ACCG200 Ethical Issues ABC Co & Tracy Corporation Case Analysis

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NobfbyhgrIbqxn

Business Finance

ACCG200

Macquarie University

Description

Using the given report and ppt to prepare a speech draft of part2

Please note that you need to write down what exactly I am going to say during the presentation. Not just write down an essay

I will be only doing part2, the ethical part

Please go through all the question, report and ppt very carefully

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DEPARTMENT OF ACCOUNTING AND CORPORATE GOVERNANCE Faculty of Business and Economics ACCG200/613 | Case Study | Session 1, 2019 CASE STUDY PRESENTATION (10%) Case Study Case Study Presentation (10%) Case Study Presentation (10%) Students are required to analyse the case and present their answers in a group presentation in the week 8 tutorial. The duration of the group presentation should be a maximum of 10 minutes. At the tutor’s discretion, students will be assigned to a group of 3 or 4 students in the week 3 tutorial. No individual presentation is allowed. Each student within the group must participate and deliver the presentation. Each student should speak for a minimum of 2 minutes. Students are required to submit their PowerPoint slides (A maximum of 8 slides per group) to their tutors via email at least one day before their presentation due date. The case study presentation will be graded based on both the students' ability to answer the questions and their presentation skills. Feedback on the case study presentation will be provided to students in the form of a feedback sheet upon the completion of marking. Students within the same group will be assessed individually based on the groups submitted slides and their individual presentation. A mark of ZERO will be awarded for absence or non-presentation. There is no make-up or supplementary presentations in this unit. Any group member or group leaving the tutorial early (after they have presented) will be awarded a mark of ZERO. 2 Case Study Case Study Presentation (10%) Tracy Corporation The Tracy Corporation has a machining facility specialising in jobs for the aircraft-components market. Tracy’s previous simple job-costing system had two direct-cost categories (direct materials and direct labour) and a single indirect-cost pool (manufacturing overhead, allocated using direct labour-hours). The indirect cost-allocation rate of the simple system for 2019 would have been $115 per direct manufacturing labourhour. However, the firm has come under increasing price pressure from other competitors and has been losing market share over the past three years. The CEO of Tracy Corporation, Tracy Clarkson, was concerned about the business performance and had a chat with the CFO, Leonard Bryner. Tracy Clarkson: Leonard, why can’t we compete with these other companies? Are we really that inefficient? Leonard Bryner: As I raised this in our last executive meeting, it is due to an outdated costing system. It was apparent that our current system is distorting product costs. I will compile some data to show you what I mean… Leonard gathered the basic information needed to implement an activity-based costing system in the following table. Specifically, the two direct-cost categories were retained. Leonard decided to replace the single indirect-cost pool with five indirect- cost pools. The cost pools represent five activity areas at the plant, each with its own supervisor and budget responsibility. Pertinent data are as follows: Activity Area Activity Driver Activity Rate Materials handling Parts $ 0.40 Lathe work Lathe turns 0.20 Milling Machine-hours 20.00 Grinding Parts Testing Units tested 0.80 15.00 Two representative jobs processed under the ABC system at the plan in the most recent period had the following characteristics: Direct material cost per job Direct manufacturing labour cost per job Number of direct manufacturing labour-hours per job Parts per job Lathe turns per job Machine-hours per job Units per job (all units are tested) Job 410 Job 411 $9,700 $59,900 $750 $11,250 25 375 500 2,000 20,000 60,000 150 1,050 10 200 3 Case Study Case Study Presentation (10%) Before Leonard could report back to Tracy. He received a phone call from his friend, Charlie Davis, certified management accountant, the firm’s plant manager. Charlie: Leonard, I’ve gotten wind of your new product cost analysis. There’s no way the costs anywhere near what your numbers say. I just don’t believe it. Leonard: Charlie, as you know, our firm has been losing market share over the past three years. We have been losing more and more bids. At first, I thought that other firms were undercutting simply to gain business, but after examining some of the public financial reports, I believe that they are making a reasonable rate of return. I now believe that our costs and costing methods are at fault. Charlie: I can’t agree with that. We have good control over our costs. Like most firms in our industry, we use a normal job costing system. I really don’t see any significant waste in the plant. Leonard: After talking with some other controllers at a recent industrial convention, I’m not so sure that waste by itself is the issue. They talked about activity-based management, activity-based costing and continuous improvement. They used ‘activity drivers’ to assign overhead. They claimed that these new procedures can help to produce more efficiency in manufacturing, better control of overhead and more accurate product costing. A big deal was made of eliminating activities that added no value. Our bids are too high because these other firms have found ways to decrease their overhead costs and to increase the accuracy of their product costing. Charlie: I doubt it. For one thing, I don’t see how we can increase product costing accuracy. So many of our costs are indirect costs. Furthermore, everyone uses some measures of production activity to assign overhead costs. I imagine that what they are calling ‘activity drivers’ is just some new buzzword for measures of production volume. Fads in costing come and go. I wouldn’t worry about it. I’ll bet that our problems with decreasing sales are temporary. You might recall that we experienced a similar problem about 12 years ago- it was two years before it straightened out… Source: Horngren, C. Datar, S. Foster, G. Rajan, M. and Ittner, C. 2008. Cost Accounting. Pearson: New Jersey. Required 1. Using the information provided by Leonard a) Calculate the manufacturing cost per unit for each job under the previous simple job costing system. b) Calculate the manufacturing cost per unit for each job under the activity-based costing system. c) Compare the per-unit cost figures for Jobs 410 and 411 calculated in requirements a) and b) Why do the simple and the activity-based costing systems differ in the manufacturing cost per unit for each job? d) How might Tracy Corporation use information from its ABC system to better manage it business? 