Chandler Corp: Supplementary Note: This information extends the Chandler Corp case study used in the course.

You are a management accountant at Chandler Corp working in Dan Smiths finance team to provide information about resource usage and costs. Dans aim is to help the production team understand the cost of operating decisions, and to provide the sales team with advice about what types of orders to pursue as part of a new sales and marketing strategy for Chandler Corp. You, along with the rest of Dans finance team, have already been undertaking a new Theory of Constraints analysis.

Dan knows you are seeking a promotion and he has given you a separate project to complete on your own to assess your technical capability and leadership skills. The project is to prepare an Activity-based Costing (ABC) analysis for Chandler Corp, report your results, and explain the structure of your analysis. To assess your leadership skills, Dan has also asked you to prepare a memo that describes how you work in teams, your strengths and limitations, and an example of leadership. For your ABC analysis, Dan asks you to compare the two potential new products (pool shades and trellises) by comparing them to examples of typical custom job orders. You identify two recent projects as a comparison point.

The first example project is a museum amphitheatre. An amphitheatre is an outdoor entertainment venue with open seating and a covered stage. The museum has a reputation as a high-profile, artistic venue and so the amphitheatre required extensive architectural design and engineering time. Native woods and local stone were used for the order. These materials were expensive, though this also means less painting was done to showcase the natural textures of the materials. Given the publicity of this project, Chandler Corp was eager to take on this job.

The second example project is for 75 picnic table shelters to upgrade community parks. The local council who commissioned the shelters was operating on a tight budget, and so tasked Chandler Corp with creating a simple design. To save on costs, the design team used a pre- existing sketch requiring few parts, straightforward production, and cheap materials. As this was a standard custom order, all 75 units were produced in a single batch. This meant there was only one setup for the entire order of picnic table shelters.

Production information for the museum amphitheatre and picnic table shelters is as follows.

Information	Museum amphitheatre	Picnic table shelters
Number of units	1	75
Selling price ($/unit)	649,000	2,400
Material cost ($/unit)	386,000	560
Design/drafting (hrs/product)	65	8
Engineering (hrs/product)	17	2
Fabrication (parts/unit)	2,300	18
Power coating (Sq ft/unit)	17,000	90
Scheduling/setup (setups/unit)	1	Made in 1 batch
General factory (hrs/unit)	1,800	8

With growing demand, you decide to work with the Sales and Marketing team (led by Ned Beale) and Production team (led by Indra Ramanathan) to understand the interactions between production activities, cost, product profitability, and strategy. At present, all orders are accepted as they come in, which has in the past caused difficulty in scheduling for Indras team. Ned is looking for advice about what types of orders to pursue as part of a new Sales and Marketing strategy for Chandler Corp. You decide to analyse the two potential new products (pool shades and landscaping trellises) and the two examples of custom orders (museum amphitheatre and picnic table shelters) to prepare advice.

Your discussion with Indra, head of Production Indra is responsible for scheduling and oversight for all steps of production. She coordinates the orders received with capacity within the firm. The on-demand nature of the jobs means it can be difficult to schedule work in a cost-effective manner.

It seems my job is to turn all of the make believe plans and goals from Sales into reality. And let me tell you: Sales is very good at make-believe.

A key problem I am always arguing with Ned over is the unpredictability of orders. The need to constantly update our production schedule means we spend a lot of time on setup. This increases the chance of mistakes.

For example, it is looking like we will need to produce the order of 120 Pool Shades in three batches of 40 to fit in among our other jobs. This is the type of trade-off that we must make all the time. To deliver flexibly, we need to spend time getting it right.

Chandler Corp is aware that production capacity is limited, while demand is growing. The company has implemented three changes to its factory to support this growth1. First, an increase in the fabrication capacity. The activity now has a practical capacity of 55,000 parts per annum, with cost of capacity of $58,000. Second, the salary band for engineers has been increased to retain talent and hopefully attract more engineers in the future. At the time of analysis, engineering costs increased to $930,000 per year with no change in practical capacity. Third, to work with a local university, taking on undergraduate design students as interns. The cost of intern time is borne by the university. The amount of practical capacity for design/drafting increases by 8,000 design hours.

Your discussion with Ned, vice president of Sales and Marketing

Ned is responsible for preparing the product line strategy for Chandler Corp. He and the executive team are analysing which market segments to invest sales and marketing effort in for the long term.

Production is always going on about too many jobs and too many customers. If this is the problem, then I dont want to find a solution! What company complains that they have too much demand? Much better than the opposite.

