BBAC501 Management Accounting

BBAC501 Management Accounting Assignment
Weight : 20%
Presentation of the paper: 1. Answers for each requirement should be clearly labelled and complete. 2. To enhance the quality of your responses, please read the marking rubric and follow the instructions under the assignment requirements correctly. 3. Show good and clear format of presentation in response to the answers for each question. Use of tables would be a good choice in presenting neat answers. 4. Use ‘Times New Roman’ or ‘Arial’, and Font size should be 12.
BBAC501 Management Accounting

PART A (15 Marks) – To be answered in group (as a team)
Mr. Thompson, an accomplished entrepreneur and former CEO, established her private business in Sydney, Australia, in 2010. Despite early successes, he encountered challenges stemming from technological advancements, shifting consumer preferences, and increased market competition, resulting in a decline in sales and rising input costs. The onset of the pandemic exacerbated these challenges, further complicating business operations. Now, after 11 years in the industry, Mr. Thompson is reassessing his strategies and seeking new investment avenues to revitalize her business. He is considering two proposed investment options: expanding his product line and entering a new market segment. To evaluate these options, Mr. Thompson has tasked his accountant with gathering relevant data for presentation to business consultants. CIC Higher Education has appointed a team to review and assess the investment proposals. Detailed information is provided in Part A and Part B of the assignment file, offering insights into the potential for growth and profitability in Mr. Thompson’s new investment endeavors.

Option:1
It is evident that the Covid-19 pandemic has reshaped the work environment, prompting businesses and employees to explore remote work options. With reduced commuting requirements, individuals may seek alternative forms of exercise, such as cycling, to maintain their physical health and well-being. Mr. Thomson envisions capitalizing on this trend by opening a specialty store retailing two types of bicycles: Road bikes and Mountain bikes. He aims to gauge customer interest and market demand for these products. Detailed information regarding the budgeted per-unit sales price and cost for the business in 2022 is provided below:

——————————— Road Bike — Mountain Bike
Retail Sales Price ———— $630 ——–  $850
Costs: Purchase price ——– 500 ———- 650
Variable Selling & Admin. — 80 ———– 100

The proposed budgeted for 2022 includes sales volume of 376 for Road bikes and 564 for Mountain bikes. The budgeted annual fixed store-relate costs are $60,000 and fixed selling and administrative costs are $24,800. The income tax rate applicable to the retail business is 30 per cent. The proposal states that sales price will remain the same for each type of bike, but volume is expected to increase by 4% in 2023 and by 5% for 2024 compared to the 2022 values. Purchase price of bikes is likely anticipated to rise by 2% for every successive year after 2022. The budgeted annual fixed storing costs will rise by $5,000 in 2023 and by $8,000 in 2024 from the amount budgeted for 2022. Fixed selling and administration costs are expected to remain the same every year.

BBAC501 Management Accounting

Option 2:
During the current pandemic and recovery season, it is observed that online shopping has become a trend, and many people are buying what they want via online shopping. This situation has opened an opportunity to increase business volumes on delivery services. It has become a possibility to sub-contract delivery services from Australian Post. The main task is to provide a range of reliable, timely and customized regular courier services in Melbourne CBD, including the wider metro areas. To conduct courier services, it is required to have its delivery trucks or hire owner drivers to do the job for an agreed price. Delivery service is highly diverse due to differences in the distance
(between pickup and delivery), the timeframe needed to complete delivery and the quantity of the item. The average price ranges from $15 to $18 per delivery item (or parcel). As the business Mr. Thomson is just starting, it has decided to classify delivery by area postcodes so that an average price of $15 is uniformly paid to each owner-driver.
The budgeted average fee to be collected from the Australian Post for each delivery item is $21.50. It is expected that the average delivery of items could reach about 150 parcels per day from Monday to Friday. No deliveries are made during the weekends. Australian post does not pay for parking, tolls, ferries, or fines incurred by subcontractors. Similarly, Mr. Thomson is also passing these expenses to owner drivers and the average price paid is meant to cover all expenses incurred by owner drivers.

To start the business of delivery services, it requires renting or own a warehouse, electronic registering facilities, gadgets that should be used by owner drivers, store employees to facilitate the activity, etc. Loading and unloading is part of the owner driver’s responsibility, and the business does not incur costs. Store and management costs are expected to reach about $4,487.50 per week. The delivery business is planned to operate every week for the entire year of 2022.

BBAC501 Management Accounting

Required:
as part of the consultancy services, you are required to conduct a thorough analysis and provide solutions and recommendations to Mr. Thomson in relation to the proposed two options presented above.

1. Determine the minimum sales volume required for each option to reach breakeven point in 2022. Present detailed calculations for both alternatives and offer a comparative analysis to recommend the best option.
2. Extend the assessment over a three-year period (2022 to 2024) and forecast the projected profit Mr. Thomson could attain from each investment option. Utilize budgeted figures and financial projections to conduct the analysis.
3. Evaluate the risk associated with each investment option for Mr. Thomson. Justify your assessment with reasoning and provide numerical evidence to support your conclusion regarding which option poses a higher level of risk.
(Maximum of 2 marks will be deducted if the format of presentation is not good.)

Part-B (5 Marks): Critical thinking and decision making– To be answered individually.

Given the uncertain situation in the market and the fact that things are changing rapidly, Mr. Thomson has asked each member of your team to answer the following questions independently.

1. He is unsure whether he has captured all costs and benefits associated with the two investment options. Therefore, he asked you to assess whether the cost and price estimates are reasonable or not. You can add what is missing or propose adjustment to his estimates and provide supporting evidence for your input.
2. In your opinion, what should Mr. Thomson consider if he must select investing only in one of the two investment options? Explain how he should select the best option and mention the likely indicators that would help you justify that one of the options is better than the other.
3. Alternately, assume that he wants to go ahead with investing in both options. Now what are the things he should check (or assess) before rushing to implement his decision to invest in both options?

(Hence: if needed, you can support your argument and views by presenting numerical computations based on data presented in Part A. You are expected to conduct further research and reading to answer questions raised in Part-B. Please present your response to the questions raised in Part-B using a memorandum format).

Specific Requirement of the Report’s Memorandum

• The report should not be longer than 500 words.
• Paragraphs of the report should be 1.5 lines spaced and written in a font size of 12 (It is recommended to use Times New Roman or Arial fonts).
• Margins: top, bottom, right-hand and left-hand should be at least 2cm.
• If your report is not uploaded on Moodle via the link provided or if it is hand- written, then it will not be marked.
• All pages of your report must be page-numbered and in the correct sequence.
• Cover page: please include a cover page that clearly presents the subject (unit name and code), your name and student number and the submission date.
• References: referencing of material used in the preparation of your report must be included in the report, and please ensure to cite and/or reference them correctly. You can seek assistance if you have any issues with referencing.

BBAC501 Management Accounting

To Be Continuous…