You are a trainee management accountant working with a senior member of staff for Banana Ltd $($Banana hereafter$)-$ a mid$-$priced electronics store operating in the mobile phone, laptop and tablet market.

The company was founded in $1999$ by three partners in Ireland. The company has undergone a period of rapid expansion over the last ten years and is now a well$-$recognised brand name in Ireland and the UK$.$ There are ten stores in the UK and Ireland in key locations, including the flagship store in Belfast. The brand has enjoyed success with key endorsements from various A$-$list celebrities and footballers in recent years, and has continued to see revenue growth during the recession due to its brand positioning and successful advertising. However, Banana is struggling to achieve profit growth. An initial review of the company$$s budget for $2024-25$ has presented the following two issues:

Issue $1-$ Profitability of three top products

The Board of Banana are meeting on the $23$rd January to discuss the draft budget for $2024/25,$ some two months before the start of that year. The company has three products and the draft income statement is as follows:

Banana Phone $(000)$ Banana Laptop $(000)$ Banana Tablet $(000)$ Total $(000)$

Sales

$75000$ units at $20015,00015,000$

$50000$ units at $35017,50017,500$

$150,000$ units at $609,0009,000$

Materials $3\mathrm{.}0004,0002,0609,060$

Labour $6,0008,2604,30018,560$

Overheads $5,7254,8003,00013,525$

$14,72517,0609,36041,145$

Profit$/($Loss$)275440(360)355$

The Board are unhappy with this planned outcome in two respects: they had hoped for a total profit of at least $400,000$; and they are unhappy about the further deterioration of profitability from the tablet, which they had started with, which on current plans would move from being marginally unprofitable this year to highly unprofitable next year.

Responses to the situation varied. You, as the trainee management accountant compiled the budget, and think that the best response would be to stop making the tablet. You argue that knowing the unsatisfactory results this budget contains, you have taken the liberty of doing some rough calculations before going to the meeting. You advise that if Banana stop making the tablet, the company can eliminate the fixed labour costs associated with it of $860,000$ and sell the machinery specifically associated with it which, being old, is now fully written off but would probably fetch $5,000.$ You also advise redundancy costs which you have estimated to be $50,000.$

Poppy Mitchell, the Production Manager and oldest member of the management team, was outraged. She said, 'That's typical of you accountants. We've been making the tablet since the firm started ten years ago and it still has steady sales. Also, some of the employees making it have been with the company a long time. You knew what the situation looked like: why didn't you tell me before the meeting? Can't I have a bit of time to look for ways of saving costs on the production line?$\text{'}$

Shelley Kates, the Managing Director, now intervened. $\text{'}$I$\text{'}$d like to compare the effects of adopting Poppy$$s suggestion versus your suggestion. Poppy, would you also like to take a little time to think how best you might re$-$organize production so as to improve matters, and pass your thoughts to our trainee accountant for them to turn into financial figures? I$\text{'}$d also like to try seeing what a simple $10\%$ increase in sales and activity across the board would do$,$ holding prices and everything else constant. After all, we have got a fair bit of spare capacity, haven't we Poppy?$\text{'}$ The meeting broke$-$up at this point, having agreed to proceed on the lines set out by Shelley Kates.

Before starting his work on revising the budget, you have reviewed the following information used in compiling the original budget:

$1)$ All material costs are fully variable.

$2)$ The fixed element of labour cost for the phone, laptop and tablet is $800,000,1,652,000$ and $860,000$ respectively.

$3)$ The overheads are mixed costs. The fixed element has been absorbed at the rate of $0\mathrm{.}16$ per machine hour irrespective of the machines used. The machine time per unit of each of the products are:

Phone: $15$ minutes

Laptop: $30$ minutes

Tablet: $15$ minutes

A week later the Banana Board reconvened to look at the revised budget calculations.

Issue $2$ Consideration of sustainability issues

The Board of Banana Ltd would also like to start considering how they can become more sustainably responsible. But they are divided on where $/$ how to start. Poppy Mitchell, the Production Manager has suggested they start looking into using recycled plastic for their products right away whereas Shelley Kates, the Managing Director has said that they need to consider a wider carbon emissions management strategy first of all.

Q$.$In relation to issue $2,$ As a trainee management accountant, discuss two way your skills can help the board of Banana Ltd become more socially responsible.