ACC 8802: Case Study Analysis of Strategic Management Accounting Tools

This document presents a comprehensive analysis of four case studies focusing on strategic management accounting principles. Case Study 1 explores activity-based supplier performance costing, calculating supplier performance indexes and identifying lower-cost suppliers. Case Study 2 analyzes Pet Treatz Proprietary Ltd., examining non-value-added costs, per-unit costs, and target costing, with a focus on cost reduction and process re-engineering. Case Study 3 investigates MountainBikes Ltd.'s cost and quality management, including quality cost percentages, worst-performing cost activities, and appraisal costs. Finally, Case Study 4 delves into SSHA Holdings Pty Ltd., calculating profits under different scenarios and evaluating transfer pricing versus purchasing decisions. The analysis provides detailed calculations, recommendations, and insights into strategic cost management and decision-making.

RUNNING HEAD: CASE STUDY 0
Strategic Applications of
Management Accounting
August 21
2019

CASE STUDY 1
Table of Contents
Case Study 1: Activity-Based Supplier Performance Costing...................................................3
1. Activity-based supplier costing per engine.....................................................................3
2. Supplier Performance Index (SPI)..................................................................................3
3. Lower cost supplier.........................................................................................................4
4. Advise in situation...........................................................................................................4
Case Study 2: Pet Treatz Proprietary Ltd...................................................................................5
1. Non-value added cost per activity and per-unit cost of product.....................................5
2. Toowoomba factory........................................................................................................6
(a) Reduction in Non- value added costs......................................................................6
(b) Re-engineering the production process....................................................................6
3. Target Cost......................................................................................................................6
4. Lowest possible selling price..........................................................................................7
5. Advantages and disadvantages of Benchmarking...........................................................7
Case 3: Managing cost and quality............................................................................................7
1. Costs of MountainBikes Ltd. for the period....................................................................7
(a) Statement showing % of quality cost against Total Quality Costs..........................7
(b) Statement showing % of quality cost against Total Manufacturing costs...............8
(c) Statement showing % of quality cost against Total Sales Revenue........................9
2. Worst performing cost activities...................................................................................10
3. Appraisal Cost...............................................................................................................10

CASE STUDY 2
4. Traditional costing v/s improved costing system..........................................................10
5. New target cost..............................................................................................................10
6. Expected Profit..............................................................................................................11
Case 4: SSHA Holdings Pty Ltd..............................................................................................11
1. Calculation of the profits...............................................................................................11
(1) Statement of profit for Rotor Electrics business unit.............................................11
(2) Statement of profit for Green Acres business unit.................................................11
(3) Statement of profit for SSHA Holdings Ltd..........................................................12
2. Profit calculations under transfer..................................................................................12
(1) Statement of profit for Rotor Electrics business unit.............................................12
(2) Statement of profit for Green Acres business unit.................................................12
(3) Statement of profit for SSHA Holdings Ltd..........................................................12
3. Decision making: Transfer v/s Purchase.......................................................................13
References................................................................................................................................14

CASE STUDY 3
Case Study 1: Activity-Based Supplier Performance Costing
1. Activity-based supplier costing per engine
Activity-based costing is a type of cost which is generally used by the manufacturing
industries to derived the actual amount of total cost incurred on the performance of that
particular activity. It is similar to the overhead costs which are allocated to their proper heads
based on some cost drivers identified for the activity (Hofmann, and Bosshard, 2017). In the
given scenario, the units of the two engines are given on which the particular activities are
performed and the allocation is also made based on units involved in the activity.
Activity Cost
Replacing engines 9,00,000
Expediting orders 12,00,000
Repairing engines 15,00,000
Activity Wilson Johnston Total
Engines replaced by the source 1,880 20 1,900
Late shipments/ expedited orders 395 5 400
Warranty repairs (by your company) 1,450 50 1,500
Statement of distribution of activity cost:

CASE STUDY 4
Particulars Cost Wilson Johnston
Replacing engines 9,00,000 890526 9474
Expediting orders 12,00,000 1185000 15000
Repairing engines 15,00,000 1450000 50000
Statement of activity-based suppliers cost per engine:
Particulars Wilson Johnston
Acquisition Cost 23400000 5600000
Replacing engines 890526 9474
Expediting orders 1185000 15000
Repairing engines 1450000 50000
Total cost 26925526 5674474
No. of units 18000 4000
Total cost per engine 1496 1419

CASE STUDY 5
2. Supplier Performance Index (SPI)
The supplier’s performance index is the index which is carried out to evaluate the actual cost
and quality relationship of the material supplied by the supplier. It defines the firm’s cost of
doing business with the supplier. It is calculated by dividing the actual cost incurred by the
firm on the supplied goods by the purchase price of the material (Yazdani, Chatterjee,
Zavadskas, and Zolfani, 2017). The closer the supplier index is to the value 1 the better is the
supplier’s performance.
It is calculated using the following formula:
Suppliers Performance Index: (Purchase price + non- performance cost) / Purchase price
For calculating the SPI for the engines the combined cost on the material is already calculated
in the above table. Hence, SPI for the engines comes out to be:
Wilson: 1.151
Johnston: 1.013
Hence, Johnston’s engine has better SPI than Wilson’s engine.
3. Lower cost supplier
A lower-cost supplier is a supplier who provides the product to the firm at a price lower than
the other suppliers of the product, here the engine (Li, and Wan, 2016). The Johnston is the
lower cost supplier in the given scenario as from the per-unit cost of engine for the firm
inclusive of the activity costs incurred on them the cost for Johnston is $ 1419 whereas
Wilson engine costs for $ 1496. This method of calculating the cost per unit of the engine is
better than the traditional method of costing where the only the purchase price of the material
is compared with each other to identify the lower-cost supplier. In the traditional method the
other cost incurred on the supplies after the purchase price is ignored which may impact the
decision of identification. As in the given case study, the purchase price of Wilson's engine is

CASE STUDY 6
$ 1300 while the purchase price of Johnston's engine is $ 1400. Here, according to the
traditional method of calculation, the Wilson is a better supplier than the Johnston. But the
case is reverse in the activity-based measuring cost of the engine.
4. Advise in the situation
The tractor company has a requirement of 22000 engines in its business. As per the
calculations made in the above tables, it has been concluded that Johnston's engine may have
higher purchasing price than Wilson's engine. But the actual total cost of Johnston is lower
than the Wilson and the SPI of Johnson is also better than the Wilson which proves that the
company should choose to buy engines from Johnston. However, the condition states that
Johnston has the supplies of 20000 engines only. In such a situation, the company is advised
to buy 2000 engines from the Wilson and continue the production of 22000 tractors to earn
more profits on 20000 tractors and a little lower profit on the remaining 2000 units. But the
company should continue to produce and earn profits and try to find the other sources of
supplies which are more efficient than the current suppliers.
Case Study 2: Pet Treatz Proprietary Ltd.
1. Non-value added cost per activity and per-unit cost of the product
The case study has provided with the data regarding the value-added and non-value added
activities and the total cost of each activity is also provided (Sembiring, Wahyuni, Sinaga,
and Silaban, 2018, February). To extract the non-value added cost per activity the total cost
of each activity is divided with the total of that activity performed. It is presented in the table
below:
Melbourne factory’s new Toowoomba factory’s
current
Selling price $30 $35
Cost $24 $28
Profit Margin (% and $) 20% = $6 20% = $7

CASE STUDY 7
Value-Added
Activities
Non-value
added activities
Total
activities
Actual cost of
total activities
Materials (kg) 9,00,000 1,00,000 10,00,00
0 $10,000,000
Labour (hours) 18,000 6,000 24,000 $720,000
Machine set ups 500 750 1,250 $250,000
Materials handling 0 40,200 40,200 $2,010,000
Warranties and
customer complaints 0 30,000 30,000 $1,020,000
Total 1,40,00,000
Total number of units 5,00,000
Statement of activity (non-value added):
Activity The total cost of
activities
Total
activities
Cost per
activity
Non-value added activities
cost
Materials 1,00,00,000 10,00,000 10 1