I have a vision for Chandler Corp. And I dont think it involves the everyday products like pool shades and picnic shelters. We ought to pursue high-profile jobs like the museum amphitheatre. We make it. It gets recognised for its craftsmanship and design. This is what will drive us to more business.

That said. I am aware that we cant just go about chasing the nice-to-haves if it is not making us profit. What can you tell me and my team about the appeal of these different products? Keep it to lingo that my team will understand. We dont have accounting backgrounds.

Your discussion with Dan, Chief Financial Officer

It seems like all we do is play the mediator between the Production team and the Sales and Marketing team... I can see you have already had meetings with Indra and Ned. Thanks for taking that on. That shows good initiative.

As you know, our team already has our hands full with the theory of constraints analysis: scoping the issue in the business; collecting the production information; and learning and the concepts. I have seen what you can do in the team, so I know youll be able to handle the activity-based costing analysis by yourself.

Can you prepare for me now a quick back of a napkin diagram of the activity-based costing you will do? No need to make it fancy with PowerPoint or computer tools. Just draw it out for me. Then talk me through your work so that I and the team can understand what your analysis is doing.

You also discuss with Dan the requirements for your promotion. The relevant policy reads:

Promotion to Senior Manager requires a memo of reflection by the candidate, endorsed by their section head, about how they demonstrate leadership and collaboration skills:

• An understanding of the different work styles of members within their team, and discussion of how the candidate has managed differences/conflicts.
• Practical skill by the candidate to facilitate collaboration and teamwork.
• Reflective self-management on areas where the candidate can improve their work, e.g. technical learning, time-keeping, and responding to setbacks. Eager to prove yourself ready for a promotion, you begin your work on the analysis needed to assist Dan, Indra, and Ned.

Required: Prepare an activity-based costing (ABC) analysis based on the information provided in the Chandler Corp case and the supplementary information (above). Your analysis should cover: - The full range of products under consideration: pool shade, trellis, amphitheatre, and picnic shelter.

• Note Indras comment about the pool shade. Analyse this product both a) producing in a single batch; and b) producing as per Indras information.
• Driver rates, total and per-unit cost, and total and per-unit profit for each product.
• Use the practical capacity information for this analysis and not the used capacity. Use this analysis to complete the following four submissions: a) Spreadsheet of your ABC analysis and an ABC diagram Prepare a spreadsheet for Dan covering the following.
• A diagram showing the structure of your ABC analysis. Dan asked for a back of a napkin diagram This must be hand-drawn: either with pen/pencil and paper; or using a stylus on a digital device. Do not use diagramming tools for this.
• Your full ABC analysis, including the relevant data, your calculations, and your results for your analysis. You may refer to the TenAlpina and Mail Management spreadsheet examples to assist your organisation. c) Report covering issues, key results, and recommendations Prepare a report for Dan covering the following.
• A problem statement that summarises the issues raised in the supplementary information and the Chandler Corp case. Your discussion should cover: o Concern: Why isnt management making as much money as they want to? o Setting: What is going on in the company that is leading to the problem? o Accounting: How your ABC analysis will help address the problem. o Support your problem statement using relevant facts. Pay attention to the various groups in Chandler Corp and the differences among the products.
• Summary of key ABC results and the insights they provide to address the problem. Your discussion should cover: o Table of key results: Include a table that summarises the main results of your ABC analysis. Do not provide all your calculations, only what you consider the key results. The table is excluded from your page limit. o Product priority: Insights from the ABC results about product priority. Only refer to the ABC results for this and not background or theory of constraints information. o Cost drivers: Insights from the ABC results about what activities drive cost. Include at least one practical suggestion for Production about how to schedule work, and at least one practical suggestion for Sales and Marketing to work better with customers. o ABC model: Propose one refinement to the ABC model, justifying why you consider it a valuable refinement.
• A discussion of implications of your results for the various departments. o Tension among departments: Contrast the priorities of Indra in Production and Ned in Sales and Marketing. You may wish to consider areas such as: time horizon (short- versus long-term); the types of accounting information they would value; likely culture of the department. Page 5 of the Week 1 reading Analysing cases in Acctg321 outlines further considerations. o Winners and losers from ABC analysis: Review the results of your ABC analysis. How do your ABC results support or oppose the priorities raised by the two departments? o Nature of accounting: Briefly describe how accounting analysis (i.e. ABC) can bias the types of results obtained, focusing on how these biases may affect the information received by Indra and Ned. You can refer to: limitations in the ABC model; comparisons of ABC to Theory of Constraints; and limitations in accounting analysis generally.