Value Chain Analysis Report

The provided document is a report on value chain management and analysis. It starts with an introduction to the concept of value chain management, discussing fixed and variable overheads and cost incurred in a job. The report identifies different types of cost pools and concludes with various studies on value chain analysis in sectors such as automotive, wind installations, and feature films.

MANAGEMENT
ACCOUNTING

Table of Contents
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
a) Value Chain Concept and benefit of value chain in organisation...........................................1
b) Evaluation of organisation with the help of value chain........................................................3
QUESTION 2...................................................................................................................................7
a) Calculation of allocation rates for fixed & variable overheads...............................................7
b) Total Overhead Cost allocated to Job 20 in October..............................................................8
c) Total Cost for Job 20...............................................................................................................8
d) Fixed And Variable overheads allocated to all jobs in October.............................................9
e) Efficiency of selection of two cost pools................................................................................9
QUESTION 3...................................................................................................................................9
a. Identifying the cost pool by considering the three objects....................................................10
b. Identifying the cost driver in relation to each cost and suggesting the best option..............11
c. Calculation of rates of allocation for each of the cost driver................................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Management Accounting is an activity which enables Internal Management of a company
in making important decisions and formulating various strategies so that business can achieve
more profits and achieve sustainable growth in long run.
Evaluation Mining Limited is an Australian Company operating business of mining in
five locations in the country. Company does business of mining of gold & exploration, mining of
commodity, Copper and Iron Silver.
The below report explain concept of supply chain and advantage of value chain in an
organisation. Further, Mission, objectives, strategies and value chain model of Evaluation
Mining Limited are elaborated in this report. Moreover, this report calculates estimated
allocation rate, total overhead cost and total cost incurred in job 20. Furthermore, this report
evaluates different types of cost pools and analyse drivers of cost for each cost pool.
QUESTION 1
a) Value Chain Concept and benefit of value chain in organisation
Value Chain
Value Chain includes different activities such as Inbound logistics, operations, marketing
& distribution, services and outbound logistics all these activities add on value to products &
services offered by a business organisation. So, that company can provide better services than
other companies operating under same industry.
Value Chain Analysis
Value Chain Concept is an approach through which various strategies formed by
managers of company are evaluated with an objective of analysing behaviour of cost. Thus, with
this analysis managers are able to eliminate unnecessary cost involved in manufacturing and
production of goods and services. Further, this concept helps company in operating its business
better than its competitors by offering innovative and effective services. Various activities are
included in value chain system which are directly related to operations of company so that
organisation can gain competitive advantage.
A company can manage cost of each of the activities operating under an organisation
which in turn maximises profitability, market share and brand image of company. Thus, it is
essential for a firm to manage its value chain as without it a company cannot offer its services.
1

According to (Wu and et.al., 2016), all the primary activities included in value chain
system such as logistic, operation and marketing are arranged by formulating different strategies
and making a systematic plan then a business is enable to produce services according to demand
received from customers and at an affordable price. Further, Research & Development, Human
Resource Management, Infrastructure and Procurement are support activities which helps
managers in improving effectiveness of services provided at primary stage.
As company is offering different types of services it is essential for company to manage
its value chain so that its profits can get maximised and it can set high profit margin for its
products and services. For managing its value chain Evaluation Mining Limited divided its
operations according as per key activities than these activities are analysed and activities which
are providing disadvantages are improved by making decisions by managers of company.
Further, managers of company focuses on activities which are more profitable and adding value
to the services included in the portfolio of company.
Further, value chain concept is advantageous for Evaluation Mining Limited in following
ways discussed below-
Cost Advantage
Cost is an essential element as it optimises prices and helps company in setting its profit
margin. Higher the cost lower will be the profit and vice versa. Thus, finance and production
managers of Evaluation Mining Limited is required to manage cost of its products so that more
customers get attracted with offerings of company. Thus, managing value chain leads to
reduction in cost and which is an advantage for organisation.
For Example- Evaluation Mining Limited can reduce cost of mining by developing
effective techniques and by introducing different machines which reduces time involved in
mining process and enhances production which in turn effective for company as profits gets
maximised. Further, company can reduce cost of marketing by promoting its services through
social media sites as so many customers are active on these sites and it requires less cost which
in turn reduces overall cost (Van Hoang, 2015).
Whole operation of a company is depended on cost and if cost is managed than company
can enhance its brand image and volume of sales. Thus, it is a most important advantage of value
chain analysis as cost of primary & secondary activities are monitored and controlled through
value chain analysis by managers of Evaluation Mining Limited.
2

