18 Oct

Bachelor of Business



Individual Assignment

Semester: Semester 2, 2017
Date issued: September, 2017
Due time and date: Submission by Week 11, 19 October 2017 (In Class by 6.00pm)
Submission The assignment must be submitted with a copy of the assessment cover sheet completed and attached to the front,both:

·         To the lecturer at the commencement of class on the date specified.

  • Electronically via by the due date and time. Failure to do this will result in a zero mark. Do not submit the cover sheet or the article to turnitin.
Total marks: 100 marks in total for the Assignment (Assessment 2)
Weighting: 30% for Assessment 2
Instructions: n  Copy and complete the cover sheet (which is attached) and attach it to the front of each submission.

n  The submission must be your own individual work and adhere to APA referencing requirements.

n  Copying or plagiarism may result in disciplinary action.

n  Refer to the detailed requirements for the assessment.













Assessment 2:


Objective of this assignment

The objective is to place the student in the position of a management accounting role within a business and to provide support to the General Manager of Sales and Marketing in cost analysis and in customer profitability. This is achieved through the use of information available from the public domain, combined with fictitious information, which reflects the information that would be available to a management accountant. Key parts of the assignment require demonstration of analysis of the information from the annual report and fictitious information, summarising and communicating this analysis to a specific audience. Some questions are open-ended to allow a variety of aspects to be investigated from the annual report and additional fictitious information. This analysis is also to be supported by academic literature to draw a link between academic studies (theory) and the practice of business. Completion of this assignment will give all students a strong insight into the requirements and skill set of a management accountant.



Methven Limited (Methven) is a New Zealand based company that operates in one industry segment, being the design and supply of shower, tapware and water control valves and it has a presence in several geographical segments. The company relies on continual innovation to provide leading edge products to its customers. Methven has received a number of international design awards for its innovative products.


The results for the last full financial year, year ended 31st March 2015, indicated that Methven had continued to recover from its difficulties following the economic downturn earlier in this decade. Total Operating Revenues remained static at approximately $96m compared to 2014. However due to operational efficiencies and marketing initiatives both EBITDA[1] and Profit after Tax both increased by 12.4% and 20.9% respectively from their 2014 results.


The geographical segments are reported as New Zealand, Australia, United Kingdom (UK), and China. Australiacontributes 40% of total Operating Revenue, whereas New Zealand represents 33%, UK 25% and China less than 1%. All of these geographical segments except China are profitable at the EBITDA level.


The company is optimistic about the 2015-2016 year on the basis of a new range of products being launched into the market.


The company is listed on the New Zealand Exchange (NZX). Its share price at 31st March 2015 was $1.10 per share compared to $1.02 as at 31st March 2014.



Fictitious scenario

The General Manager (GM) of Sales and Marketing, John Doherty, needs some sound management accounting advice as he provides input into the CEO’s report on areas of sales, marketing, customer profitability, cost control, improvement initiatives, risk management and opportunities for growth. It appears that 2015 – 2016 will be as challenging as the previous year. You are a recently qualified graduate, and you will be required to draw on all your management accounting knowledge to support the GM of Sales and Marketing.


John Doherty is particularly concerned with two aspects of the current business:


  1. New product costs and their profitability, and
  2. Customer profitability in the UK operating segment


Some work has already been undertaken to better understand the costs and profitability of both of the above areas and John has provided you with the following information.



Additional fictitious information:


  1. New Product Costs and Profitability (fictitious)


Methven is considering launching a new range of shower-head products (see Table 1). To date the company has conducted a lot of research and development and market research on these products and they believe that there is a market for these products in all of their geographical segments. You have been able to identify the information in the following table.


Table 1:  New product information


Description Aqua Shower Fusion Silk Jet
Total manufactured Product Cost $150 $200 $250
Direct Costs % of Total Manufactured Product Cost 50% 60% 65%
Mark Up applied to Product Cost for Marketing and Administration expenses 50% 50% 50%
Anticipated selling price of each product $240 $300 $350
Total Research & Development expenditure* $250,000


*The total Research and Development expenditure on these three products to date has been $250,000. This amount is currently disclosed as an Intangible Asset in Methven’s Balance Sheet.


The current costing system used across all divisions of the company is a traditional based standard costing system which applies an indirect overheard cost at the manufacturing level based on direct manufacturing costs for each product. A standard mark-up is then applied to each product cost to reflect the company Marketing and Administration Expenses. John Doherty has indicated to you that the costs for the three products above should meet the anticipated selling price and earn a mark-up for a profit contribution of 20% on total costs.




  1. UK Geographical segment – customer groupings (fictitious)


Due to the current economic recession, there is considerable pressure to ensure that the company manages carefully all its customers from a profitability and cash flow perspective. John Doherty has asked you to explore in more detail the profitability of the three different categories of customers in the UK geographical segment. At present the company’s management accounting system is fairly coarse and focuses upon customer gross margins, while treating all selling, distribution and administrative costs as a lump sum “below the line”. John is aware that a more sophisticated costing system may reveal useful information about the profitability of the different categories of customer.


