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Assessment task 2: Case Study
Due date: Week 10 Friday May 7thby 5.00pm
Objective of the assignment:
The overall objective of this assignment is to develop skills that are crucial to gaining employment in the field of Accounting and achieving long-term career success. These skills include:
1. explaining and applying management accounting techniques for business planning and control;
2. identifying and analysing behavioural accounting, ethics, social responsibility, and sustainability issues, related to management accounting and decision making; and
3. using professional, written communication to report decisions and recommendations, based on management accounting information.
Case Study: Hobart Microbrewery
In 2015, John decided to start up his own brewery, Tasmania Microbrewery Inc (TMI). His family supported his decision, and joined him in investing in the business. TMI began operations on January 1, 2015, and now produces four labels of specialty beer: Saguaro Pale Ale, Bisbee Bock, Ocotillo Amber Pilsner, and Sedona Stout. For an explanation of the brewing process, click here.
Assume that the beer is to be produced and sold via a three-tier system (brewing by the producer, sale to distributors, who then sell to retailers), John employs two salespeople, who receive a fixed, monthly salary, plus a 5 percent commission. The beer is sold to distributors in cases of 24 bottles. Product sales and some cost information for 2020, are shown in Table 1. John rents a premises which consists of an area where the brewing process takes place, a refrigeration facility for storing the finished product, and a small office. TMI brewery has five machines, with 9 500 total machine hours available, per year, to produce the beer (assuming the employees of TMI only work one shift with some down-time for regular maintenance). While there is additional space in the facility that could be used to expand the brewing operations, the company would need to purchase an additional grain hopper and brew house (additional equipment and machinery, such as a grain hopper, fermentation and storage tanks, filters, and extra cleaning and waste treatment systems) for about $150,000 (the current water supply and process-control system could be expanded to handle the new machines).
To create a cleaner, clearer product, the beer must be ‘aged’, or ‘largered’, in a refrigeration unit. The temperature and length of time required for this process to occur varies, according to the type of beer. For example, ales are usually aged/largered at between 4.5 and 13 degrees Celsius, for no more than a few weeks while lagers require a much lower temperature (0 to 7 degrees Celsius), and a much longer time (typically months). TMI’s current refrigeration unit allows for different temperatures in different areas of the unit, and is usually run at about 80 percent capacity in order to keep electricity costs down. While, overall, TMI’s sales are increasing, this growth has been somewhat erratic. For example, from 2015 to 2018, sales growth was more than 35 percent, compared with only 10 percent, from 2019 to 2020. In view of this, to meet any unforeseen rises in demand, the company has, therefore, adopted a strategy of deliberately stockpiling its beer.
John has not taken a salary since starting up his enterprise. Instead, he has been investing the company’s initial, small profits back into the business, with the aim of further growing its bottom line. Recently, he was thinking about increasing the price of Sedona Stout from $27 to $30.00, per case. However, he calculated that this would most likely result in a decrease in the total annual sales of the product, by 10 percent. He is now considering dropping the price to $25 per case, estimating that this will boost sales by 11 percent per year.
Right now, John needs $150,000 to cover the cost of the additional equipment required to expand his company’s operations. However, since the business is new, and has been posting only small profits, he has not been able to secure a bank loan. He has decided, therefore, to more fully utilise the company’s existing machines. He also wants to keep producing all four of his product lines because many of the beer distributors prefer to purchase from breweries offering a variety of beers.
To further maximise profits, John is considering producing a new product, root beer, which is non-alcoholic. This would require different machinery, which could be purchased second-hand, for $8,000. Based on market research, he estimates that he could charge $16 per case, for the new product. However, based on the same market research, he realises there is a lot of uncertainty around how many cases of root beer the company might actually manage to sell. Furthermore, John is less familiar with the root beer market, and is aware that there is stiff competition, in the form of a wide range of specialty root beer available for sale in local grocery stores and supermarkets. Taking all of this into account, while he would ideally like to sell anywhere up to 12 000 cases of root beer per annum, he realises that a more realistic figure would be about 6 000 cases.
As the root beer does not need to be sold through the three-tier system required for sales of alcohol, it could be sold directly to specialty retailers, such as Bottle Shop, Thirsty Camel, BWS, and Dan Murphy. John could produce the root beer by out-sourcing production to a company who would allow it to be sold under the TMI brand (this option is referred to as ‘‘private label’’). The stock would then be bought back by TMI for $13.25 per case, plus some variable handling costs and other minor fixed costs. Alternatively, TMI could produce the root beer in-house (see Table 2 for estimated costs).