Differentiation Advantage
If a company is able to sell its products & services at a price which satisfy its customers
and price of products are lower than its competitors than it differentiates firm from other
business ventures. Thus, it is also necessary for Evaluation Mining Limited to manage its value
chain.
Further, with the help of value Chain Evaluation Mining Limited is able to evalaute
activities on which company is required to work on and then managers make decisions to
improve those activities so that firm can produce & offer different services. Moreover, most
important activities are evaluated with the help of value chain analysis with which a company
can make plans of their improvement.
Company can compare its profitability and performance with its rivals with the help of
this analysis. Framework of Value Chain also enables managers of business firm to examine
unique drivers which makes its operations different from other business ventures. Thus,
opportunity of differentiation is an effective advantage of Value Chain Analysis.
For Example- With an effective Inbound Logistic supply of quality material increases
which in turn enhances quality of finished goods and provide management of wastage which in
turn eliminates unnecessary cost and provide differentiation opportunity.
b) Evaluation of organisation with the help of value chain
1. Mission & Objective
Mission: Mission of Evaluation Mining Limited is to fulfil objective of company by
adapting fair employment practices, identifying opportunities of cost minimisation &
differentiation and operating its business without harming environment.
Objective:
 To achieve long term sustainable growth by identifying & adapting opportunities and
managing supply chain & financials of company.
 Continuous Exploration & Mining of high quality gold, silver and copper in Australia.
 To contribute to economic development by increasing performance & by improving
effectiveness of value chain with the help of mining and organising programmes related
to rehabilitation (Ugonna, Jolaoso and Onwualu, 2015).
2. Competitive Strategy
3

Evaluation Mining Limited is adapting strategies consistently by improving them
according to the changes made in various factors affecting business company. Strategies
followed by company are discussed below-
Reduce All-in Sustaining Cost- It is a cost leadership strategy followed by company.
According to which company is focusing on reducing price of its product and services by
managing primary & secondary activities involved in supply chain management of business firm.
Company is managing cost of its products through implementation of waste management
practices and developing & exploring mining sites which are less costly. Further, company is
focusing on limiting number of employees at mining sites which in turn depreciates salaries &
expenses of firm. Company is also using new technology which reduces time required in mining
and then it is selling raw material to other producers & jewellers at a lower rate which in turn
decreases actual cost of products.
Company is also listed on Australian Stock Exchange and to increase its market share it
is required by company to distribute dividend and for that company needs to earn more profits
which is possible by adapting this strategy (Manello, Calabrese and Frigero, 2015).
3. Value Chain Model
4
Illustration 1: Value Chain Model

Primary & Secondary Activities are included in value chain mode of a business
organisation. Further, value chain model of Evaluation Mining Limited is discussed below-
Inbound Logistics- Operational Activity related to purchase of fuel, Mining Equipment,
raw material and management of inventory is performed by Evaluation Mining Limited in this
activity.
Outbound Logistics- Cost and other activities connected with distribution of products
and establishing network with dealers of mining projects of Evaluation Mining Limited are
covered under this activity.
Operations- Cost incurred during exploration of mining sites, drilling gold and other
commodities in Evaluating Mining Limited are covered under this activity.
Marketing & Sales- Cost and activities performed by company in advertising, market
research and planning are associated with this activity.
Procurement- In this activity Evaluation Mining Limited acquire inputs and other
resources used in mining process.
Infrastructure- Infrastructure is essential as it combines all the departments of
Evaluation Mining Limited such as Human Resource, Legal, marketing, finance and other
operational departments.
Service- Cost incurred in providing services related to installation of spare parts and
maintenance of machineries are managed in this activity.
4. Two Process of Value Addition
Technology development- Technology is a most important element which adds up value
to the products and services provided by Evaluation Mining Limited. Different mining
equipment are used by Evaluation Mining Limited for placer deposits of gold, silver and copper.
Technologies like Underground Excavators and Underground Mobile Miners are used by
company which assures safety of employees and can easily explore mining sited which in turn
enhance value of company as with these employees shows interest in company and performance
of employees gets maximised. This process benefits exploration and research operations of
Evaluation Mining Limited (Lizanov and Vega, 2016).
Further, development in technologies like miniaturization of drilling and different types
of analytical tools enhances efficiency of operations run be company and improve mining
process which in turn helps firm in generating high revenue and with that internal managers of
5

