Management Accounting: Value Chain Concept and Cost Allocation

MANAGEMENT ACCOUNTING

Table of Contents
Introduction......................................................................................................................................3
Question 1........................................................................................................................................4
A: Value Chain Concept..............................................................................................................4
B: Evaluation of value chain concept of Treasury Wine Estate Company..................................4
Question 2........................................................................................................................................9
Computation of the predicted allocation rates for fixed and variable overhead for the current
period...........................................................................................................................................9
Computation of total overhead cost allocated to Job 20 in October..........................................10
Computation of total cost of Job 20...........................................................................................10
Computation of amounts of fixed and variable overhead allocated to jobs in October............11
Selection of the two cost pool instead of one............................................................................11
Question 3......................................................................................................................................11
By consideration of the three cost objects of interest, identification of the cost pool and
computation of cost....................................................................................................................11
Ascertainment of the cost driver for each cost pool..................................................................12
Calculation of the allocation rate for cost pool and cost driver.................................................13
Conclusion.....................................................................................................................................13
References......................................................................................................................................15

List of Tables
Table 1 calculation of the allocation rate for predicted variable and fixed expenses......................9
Table 2 Statement of the allocation rate........................................................................................10
Table 3 Computation of total overhead cost for Job 20.................................................................10
Table 4 Computation of total cost for Job 20...............................................................................10
Table 5 Computation of the Fixed and variable cost for the job...................................................11
Table 6 Statement showing assignment of the cost.......................................................................12
Table 7 Statement of the cost pool and cost driver........................................................................13
INTRODUCTION
Value chain analysis can be referred as a method through which an organization can analyze its
operations to assess the way through which it can create competitive advantage for itself. The
concept of value chain support management to understand the manner in which each activity
adds value to something and consequently the manner in which it can provide products to its
customer for more than cost of adding value which will eventually generate profit for the
company. Company can apply the value chain technique for creation of the value to its
consumers by the means of designing, advertisement and sales promotion, production and
manner other method. The present study is related with the value chain concept and the benefits
to the company by the implication of the value chain model in the organization. Further, in the
given study, company named as Treasury Wine Estate Company, mission, vision, strategy, value
chain model, value adding process and other aspects are also described. Along with this,
allocation of the cost to the product by identification of the cost driver and cost pool are also
evaluated in the given report.

QUESTION 1
A: Value Chain Concept
Value chain concept
Value chain approach comprises activities conducted by organization in order to create value for
its customers such as designing, manufacturing, advertising, packaging etc. Business operations
are conducted for providing goods and services to customers in required manner. The process
begins with raw material by which products are made and include all the things that is required
before delivering it to customers (Donovan, etal, 2015). The process of value chain management
is connected with the activities of organization for analyzing them in a proper way. The major
objective is to build connection with the leaders at every level to make sure those products are
delivered to the consumers flawlessly (Simatupang, Piboonrungroj, and Williams, 2017).
Importance of value chain management in organization
Effective value chain management helps to get better skills to track, capture and organize
consumers as well as organization needs for analyzing the activities such as planning,
manufacturing, design and services for proper cost valuation besides with complete traceability.
It helps in managing research, planning and development in effective manner. For meeting the
demand of the customers VCM carry measurable and constant process by which product master
data is managed in proper way. Furthermore it helps to improve the management of vendors in
better way. Moreover its helps to reduce the costs of business, provides supports and post sales
services and besides all it improves the profitability of the company (Simatupang, Ginardy, and
Handayati, 2018).
B: Evaluation of value chain concept of Treasury Wine Estate Company
Mission and objectives of the company
The main objective of Treasury Wine Estate Company is to become world’s most famous wine
company. They are very much passionate about the wine. They eagerly work for their vision.
There are operating more than 14000 hectares of vineyards and managing approx 70 wine brands
moreover no of workers employed in the company are 3400. They deal in the most popular
wines that come from Italy, Australia, New Zealand and California (Lapsley, Alston, and
Sambucci, 2019). Brands with which they are dealing are Wolf Blass, Bringer, Beaulieu