Table 1. Per Case Information
Saguaro Pale Ale
Ocotillo Amber Pilsner
Direct Materials, per case
Variable overheads, per case*
Cases Sold last year
Direct Labour Hours, per case
Machine Hours, per case
Direct Fixed Costs
Common Fixed Costs
*Overhead cost Includes: production supplies, variable portion of maintenance, variable portion of utilities, variable office supplies, shipping costs, and 5% sales commission.
Table 2. Root Beer Costs
Panel A: Alternative 1—Produce In-House
Direct Materials, per case
Direct Labour Hours, per case
Variable Overheads, per case
Additional Fixed Costs, per year
Panel B: Alternative 2—Out-Source Production
Purchase price, per case
Variable Overheads, per case
Additional Fixed costs, per year
John has now approached you, a highly capable and reputable team of management and cost accountants based in Hobart. You were chosen because of your excellent reputation, and extensive knowledge of local market. John asks you to research the financial viability the proposed project, and to advise him, accordingly. Your advice must be supported both by your Excel workbook calculations and qualitative evidence.
You are required to provide estimates/answers for the following. (Correctly reference all your sources)
By referring to last year’s actual data and sales mix, calculate the total number of cases John would need to sell in order to earn $65,000 after tax. Then, break this figure down into the number of each product, which he would need to sell.
Assume you performed the calculations in Question 1 correctly. In your report, identify and explain any issues related to your analysis in Question 1, and your assumptions that informed it (discuss each concern – what it was and why it was a concern; do not simply discuss the general facts of the case, such as why TMI is charging a certain price for a particular product, or how TMI can reduce direct material costs).
John has a few options regarding Sedona Stout pricing: (a) keeping the sales price the same (no change); (b) increasing the sales price; or (c) decreasing the sales price. What would you recommend he do and why? Provide both quantitative and qualitative analysis.
John wants to achieve a sales figure that will optimise profits, by maximising the company’s production capacity. What do you think? analyse and evaluate the strategies he is proposing to adopt to achieve these goals? Provide both quantitative and qualitative analysis.
On the basis of the sales forecast for root beer, recommend which of the two options (in-house or out-sourced production) would be the most financially viable, and why? Support your recommendation with relevant qualitative analysis.
What other issues, concerns, or further analysis would you want to discuss with John? These could pertain to whether TMI should add root beer as a new product line and, if so, the issues and concerns related to in-house production versus out-sourcing. You need to consider both numeric and non-numeric issues. Explain how they relate to this company/option, and why they are important to consider
Identify and analyse any social responsibility issues related to a brewing business like this (e.g., water usage, power usage, pollution, …etc), and recommend some potential solutions.
Your assignment will consist of two separate files: an Excel file and a Word file. Both must be submitted, together.
Information not provided in the case, or that needs to be estimated, should be obtained from industry sources, which should be appropriately referenced in your Excel file.
Your report (in the Word file) should have four sections: Executive Summary, Introduction, Body, and Conclusion and Recommendations. For more information about how to write a good report click here, and how to write a good executive summary, click here.
Your report must be typed, using size 12 font, with 1.5 line spacing, and 2.5 cm margins on all sides. The maximum length is 2000 words (including in-text references and the Bibliography). Please state your word count at the beginning of the assignment.
DO NOT copy and paste .jpg or other image files into your Word document, in an attempt to circumvent the word count, or you will be penalised. Reference your Excel workbook, rather than copy and paste tables and diagrams into your written report.
The report and accompanying spreadsheet will be marked strictly according to the rubric supplied.
Under no circumstances should you share your assessment with other students. This constitutes academic misconduct, and punitive action will be taken. All similarity reports on Turnitin will be thoroughly investigated.
An electronic copy of your assignment needs to be submitted to the relevant BFA312 MyLO assignment dropbox, by the due date and time (Week 10, Friday May 7, by 5.00pm). The file name should include your name and student number (ONLY ONE STUDENT NAME/NUMBER. it’s NOT a group assignment).
High Distinction (80-100%)
Apply appropriate quantitative techniques to use costing information to provide answers to specific questions. Execute calculations correctly, and compiles the Excel worksheet using formulae and hyperlinks 7.5 marks
Demonstrates exemplary ability to calculate costs, with more than 80% of calculations correct. Provides an outstanding analysis based on management and cost accounting principles. Makes comprehensive use of formulae and hyperlinks in compiling worksheet.
Demonstrates a very good ability to calculate costs, with more than 70% of calculations correct. Provides a very good analysis based on management and cost accounting principles. Uses some formulae and hyperlinks in compiling worksheet.