company are also take decisions related to dividend decisions and expansion. Organisation is
also focusing on maximisation of use of technologies such as geochemical and geophysical.
Further, time & cost of mining process is reduced with the help of space-borne remote sensing
used by company.
For Example – Company is using Super-borne remote sensing than it can easily track
place at which place gold and other commodities are available and with that information
employees explore & drill the sites where they can find gold. These makes mining process
affective and Evaluation Mining Limited can abstract more gold, silver and copper in less time
with this technology. Thus, this activity of value chain enhances brand image and profits of
business venture.
Marketing & Sales- Marketing is tool with which a company is able to create awareness
about its product and services which in turn attracts customers. This activity of value chain
model also add up to value of Evaluation Mining Limited as sales volume of company gets
increased with promotion strategies.
Product offered by mining company looks similar and it is difficult for customers to
select the best product. For Example- Evaluation Mining Limited is offering both Copper Ore
and Pile of Copper Ore both products looks similar. Thus, company is required to provide details
of each of its product through marketing so that customers can differentiate its commodities from
commodities of other companies. Further, with marketing & selling strategy company can attract
customers and develop relationship with customers (Kehoe and Mateer, 2015).
For Example- Evaluation Mining Limited is also starting a campaign which highlighting
social and economic benefits offered by companies mining projects. Further, company also can
disclose donation and other welfare services provided by it to charities which shows reliability
and feasibility of company’s business with this sales & customer base of firm gets maximised.
Further, internal managers of company make decisions for developing innovative
advertisement according to demand and needs of customers. Thus, this strategy improves
customer base and increase in profitability leads to an improvement in shareholders’ value.
5. Relevance & Usefulness of Value Chain Concept
Value Chain Concept is very useful as it improves flow of raw materials which in turn
enhances operational efficiency. From the above information it is abstracted that managers of
company can minimise & manages cost of products by developing creative ideas through
6

research & development. Further, this concept is also useful for organisation as it increases cash
inflow & outflow of funds in company. All the relevant information can be supplied with in an
organisation with the help of supply chain management. With the help of supply chain
management company can resolve operational & financial problems through information
provided in supply chain (Hammer and Plugor, 2016).
QUESTION 2
a) Calculation of allocation rates for fixed & variable overheads
Fixed overheads
Manager's salary 6250
Insurance & taxes 900
Rent 1000
Total fixed overhead cost 8150
Allocation rate for fixed overheads = $ 8150/229 (Total number of
hours)
= $ 35.58
Fixed Overhead is cost which does not change with the changes made in sales volume.
This cost remains constant during whole production process.
Variable Overhead are overheads which costs varies according to change in sales
volume and this cost has a direct effect on profit of company.
Variable Overheads Per Hour Cost
Direct labour wages ($5725/229) 25
Indirect labour wages ($1920/160) 12
Indirect labour wages ($100/229) 0.43
Miscellaneous ($1000/229) 4.36
Allocation Rate For Variable Overheads For
Current Period
$41.36
7

