Value Chain Analysis in Management Accounting

This document discusses the concept of value chain analysis in management accounting and its benefits for business organizations. It includes a case study on Reliance Worldwide Corporation, an Australian organization involved in producing plumbing solutions. The document explores the value chain activities of the organization and highlights the importance of sales and marketing as well as product and technology development. It also discusses the advantages of value chain analysis in identifying sources of competitive advantage and enhancing information flow.

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1MANAGEMENT ACCOUNTING
Table of Contents
Question 1:.........................................................................................................................2
Requirement a:...............................................................................................................2
Requirement b:...............................................................................................................3
Part i:..........................................................................................................................3
Part ii:..........................................................................................................................3
Part iii:.........................................................................................................................4
Part iv:.........................................................................................................................5
Part v:.........................................................................................................................6
Question 2:.........................................................................................................................7
Requirement a:...............................................................................................................7
Requirement b:...............................................................................................................7
Requirement c:...............................................................................................................7
Requirement d:...............................................................................................................7
Requirement e:...............................................................................................................8
Question 3:.........................................................................................................................8
Requirement a:...............................................................................................................8
Requirement b:...............................................................................................................8
Requirement c:...............................................................................................................9
References:......................................................................................................................11

2MANAGEMENT ACCOUNTING
Question 1:
Requirement a:
A value chain could be defined as a business model, which explains the entire
group of activities required to develop a product or service. For organisations
manufacturing products, value chain includes the steps, which involve bringing a
product from conception to distribution like procurement of raw materials, marketing
activities and manufacturing functions (Bettis et al. 2014). Value chain analysis is
conducted by analysing the detailed processes involved in each step of the business.
The objective of this analysis is to raise the efficiency of production in order to ensure
delivery of maximum value for the organisation at the lowest possible cost.
Owing to the growing competition for unbeatable prices, customer loyalty and
exceptional products, it is necessary for the business organisations to investigate value
continuously that they develop for retaining their competitive edge in the market
(Bornemann and Wiedenhofer 2014). With the help of value chain, an organisation
could discern certain business areas, which are inefficient and accordingly, strategies
could be implemented that would optimise the procedures for maximum profitability and
efficiency. Along with ensuring the seamlessness and efficiency of production
mechanism, it is crucial for an organisation to ensure the security and confidence of its
customers for maintaining their loyalty as well. Value chain analysis assists in
maintaining customer loyalty as well.
There are two ways through which the value chain concept provides benefit to
the business organisations and they are demonstrated briefly as follows:
Identification of sources pertaining to competitive advantage:
With the help of conduction of value chain analysis, it becomes possible for any
business organisation during the planning process to identify the probable sources of
competitive advantage. The organisation is an accumulation of various activities, which
share association to a certain extent. It is not possible for any organisation to trade all
activities in the outside market (Darmawan, Putra and Wiguna 2014). According to the
approach of the value chain, an organisation could take into account such activities as
the sources of economic rent. The activities could act in the form of impediments to the
new entrants or they could cause cost drawbacks to the customers.
Enhanced flow of information materials and finances:
With the help of enhanced information flow, it becomes possible for the
organisation to detect as well as exploit new opportunities along with minimisation of
external threats. The continual evaluation of the value chain could lead to timely fill of
significant gaps, which might influence the productivity of an organisation. Moreover,
when an organisation makes sound enforcement of the value chain analysis, material
and product flow could be enhanced owing to improved sales and demand forecasting.
Furthermore, there could be enhancement in inventory management as well, as delays
could be reduced by tracking activities across the supply chain (El-Sayed, Dickson and
El-Naggar 2015).
The modern customers provide increased importance to quick response along
with convenient access to the significant product-related information. The unanticipated
interruption in the flow of information could have impact on the relationship between the
suppliers and the customers. With the help of value chain analysis and by implementing

