Business Decision Scenario Analysis Assignment Answer

Question 1: Analysis of Special order

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1. Costs relevant for special order

The costs relevant for the analysis of special order to ascertain Janice Williams's analysis are identified to be variable marketing costs and variable direct material costs. Both these costs are considered to be significant as a one-time order of 2500 medals is likely to impact the variable costs that will be incurred by Winner's circle. Fixed costs are likely to remain unimpacted due to the fact that both manufacturing and marketing fixed costs are compelled to be borne despite adequate production facilitation being present or absent.

2. Discussion on acceptance

In order to conduct a feasible analysis for the special order costing, all values are considered to be converted into 25% production capacity given the figures currently prevailing at 75% production capacity.

Figure 1: Special Order Costing Statement

According to figure, the special order is likely to fetch an overall profitability of $ -112,500 if accepted. The new unit costs further include variable cost per unit being calculated as $ 85 and fixed cost per unit being calculated as $ 45. Therefore, the special order should be rejected by Winner's Circle due to loss making possibilities. Dierkes & Siepelmeyer (2019), stated that loss making attributes for a new proposal also hinder cash flow and operational stability of an organisation leading to lower competitive advantage.

3. Additional considerations associated with special order

Additional considerations that are needed to be incorporated by Williams to contemplate analysis of the special order include consideration to economic factors of inflation and hike in commodity prices. Incorporation of economic factors is necessary to wholly ascertain how a special proposal could be influenced due to external forces (Rubino & Veltri, 2020).

4. Steps needed to be initiated for resolving ethical conflicts

Steps needed to be initiated for resolving ethical conflicts for avoiding competitive bidding includes restructuring and revision in company policies that entail supplier selection process.

5. Discussion on computation when sales price changes&

Figure 2: Revised Statement of Costing for Winner's Circle

The revised statement of Costing for Winner's circle attributes the new contribution value being calculated as $ 212,500 and profits being calculated as $ 62,500. Moreover, the new fixed cost per unit is also revised to be calculated as $ 25 per unit. Darinskaya et al. (2020), stated that increase in per unit sales value encourages increase in profits and cost burden is therefore deemed to be minimised.

Question 2: Make or Buy

1. Make or Buy

Figure 3: Make or Buy for Current and Previous Year

A) Analysis of relevant costs for demonstrating make or buy

On the basis of contemplating the above figures at 30000 units, it can be determined that the total manufacturing cost incurred is considered to be calculated as $ 11,95,200.00. Moreover, the total buying cost at 30000 units is calculated as $ 11,07,200.00. Therefore, on the basis of considering the make or buy scenario applicable for 30000 units it can be determined that buying cost is considerably lower in comparison. Similarly for 32000 units the total manufacturing cost has been calculated as $ 12,56,880.00. Consequently, the total buying cost calculated for 32000 units is being expressed numerically as $ 11,07,200.00. Therefore, in both scenarios, the buying cost if the contract with Jensen motor transpires will be lower and the NSW division of AMC should contemplate purchasing AIR-P76. The ultimate motto for an organisation is considered to be maximising profitability for a particular product and traces of lower costs available for a scenario should be chosen in order to optimise future operational activity streams (Fakoya & Imuezerua, 2021).

B) Recommendation on Make or Buy of AIR-P76

On the basis of the above results, 32000 units of AIR-P76 should be purchased by the division from Jesen motor. Justification offered for recommending the buying decision is purely based on the buying option being reasonably placed on where overall cost burden for AMC and NSW division will be lower. Moreover, activity streams and business decisions associated with how AIR-P76 can be monetised will also be drastically lower in the buying decision leading to better encouragement in achieving a higher profit proportion.

2. Qualitative factors needed to be considered for purchasing AIR-P76&

The primary qualitative factor that is needed to be considered by the NSW division is related with locating historical and past performance of Jensen motor. Secondary and tertiary factors associated with qualitative features include comparative assessment of bids offered by other vendors and qualities of raw materials supplied by Jensen Motor for AIR-P76.

3. Discussion on prospects of unethical proposal

Marilyn Hammond might consider the request of James Patterson as an unethical one as the relevance of material prices and fixed costs are mostly subject to change due to external economic factors.&

Question 3: Hospital Products Ltd

1. Break-Even Analysis

Figure 4: Break-Even Analysis

A) Break-Even volume

As per the above figure of break-even analysis, break-even volume or units is calculated as 22578.95 units. Formula applied for determining break-even units is considered to be the proportion of total fixed costs and contribution margin per unit (Scouse et al. 2020).

B) Break-Even sales value

The above figure of break-even analysis indicates break even sales value being calculated as $ 98,218,421.05.00.

2. Recommendation and Impact

Figure 5: Calculation of revised profits

On the basis of contemplating the above calculation of revised profits it can be determined that profitability achieved when sales units increase and sales price decreases is calculated as $ 14,700,000.00. Actual profitability calculated when total units were identified as 36000 contains a numeric expression of $ 30,600,00.00. Therefore, the revised action should be discouraged by Hospital Supply Ltd as profit proportion reduces significantly and costs also increase proportionally. Impact on monthly sales converted into annual figures is however considered to be favourable as total sales value is expected to increase marginally.