From the above table it is interpreted that estimated fixed overhead rate is $ 35.58 while
variable overhead rate is $41.36.
b) Total Overhead Cost allocated to Job 20 in October
Total number of hours for Job 20 10 hours
Total cost of Job 20 $250
Calculation Of Variable Fixed Overhead Cost For Job 20
Direct labour wages ($5725*10)/229 250
Indirect labour wages ($1920*10)/160 120
Indirect labour wages ($100*10)/229 4.36
Miscellaneous ($1000*10)/229 43.66
Total variable cost $418.02
Fixed Overhead costs : $ 35.58 * 10 hours
= $ 355.8
Total Overhead cost for Job 20 = (Variable
Overhead Cost = Fixed Overhead Cost)
=$ 355.8+$418.02
= $ 773.82
c) Total Cost for Job 20
Job Costing
Job Costing is a cost accounting technique used by business organisations and internal
managers to track cost of products & services allocated to a specific cost. Further, with thus
technique manager of company can maximise profits of a particular job eliminating different
types of cost. Moreover, with this accounting managers can improve efficiency of each of job
provided by it.
8

Total cost = Cost of job + Total overhead costs
= $250+$355.8+$773.8
= $1379.62
From the above calculation it is evaluated that cost of $1379.62 is incurred during
production of Job 20 bin month of October (Gaviglio, Marescotti and Demartini, 2018).
d) Fixed And Variable overheads allocated to all jobs in October
Fixed overheads
Manager's salary $6250
Insurance & taxes $900
Rent $1000
Total fixed overhead cost $815
Variable Overheads
Direct labour wages $5725
Indirect labour wages $1920
Utilities $100
Miscellaneous $1000
Total amount of variable overheads $8745
e) Efficiency of selection of two cost pools
Accountant is required use both cost such as Fixed and Variable as by considering both
cost company can evaluate actual cost incurred in manufacturing process. If one cost in
considered by business firm than it is not able to determine actual amount of profit earned by it.
Two Cost pools also helps accountant in deciding its profit margin. Thus, it is beneficial for
accountant to consider two cost while calculating cost of its goods.
Yes, two cost pool method makes changes in bills of clients. Like if a job includes less
amount of labours than there is a decrease in variable cost of company which in turn enhances
amount of contribution and profit. On the other hand, use of Fixed Overheads like equipment are
9

increased in that job than that reduces profit. Thus, both cost affects clients bill as with that
selling cost is changed (D'heur, 2015).
QUESTION 3
Activity Based Costing- It is the method of assigning the indirect cost to the cost objects.
In other words, it assigns the resources to the activities on the basis of the cause and effect
relationship. This method emphasizes on the activities that are performed in producing the
product. It helps in tracking the activities that are mainly responsible for incurring the cost. It
uses the detailed information relating to the activities that makes up for indirect cost so that only
for those resources the outputs can are charged that had been consumed. Activity based costing
is considered as the system of inventory management that the firm, adopts for dividing the
material on the basis of their value and the usage. In this method of costing system multiple
value of the overhead are accumulated or pooled together for allocating it based on the volume
factors. The process of the activity based costing involves that in the first step cost is pooled by
the performance of the activities. These cost are then applied to the cost objects on the basis of
their activity usage (Wüstemeyer, Madlener and Bunn, 2015).
Computation of fixed cost
Fixed cost assessment
Particulars Figures (in $)
Directors and staff salaries 60000
Animal shelter employees’ salaries 100000
Veterinarians and technicians 150000
Total fixed cost 310000
Assessment of building cost
Particulars
Animal
shelter
Director and
training
Veterinarian
clinic Total
Building-related costs 5000 3000 2000 10000
Allocation of cost to each
option
5000 * 20 =
100000
3000 * 20 =
60000
2000 * 20 =
40000
200000 / 10000
= 20
Cost drivers
10

