ACC/ACF2200 Introduction to Management Accounting 2020S1 Assignment

Innovation Ltd. (IL)

The story of the Innovation Ltd. (IL) starts with its founder Tom Cat. It's a story that impresses and inspires, encourages and heartens: a story of determination and tenacity, of unfailing vision and unwavering focus of one man who, 48% against all the odds, found a way of changing an industry.

IL Founder, Tom Cat had a unique vision - he wanted to offer consumers the finest tea based products on earth and to do so with ethics and integrity. Tom Cat consistently delivers on his commitment to sharing the finest and most authentic cup of tea and tea based-products while being true to their very strongly-held principles of doing business as a matter of human service.

With a humble beginning IL emerged as a major manufacturer of tea-based drinks and desserts in Australia. Tom Cat's vision is to establish the company as a premier brand in the Australian tea-based product market. The company produces and sells iced tea drinks, tea- flavoured ice-cream and tea-flavoured confectioneries.

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ACC/ACF2200 Introduction to Management Accounting 2020S1 Assignment

The market faced by IL is dynamic and highly competitive. Driven by growing interest in healthy ready-to-drink beverages and the increasing health consciousness among baby boomers and younger adults, IL enjoyed a fourfold increase in sales between 2012 and 2018. However, the company faces fierce competition from new local and international competitors for retail shelf space in supermarkets and other retail outlets. IL's competitors offer fast delivery from local production center's and/or lower prices in their bid for shelf space. Without sustaining its hardly earned share of shelf space in retail outlets, IL cannot maintain its momentum.

To tackle the challenges posed by its competitors, IL places a strong emphasis on research and development. The company has a 15-person research team in its headquarters. The research team maintains close working relationships with CSIRO Food and Nutritional Sciences and the Monash University and has a good track record in developing successful new products for the company. Some of IL's new products developed by the team include tea-flavoured chillers and tea-flavoured ice cream. These products played a key role in allowing the company to achieve the exponential sales growth in the last six years.

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ACC/ACF2200 Introduction to Management Accounting 2020S1 Assignment

Materials used in the production of IL's products are acquired from a variety of sources. IL imports JAS certified organic tea leaves from Japan for its premium tea product lines and Rainforest Alliance certified tea leaves from Kenya for other products. Spices are imported from India, while additives and other chemical products used in production are imported from the United States and France. For fresh produce and packaging materials, Australian products are used. All materials are ordered by the corporate procurement manager and are delivered to the warehouses of the manufacturing plants directly.

IL is based in the state of Victoria. The company has its corporate headquarters in South Yarra under a long term lease and all production takes place in wholly-owned manufacturing plants in Dandenong, Keysborough and Clayton. The company currently employs more than 1,300 employees and around 80% of them are based in the three manufacturing plants. Each manufacturing plant operates as a separate business unit and produces a range of products. For example, the Dandenong plant produces iced chai tea chillers, iced peach tea and green tea- flavored ice cream. Each plant has a comprehensive range of processing, packaging and storage facilities, and runs its own fleets of trucks for the transportation of materials and distribution of products.

Production of all IL's tea-based products begins with extraction of tea extract from tea leaves. Tea leaves are cleaned, batched and extracted with an integrated single-pass tea extraction system which is installed in each plant. The system produces tea extract which is cooled, clarified and formulated for further processing. The tea extract is subsequently used as the base for tea drinks and as an additive for other tea-based products such as ice-cream.

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ACC/ACF2200 Introduction to Management Accounting 2020S1 Assignment

Further processing of tea-based products is marked by high degree of variation. Each type of tea-based product has certain unique manufacturing processes. For example, production of tea- flavoured ice-cream involves pasteurization, homogenization and ageing processes and the production of tea drink requires coagulation, filtration, and chlorination of water. Equipment associated with those unique processes (e.g. pasteurizer) is used in the production of relevant products (e.g. ice-cream) only. Some manufacturing processes such as mixing and cooling are shared by multiple products but at different stages of their production.

For example, mixing process takes place at the beginning of the production of tea-flavoured ice-cream but occurs in the middle of the production of tea-flavoured lollipop. As such, capacity management of shared equipment like mixers and coolers has become a major issue for the company. To cope with the complexity in its manufacturing operations, IL invests heavily in flexible manufacturing systems and information technology. Each plant has its own computer- based information system that is connected to the central mainframe computer at the headquarters.

IL sells its products directly to retailers through its well-established national sales force. Tom Cat puts a lot of effort into development of IL's sales force. The company currently has a network of sales offices in all eight states and territories of Australia. Each state/territory sales office has a regional sales manager and a team of 20 - 30 sales representatives. The regional sales managers are directly responsible to Tom Cat. The company also has a 24-person corporate marketing team headed by Tom Cat himself, a team that comprises a small number of staff dealing with customer queries and complaints. IL's sales force gives the company a competitive edge in the competition for retail shelf space.

Acknowledgement: This case was adapted from Premuroso et al. (2011) IAE. Photo source: https://www.dilmahtea.com/

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Required:

ACC/ACF2200 Introduction to Management Accounting 2020S1 Assignment

1. Conduct some research to explain the value of cost classifications for IL and how this may assist Tom Cat in improving their decision-making processes.
2. Conduct some research into costing techniques that IL might find useful. Based on this research and using the details in the case, choose a specific technique (or set of techniques) that you believe would be most suitable. Describe specifically how your chosen technique(s) could be used by providing tangible examples of how they would operate within IL. It should be clear from these examples how IL would determine a product cost for their products. Also, briefly describe why you consider your chosen technique(s) to be superior to other techniques.
3. Please note: you are not required to actually calculate any costs here, just outline how costing could be done differently. Therefore, you may wish to provide a table or diagram outlining the operation of your proposed costing technique(s).
4. Using the details in the case, describe how your chosen method of calculating product cost will be beneficial within IL and have relevance to management.

Word Limit: 1,200 words

Page Limit: 6 pages

Please note: This word and page limit includes any tables, diagrams, figures or appendices that are used. Exceptions to the word and page limit are the cover page, table of contents, and reference list. Penalty applies for breaching the word limit.

Penalty:

The following penalties will apply for breaching the word limit: Between 1 and 150 words over the limit Penalty of 5% Between 151 and 300 words over the limit Penalty of 10% Between 301 and 500 words over the limit Penalty of 15% Between 501 and 1,000 words over the limit Penalty of 20%

In excess of 1,000 words over the limit Penalty at the discretion of the marker with a minimum penalty of 25%

Referencing: Please use APA style referencing1.

Submission: You are required to submit your assignment to Turnitin via Moodle. Please e-mail your assignment coversheet to your tutor (the coversheet is available on Moodle).There is no requirement for hard copy submission. Turnitin is a text-matching software that checks a student's written work against electronic texts on the internet, published works (such as journal articles and books), and assignments submitted to Turnitin by other students.

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ACC/ACF2200 Introduction to Management Accounting 2020S1 Assignment

In order to gain access to the Turnitin submission dropbox you must first complete an 'Academic Integrity' quiz on Moodle. The link to the dropbox will be available once you score full marks in the quiz - you can attempt the quiz as many times as is necessary. To prepare for the quiz, you should complete all of the modules at the following link: http://www.monash.edu/library/skills/resources/tutorials/academic-integrity

1 http://guides.lib.monash.edu/citing-referencing/apa

It is likely that you may be required to make some assumptions when answering the

questions. You are strongly encouraged to go through the 'Guidelines on Assignment

Submission' on Moodle before you start working on the Assignment.

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