2. Discuss the ethical issues involved a) Do you agree or disagree with Charlie Davis and the advice that he gave Lenard Bryner? Explain. b) Do you think that Charlie was well informed-that he was aware of the accounting implications of ABC and that he knew that was meant by activity drivers? Should he have been well informed? Was there anything wrong or unethical in the behaviour that Charlie displayed? Which of the principles set out in the Code of Ethics for Professional Accountants have been violated? c) What are Leonard’s ethical obligations? What should Leonard do? 4 Case Study Case Study Presentation (10%) ACCG200/613 Group Presentation Marking Rubrics Category Group-based (15 points) Individual-based (15 points) Scoring Criteria Total Points Information from relevant/appropriate sources is analysed using relevant/appropriate theories, concepts, and/or techniques to develop a clear and comprehensive analysis of the problem. 6 Potential solutions are identified and evaluated with reference to relevant and appropriate contextual factors leading to the recommendation of a feasible and appropriate solution. 6 Length of presentation is within the assigned time limits. 3 Speaker maintains good eye contact with the audience and is appropriately animated (e.g., gestures, moving around, etc.). 5 Speaker uses a clear, audible voice and delivery is poised, controlled, and smooth. 5 Visual aids are well prepared, informative, effective, and not distracting. 5 Total points Score 30 Final marks out of 10% weightings Comments: 5 Input data Job 410 Direct material cost per job Direct manufacturing labour cost per job Number of direct manufacturing labour-hours per job Parts per job Lathe turns per job Machine-hours per job Units per job (all units are tested) $9,700 $750 25 500 20,000 150 10 Job 411 $59,900 $11,250 375 2,000 60,000 1,050 200 Overhead allocation rate $115 1a) Calculate the manufacturing cost per unit for each job under the previous simple job costing system. Job 410 Direct material cost per job Direct manufacturing labour cost per job manufacturing overhead Total Manufacturing cost Number of Units tested Cost per unit $9,700 $750 $2,875 $13,325 10 $1,332.50 Job 411 $59,900 $11,250 $43,125 $114,275 200 $571.38 b)Calculate the manufacturing cost per unit for each job under the activity-based costing system Input data Activity Area Activity Driver Activity Rate Materials handling Parts $0.40 Lathe work Lathe turns 0.2 Milling Machine-hours 20 Grinding Parts 0.8 Testing Units tested 15 Job 410 Direct material cost per job Direct manufacturing labour cost per job Total variable cost Materials handling Lathe work Milling Grinding Testing manufacturing overhead Total Manufacturing cost $9,700 $750 $10,450 $200.00 $4,000.00 $3,000.00 $400.00 $150.00 $7,750.00 $18,200.00 Job 411 $59,900 $11,250 $71,150 $800.00 $12,000.00 $21,000.00 $1,600.00 $3,000.00 $38,400.00 $109,550.00 Number of Units tested Cost per unit 10 $1,820.00 200 $547.75 c) Compare the per-unit cost figures for Jobs 410 and 411 calculated in requirements a) and b) Why do the simple and the activity-based costing systems differ in the manufacturing cost per unit for each job? Cost per unit for Jobs 410 under ABC costing system is higher than the cost per unit calculated under simple costing Cost per unit for Jobs 411 under ABC costing system is less than the cost per unit calculated under simple costing sys The costs per unit vary because under simple costing system, manufacturing overhead is based on direct manufacturin while under the ABC costing system, the overhead costs is traced to the activities and is based on the cost driver of ea d) How might Tracy Corporation use information from its ABC system to better manage it business Tracy corporation can use ABC system to focus on the activities that add value to the product and eliminate the cost t Tracy corporation can use ABC system to plan on the modification of its products or manufacturing of unique produc PART 2 a) Do you agree or disagree with Charlie Davis and the advice that he gave Lenard Bryner? Explain. No, I do not agree because Tracy corporation can use ABC system to increase product costing accuracy by tracing the costs to their activities. The business will be able to determine the activities that add value to the products and the activities that do not b) ethical issues Charlie was not well informed of the accounting benefits of ABC, therefore he needs to be well informed about the process of ABC system. He needs to know that ABC uses cost drivers to determine the overhead rate Cost drivers are what cause the cost activities, and if an activity is not adding value to the firm then Charlie did not display a good behavior when giving out the advices, he was not well informed of ABC costing syste thereby giving a wrong advice to the business. Charlie violated the principle of Professional Competence and Due Ca He lacked the continuing duty to maintain professional knowledge and skill at the level required to ensure that the em competent professional services based on current developments in practice, and techniques c) What are Leonard’s ethical obligations? What should Leonard do? Leonard obligation is to ensure that he delivers accurate and reliable information to the employer, and provide an acc Leonard should replace the current costing system (Simple) with ABC costing system because ABC will improve the per direct manufacturing labour-hour ct and eliminate the cost that do not add value to the product ployer, and provide an accurate data for decision making. use ABC will improve the company's product cost efficiency. • ABC is losing a significant market share • The loss is attributed to high operational costs • Charlie, the plant manager can’t recognize the uncontrollable costs • Charlie was not well-informed • Most of the company’s costs were not indirect costs, • ABC utilizes an unsustainable cost management model • ABC is utilizing cost drivers to determine overhead rates • The company is losing bids due to the high cost structure • ‘Activity drivers’ effectively control costs • Activity drivers create efficiency, effectiveness, and accuracy • Activity drivers rid unprofitable activities and lower operational costs • Charlie was not well-informed about the new activity drivers model • He called it “new buzzword” for production volume • Lack of knowledge led to loss of business • Charlie should have been well-informed • The company relied on his expertise to make sound decisions • The principle of Professional Competence and Due Care was violated • A professional should be current and knowledgeable in area of expertise • Current knowledge equal to competent advise • Charlie’s behavior led to loss of business
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Explanation & Answer

