| Subject Code : | ACCT2102 |
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Assignment Task
CEB Corporation is an Australian owned printed circuit board manufacturer with customers worldwide including Australia, Asia, USA and Europe. It has grown substantially over the years since its establishment in 1992 and in 2001 went public to acquire additional capital for future growth. Being a public company, CEB is under relatively high performance pressure from its investors who closely monitor the profit margins and cash flows. The profits have been falling over the last three years and its profitability is below the industry average. This has had a negative impact on the company's share price. In addition, the COVID 19 crisis set CEB's targeted profit under a serious threat.
Although CEB manufactures several different types of printed-circuit boards, two of the boards account for the majority of the company's sales - a TV circuit board and a PC circuit board. The first of these boards, a TV board, has been a standard in the industry for several years. The market for this type of board is competitive and, therefore, price sensitive. The second high volume product is a PC board of which the manufacturing process is substantially different and more complex relative to that of the TV board. Because the PC board incorporates the latest technology, it can be sold at a premium price. In the recent years, PC boards have become number one product for CEB.
The original plan for 2020 was to sell 80,000 of the TV boards at a price of $200 per unit and 130,000 PC boards at $350 per unit. However, CEB's management group is meeting to discuss how to react to the COVID 19 crisis on the top of the already falling profits, and how to spend the sales and promotion budget to protect if not increase the company's profit during the crisis. They are considering several options and discussing which product mix would result in the highest profits. The sales manager Jason Jackman believes that the market share for the TV board could be expanded by concentrating CEB’s promotional efforts in this area. Moreover, due to lockdown the sales of TVs are increasing worldwide, generating more demand for TV boards. In response to this suggestion, the production manager Stacey Hu said,
“Why don't we go after a bigger market for the PC board? The cost sheets that I reviewed show that the contribution from the PC board is one and a half times the contribution from the TV board. I know we get a premium price for the PC board. Focusing on the PC boards and changing the product mix should help overall profitability.”
CEB currently uses a standard cost system, and the following data apply to the TV and PC boards:
Direct labour cost is $16 per hour. Variable manufacturing support costs are applied on the basis of direct labour hours. This year's variable manufacturing support costs are budgeted at $2,240,000, and direct labour hours are estimated at 448,000. Other manufacturing support is applied at $12 per machine hour. CEB applies a materials handling charge (in other words, materials support costs) of 12% of direct materials cost; this materials handling charge is not
included in variable manufacturing support costs.
Ed Welch, CEB's management accountant, believes that before the management group proceeds with the discussion about allocating sales and promotional dollars to individual products, it may be worthwhile to look at these products on the basis of the activities involved in their production. He noticed that the company has been recently selling more of the high end PC boards than their competitors, yet the profits were still falling.
“Using this information,” Welch explained, “we can calculate an activity-based cost for each TV board and each PC board and then compare it to the standard cost we have been using. The costs that remain the same for both cost methods are the costs of direct materials and direct labour. The cost drivers will replace all indirect costs."
Welch has prepared the following schedules for the management group:
THE END OF CASE STUDY
Requirements: Your case study write-up should include the first five sections listed below:
1. Background In this section you are to provide a brief overview of the important background information relating to the company. This information presented in the Background section should be relevant to your discussion of the company's problem and issues that you are to identify in Section 2. Ideally, you should briefly describe the company's core business, products, costing systems, and/or other significant aspects that you see as relevant in this case.
2. Problem & Issues
In this section you are to identify and briefly discuss: a. The problem the company is facing at the time of the case, b. The issues that may have led to the problem the company is facing, c. The rationale that links the problem and issues you have identified - explain how the issues you have identified lead to the company's problem?
Note: A problem is something that the organization must overcome to be sustainable/profitable and is reasonably well understood - even if its solution is not. An issue is more specific to the company's situation and has led to the problem. It also requires attention but needs to be investigated and better understood (which you will attempt to do in Sections 3 & 4) before specific solutions are considered.
3. Theoretical Analysis This section requires your analysis of the qualitative aspect of the underlying cause(s) of the problems and issues that you have identified in Section 2. Your analysis should be supported by the relevant theory and concepts covered in ACCT2102. Identify at least three advantages
that are associated with activity-based costing over the standard costing system.
4. Calculations & Interpretations - Quantitative Analysis This section requires you to undertake quantitative analysis on the case. You are to perform calculations (may be presented in the Appendix) that are relevant to the problem and issues that you identified in Section 2. In particular:
a) On the basis of standard costs, calculate the total contribution margin and a contribution
margin per product expected in 2020 for CEB Corporation's products: the TV board
and the PC board. b) On the basis of activity-based costs, calculate the total contribution margin and the
contribution margin per unit expected for 2020 for CEB Corporation's two products. c) How would the change of the product mix (if supported by marketing and promotion
efforts and assuming that they would be successful) change total profitability of the company?
In addition, interpret the results of your analysis. Your interpretation of your calculations should further the discussion on the problem and issue/s and should be supported by the relevant theory and concepts covered in ACCT2102.
5. Recommendations In this final section, you are to present your recommendations to the company's management to address the underlying causes of the problem and issues the company is facing. Your recommendations should be informed by your analysis in Sections 3 & 4. Explain how the comparison of the results of the two costing methods may impact the decisions made by CEB Corporation's management group.
6. Appendix (optional) You may present your calculations in the Appendix and refer to them in the body of your case. You are allowed two additional pages for the Appendix. Any material over this limit will not be read or marked. The interpretation of your calculations is to be presented in Section 4. Interpretation presented in the Appendix will not be read or marked.
• Be aware of the assessment marking criteria - read through document “ACCT2102 Case
Study Marking Rubric”.
• Your case study should be cohesive, readable, well-presented and free from spelling or
grammatical errors. Presentation requirements: your case write-up should follow the sectional structure outlined above using section headings.
Word limit up to 1,200 words (max. 3 pages, 1.5 line spacing, 12 point Arial font, default margins). This word limit does not include any tables, graphs etc., that support your analysis and recommendations, all tables, graphs etc are to be presented in the Appendix which is limited to 2 pages only. Any material in addition to these requirements will not be read Be succinct and make sure you have fulfilled the requirements. Each student should submit a single Word document of their case study with their name and student number in the top right hand header of each page. This is an individual assessment. You are required to submit your work via the Turn it in link in the “Case Study" folder under the Assessment tab on the Blackboard site by the due date. Submitting your case after the due date will attract late submission penalties as per Section 5.3 of the ECP.
Other information:
• To apply for an extension for this assessment, refer to “Extension for Case Study
Submission” under the Course Help tab on the Blackboard site or refer to Section 6.1 of the ECP. Be aware of the University's policy on academic integrity and plagiarism as outlined in Section 6.1 of the ECP.
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