3. Impacts of accepting government contract on March Profits

Figure 6: Statement of Impacts for Accepting Government Order

As per above computation of impact if government order for March is fulfilled, the overall profitability including fixed fee is calculated as $ 87,500.00. Therefore, the impact is likely to be a positive one leading to increase in March profits for Hospital supply limited. Edeh, Obi & Ugwoke (2019), stated that incremental impacts causing a rise in profitability is a favourable scenario for an organisation encouraging better future growth.

4. Minimum Unit price

Figure 7: Minimum Price

Minimum unit price for Hospital products is calculated as $ 432 per unit.

5. Minimum price acceptable

Figure 8: Minimum Price Acceptable

Minimum price needed to be offered for selling obsolete inventory is calculated as $ 272.83.

6. In-house costs needed to be compared and discussion on acceptance

Figure 9: Statement of Proposal

In-house costs needed to be compared are considered to be marketing and manufacturing costs. The proposal should be selected based on profits earned as $ 869,000.00

Question 4: Reflection

The knowledge of accounting processes and the information products produced by the accounting information system are considered to portray important financial aspects applicable for an organisation to determine how future business opportunities can be expanded in order to gauge growth. I feel that the accounting process and information products produced by the accounting information system are likely to impact my career by considering two important areas. I will be able to conduct a detailed assessment of accounting treatment and enable my development and understandability to understand various possible accounting scenarios.

1. Detailed assessment of accounting treatment needed to be facilitated

The first impact on my career is associated with enhancement in my ability to conduct a detailed assessment of accounting treatment needed to be facilitated. I believe that accounting processes should primarily involve recording of transactions and how financial transactions are being treated especially in journals as well as ledger accounts. As illustrated and narrated by Kaplan & Ramanna (2021), suitable presentation of accounting treatment and accounting process under journal as well as ledger paves the way to incorporate preparation of a suitable trial balance, income statement and balance sheet. The additional impact on my career could be associated with how accounting information and data is being handled and managed through the accounting information system. I feel that the role of technology and digital tools are paramount to ascertain and engage in the preparation of a suitable financial statement considering data management through an accounting information system is being conducted fairly.

2. Enabling development and understandability of various possible accounting scenarios

The second area of impact on my career considering knowledge retrieved from accounting processes and information products by the accounting information system is related to enabling development and understanding of various accounting possible scenarios. I believe that the accounting information system is a stable platform through which various accounting scenarios can be evaluated, especially concerning future projected growth of an organisation. In my opinion, accounting information systems are particularly suitable to conduct sensitivity analysis of future expected business prospects where best case as well as worst case scenarios can be incorporated in a coherent and cohesive manner. Moreover, accounting information systems can also offer organisations a better reading of a particular scenario and decide what the future course of action needs to be initiated.

References

• Darinskaya, V. V., Bratko, I. V., Zubareva, E. V., Borisova, E. N., & Drachena, I. P. (2020). A Target-Costing Cost Accounting System as a Strategic Management Tool. In Frontier Information Technology and Systems Research in Cooperative Economics (pp. 731-738). Cham: Springer International Publishing.https://link.springer.com/chapter/10.1007/978-3-030-57831-2_79
• Dierkes, S., & Siepelmeyer, D. (2019). Production and cost theory-based material flow cost accounting. Journal of Cleaner Production, 235, 483-492.https://www.sciencedirect.com/science/article/pii/S0959652619321730
• Edeh, N. I., Obi, C. A., & Ugwoke, E. O. (2019). The strategies required for improving the teaching of cost accounting in colleges of education in south-east, nigeria. Library Philosophy and Practice, 1-49.https://core.ac.uk/download/pdf/215161981.pdf
• Fakoya, M. B., & Imuezerua, E. O. (2021). Improving water pricing decisions through material flow cost accounting model: a case study of the Politsi Water Treatment Scheme in South Africa. Environment, Development and Sustainability, 23, 2243-2260.https://link.springer.com/article/10.1007/s10668-020-00672-7
• Kaplan, R. S., & Ramanna, K. (2021). Accounting for climate change. Harvard Business Review, 99(6), 120-131.https://www.johnwbyrd.net/wp-content/uploads/2022/04/Accounting-for-Climate-Change.pdf
• Rubino, F. E., & Veltri, S. (2020). Accounting for Sustainability—Could Cost Accounting Be the Right Tool?. Accounting, Accountability and Society: Trends and Perspectives in Reporting, Management and Governance for Sustainability, 81-91.https://link.springer.com/chapter/10.1007/978-3-030-41142-8_5
• Scouse, A. A., Kelley, S. S., Venditti, R. A., & McConnell, T. E. (2020). Evaluating sustainable product alternatives by combining life cycle assessment with full-cost accounting: a highway guardrail case study. BioResources, 15(4), 9103.https://search.proquest.com/openview/f8f26b5f776ea45dd9c84354adbe8c5d/1?pq-origsite=gscholar&cbl=5038271