Attached.

ETHICAL ISSUES:
CASE STUDY
N A ME

I N S T IT U TIO N
D AT E

CASE ANALYSIS
Tracy Corporation’s previous job-costing system previously used direct-cost (market and labor)
and a single indirect-pool to analyze the manufacturing cost but the system has failed them in
understanding why the production cost is higher, and has resulted to significant losses in
marketing share.
The loss of market share has raised concern to the company’s owner.
Leonard, the financial manager wishes replace the previous costing accuracy system with activitybased costing system so that they can cut down production cost and reduce wastage of recourses
but Charlie, the plant manager does not think that the new system will reduce operational costs.

ABC SYSTEM
Activity-based costing is a better approach to the costing and monitoring of activities which
involves tracing resource consumption and costing final outputs.

In this system, resources are assigned to activities, whereas activities are also assigned to cost
object. Activity-cost uses cost drivers to relate activity costs to outputs directly, making it efficient
in analyzing and controlling higher production costs and its effects on the market share (Dale &
Plunkett, 2017).
Therefore, I do not agree with Charlie’s advice to Leonard about not changing the product
accuracy system because tracing to the roots of costing activities can help to better manage
production activities and identify areas of concern with relation to resources used in production
and market share concerns.
Through the ABC system, the company will be able to monitor activities that add value to returns
per product as well as those that are not beneficial to production.

ETHICAL ISSUES
Since Charlie is not in the finance department, he cannot quite understand how the impact of
higher production costs is affecting the market share of the company. He clearly fails to
understand how the ABC system will be instrumental in monitoring costing accuracy as well as
reducing the production cost significantly.
Charlie also fails to understand the financial aspects of addressing overhead rate cost drivers. He
is ill advising Leonard yet he is not well informed of ABC’s ability to provide a more accurate
method of product/service costing, leading to more accurate pricing decisions. It increases
understanding of overheads and cost drivers; and makes costly and non-value adding activities
more visible, allowing managers to reduce or eliminate them

ETHICAL ISSUES cont.
With his descriptions, it is clear that Leonard understands the areas of conce...


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