BAM101 Introduction To Business Administration

1. To identify accounting issues (GAAP/IFRS compliance issues), assess their implications, generate alternatives, and provide recommendations within the bounds of GAAP/IFRS to meet the client’s needs.

2. To prepare a coherent report and integrated analysis that meets specific user needs.

Answers:

Identification and analysis of issues:

Activity-based allocation of overhead:

Mark-up on full product cost:Target cost per unit for the new voltage regulator:Achievements of cost reduction targets (ABC):It has been evaluated in the first section that the product cost per unit is obtained as $42.10 for the Voltage Regulator and $69.10 for Motherboard. However, the new target price is set at $48, which is well below the existing price of $52.50. The new product cost per unit is obtained as $36.02, which is well below the previous cost.Price for the new voltage regulator:Next steps regarding the digital regulator:As per the provided information, the manufacturing overhead expense is provided in combination, which implies that they are not segregated for the Voltage Regulator and Motherboard. This necessitates the need for segregation based on pertinent activities (Fullerton, Kennedy & Widener, 2014). The followings workings are carried out to determine the cost absorption base:

Recommendations:In order to provide sound recommendations, it is necessary to analyse the case facts provided and the calculations conducted. It has been evaluated that Digital Solutions is facing increased competition for minimising the price of the Voltage Regulator due to which a target price of $48 was set by the organisation. However, this amount is deemed to be comparatively lower than the existing selling price of the Voltage Regulator, which is provided as $52.50. In this context, Horngren et al., (2016) cited that fall in selling price would minimise the overall revenue generated by the organisation. However, Langfield-Smith et al., (2017) argued that if the cost of production is minimised by a greater extent, there would be no effect on the revenue generation capacity of the organisation. In fact, Digital Solutions would be able to generate additional revenues that would assist in maximising its profit margin.Based on the provided information, it is inherent that the organisation would be able to generate additional revenue from Motherboard compared to the Voltage Regulator. Therefore, Digital Solutions is needed to emphasise more on selling Motherboard items, as it would earn profit of 15.47%, while the profit expected to be earned from the Digital Regulator would be 5.13%. 

References and Bibliographies:

Fullerton, R. R., Kennedy, F. A., & Widener, S. K. (2014). Lean manufacturing and firm performance: The incremental contribution of lean management accounting practices. Journal of Operations Management, 32(7-8), 414-428.

Horngren, C. T., Datar, S. M., Rajan, M. V., Beaubien, L., & Graham, C. (2016). Cost accounting: A managerial emphasis (7th Canadian ed.). Toronto, Canada: Pearson Canada Inc. 

Kaplan, R. S., & Atkinson, A. A. (2015). Advanced management accounting. PHI Learning.

Langfield-Smith, K., Smith, D., Andon, P., Hilton, R., & Thorne, H. (2017). Management accounting: Information for creating and managing value. McGraw-Hill Education Australia.

Messner, M. (2016). Does industry matter? How industry context shapes management accounting practice. Management Accounting Research, 31, 103-111.

Otley, D. (2016). The contingency theory of management accounting and control: 1980–2014. Management accounting research, 31, 45-62.