Management Accounting Assignment On Snoozy Trading Co Ltd And AusMilk Ltd

Background information on the case studies

Cost of goods manufactured schedule

Cost of goods sold schedule

Income statement for Snoozy Trading Co Ltd

(i) Advantage of Australian dairy product in China

Australia can be benefitted from exporting their dairy products in China as the global demand for the dairy products are currently in high demand in China. Further, Australia can be benefitted as the free trade deal with China will reduce the export tariff and Australia can take the advantages of that fact.  Moreover over next 4 to 11 years tariff on the formula milk on infant ay the rate of 15% will be removed. It will increase demand for quality, safe and healthy and protein rich dairy products in China (Douphrate et al., 2013)

Reduction of export tariff will improve the overall investment status of the company. Further it will improve trade balance and reduce the private consumption. However, as per competitive effect even the reduction of tariff will lead to higher demand for import in the exporting country, the impact of such increase in demand will not significant owing to low price elasticity of the product.  However, with the reduction in export tariff the exporting company will manufacture more units of product for exporting as it will have more amount for investment (Fuller & Beghin, 2015).

(ii) Difference in western and Chinese approaches of management accounting 

In China the system of management accounting is developing for the last 3 decades and it is among the other fields that is undergoing rapid changes. Concepts of western management accounting have been in practice in China from 1970s and since then it is developing steadily. Generally it is assumed that there is no consistent and comprehensive theory for management accounting anywhere in the world. Therefore, various discrete management accounting branches like activity based costing faces various challenges in application and adoption. It is further difficult while quantifying the information and values in management accounting for the purpose of strategic management and decision making. Further, in China the management accounting is not properly emphasized from the firm as well the government perspectives. Moreover, there are lack of required software for supporting the calculations and decision making under management accounting.    

Guanxi refers to have strong relationship and personal trust with someone that can involve exchange of favours and moral obligations. Sometimes it is wrongly perceived under western business as bordering the unethical behaviour related to corruption. Guanxi is generally translated as relationship, networks or connections (Kaynak, Wong & Leung, 2013). However, none of the mentioned terms justifies the complex and fundamental concept of the term and its role in the Chinese culture. The term can also be used to state the network of contacts that the individual can call while something is required to be done (Luo, 2013).

Preparing cost of goods manufactured schedule, cost of goods sold schedule, and an income statement for Snoozy Trading Co Ltd

On the other hand, the term power distance is stated as the extent by which less powerful members of the institutions and organization expect and accept that the power is unequally distributed. In Australia power distance is low that is there is no gap among the wealthy and poor people. On the contrary, power distance in China is at very high level (Sriramesh, 2013). Therefore, the culture inequalities in Chian are normal and acceptable. They feel more comfortable when the superiors do not waive the power to the subordinates. On the other hand, the superiors will prefer to take decisions themselves (Hu, Chand & Evans, 2013).

(a) Five year budget

• Sales, production and purchase budget

Sales budget

Production budget

Purchase budget

• Budgeted cost of goods manufactured schedule

• Budgeted cost of goods sold schedule

Gross profit schedule

(b) Increased production constraint

Computation of NPV

(c) Report to CEO

Project opportunities and risks analysis for the project is the procedure that enables the management to evaluate the risks associated with the project and opportunities that can be availed by taking up the project. The project can evaluated through various methods like NPV, IRR or payback period. However, NPV approach is considered as most appropriate as it takes into consideration the time value of money (Žižlavský, 2014). Generally the project is considered acceptable if the NPV is positive and is considered as not acceptable if the NPV is negative. From the above calculation it can be found that the NPV of the project is $ 20, 354,314.16. Therefore, the project is acceptable. However, the other facts like risk and opportunities shall be analysed before accepting the project. Various opportunities that can be gained from the project is the enhanced production capacity which in turn will enable to gain competitive advantages as against the major competitors. It will further enable the company to produce more units that will in turn lead to higher level of profitability (Leyman & Vanhoucke, 2016). In the contrary the risks may be shortage of labour for higher production and increase of wage expenses. The company may also face the constraints regarding the required capital for investing in the new project. Therefore, these factors shall be considered before accepting the project.  

(i) Distinguish between variable cost and fixed cost and product cost and period cost

Variable costs are the costs that changes with the changes in units. It reduces and increases with the decrease or increase in the units produced. Therefore, the variable costs per unit remain same and are incurred only when there is any production. The main components of variable costs are generally the cost of direct material, direct labour and variable overheads.

Developing a comprehensive production and manufacturing income budget for AusMilk Ltd

On the other hand, fixed costs are the costs that do not change with the changes in units. It does not reduces or increases with the decrease or increase in the units produced. Therefore, the fixed costs per unit reduce with the increase in production and vice versa. However, the fixed costs are incurred even when there is no production. The main components of fixed costs are generally the cost of distribution overhead, selling and administration overheads.

Period cost and product cost –

Period costs are not related to the production and is not distributed to the product. These costs are fixed; time based and includes fixed manufacturing costs like selling cost, distribution cost and administration cost. On the other hand, the product costs are allocated to the product and can be recognized with the product. It forms the inventory part and volume based. Product cost includes manufacturing or production cost that includes cost of raw material and labour (Drury, 2013).

