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Assume you are the management accountant for the Foleo Group.After her meetings with the various business units, Tracey Chen has identified a number of opportunities for the organisation to improve its sustainability performance.One such opportunity is Robyn Smith's suggestion for moving the manufacturing operations of Foleo Fones and Accessories off-shore to address the local residents' concerns.Robyn had done some research and has supplied Tracey with the below data relating to the relocation of Foleo's manufacturing plants offshore (specifically to Guangzhou in southern China).

Australian Plants

Guangzhou Plant

Annual Direct Labour Costs

$1,953,315

$1,074,323

Annual Direct Materials Costs

$2,976,480

$1,785,888

Annual operational expenses (Variable Manufacturing Overheads)

$343,440

$120,204

Annual waste produced from operations requiring disposal

710 tonnes p.a

825 tonnes p.a

Cost of waste disposal per kg

$120 per tonne

$110 per tonne

Annual fixed manufacturing overheads

$625,000

$375,000

Average / estimated delivery time for SliFones and Accessories

5 working days

35 working days

Estimated CO₂ emissions produced by operations per hour of operation

260 grams per hour

430 grams per hour

Number of employees required by manufacturing operations

1,450

1,250

Number of working weeks per year per employee

40 weeks

50 weeks

Robyn has advised Tracey that the expected relocation costs to Guangzhou would amount to $1,500,000 but that some of these costs could be offset with the sale of Foleo's current manufacturing assets and the sublease of the plants (the amount of which, she has estimated as an inflow of $950,000 at the time of the relocation).

As mentioned above, the relocation of Foleo's manufacturing operations will mean the closure of the Australian plants, which will result in all factory workers currently employed at the various Foleo plants being laid off.More than half of these workers have been with Foleo for at least 10 years and many of them have not claimed their accrued long service and annual leave.Tracey has calculated that these workers' entitlements, which must be paid on their termination, will amount to $6,400,000.Whilst the cost savings look good on paper, Tracey has some concerns about the merit of this proposal in terms of its alignment with the Foleo Group's overarching objectives and the newly formulated sustainability objectives.She is also concerned about relinquishing control over the manufacturing process and how this will impact the quality of the products being produced and ultimately customer satisfaction.

Tracey has asked you to analyse this data and report back to her with a recommendation that she can take to a meeting with Robyn Smith and Allan Raymond for further discussion.

(a) Using the above financial data, comparison in the space provided, of the financial costs and benefits over the next five (5) years of both options (i.e. relocating the Foleo manufacturing operations and maintaining the current operations here in Australia).Then rank the two (2) options based on the net financial benefits or costs you have calculated. (2 marks)

(HINT:Include only the financial costs/benefits in this comparison and ignore the time-value of money.)

Costs / Benefits

Maintaining Australian Operations

Relocating Operations to China

Year 0

Years 1-5

TOTAL

Year 0

Years 1-5

TOTAL

Initial outlay for the relocation of operations to China

Estimated inflow of funds from sale of assets and subleasing plants

Annual Direct Labour Costs

Annual Direct Materials Costs

Annual operational expenses (Variable Manufacturing Overheads)

Annual waste produced from operations requiring disposal

Annual fixed manufacturing overheads

Payout of entitlements to Australian factory workers

TOTAL NET FINANCIAL COST / (BENEFIT)

*

*

*

*

*

*

*

*

(b) Using the non-financial data provided by Robyn Smith, summarise and briefly discuss the environmental and social costs/benefits over the next five (5) years of both options.Then rank the two (2) options based on the non-financial benefits or costs you have discussed.

(HINT:Include only the non-financial (or physical) measures in this analysis and explain whether your suggestions are costs or benefits to society or the environment.Include at least four (4).) (1 mark)

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(c)Identify the stakeholders who would be affected if the above proposal to relocation of the Foleo Group's manufacturing operations was approved and explain how each would be impacted.

(HINT:You should identify at least four stakeholders and explain the impact on each of them.) (0.8 mark)

(Award 0.2 mark for each pair of identified stakeholder and impact explanation up to a maximum of 0.8 mark)

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(d) Based on your analysis in parts (a), (b) and (c), prepare a report for Tracey to take to her next meeting with Allan Raymond and Robyn Smith, with your recommendation on whether the Foleo Group should relocate its manufacturing operations to China.Justify your recommendation using evidence from your analysis and the case facts.

(HINT:Refer to the case study chapters for evidence to support your recommendation but confine your evidence to that which is relevant to this initiative.)

(HINT:This is a report, so it should be presented as such - i.e. no dot points.) (0.6 mark)

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(e)Tracey has asked you to put together a brief report for the Robyn and Allan, explaining the three (3) ways that the existing Balanced Scorecards for Foleo Fones and Foleo Accessories can be adapted to include the sustainability objectives she has formulated (see Chapter 12 for these objectives).(0.6 mark)

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