Background

Fletcher Building Limited (FBU) has been a highly successful company over the last eight years. The company listed on the New Zealand Stock Exchange (NZX) in 2001, and for shareholders that had invested in the company in 2001, the company has delivered a 19% compounded annual growth rate. The company is now one of the largest on the NZX by capitalisation. The company has six main divisions; Building Products, Crane, Distribution, Infrastructure, Laminates & Panels, and Steel. It operates mainly in New Zealand (47% of sales) and Australia (39% of Sales), and other markets include North America, Asia and Europe. The Crane Division was the latest acquisition with FBU acquiring 100% ownership of the company in May 2011.

The results of FBU for 2019 showed Net Earnings after tax were NZ $164 million. It recovered from a number of events in 2018 when its EBIT in 2018 was NZ $ -228m. However, 2018 onward, a number of challenges confronted FBU with the burning of the convention centre project and followed by the most recent one, the WHO pandemic, Corona Virius.

Fictitious scenario

The Chief Executive Officer (CEO) of FBU, Jonathan Ling, is concerned that 2020 will be even more challenging. The CEO knows the importance of cost control, especially during difficult trading periods. As a consequence, he has employed a consulting team EMAL (Experts in Management Accounting Limited) to provide an independent review of costs and recommendations in a report. Although you are relatively new to the firm, you have had a good background of accounting education including the topic of management accounting that has given you the confidence about undertaking this task.

Additional information:

Some segment analysis by division

Building Products	2019	2018	2017
COGS - % of Revenue	77%	74%	72%
Material wastage % of COGS	3%	3%	2%
Idle time from factories	5%	3%	2%
Overtime worked from factories (ave % per year)	10%	12%	13%
Selling and Marketing Expenses % of Revenue	14%	12%	11%
% of Total Company Selling and Marketing Expenses	12.25%	12.10%	10.8%
Administration Expenses % of Revenue	10%	8%	6%

Steel Products	2019	2018	2017
COGS - % of Revenue	82%	80%	78%
Rework % of finished products (part of COGS)	10%	6%	5%
Inventory as a % of Total Assets	35%	34%	32%
Selling and Marketing Expenses % of Revenue	13%	12%	10%
Administration Expenses % of Revenue	10%	8%	6%

n.b. The Administration expenses for Steel Products Division include the full charge of 6 Factory Accountants (average annual salary of $100,000 each) plus 10 Administration staff (average annual salary of $50,000 each). All these staff are also responsible for the Infrastructure Division.

Building Division Product Costs of three products

Three products from the Building Division generate 25% of the Building Division revenue. The cost detail of these products are listed in the following table.

Description	Build 1	Build 2	Build 3
Total manufactured Product Cost	$650	$540	$800
Direct Costs % of Total manufactured Product Cost	60%	65%	50%
Mark Up applied to Product Cost for S G & A expenses	30%	30%	30%
FBU market share for each product	20%	25%	10%
Competitor selling price of equivalent product	$800	$650	$900
Competitor market share of equivalent product (Market share leader)	40%	40%	60%

The current costing system used across all divisions of the company is a traditional based standard costing system which applies an indirect overheard cost at the manufacturing level based on direct manufacturing costs for each product. A standard mark up is then applied to each product cost to reflect the company Selling, General and Administration Expenses (S G & A). This can vary between divisions and between departments within each division. Bill Roest, the FBU CFO has indicated to EMAL that the costs for the three main products should meet the competitors selling price and earn a mark up for a profit contribution of 20% on total costs.

Requirements:

The only information you have is available through the public domain and the additional information provided for this assignment (this is fictitious information used only for the creation of this assignment). Therefore you are to limit your research, review and analysis and any report and recommendations to the information obtained through the public domain. Do not contact FBU or any persons associated with the company about this assignment.

1. Access and read the Fletcher Building Annual Reports 2018 and 2019. In addition, you may read various articles in the media and announcements made by Fletcher.

2. Write a report to the CEO that addresses the following issues:

1. Identify, evaluate and provide justifications of cost categories as defined in the financial statements and fictitious scenario that have the potential for cost reductions or the need for strong cost control.
2. Discuss how the role of the management accountant team for FBU can deliver better results for the company. Following the discussion, complete a 10 point action plan for the management accounting team from FBU to address.
3. Identify and discuss risks that the company needs to consider for 2020 that should be discussed at Board level. You are to incorporate in your report the impacts convention centre incident and the Corona virus pandemic.

3. Identify and summarise academic or research articles that support your evaluation for the Question 2a) above (a minimum of two articles).

Maximum report length 10 pages of A4 (using Arial font 11) including tables, graphs or diagrams.