Demonstrates good ability to calculate costs, with more than 60% of calculations correct. Provides a generally sound analysis based on management and cost accounting principles. Makes limited use of formulae and hyperlinks in compiling worksheet.
Demonstrates an average ability to calculate costs, with more than 50% of calculations correct. Provides an adequate analysis based on management and cost accounting principles. Makes minimal use of formulae and hyperlinks in compiling worksheet.
Fails to demonstrate an average ability to calculate costs, with less than 50% of calculations correct. Fails to provide an adequate analysis based on management and cost accounting principles. Makes insufficient use of formulae and hyperlinks in compiling worksheet.
Prepare a professional business report to communicate management accounting information for effective reporting and decision making. Recommend a course of action based on your analysis to support management decision, making use of precise business terminology and formal style to clearly communicate meaning. 5 Marks
Presents a professional report that has flawless English. Provides an executive summary that accurately captures the subject matter, analytical methods (both quantitative and qualitative), key findings and limitations. Uses the introduction of the report to comprehensively and accurately explain all terms of reference and methods, and to very clearly outline the structure of the report. Concludes the report with a very clear and comprehensive summary of findings, and relevant comments and recommendations.
Presents a professional report that demonstrates a mostly clear and accurate use of English, with only a few minor errors. Provides an executive summary that mostly captures the subject matter, analytical methods (both quantitative and qualitative) key findings and limitations, very well. Uses the introduction of the report to provide a mostly accurate explanation of all terms of reference and methods, and to provide a generally clear outline of the structure of the report. Concludes the report with a good summary of findings, and relevant comments and recommendations.
Presents a professional report that demonstrates a reasonably clear and accurate use of English, but with some major errors. Provides an executive summary that mostly captures the subject matter, analytical methods (both quantitative and qualitative), key findings, and limitations, quite well. Uses the introduction of the report to adequately explain most terms of reference and methods, and to provide a satisfactory outline of the structure of the report. Concludes the report with a mostly satisfactory summary of findings, and mostly relevant comments and recommendations.
Presents a report that demonstrates only a basic use of English, with many major errors. Provides an executive summary that somewhat captures the subject matter, analytical methods (both quantitative and qualitative), key findings, and limitations. Uses the introduction of the report to explain only a few terms of reference and methods, and to provide a barely satisfactory outline of the structure of the report. Concludes the report with a barely satisfactory summary of findings, and some relevant comments and recommendations
Presents a report that fails to meet the minimum requirements, in terms of clear and accurate use of English. Provides an executive summary that fails to adequately capture the subject matter, analytical methods, (both quantitative and qualitative) the key findings, and the limitations of the report. Fails to provide a satisfactory amount of information both in the introduction and conclusion of the report.
Explain the nature and the role of cost and management accounting techniques and theories that are relevant to the case study. Use a Harvard referencing system. 7.5 marks
Demonstrates excellent knowledge of relevant management and cost accounting keywords, techniques and concepts. Provides comprehensive discussion, which is strongly supported by relevant evidence from Excel file and management accounting literature. All citations comply with Harvard Style.
Demonstrates very good knowledge of management and cost accounting keywords, techniques and concepts. Provides sound discussion, which is well supported by relevant evidence from Excel file and management accounting literature. All citations comply with Harvard Style.
Demonstrates generally good knowledge of management and cost accounting keywords, techniques and concepts. Provides satisfactory discussion, which is supported by some relevant evidence from Excel file and management accounting literature. All citations comply with Harvard Style.
Demonstrates adequate knowledge of relevant management and cost accounting keywords techniques and tools. Provides only limited discussion, which is supported by limited relevant evidence from Excel file and management accounting literature. The majority of citations comply with Harvard Style.
Fails to demonstrate adequate knowledge of relevant management and cost accounting keywords, techniques and concepts. Provides unsatisfactory discussion, which is supported by little relevant evidence from Excel file and management accounting literature. The majority of citations do not comply with Harvard Style.
Identify and analyse the impact of ethics and social responsibility, and /or sustainability issues in management accounting and decision making. 5 marks
Provides exemplary critical analysis of key ethics and social responsibility, and or sustainability issues.
Provides a very sound analysis of the majority of ethics and social responsibility, and or sustainability issues.
Provides a mostly sound analysis of only a few of ethics and social responsibility, and or sustainability issues.
Provides only a basic, but often vague, discussion of a minimal number the ethics and social responsibility, and or sustainability issues.
Provides inadequate discussion of ethics and social responsibility, and or sustainability issues, or provides discussion of irrelevant issues.
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