the allocation rate for each cost pool

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Conclusion: From the above analysis on the Wesfarmers management accounting it can be observed that the company has employed some of the useful techniques in its accounting process, which has resulted in initiation of growth in the purview of the company. Thus, it can be said that Wesfarmers along with addressing the needs of the customers is also satisfying the shareholders of the company and for this reason; a large number of shareholders are interested on Wesfarmers.

Solution 2 - Management Accounting

Question 1 - a) Explain the value chain concept and discuss two (2) ways the value chain concept benefits organisations.

Answer - THE VALUE CHAIN CONCEPT AND THE WAYS WITH WHICH IT BENEFITS ORGANISATIONS:

A value chain means set of activities being performed by a firm operating in a specific industry. This is done so as to deliver product or service which is such that it meets the desired results. The organizations in the current scenario requires to offer high quality products in order to meet and exceed their competitors (Baldwin, R. E., &Evenett, S. J., 2015). Moreover, this is done so as to satisfy the needs and desires of the customers. Value Chain Concept analyses the stages which are passed by the inputs to get transformed into outputs wherein each stages are identified and classified distinctly. The basic principle on which the value chain concept is dependent is the fiscal policy of advantage. Those companies are doing well in today's world whose products are distinct and effective as compared to their competitors. Under the value chain concept, the businesses are continuously evaluating the value created by them. This is done because the competition for prices, exceptional products and customer loyalty are continuously increasing. Therefore, the companies are using the value chain concept which provides business an advantage over their competition.

Under value chain analysis, full range of activities viz. designing, production, marketing and distribution are examined so as to bring a product from its conception to its delivery. Value chain management helps in the organization of all the activities and analysis of the same which are required to get the raw material and to convert the same into finished product. The goal of this is to have effective communication among the managers of each stages so that the product is sold to customers with ease (Harrison Kayla, 2018). The two major ways with which the value chain concept benefits the organizations are discussed below:

• Strengthening business's competitive advantage: By adopting value chain analysis concept, business strengthens its competitive advantage at a greater extent. This is because of the fact that the company upon value chain analysis, maps the specific activities and look for alternatives for creating efficiencies. The businesses performs internal cost analysis, internal differentiation analysis and vertical linkage analysis so that they can understand various sources and factors determining the costs, profit and relationships. The managers are able to identify any issues arising in the different activities and therefore they work towards settling them.

• Customer Satisfaction increases: The value chain analysis ideally helps in the identification of the areas that are required to be optimised for maximising efficiency and profitability. Along with this, the major focus is given on the customers where they are made feel confident and secure so that the customers continues to become loyal to the business. The customer analyses the fact that the company is sincerely working towards analysis and evaluation of the quality of product and the services and therefore there confident increases.

Therefore, it can be assessed that the adoption of value chain concept by a company helps the company in facilitation of strategic management. The data processed in the value chain concept is both internal and external. It helps in determining the competitive advantage of the company.

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b) Based on the organisation that you have selected, evaluate the organisation using the value chain concept. This explanation should include:

i. An identification of the company's mission and objectives.

Answer - IDENTIFICATION OF THE MISSION AND OBJECTIVES OF THE COMPANY FLIGHT CENTRE:

The Flight Centre Travel Group also referred to as FCTG is the largest outlet of retail travel in the country Australia. The company was founded in the year 1982 and since then it has continuously shown improvement in its policy and is thus growing. The company is a listed company on the Australian Stock Exchange. The company's mission is to open the ways wherein people with the desire to see the world can go. This is done by the company by way of helping the people with their development in professional as well as personal manner and for the customers they want to open the world by way of introduction of mediums of communication that are exciting (Bustinza, O. F., Bigdeli, A. Z., Baines, T., & Elliot, C., 2015). The company is working towards its mission of contribution to community with exists both inside and outside the organization (Chatterjee, S., 2017). The business model of the company is different and is classified into broad categories viz. ownership, incentives, standard systems, family-village-tribe and Profit.

ii. A description of the competitive strategy (i.e. cost leadership, differentiation or focus) of the company.

Answer - COMPETITIVE STRATEGY OF THE COMPANY:

The company have outlined their business model which is to some extent different as compared to the other companies in the same sector. The competitive strategy of the company are discussed below:

  • The company follows the strategy with respect to ownership which is very different from the other companies. Under its ownership model, the company considers each individual of the company as contributor. Because of this the business team members and leaders runs the business like their own business resulting to be more positive.
  • The incentive policy of the company are based on reliable outcomes and the company have a belief that there should be reward programs for right outcomes resulting in the prosper of the company and its people.
  • The company have one best way i.e. one standard system which is being adopted universally which is valuing the common sense over an old wisdom.
  • The structure of the company is simple, transparent and flat. The business model of the company have 5 layers namely, family, tribe, nations, regions and board team
  • The company maintains a fair margin wherein amazing product are being provided to the customer with a genuine pay thereby creating value to customers.

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iii. Draw the value chain model for the company. i.e. Tailor the model to your company's operations, identifying its value-adding processes and support departments.

Answer - VALUE CHAIN MODEL OF THE COMPANY FLIGHT CENTRE:

The company flight centre is involved with many process for attainment of serving the desired goals. The company have two major classification of activities being conducted viz. the primary value activities and the other being the supporting or secondary value activities. Both the primary as well as the secondary activity contributes in attainment of competitive advantage by the company in the Travel Sector. The value chain model of the company flight centre is as below:

Management Accounting.png

iv. Choose any 2 value-adding processes of your company from the diagram in (iii), and for each, explain the process. Give some specific examples on what value it contributes to the company's products/services, leading to business decisions for improving customer and shareholder value.

Answer - VALUE ADDING PROCESS ANALYSIS:

The two value adding process than be analysed from the value chain model as stated above of the company flight centre are:

• Human Resource Management: The management of human resource is among the major process that adds value to the functioning of the organisation as because human resources are the backbones of the company. The company cannot work on its own without the human resources being actively working. For the company Flight Centre, the human resource are the employees who are working at the different stores of the company wherein they are responsible for converting the prospective customers into real customers and designing of policies, etc. The value created by the human resources on the services offered by the company is basically the offers and packages being offered to the customers. The human resource also comes out with plans and procedures of improving the customers satisfaction by providing travel deals that are effective.

• Marketing and Sales: This is among one of the major process of the company Flight Centre for adding value. This is because if the company comes up with new packages and deals but the same is not marketed or conveyed then it becomes useless. Therefore, marketing of the offers, deals and packages helps in increasing the sales of the company. The marketing process also involves surveys wherein the assessment of the results of marketing are analysed so that further improvements can be made on the same.

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v. Finally, comment on the relevance and usefulness of the information that you find in relation to your theoretical knowledge of the value chain concept.

Answer - RELEVANCE AND USEFULLNESS OF VALUE CHAIN CONCEPT:

The value chain concept is very much relevant and is used by the companies that faces high competition. This is because it allows the company to analyse all its process and check the extent of the value addition by them. For companies that have high competition as because the products offered by them are offered in large number by the other companies in the same sector, this tool act as an assessment tool. The process that have no value addition are thereby eliminated by the company and therefore the extra costs and all incurred by the organization on those process is reduced thereby resulting in cost reduction which ultimately is passed on to the customer. All this increases the customer satisfaction as because the customer takes on the advantage of the removal of the process from the value chain model. Therefore, we can assess the fact that the value chain model is very relevant and is used majorly by all the companies that faces high amount of competition.

The value chain concept of the company Flight Centre assess the fact that the company's process are all value adding one and that it helps in creation of value and the benefit of which is passed on the customer thereby increasing customer satisfaction.

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