It is a report with the flow of introduction, body, conclusion and recommendations restraint to only 10 pages.

ACCT2002 Management Accounting Marking Guide for Case Analysis Student Name: ________________________________________________________________ Student no: ______________________________ Use this sheet to prepare your case analysis. Your tutor will use it to provide you with feedback and marks. The total for the case analysis is 25% of your final mark. Marks awarded as follows: Introduction Max: 1 mark Main body: Discussion of cost function. Max: 2 marks Main body: Deriving cost function. Max: 2 marks Main body: Validity of cost function Max: 2 marks Main body: Cost predictions Max: 2 marks Main body: Validity of cost predictions Max: 2 marks Main body: Product costs are calculated correctly. Explanation provided on how product costs are derived. Max: 4 marks ACCT2002 Management Accounting 0 marks The introduction provides some relevant information on the topic and the purpose of the report is mentioned but not clearly expressed. None of the main points were identified. 1 mark 2 marks Marks awarded The introduction is strong and relevant and clearly communicates the purpose of the report. All the main points are identified. The content of the strongly supports the topic. Incorrect and/or no explanations provided. Some of the main points are identified. The points identified have some relevance to the topic. Cost functions are correct but no explanation provided as to how they were derived. Partially correct explanations provided. Incomplete and/or incorrect cost predictions Partially correct cost predictions Correct cost predictions None of the main points were identified. Some of the main points are identified. The points identified have some relevance to the topic. All the main points are identified. The content of the strongly supports the topic. Incorrect calculations and incorrect or no explanations provided. Incorrect calculations or incorrect or no explanations provided. Correct calculations and explanations. (2 marks) (4 marks) Incorrect cost functions or no cost functions provided. 3 marks Correct cost functions and explanations provided. Correct explanations. Marking Guide for Case Analysis 1 of 2 Marks awarded as follows: Main body: Evaluation of ABC and Recommendation. Max: 6 marks Conclusion: the conclusion is linked back to the purpose of the report and summarizes the main points. Max: 2 marks Formatting: Presentation of submission, use of appropriate report structure and the Chicago Referencing style is used. Max: 2 marks 0 marks Incorrect evaluation. Recommendation or decision reached is inconsistent with discussion. The conclusion is not linked to the topic or purpose of the report and the summary does not address the topic/ideas. Presentation of submission is not structured as a report and does not meet submission requirements. Referencing is significantly inconsistent with the Chicago referencing style. 1 mark 2 marks 3 marks Weak justification of recommendation or decision reached. Recommendation or decision reached partially justified through discussion. Recommendation or decision reached well justified through discussion. (2 marks) The conclusion makes a passing mention of the topic or purpose of the report and is a weak summary of the main points. (4 marks) The conclusion is linked back to the report and summarizes all of the main points. (6 marks) Presentation of submission partially adheres to the requirements and the submission and the structure of a report and/or referencing is inconsistent with the Chicago referencing style. Presentation of submission adheres to requirements and the structure of a report. Referencing is consistent with the Chicago referencing style. Marks awarded Total marks: /25 Comments: ACCT2002 Management Accounting Marking Guide for Case Analysis 2 of 2 Case Analysis Island Wheels Ltd is a small manufacturing company that specialises in producing bicycles. These bicycles are mostly hand-made; however, the manufacture of some part required the use of machinery. Because of the quality of the bicycles produced, they normally sell for a premium. The bicycles produced are in three ranges: Road, Trek and BMX. Though not in the same league as the major bicycle producers, Island Wheels have been able to attract a large number of enthusiasts who wanted a quality, hand-made bicycle that does not carry a \"brand\" name. You have recently been hired by Island Wheels as a graduate accountant. From your interview, you have been able to ascertain that at present, Island Wheels did not have an accountant and that majority of the accounting tasks had been performed by a part-time accountant, who was now retired. On your first day at work, you were shown around the whole premises. The company had its offices and manufacturing facility under the same roof. There were 20 bicycle engineers, who were responsible for producing the bicycles by hand; five machineoperators who were responsible for producing the specialised parts; four production supervisors, a purchasing manager, a clerk, two sales persons, a sales manager, Audrey Peters (personal secretary of the owner of Island Wheels, who showed you around the place) and the owner, John Cruise. After the tour of the premises, you were brought to John's office where he showed you some documents (See Appendix A). \"Our previous accountant was working on some prediction model. I am not sure what it means but he said it would allow us to predict our overhead costs. He left before he could complete this. Take these with you and give me a report on what it means. He