This assessment task builds on Assessment Item 2 (Strategy, Product Mix & Tactical Decisions) and continues your skills development in the application of strategic and sustainable management accounting concepts and practices to Top Shelf.

Question 1 - Sustainability (50 marks) (Maximum report length: 1,000 words)

Relevant topics:

• Topic 2: Sustainability
• Topic 3: Research Skills for Management Accountants
• Topic 4: Strategic Performance Measurement
• Topic 9: Managing Inventory, Suppliers and Customers

Top Shelf is currently investing in the establishment of a premium Australian agave spirit. As part of this development, Top Shelf has committed to implement sustainable farming and production practices.

The management of Top Shelf have appointed you to create a research report which evaluates the environmental impacts and social risks associated with the agave spirit project. Key report contents includes:

1. An overview of two key ways in which the production of agave spirit impacts the environment. This discussion should be backed by relevant research and a deep understanding of environmental impacts across the firm's value chain (15 marks).
2. An overview of two key social risks associated with the agave spirit project. This discussion should be backed by relevant research and a deep understanding of the firm's stakeholders and social impacts across the firm's value chain (15 marks).
3. Two environmental and two social objectives that the firm should strive towards as part of its agave spirit project. These objectives should be clearly linked to your analysis in requirements 1 and 2. Identify and discuss two key performance indicators for each of your recommended objectives (10 marks). As identified below, your objectives should be consistent with the S-M-A-R-T objectives criteria and your KPIs should be consistent with the criteria for effective performance measures.

Your overall recommended strategic objectives and KPIs should be summarised in a table:

Strategic Objectives	Key Performance Indicators
Environmental Objective #1	KPI #1a KPI #1b
Environmental Objective #2	KPI #2a KPI #2b
Social Objective #1	KPI #1a KPI #1b
Social Objective #2	KPI #2a KPI #2b

Using APA referencing, this reportMUSTbe supported by reference to a range of relevant academic and other research sources. It is not sufficient to refer only to sources from Top Shelf's website (10 marks for academic writing).

Question 2 -Transfer Pricing (20 marks)

Relevant topic:

• Topic 7: Transfer Pricing

As part of the production of Ned Whisky, the oak barrel department prepares barrels for use by whisky bottling and storage department. These barrels can be bought and sold on the external market for $800 per barrel.

The costs incurred by the oak barrel department to produce each barrel are provided below:

Direct materials	$350
Direct labour	$80
Variable overhead	$40
Fixed overheard	$60

In addition to the above, staff from the oak barrel department earn a commission of 5% on the selling price for any sales to external customers. For any barrel sales to external customers, the oak barrel department incurs $40 in shipping costs per barrel. These costs are not incurred for internal transfers of barrels to the whisky bottling and storage department.

The managers from the oak barrel and whisky bottling and storage departments both have significant experience working within the firm. Both managers are entitled to an annual bonus based on their respective departments' contribution margin.

Required:

1. If the transfer price for internal transfers of barrels was set through negotiation, discuss what the likely range of transfer prices might be. Suggest and discuss a reasonable transfer price that would balance the preferences of both departments and illustrate how this could be achieved through cost-plus pricing based on absorption costing (10 marks).
2. Provide and discuss examples (include financial figures and workings) which illustrate how transfer prices for barrels could be set using the general transfer price rule under the following scenarios:

Scenario	Oak barrel department capacity	Whisky bottling and storage department demand	External market demand
1	300 units	300 units	500 units
2	600 units	500 units	150 units
3	900 units	850 units	0

(10 marks)

Question 3 - Capital Investment Analysis (30 marks)

Relevant topics:

• Topic 2: Sustainability
• Topic 8: Capital Investment Analysis

A manufacturer of fine whisky currently spends $120,000 per year to send production by-products to landfill. The firm is evaluating an opportunity to acquire a new machine which will enable it to reduce the amount of by-products which go to landfill by 70%. The new machine will take production by-products and turn them into stock pellets for local farmers. It is estimated that the total revenue generated from sales of stock pellets will be $117,000 in the first year of the machine's operation. These revenues from stock pellet sales will grow by 2% p.a.

Other key details regarding the project include:

• The purchase price of the machine is $879,000. It will also cost $56,000 to install the machine and train staff in its use.
• The machine will have a useful life of six years.
• The machine will cost $45,000 to operate in year 1. These costs will grow by 1.5% p.a.
• At the end of the third year of operations, the new machine is expected to require a one-off major overhaul costing $28,000.
• The firm's tax rate is 30%.

The firm's tax rate is 30%. The firm requires a 15% required rate of return on all potential investments. All calculations must be performed in Excel.

Required

In relation to the above proposal:

1. Calculate the annual after tax cash flows (5 marks) and annual after tax profit (5 marks).
2. Calculate the payback period (2 marks).
3. Calculate the net present value (2 marks).
4. Calculate the internal rate of return (2 marks).
5. Calculate the accounting rate of return based on the average and initial investment (2 marks).
6. Based on an assessment of the above, strategic factors and sustainability factors, discuss whether the firm should go ahead with the proposal (7 marks).
7. Discuss how sensitive your recommendations are to changes in assumptions in regards to the financial impact of the new capital investment. In your discussion, include examples which illustrate how changes to at least two assumptions impact the financial analysis (5 marks).

Ensure that your answers for the above are discussed and supported by relevant calculations/workings.