Posted: October 9th, 2016
Module 26144 Advanced Management Accounting
The Core Text: Management and Cost Accounting by Bhimani, Horngren, Datar and Rajan (6th Edition)
Assignment title: Costing Systems, Profitability Analysis and Strategic Appraisal,
Consider yourself to be a consultant employed to advise the management of a local company, Central World (CW) Products plc (HK), about costing systems and profitability analysis and their strategic assessment. This involves calculation, interpretation and critique of their sales outlet information.
Central World (CW) Products plc (HK) purchases a range of good quality gift and household products from around the world; it then sells these products through retail outlets or “mail order”. The company receives “mail orders” by post, telephone and through the internet. Retail outlets are either small displays within department stores or CW Products plc’s own small shops.
The company started to set up its own shops after a recession in the late 1990s and regards them as the flagship for its business; sales revenue has gradually built up over the last 15 years. The company’s outlets have increased and it now has counters in 5 department stores and 10 shops. As its reputation has grown further sales have been made by mail order, customers originally using the postal system, but more recently the telephone and internet.
The company has made good profits over the last few years but recently trading has been difficult. As a consequence, the management team has decided that a fundamental and strategic reappraisal of the business is now necessary if the company is to continue trading.
The following forecast information for the coming year has been prepared:
Own Shops Mail Order
Sales revenue per outlet
Sales revenue per order
Mark-up on purchase cost
Number of outlets
Percentage of “mail orders” $50,000
The total number of orders through the whole “mail order” business for the company in the coming year is expected to be 100,000 orders.
Meanwhile the budgeting process for the coming year is proceeding. CW Products plc uses an activity-based costing (ABC) system and the following estimated (unit and batch-related) cost information for the coming year is also available:
Place an order in 3 easy steps. Takes less than 5 mins.