Strategic & Sustainability Accounting: A2 Milk Company Analysis

This report identifies and summarizes the key environmental and social concerns related to the operations of The A2 Milk Company, considering issues across the firm's value chain. It suggests potential environmental and social objectives for the firm, along with measures to track progress. Key environmental concerns include greenhouse gas emissions from dairy cattle and potential harm from synthetic milk, while social concerns involve health safety issues related to milk consumption and the challenges faced by farmers in converting to A2 milk production. The report also discusses transfer pricing strategies, evaluating minimum and maximum acceptable prices, and analyzes capital investment proposals, emphasizing the importance of considering environmental factors. Ultimately, the report recommends that A2 Milk Company proceed with the proposed ice cream production plant expansion based on its financial viability and attractive returns.

Running head: STRATEGIC AND SUSTAINABILITY ACCOUNTING 1
Strategic and Sustainability Accounting
Name
Professor
Institution
Date
Question 1: Sustainability

STRATEGIC AND SUSTAINABILITY ACCOUNTING 2
Executive Summary
The A2 Milk Company operates in the dairy industry and significantly impacts the
environment in a variety of ways. However, there are certain initiatives that could be undertaken
by the firm in order to reduce or minimize these impacts. In addition to this, the firm impacts a
number of groups of stakeholders and there are various key social concerns which the firm’s
management must be cognizant of. Sustainability accounting measures are very essential in
helping the company minimize these environmental impacts as well as the social concern issues.
These are discussed further in this report.
Introduction
As highlighted above, the primary purpose of this report is to identify and summarize the
key environmental and social concerns that relate to the operations of The A2 Milk Company.
This discussion has considered a range of various environmental and social issues from across
the value chain f the firm. Furthermore, as part of this report, suggestions on three potential
environmental and social objectives that the firm could to achieve are given. Additionally, at
least two measures of measuring the progress of each of the firm’s objectives have been
suggested.
The Key Environmental and Social Concerns Relating To the Operations of the A2 Milk
Company
Greenhouse gases is one of the major environmental concerns relating to the operations
of The A2 Milk Company. The A2 Milk Company is engaged in rearing of dairy cattle for
production of its various milk products. These gases are produced by cows by doing what comes
to them naturally and enters the atmosphere (Brockett & Rezaee, 2013). This causes possible

STRATEGIC AND SUSTAINABILITY ACCOUNTING 3
harm of global warming in the near future. In addition to this, there is a supposedly a looming
threat or harm resulting from the synthetic milk produced by the company. The synthetic milk
and the greenhouse gas effects are big environmental concerns which must be dealt with
accordingly by the firm and the regulating agencies (Lasserre, 2012).
Furthermore, The A2 Milk Company has partnered with farmers across Australia, who
are mainly focused on rearing cattle. The company buys from these farmers in order to
supplement their supply, for purposes of dairy product production. However, there are a number
of environmental issues and concerns which are related to the farming activities of these farmers,
with regard to cattle rearing. For instance, this is believed to cause soil erosion and reduced
biodiversity (Khalili, 2011).
In addition to this, there is a social concern facing The A2 Milk Company with regard to
the health safety of some of its dairy products. For instance, most customers have complained
that consumption of the company’s milk has caused them health problems such as bloating,
stomach ache and swollen tongue. A research conducted by scientists has indicated that there are
genetic mutations which took place in North European cows and the A1 protein consequentially
started showing up in milk products that were then containing only the A2 protein. It has been
discussed that A1 is involved in basically forming a fragment that has the ability of triggering
inflammation in the body when digested (Hitchcock & Willard, 2015). This has the potential
impact of causing ailments such as irritable bowel syndrome, autism, eczema and schizophrenia.
However, in response to this, The A2 Milk Company has considered championing a research into
the deleterious impacts purported to A1 protein. It has emphasized on the idea that individuals
who drink the milk of the company experience a good feeling. It is acknowledged that 25% of
consumers in the western countries have reported some kind of health problems and discomforts