3MANAGEMENT ACCOUNTING
the same, an organisation could identify and eliminate the bottlenecks to the flow of
information (Harding 2017).
Requirement b:
For this section, Reliance Worldwide Corporation is an Australian organisation,
which is involved in producing materials in order to plumb solutions as well as water
control systems. The organisation has presence in UK, USA and other parts of Europe.
In addition, there is export of plumbing products to few Asian nations.
Part i:
Reliance Worldwide Corporation is involved in exporting plumbing products to
few Asian nations (Rwc.com 2019). The organisation provides a group of values in
order to control pressure, temperature, thermostatic and isolating water for industrial
and domestic pipelines. It holds above 700 patents on plumbing solutions, since the
organisation is operating in the sector for above 100 years. Furthermore, the business
of the organisation offers other ancillary as well as conventional plumbing fittings to the
Australian customers.
The mission statement of an organisation describes the major priorities of an
organisation (Jenkins and Williamson 2015). Reliance Worldwide Corporation intends to
be the most increasingly valued business in the eyes of the customers it serves, the
community where it operates and the committed and loyal colleagues and shareholders.
On the other hand, the objective of Reliance Worldwide Corporation is to maintain the
loyal customers by providing superior quality products to its customers at competitive
prices. At the time of offering the products, the organisation takes into consideration
significant issues like hygiene, health, animal welfare, safety and support to the
community welfare and environmental protection.
Part ii:
One of the significant advantages of Reliance Worldwide Corporation is its vast
range of products, which assists in valve control, the innovation in plumbing fittings like
push-to-connect fittings as well as conventional products in plumbing fittings. The
business has delivered plumbing solution to the Australian customers for above 67
years with different kinds of pipe fittings and valves. The organisation is involved in
offering different products such as controlling valve for hot water as well as cold water.
In addition, the instant fittings of socket for copper, flex and other pipes have assisted in
the generation of unique competitive edge over its rivals. As a result, this product results
in creation of value for both industrial and domestic customers through minimisation of
the installation time and labour cost in terms of fitting two pipes. Moreover, this product
possesses the ability of offering a solution in order to minimise the installation cost and
thus, this cost leadership and differentiation strategy of the organisation has assisted in
gaining competitive edge in the market.
It is possible for the retail customers to fit the water pipes in their houses with
bare hands with the usage of push-to-connect fittings. Along with this, Reliance
Worldwide Corporation has strong channel of distribution in USA by entering into long-
term contract with Lowe’s Companies Inc. Reliance Worldwide Corporation has entered
the European market owing to the uncertainties in the US taxation regulations

4MANAGEMENT ACCOUNTING
Administrative, Finance infrastructureLegal, Accounting, Financial Management
Human Resource ManagementPersonnel, Key Recruitment, Training, Staff Planning
Product and Technology DevelopmentProduct and Process Design, Production Engineering, Market Testing
ProcurementSupplier Management, Subcontracting, Funding, Specification
Inbound Logistics
Quality control, receiving, raw material control, supply schedules
Operations
Packaging, manufacturing, production control, maintenance, quality control
Outbound Logistics
Customer management, order taking, sales analysis, promotion, market research
Sales and Marketing
Finished goods, order handling, dispatch, delivery, invoicing
Servicing
Warranty, maintenance, training and education services
Support Activites
Primary Activities
(Rwc.com 2019). The marketing strategy of the organisation in entering a new rich
community is timed perfectly in order to increase the overall market share. It is involved
in offering integrated solutions to the customers through the sale of meters, backflow
valves and mains. In addition, it produces conventional fittings of brass plumbing in
Australia via screwed, compression and capillary design. The industrial solution of the
organisation has gathered the marketing policy to sell the products via Tubefit in
Australia and Titon in New Zealand.
Part iii:
Figure 1: Value chain model of Reliance Worldwide Corporation
Pr
ofi
t
m
ar
gi
n