mentioned something about cost formulas but I can't make head or tail of what it means,\" John said to you. \"I gather that it has something to do with our expansion plans. But first, get me the correct cost formula or whatever, as there are two graphs there as you can see and I can't work out which is the right one to use. My understanding is that he used data from the last two years to derive these graphs. There are a lot of numbers there but how do I know what is what? I need that prediction model to see what our overheads would be if we are to ramp up production. Can you get these done by next Monday? That should give you plenty of time, seeing you have the weekend as well,\" said John. Wanting to impress on your first day, you said ok and proceed to evaluate the documents in your office. As you sat down, the phone rang. It was John, \"Oh, I forgot to ask you, could you make a prediction for me with your cost formula what our Management Accounting Page 1 Case Analysis overhead costs would be if we were to increase our labour hours to 8,500? Alternatively, what if we increased our machine time to 2,300 hours? I would like to know whether it is viable for us to do so.\" \"And another thing,\" John said before he hung up. \"Could you please head down to the floor and see Mark and Patrick? I think they need to discuss with you some issues regarding the costs of our bicycles.\" As you put down the phone, you recall that Mark and Patrick were two of the supervisors on the production floor. \"What could they possibly want from you?\" you think to yourself as you head down there. You see Mark and Patrick as you approach the production floor. \"Hi there,\" said Mark. \"We need your help to work out something. For the life of us, we cannot seem to understand why the cost records show the bicycles costing so much. Our previous accountant said that our costs were increasing drastically but we don't understand why. Can you look into this and tell us why it is costing us so much?\" \"John will need it in the report you are preparing for him as well. We need to discuss this at our next meeting,\" said Patrick. \"Damien (the sales manager) will not be happy with these increasing costs because he will have to increase his prices again.\" As you started to walk away, Patrick called after you. \"Oh, and could you prepare something on the new-fangled costing method everyone and his dog seemed to be talking about? You know, that ABCD-something or other? You might like to tell us what it's about and whether that would help us reduce our costs. John would like to know that, I am sure!\" \"Activity-based costing. ABC.\" You think to yourself as you proceeded to analyse the information. In order to fully understand the cost of the bicycles, you gathered some more information and worked out the following: a) The intended sales numbers for the next month were: Road, 1500 units; Trek, 1000 units and BMX, 500 units. Management Accounting Page 2 Case Analysis b) c) d) The costs of direct materials were $160 per kilograms and the wage rate for the bicycle engineers were $80 per hour. In the past, overhead had been applied on the basis of labour hours for the labour related overheads and on the basis of machine hours for the machine related overheads. The estimated total costs of labour related overhead is $37,000 and machine related overhead is $43,000 for the next month. This method of overhead allocation is expected to continue. The requirements for each of the bicycles follow: Direct Materials (grams) Direct Labour (hours) Machine Time (hours) Road 750 2.5 1 Trek 1400 3 0.5 BMX 850 1.5 0.25 REQUIRED: Prepare a report (no more than 10-pages) for John Cruise that addresses the following: 1) 2) 3) 4) 5) 6) The purpose of a cost formula and the components of the cost formula; Determine the cost formula from the information provided by John Cruise and evaluate the cost formulas; Determine the costs as requested by Jon Cruise and explain whether the prediction is valid; Calculate the product cost of the Road, Trek and BMX bicycles; Explain the concept of ABC, including its benefits and limitations; and, Evaluate whether ABC should be introduced in Island Wheels Ltd. Management Accounting Page 3 Case Analysis Appendix A January February March April May June July August September October November December January February March April May June July August September October November December Management Accounting Labour Hours 2,500 2,755 2,985 4,250 4,050 5,350 5,300 7,500 7,250 5,010 2,900 6,750 2,645 3,015 2,850 3,785 4,150 4,950 5,750 7,450 7,015 6,345 3,565 7,210 Machine Hours 680 820 950 1,050 1,100 1,320 1,450 1,650 1,500 1,150 1,000 1,400 710 945 920 985 1,250 1,225 1,100 1,750 1,465 1,415 910 1,335 Overhead Costs $ 55,000 $ 54,700 $ 60,200 $ 67,500 $ 65,800 $ 71,000 $ 74,000 $ 77,000 $ 78,500 $ 68,000 $ 62,000 $ 73,000 $ 53,000 $ 61,800 $ 59,650 $ 66,000 $ 68,950 $ 70,200 $ 73,250 $ 82,150 $ 79,525 $ 75,050 $ 63,250 $ 75,000 Page 4 Case Analysis $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $- 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 SUMMARY OUTPUT FOR LABOUR Regression Statistics Intercept 46862.89075 X Coefficient 4.420494425 R Square 0.89947162 Standard Error 2647.20104 Observations 24 Management Accounting Page 5 Case Analysis $90,000 $80,000 $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $- 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 SUMMARY OUTPUT FOR MACHINE Regression Statistics Intercept 36557.37257 X Coefficient 26.96396219 R Square 0.902783345 Standard Error 2603.232264 Observations 24 Management Accounting Page 6