STRATEGIC AND SUSTAINABILITY ACCOUNTING 4
after consumption of the company’s milk products. Therefore, this is a great social concern for
The A2 Milk Company Limited (Hussey, 2012).
Additionally, there is a social concern that The A2 Milk Company Limited is potentially
threatened by the fact that it fails to get on with the long process which is required for converting
and producing A2 milk which is free from A1 beta casein. Although most of the large farmers
supplying raw materials to the company have adopted this conversion process, there are small
farmers who have poor sources of information and are therefore at a great risk of getting
blindsided. This is potentially extended to the consumers of the dairy products, such as the milk
produced by the company (Bamford & West, 2010).
Potential Environmental and Social Objectives That the Firm Could Strive To
Achieve
There are a number of potential environmental and social objectives which the firm could
strive to achieve and measures which could be used in measuring the objectives (Hitchcock &
Willard, 2015). These have been summarized in the table below.
Environmental Objectives
Dimension Objective Possible Measures of Performance
1. Promotion and expansion of products
which are environmentally friendly.
a. Identification of the company’s
environmentally friendly products and
comparing them with the various
environmental regulation provisions.

STRATEGIC AND SUSTAINABILITY ACCOUNTING 5
b. Determining how well the business
and products of the company
contribute to protection of the
environment.
2. Significant reduction on consumption
of power.
a. Determining the annual power
consumption of the company in
processing the dairy products.
b. Ascertaining the rate at which the
company has reduced power
consumption.
3. Reducing water consumption. a. Setting of a baseline for water use and
monitoring it carefully.
b. Benchmarking the water consumption
rate of the company with that of other
firms in the industry.
Social Objectives
A social objective of a firm is a statement detailing the specific desired outcomes of its
business or project, which is related to interaction of people, institutions or groups. Social
objectives are mainly purposed for improving the human well-being of various stakeholders
(Hitchcock & Willard, 2015).

STRATEGIC AND SUSTAINABILITY ACCOUNTING 6
Dimension Objective Possible Measures of Performance
1. Production of quality goods and
services.
a. The positivity of the feedback
received from consumers.
b. Recommendations or penalties
imposed by product quality regulating
agencies.
2. Fair and reasonable pricing of
products.
a. The average number of consumers
able to purchase the company’s
products.
b. Benchmarks with the prices offered
with by the competitors in the
industry.
3. Enhancement of general societal
welfare.
a. The number of employment
opportunities offered by the company
to the immediate society in which it
operates.
b. How well the company participates in
corporate social responsibility
programs such as charity and
donations.
Question 2: Transfer Pricing

STRATEGIC AND SUSTAINABILITY ACCOUNTING 7
a. Minimum Transfer Pricing that could be Accepted
The minimum transfer price that would be likely accepted by the mixing department
manager is $1.60, as calculated below. This is because the mixing department has to recover at
minimum the opportunity cost of mixing the ice cream (Brockett & Rezaee, 2013).
a. Minimum Transfer Price
Sales per unit 2.00$
Less: Variable Cost per Unit 0.40$
Contribution Margin (Opportunity Cost) 1.60$
b. Minimum Transfer Pricing
The maximum transfer price that the freezing department manager will be willing to pay
is $2.00. This is because the freezing department would only want to pay the maximum amount
which is equal to the lowest price that could be paid to external suppliers (Epstein & Lee, 2012).
Cost plus pricing would not be appropriate for transfer of prices in this situation. This is
because the company is only selling the unprocessed ice cream to its internal departments, and
would not therefore add a mark up to the unit cost of ice cream (David, 2011).
c. Transfer Price Based on Cost Plus Pricing
The transfer price for sales between the mixing and the freezing department, based on
absorption cost with a 40% mark-up is calculated as follows.