CASE STUDY 8
(kg) 0,00,000
Labour
(hours) 7,20,000 24,000 30 1,80,000
Machine
set ups 2,50,000 1,250 200 1,50,000
Materials
handling 20,10,000 40,200 50
2
0,10,000
Warrantie
s and
customer
complaint
s
10,20,000 30,000
34
1
0,20,000
Total 1,40,00,000 10,95,450 324 4
3,60,000
Statement of cost per unit:
Total cost 1,40,00,000
No. of units 5,00,000
Cost per unit 28

CASE STUDY 9
2. Toowoomba factory
(a) Reduction in Non-value added costs
Yes, the Toowoomba factory can reduce its non-value added costs as the non-value costs are
the costs which are charged as the overhead cost of other expense which does not qualify for
the cost which can be charged from the customers. The lower is the non-value added costs the
higher is the profit of an organization. If the overall non- value cost per activity is determined
it comes out to be 1, 40, 00,000 / 10, 95, 450 that is $ 12. 78. It can be reduced by following
the zero-based budgeting method where the costs are justified for every new period and the
benchmarking is set according to the analysis of the costs and requirements.
(b) Re-engineering the production process
Yes, the Toowoomba factory can match the Melbourne factory by increasing the cost of $ 20,
000 every year.
200, 000 / 10 = 20, 000 every year
This will increase the value-added cost factor and the non-value added cost factor will be
bought to zero using this re-engineering in the process.
Particulars Amount
Total cost of activities 1,40,00,000
(-) Non- value added activities cost 43,60,000
Value added cost 96,40,000
(+) Process re-engineering cost 20,000
Total cost 96,60,000
No. of units 5,00,000

CASE STUDY 10
Per unit cost 19.32
3. Target Cost
Target cost is the cost to be achieved by the management to drive the desired profit from their
product (Mestry, Menneer, Cave, Godwin, and Donnelly, 2017).
The selling price of the local competitor is $ 30
Profit margin is 20% of the sales that is 30 * 20% = $ 6
The targeted cost should be 30 – 6 = $ 24
Thus, the Toowoomba will be able to earn the required profit margin if it produces the
product at the targeted cost of $ 24.
4. Lowest possible selling price
The profit margin is 20% on the sales which means it is a 25 % margin on the cost. The
minimum cost of production for the Toowoomba will be $ 19.32 as calculated in the process
of re-engineering. This is the lowest possible cost price where the value-added cost is zero
and hence the lowest possible selling price would be calculated as follows:
= 19.320 + 25% (19.32)
= $ 24.15
5. Advantages and disadvantages of Benchmarking
The advantage of benchmarking with the achievements of the Melbourne factory is that it
initiates the management to work towards the cost reduction in the Toowoomba factory. The
cost of production in the Melbourne factory is $ 24 while the cost of production in
Toowoomba is $ 28. It sets the targets to be achieved by the Toowoomba and reduce its non-
value added costs (Zuech, Khoshgoftaar, Seliya, Najafabadi, and Kemp, 2015). The
disadvantage of benchmarking with the Melbourne factory is that the geographical location
and conditions of both the factories are different and the benchmarking should be done with

CASE STUDY 11
the achievable and similar condition firms. Comparing the data of Toowoomba with
Melbourne will show negative results and demotivates the production process of the firm.
Case 3: Managing cost and quality
1. Costs of MountainBikes Ltd. for the period
Particulars Amount
Total Quality Costs 1,83,500
Total Manufacturing Costs 6,00,000
Total Sales Revenue 7,50,000
To calculate the percentage of costs for different bases the formula followed should be:
(Quality Cost / Base Cost) * 100