(ii) Relevant range

It is the particular activity level that is abided by the minimum and maximum amount. With the particular level of boundaries particular revenues or costs take place. If the revenues or expenses fall outside the boundaries the expected amount will also change. For assessing the production level relevant range recognition is crucial as it will be used for financial planning, budgeting and accounting (Seuring & Goldbach (Eds.), 2013). However, apart from fixed cost the relevant range is also applicable for the variable costs like selling overhead.  The volume that is more than or less than the relevant range will change the per unit variable cost.

(i) Before and after budget comparison

(ii) Drop in sales for the competitor Death Star manufacturing

Change in sales volume –

The above analysis includes the details regarding the changes in sales volumes of Star Wars electronic toothbrush and its impact on sales volume of the competitor Death Star Manufacturing. It is identified that –

• Due to changes in the sales volume and advertising cost star wars total cost has been increased from $ 38,100,000 to $ 51,957,000. Further, the profit reduced from $ 69,00,000 to $ 65,43,000. Therefore the ROTA reduced from 17.25% to 16.36%.
• Due to changes in the sales volume Death stars total cost has been reduced from $ 30,480,000 to $ 22,427,250. Further, the profit reduced from $ 29,400,000 to $ 20,611,500 (Mishan, 2015).
• The company is not recommended to go ahead with the project as it will increase the cost and reduce the profit of the company. Further, the ROTA of the company will be reduced from 17.25% to 16.36% that is much lower than the required ROTA of 20%.

(i) Advice to Burdon

As per APES GN 40 on Ethical Conflicts in workplace, the ethical requirements and professional obligations that are required for the business members for complying are based on 5 fundamental principles of objectivity, integrity, confidentiality, due care, professional competence and professional behaviour under the code. Deltrey treated the material purchases as depreciable equipment and recorded it under the asset side whereas the material purchase shall actually be shown under the profit and loss account. Here in the given case Eric Burdon and his immediate manager are the main people those are affected. Other people those may get affected are other managers, users of the management accounts, users of finance, financial accounts, accounts payable, internal audit, shareholders, taxation office and financial backers. Burdon may corroborate the facts along with various other documents like material purchase bills, opening and closing stock of material and any other financial information. If decision of the management does not match with the members under business takes as appropriate the matter may be discussed with the next level of management and the stakeholders. Burdon may further discuss the matter with internal auditor (APES GN 40 Ethical Conflicts in the Workplace – Considerations for Members in Business, 2018).

Burdon shall first identify the relevant facts. Mr Burdon is aware that considerable events have been taken place those are not disclosed in the financial statements and those are treated in unethical manner. Key people affected in this case will be the manager, employer, company auditor, securities regulations and shareholders. Before discussing issues with auditor or any higher level managers Burdon shall consider the guidelines, policies, procedures, applicable regulations and laws and best practices of the company. Further, the people involved with the misstatement shall be listed down and then he is suggested to raise the issue in board.

References

APES GN 40 Ethical Conflicts in the Workplace – Considerations for Members in Business. (2018). Retrieved from https://www.apesb.org.au/uploads/standards/guidance_notes/40c1.pdf

Douphrate, D. I., Hagevoort, G. R., Nonnenmann, M. W., Lunner Kolstrup, C., Reynolds, S. J., Jakob, M., & Kinsel, M. (2013). The dairy industry: a brief description of production practices, trends, and farm characteristics around the world. Journal of agromedicine, 18(3), 187-197.

DRURY, C. M. (2013). Management and cost accounting. Springer.

Fuller, F. H., & Beghin, J. C. (2015). China’s growing market for dairy products. Iowa Ag Review, 10(3), 5.

Hu, C., Chand, P., & Evans, E. (2013). The effect of national culture, acculturation, and education on accounting judgments: A comparative study of Australian and Chinese culture. Journal of International Accounting Research, 12(2), 51-77.

Kaynak, E., Wong, Y. H., & Leung, T. (2013). Guanxi: Relationship marketing in a Chinese context. Routledge.

Leyman, P., & Vanhoucke, M. (2016). Payment models and net present value optimization for resource-constrained project scheduling. Computers & Industrial Engineering, 91, 139-153.

Luo, X. (2013). Guanxi competence as intercultural competence in business contexts: a Chinese perspective. interculture journal: Online-Zeitschrift für interkulturelle Studien, 12(20), 69-89.

Mishan, E. J. (2015). Elements of Cost-Benefit Analysis (Routledge Revivals). Routledge.

Seuring, S., & Goldbach, M. (Eds.). (2013). Cost management in supply chains. Springer Science & Business Media.

Sriramesh, K. (2013). Power distance and public relations: An ethnographic study of Southern Indian organizations. In International Public Relations (pp. 181-200). Routledge.

Žižlavský, O. (2014). Net present value approach: method for economic assessment of innovation projects. Procedia-Social and Behavioral Sciences, 156, 506-512.

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