STRATEGIC AND SUSTAINABILITY ACCOUNTING 8
Transfer Price
Variable overheads 0.40$
Add: Fixed overhead 0.20$
Total 0.60$
Add: Mark Up (40%) 0.24$
Total Transfer Price 0.84$
The following would be the contribution margin per unit for the ice cream department if
this transfer price is used.
Contribution margin of the icecream department
Sales 0.84$
Less: Variable overheads (0.40)$
Contribution margin 0.44$
The transfer price for sales between the mixing and the freezing departments if cost-plus
pricing, based on variable cost with a 50% markup is calculated below.
Transfer Price at a mark up of 50%
Variable overheads 0.40$
Add: Fixed overhead 0.20$
Total 0.60$
Add: Mark Up (50%) 0.30$
Total Transfer Price 0.90$
The contribution margin per unit for the ice cream department if this transfer price is used
is determined as follows.
Contribution margin of the icecream department
Sales 0.90$
Less: Variable overheads (0.40)$
Contribution margin 0.50$

STRATEGIC AND SUSTAINABILITY ACCOUNTING 9
The transfer prices determined above are likely to be acceptable to ice cream mixing
department since the minimum unit price is sufficient for meeting the costs of producing a unit
ice cream (Bamford & West, 2010).
d. Application of the General Transfer Price in This Situation
The general transfer price is applied in this situation since the ice cream mixing
department applies or transfers some costs and overheads to the freezing department within the
A2 Milk Company Limited. The ice cream mixing department has some spare capacity since it
has the ability of producing more ice cream than it is currently producing, thus being able to
transfer the costs to the freezing department at the minimum acceptable transfer price (Epstein &
Lee, 2012).
Question 3: Capital Investment Analysis
Calculations are provided in the excel file attached.
a. Key Environmental Factors That the Firm Should Consider In Evaluating the
Proposal
There are various environmental factors which must be considered by The A2 Milk
Company Limited in evaluating this proposal. For instance, the company must ensure that the ice
cream production plant expansion would not adversely affect the environment within which the
firm operates. It must be also ensured that there are no significant emissions of chemicals and
other factory wastes that would otherwise pollute the environment (Epstein & Lee, 2012).
Recommendation

STRATEGIC AND SUSTAINABILITY ACCOUNTING 10
Based on assessment of the financial considerations and other factors, the firm should go
ahead with the proposal. This is because the proposal has very short payback period of three
years, which means that it is financially viable and it is able to generate enough cash flows to
recover the initial cost of investment within its initial years. Additionally, the proposal has a
positive net present value, which indicates that it is a viable and productive investment.
Furthermore, the internal rate or return (IRR) and Accounting Rate of Return (ARR) of the
proposal are all attractive (Epstein & Lee, 2012).
In conclusion, the proposal of expanding the ice cream production plant of A2 Milk
Company Limited is productive and should be therefore adopted by the company’s management.

STRATEGIC AND SUSTAINABILITY ACCOUNTING 11
References
Bamford, C. E., & West, G. P. (2010). Strategic management: Value creation, sustainability,
and performance. Australia: South-Western Cengage Learning.
Brockett, A., & Rezaee, Z. (2013). Corporate sustainability: Integrating performance and
reporting. Hoboken, NJ: Wiley.
David, F. R. (2011). Strategic management: Concepts and cases. Upper Saddle River, NJ:
Prentice Hall.
Epstein, M. J., & Lee, J. Y. (2012). Advances in management accounting: Volume 20. Bingley:
Emerald.
Hitchcock, D. E., & Willard, M. L. (2015). The business guide to sustainability: Practical
strategies and tools for organizations. New York: Routledge.
Hussey, D. E. (2012). Strategic Management. Hoboken: Taylor & Francis.
Khalili, N. R. (2011). Practical sustainability: From grounded theory to emerging strategies.
New York: Palgrave Macmillan.
Lasserre, P. (2012). Global strategic management. Houndmills, Basingstoke: Palgrave
Macmillan.