5MANAGEMENT ACCOUNTING
(Source: Rwc.com 2019)
Part iv:
The two value-adding activities that have been chosen from the value chain
model of Reliance Worldwide Corporation mainly include sales and marketing from
primary activities and technology from the secondary activities. The brief evaluation of
these activities in the context of the concerned organisation is provided as follows:
Sales and marketing:
In this stage, it is necessary for Reliance Worldwide Corporation to shed light on
the advantages and points of differentiation of the provided products for persuading the
customers to show the superiority of its products compared to those of the competitors
(Jung 2014). Thus, providing superior quality products at reasonable prices and
differentiated features could not form value until the organisation decides to spend on
sales and marketing activities. The roles of the marketers and the sales agents are
deemed to be a crucial aspect in this case.
Some instances of sales and marketing activities in Reliance Worldwide
Corporation constitute of sales force, promotional activities, selection of channels,
advertising, developing and quoting relations with the members of the channels. The
organisation could utilise the approach of marketing funnel so that it could structure its
sales and marketing activities accordingly (Mohajeri et al. 2014). The marketing policies
could be either pull or push in nature based on the objectives, competitive landscape,
current market standing and brand identity of Reliance Worldwide Corporation.
When marketing policies are integrated effectively and wisely, it becomes
possible for Reliance Worldwide Corporation to develop its brand equity and thus, it
could withstand the ongoing competition in the market (Lasserre 2017). However, the
organisations needs to avoid making any kind of false commitments regarding its
product features that could not be fulfilled from the end of the production department.
This signifies the requirement of assuring coordination among the various activities of
the value chain.
Product and technology development:
In the contemporary and technological advanced era, almost the entire activities
in the value chain rely on technological support. The technological integration in
distribution, production, human resource activities and marketing need Reliance
Worldwide Corporation to recognise the significance of technology development
(Morden 2016). This could be segregated into activities relating to process and product
technology development. Some instances include primarily customer services
supported by technology, automation software, data analytics and product design
research. The research and development department of the organisation is categorised
under this category.
Therefore, it is essential for Reliance Worldwide Corporation to use its
competitive advantage on activities where it needs to access to the scarce or rare
resources. This might constitute of assets, intellectual capital, distribution network or

6MANAGEMENT ACCOUNTING
skills (Mudambi and Puck 2016). With the aid of value chain analysis, it would be
possible for Reliance Worldwide Corporation to detect those activities and areas for
obtaining a significant competitive advantage over the rivals. The business
organisations such as Sharp and Toshiba made huge investment in research and
development activities within their network pertaining to the value chain (Sharma, Moon
and Strohbehn 2014).
Reliance Worldwide Corporation could either utilise operations, marketing and
other pertinent value chain activities for obtaining the cost advantages or it could utilise
human resources, infrastructure, technology, service or other pertinent activities for
setting strong base of differentiation. From the broader perspective, it is possible to
group sources of competitive advantage into differentiation and cost (Ansoff et al. 2018).
Therefore, Reliance Worldwide Corporation could obtain competitive edge from one or
more sources based on the breadth and depth of value chain analysis.
Part v:
Since two value-adding processes are chosen from the value chain model of
Reliance Worldwide Corporation, the theoretical concept about these processes would
be linked with the real life scenario. In theory, it has been learned that in marketing and
sales activity of the value chain model that products manufactured do not mean
automatically that there are individuals to buy the same. This is the area, in which sales
and marketing play a significant role in generation of sales. The marketers and the sales
agents need to ensure the awareness of the products among the potential customers
willing to buy them seriously (Brewer, Garrison and Noreen 2015). The activities related
to sales and marketing would provide means through which the buyers could purchase
the products along with inducing them to conduct the same. The examples constitute of
promotion, advertising, sales force, channel relations, channel selection, pricing and
quoting. The marketing funnel is a sound approach for structuring the entire marketing
process. Some instances of sales and marketing activities in Reliance Worldwide
Corporation constitute of sales force, promotional activities, selection of channels,
advertising, developing and quoting relations with the members of the channels. The
organisation could utilise the approach of marketing funnel so that it could structure its
sales and marketing activities accordingly.
In theory, idea has been developed that the array of technology used in majority
of the organisation is considerably wide. The activities associated with technology
development could be classified into efforts for enhancing the product and the entire
process. Some examples include accounting automation software, research pertaining
to product design, telecommunications technology as well as customer servicing
procedures (Robson 2015). In case of Reliance Worldwide Corporation, some instances
include primarily customer services supported by technology, automation software, data
analytics and product design research. The research and development department of
the organisation is categorised under this category.
With the help of enhanced information flow, it becomes possible for the
organisation to detect as well as exploit new opportunities along with minimisation of
external threats. The continual evaluation of the value chain could lead to timely fill of