Building-related costs Square footage for each facility
Animal trainers Percentage of trainer time used in classes
Food and supplies Supplies used for veterinarian services
a. Identifying the cost pool by considering the three objects.
The cost pool includes the building cost, animal trainers cost and the food and the supply
cost. The cost assigned and computed to each pool as the animal trainers cost equates to 40000
and the percentage of time taken by the trainers given as 40% so the actual cost resulted as 20000
(40000*50%). Similarly, food and supply cost equals to 125000/75000 that is 1.667. Salary will
be counted as the fixed cost that is given as 100000.
b. Identifying the cost driver in relation to each cost and suggesting the best option.
From the above table it has been analysed that the cost driver for building related cost is
square foot for each facility. The cost driver for animal trainers are considered as the percentage
of the trainer time that is been used in the classes. The cost regarding the food and supplies are
under the cost driver of the supply that has been used for facilitating the vegetarian services. This
was the best option according to me as building can be best defined in the square foot and animal
trainers is also relates with the time taken by the trainer. Food and supplies are also showing the
direct relationship with the used supplies for the vegetarian services (Advantages &
Disadvantages Of Value Chain Analysis.2011).
c. Calculation of rates of allocation for each of the cost driver.
Activity Cost driver Overheads based
on cost drivers
Estimated
figures/units
Rate
Directors & staff
salaries
No. of animals
housed per year
4500 60000 13.33
Veterinarian and
technicians
No of animal
visits
5000 150000 30
Trainers No of training
classes
1875 40000 21.33
Food and supplies Supplies used in
veterinarian
75000 125000 1.66
11

services
Building related
costs
Square feet basis
of building s
10000 200000 20
Animal shelter
employees’
salaries
No. of animals
housed per year
4500 100000 22.22
CONCLUSION
The above report outlined concept of value chain according to that it is concluded that a
company can minimise its cost of products & earn more profits by managing activities of Supply
Chain. Further, this report summarises mission, objectives, strategies and value chain model of
business organisation. Furthermore, this report calculates allocation rates of fixed & variable
overheads and cost incurred in a job. Moreover, different types of cost pools are identified in the
above report. At last, this report concludes with different cost drivers for each cost pool.
12

REFERENCES
Books and Journals
D'heur, M., 2015. Sustainable Value Chain Management (p. P21). Springer International
Publishing: Imprint: Springer.
Gaviglio, A., Marescotti, M. and Demartini, E., 2018. The local value chain of hunted red deer
meat: a scenario analysis based on a northern Italian case study. Resources. 7(2). p.34.
Hammer, N. and Plugor, R., 2016. Near‐sourcing UK apparel: value chain restructuring,
productivity and the informal economy. Industrial Relations Journal. 47(5-6). pp.402-416.
Kehoe, K. and Mateer, J., 2015. The impact of digital technology on the distribution value chain
model of independent feature films in the UK. International journal on media management.
17(2). pp.93-108.
Lizano, V. R. and Vega, M. M., 2016. Costa Rican meat value chain description: Price
transmission as a tool. International Journal of Food and Agricultural Economics
(IJFAEC). 4(1128-2016-92099), p.91.
Manello, A., Calabrese, G. G. and Frigero, P., 2015. Technical efficiency and productivity
growth along the automotive value chain: evidence from Italy. Industrial and Corporate
Change. 25(2). pp.245-259.
Ugonna, C. U., Jolaoso, M. A. and Onwualu, A. P., 2015. Tomato value chain in Nigeria: Issues,
challenges and strategies. J. Sci. Res. Rep. 7(7). pp.501-515.
Van Hoang, V., 2015. Value Chain Analysis and Competitiveness Assessment of Da Xanh
Pomelo Sector in Ben Tre, Vietnam. Asian Social Science. 11(2). p.8.
Wu, L., and et.al., 2016. Smart supply chain management: a review and implications for future
research. The International Journal of Logistics Management. 27(2). pp.395-417.
Wüstemeyer, C., Madlener, R. and Bunn, D. W., 2015. A stakeholder analysis of divergent
supply-chain trends for the European onshore and offshore wind installations. Energy
Policy. 80. pp.36-44.
Online
Advantages & Disadvantages Of Value Chain Analysis.2011. [online]. Available through
<http://www.differentiateyourbusiness.co.uk/the-advantages-disadvantages-of-value-chain-
analysis>
Management accounting - What is management accounting.2019.[online]. Available through
<https://debitoor.com/dictionary/management-accounting>
ASX and Media Releases.2014. [online]. Available through <https://www.agl.com.au/about-
agl/media-centre/asx-and-media-releases/2014/november/agl-embraces-disruptive-
technologies-to-meet-changing-consumer-needs>
13