You have started a pilot exercise using Activity Based Costing (ABC) principles to examine the profitability of a typical customer chosen from each of the three categories of customer – Large, Medium and Small. The customers chosen were: Brookfields Group (large); Summerton (medium); Weymouth Bathroom Suppliers (small).Your first task was to establish the contribution margins provided by the three customers. This was relatively easy, as the data were already available in the company’s existing management accounting system. The information for the past year is summarised in Table 2:



Table 2:  Store contribution margins

  Customer Group
  Store contribution margin calculation  






    Brookfields Summerton Weymouth  
  Total revenues $1,836,000 $1,006,000 $520,000  
  Cost of goods sold $881,280 $492,940 $234,000  
  Customer gross margin $954,720 $513,060 $286,000  
  Customer direct costs $501,000 $253,000 $153,000  
  Customer contribution margin $453,720 $260,060 $133,000  


In addition, you have determined that the major corporate costs of $433,070which can be associated with each customer group are; product handling, order taking, delivery, rushed delivery, managerial visits to stores, and processing obsolete stock lines (see Table 3). You have performed a detailed analysis of the activities related to these costs. The results of these for the past year are shown in Tables 3 and 4 below.


Table 3:  Results of ABC Pilot Exercise

Activity Area Cost Driver Rate ($)
Product handling Number of products sold 7
Order taking Number of purchase orders 170
Delivery Number of deliveries 600
Rushed delivery Number of rush deliveries 1,100
Sales Manager visits to customers Number of sales visits 2,000
Process obsolete stock Number of products scrapped 8







Table 4:  Analysis of Activities

Cost Driver Category Customer Group
  Large Medium Small
  Brookfields Summerton Weymouth
Number of products sold 17,800 7,550 6,000
Number of purchase orders 24 20 42
Number of deliveries 30 20 60
Number of rushed deliveries 10 10 30
Number of Manager visits to customers 5 4 10
Number of obsolete products processed 1,000 1,000 3,000





The only information you have is available through the public domain and the additional information provided for this assignment (this is fictitious information used only for the creation of this assignment). Therefore, you are to limit your research, review and analysis and any report and recommendations to the information obtained through the public domain. Do not contact Methven or any persons associated with the company about this assignment.


Access and read the Methven Annual Report 2015 (from the link provided). Also review other valuable information from the company website:


  1. Write a report to the GM Sales & Marketing that addresses the following:


  1. Identify, evaluate and provide justifications of areas of expenses or categories of costs, as defined in the financial statements and fictitious scenario, which are of concern to you including the current costing system.
  2. Evaluate the results of your pilot Customer Profitability Analysis using ABC principles.
  3. A brief review of any problems and practical issues that may be faced in carrying out an ABC-based customer profitability analysis.
  4. Complete an action plan of any changes or improvements you would address for any issues identified in a) and/or b) above. Present this in bullet point format, with a brief explanation of each action point.
  5. Identify and discuss risks that the GM Sales and Marketing needs to consider for 2015 – 2016 that should then be discussed at Board level.


  1. Identify and attach an academic or research article that support your evaluation for Question 1a) and/or 1b) above. From the article, prepare a maximum 200 word summary which provides the links to your evaluation in Question 1.


Maximum report length 8 pages of A4 (using Arial font 11) including tables, graphs or diagrams.



Marking guide:


Question 1

  1. Identification, evaluation and justification of expenses or cost categories

which concern you. This includes any relevant calculations.                              15 marks

  1. Evaluation of pilot CPA 25 marks
  2. Review of problems and practical issues with CPA 10 marks
  3. Action plan 10 marks
  4. Identification and discussion of risks for the Board 10 marks


Total Question 1                                                                                                       70 marks


Question 2

Identification and attachment of academic article                                                       8 marks

Discussion of links from the article                                                                             12 marks


Total Question 2                                                                                                       20 marks


Report format and presentation                                                                                         10 marks



Total Marks   100



Marking guide considerations:

Report format

  • The format is appropriate for a report.
  • The reportis typed, of a professional appearance, and is well laid out.
  • The report has been carefully proof-read, is legible and uses clear and concise sentences and paragraphs and avoids or explains jargon.
  • The report is logically organised and structured well.
  • Use of diagrams, tables, charts are all appropriate.
  • The reportdoes not exceed the page limit. Use Arial, Font size 11, with single line spacing.
  • Referencing is complete using APA format. Use the following library link


Responses to questions

  • The requirements of each question have been met and is original work.
  • An understanding of the key issues is illustrated and critical analysis is demonstrated.
  • Further insight is added to the assessment by reference to other relevant readings/ articles.



[1] EBITDA = Earnings before Interest, Tax, Depreciation and Amortisation

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Posted by on October 18, 2017 in Academic Writing


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