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Question 2 Strategic Management Accounting (20 marks)500 words and Excel

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Added on: 2024-11-21 20:00:15
Order Code: SA Student Nagendra Accounting and Finance Assignment(10_23_37284_177)
Question Task Id: 496423

Question 2 Strategic Management Accounting (20 marks)500 words and Excel

Star Wars Themed Darth Vader Electric Tooth Brushes

STRATEGIC MARKET ANALYSIS

You have joined the cross-discipline Strategic Management Committee of the Empire Group as themanagement accounting representative. The Committee is reviewing the performance of corporate products in the Fast-Moving Consumer Goods (FMCG) market. The key issue facing this top-level management group is how to improveprofitability in several key product categories.

As a result of the success of the recent Star Wars films and the success of the Mandalorian streaming series Star Wars themed merchandise has been one of the companys most profitable product areas. However, one of the products, the Darth Vader battery-powered toothbrush, is facing competition and has come under review.

The Darth Vader electric toothbrush is sold through major department stores and supermarket chains in Australia and New Zealand and has been the clear market leader in its category since the product was introduced to Australian markets more than 15 years ago. A new competitor, Death Star Manufacturing Ltd has begun producing a cheaper version of a Star Wars toothbrush which has eaten into the market share of the Empire Group product. The Death Star Manufacturing product retails at a lower price than the Empire Group product.

Market research indicates that although the Empire Group Darth Vader toothbrush is recognised as being a superior product, the lower price is a significant factor in why consumers are switching to the Death Star Manufacturing toothbrush. Whilst the overall market for Star Wars themed merchandise has continued to grow steadily, in the last two years sales of the Darth Vader toothbrush have fallen from 75% of the total market to only 40% of the market. During the same period, Death Star Manufacturing has increased its sales of electronic toothbrushes from 10% to 40% of the market. Unit sales of all brands of Darth Vader toothbrushes in the Australia and New Zealand market for 2023 stood at 4 million units.

Whilst the Empire Groups Darth Vader electronic toothbrush is still making money, the Strategic Management Committee is concerned about the products long term sustainability given the downward trend in sales. The Empire Group has a base expected return on investment (also referred to as Return on Total Assets [ROTA]) of 20%. This metric is calculated as Gross profit divided by Total Assets. Product lines which do not meet this ROTA benchmark may be discontinued.

The ROTA for the Darth Vader Electronic Toothbrush for the 2023 year was 19.6%. This is below the required ROTA of 20%. If the product continues to trade at current levels, it will be deemed as unviable and discontinued.

The Australasian Marketing Division of the Empire Group believes that Research and Development advances from within the world-wide Empire Group could improve the Darth Vader product, and consequently its sales and profitability outlook. Developments in digital electronics means that the company will have the capacity to include a feature where the Darth Vader Toothbrush will be able to digitally record a name and then include it in a replayed sound bite every time the toothbrush is activated. It is planned that the toothbrush will play an adaption of a famous Darth Vader catch-phrase by saying Luke, I am your toothbrush every time it starts up. Customers will have the option of recording a different name to replace Luke if they wish. Initial engineering indicates that by making savings in packaging and other materials the prime cost and manufactured cost of the toothbrush will not change from its current $10.05 per unit.

The Marketing Division have carried out some initial market research and believe that this added feature will make a big difference to consumers and will potentially increase unit sales by 50% in the first year. To achieve the increase Marketing advises that it is imperative that the product improvement is advertised effectively and have suggested that a marketing rebate of $1.00 per unit be paid to retailers which must be spent by the retailers on direct advertising.

The Chair of the Strategic Management Committee has reviewed the marketing proposal and advised that even after allowing for the 50% sales increase, the increase in costs represented by the extra $1 marketing rebate means that the products ROTA will fall to 17.4% which is well below the required rate of 20%. The CEO argues that if this remains the case, the previously successful Darth Vader Electronic Toothbrush product line may have to be discontinued.

You are aware that following the recent drop in sales the Darth Vader Electronic Toothbrush factory is operating at only 50% of its practical manufacturing capacity. You are also aware that whilst the Darth Vader Electronic Toothbrush products Prime Costs are 100% Variable, other Manufacturing Costs and Logistic Costs are made up of 80% Fixed costs and 20% Variable costs.

You ask if you can be given time to prepare a report for the Strategic Management Committee on the Management Accounting cost and profit implications of the changes proposed by Marketing and R&D based on the budgeted costs and increases in sales and production.

Required:

a). Using Excel prepare a before and after budget comparative analysis of the revenues and costs of the Darth Vader Electronic Toothbrush product line. The analysis should incorporate the 50% predicted sales increase and the added $1 per unit Marketing Rebate. Ensure you include in your analysis any impact of the budgeted production increase on other per unit manufacturing and logistics costs. (10 marks)

b). It can be assumed that 90% Fixed 10% Variable cost break-down between variable and fixed costs will hold consistently across the industry (including for competitor Death Star Manufacturing). Assume that 60% of the predicted Darth Vader Electronic Toothbrush unit sales increase will be made at the expense of the unit sales of their main competitor Death Star Manufacturing (meaning Death Star Manufacturing unit sales will fall). Assume that Darth Vader Electronic Toothbrush and Death Star Manufacturing have identical manufacturing and logistics cost structures at the commencement of the 2022 calendar year.

Allowing for the change in sales volumes use Excel to calculate the expected impact of the drop in sales on the per unit product costs of Death Star Manufacturing. (5 marks)

c). Prepare a brief report (maximum 300 words) for the Strategic Management Committee outlining the key points of your findings. Include some discussion on:

the likely impact of the changes on the cost and profit structure of Darth Vader Electronic Toothbrush (derived from your answer to (i)).

the likely impact of the changes on the cost and profit structure of Death Star Manufacturing (derived from your answer to (ii)).

make a recommendation to the Committee on whether to go ahead with the planned changes. Include anyother strategic advicethat you consider relevant to the Committees decision making (for example profitability for supermarkets).(Please ensure that your answer adequately addressesALLof the points above) (5 marks).

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  • Posted on : November 21st, 2024
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