7MANAGEMENT ACCOUNTING
significant gaps, which might influence the productivity of an organisation. Moreover,
when an organisation makes sound enforcement of the value chain analysis, material
and product flow could be enhanced owing to improved sales and demand forecasting.
Furthermore, there could be enhancement in inventory management as well, as delays
could be reduced by tracking activities across the supply chain
Question 2:
Requirement a:
Particulars Details Values
Estimated variable overhead A $ 150,000
Estimated direct labour cost B $ 75,000
Fixed overhead C $ 120,000
Direct labour hours D 3,000
Variable overhead rate as
percentage of direct labour cost E=A/B 200%
Fixed overhead rate F=C/D $ 40
Requirement b:
Particulars Details Values
Variable overhead rate A 200%
Direct labour cost B $ 250
Fixed overhead rate C $ 40
Direct labour hours D 10
Overhead cost allocated to Job 20 E=(AxB)+(CxD) $ 900
Requirement c:
Particulars Details Values
Equipment and supplies cost A $ 1,000
Direct labour cost B $ 250
Overhead applied C $ 900
Total cost of Job 20 D=A+B+C $ 2,150
Requirement d:
Particulars Details Values
Total direct labour cost A $ 5,725
Variable overhead rate B 200%
Total direct labour hours C 229
Fixed overhead rate D $ 40
Allocation of variable overhead E=AxB $ 11,450
Allocation of fixed overhead F=CxD $ 9,160

8MANAGEMENT ACCOUNTING
Total overhead allocation G=E+F $ 20,610
Requirement e:
The accountant of Prime Personal Trainers needs to use two cost pools rather
than one for enhancing the accuracy of product cost information. The bases of
allocation utilised for each department would be more realistic in signifying the
association between the product and the overhead expenses rather than utilising a
single plant-wide rate (Otley 2016). On the other hand, the use of departmental
overhead rates needs the distribution of overhead costs to the departments, the
assignment of support department expenses to the production departments and the
accumulation of cost driver data from the end of the production departments. Although
this approach provides more valuable information compared to the single cost pool, it is
expensive and it might provide some misleading information as well. However, despite
this loophole, the method is still deemed to be useful for better cost allocation and
accurate product costing (Quattrone 2016).
The method would make a difference because the usage of activities is different
for each overhead activity (Kaplan and Atkinson 2015). This method would make
difference, since the allocation of overhead is made based on direct labour hours or
direct labour cost. Hence, if there is usage of more equipment, it would result in lower
usage of labour and the overhead allocation would be lower, which would lead to lower
cost.
Question 3:
Requirement a:
In the words of Langfield-Smith et al. (2017), cost pool denotes the collection of
individual costs into a class based on department or cost centre. The same is used in
order to assign costs to the cost units. From the case information of Malekula Council, it
could be witnessed that the organisation is involved in providing three kinds of services
and they mainly include the following:
 Housing services to the stray animals
 Animal training services
 Animal healthcare services
Therefore, the costs could be categorised into three cost pools depending on their
cost objects. These cost pools mainly include training costs, animal shelter costs and
healthcare service costs.
Requirement b:
When indirect expenses are collected together, they are identified in the form of
overhead expenses. All these cost elements rely on particular activities, which are
termed as cost drivers (Lavia López and Hiebl 2014). By evaluating the cost structure of
Malekula Council along with its cost objects, certain cost drivers are identified, which
are demonstrated briefly as follows:
Cost Pool Cost Driver

9MANAGEMENT ACCOUNTING
Animal shelter costs Number of animal days
Training costs Number of training classes
attended
Healthcare service costs Number of animal visits
Requirement c:
Statement showing assignment of cost to different cost pools
Elements of costs Basis of Allocation Shelter Costs Training costs Health care
service
costs
Animal shelter
employees salaries
Actual $ 100,000
Veternarians and
technicians salaries
Actual $
150,000
Animal trainers' salaries 50% for Training
and rest for the
sheltered animals
$ 20,000 $
20,000
Food and supplies 75000 for health
care and the rest for
the shelter
$ 50,000 $
75,000
Building related costs Area occupied
(5:3:2)
$ 100,000 $
60,000
$
40,000
Director and
administration staff's
salary
Respective
departments' staff's
salary (12:2:15)
$ 24,828 $
4,138
$
31,034
Total costs assigned
each cost pool
$ 294,828 $
84,138
$
296,034
Cost Pool Activity Driver Number of activity Cost
of
each
cost
pool
Cost per unit
of activity
Shelter Costs Number of
animal days 27,375
Animal days $
294,82
8
$
10.77
per
anim
al

10MANAGEMENT ACCOUNTING
day
Training costs Number of
Training class
attended
1,250
Individual
classes
$
84,138
$
67.31
per
indivi
dual
class
Health care
service costs
Number of
Animal Visit 5,000
Animal
visits
$
296,03
4
$
59.21
per
anim
al
visit

11MANAGEMENT ACCOUNTING
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