Advanced Management Accounting - Part A

Advanced Management Accounting - Solution 1

Generally there are three types of business strategies that management generally follow as:-

  • Cost Leadership
  • Product Differentiation
  • Growth Strategy

Delictrends Ltd is producing T-shirt with distinctive design, and they are known for its trendsetting designs which differentiates its product from other competitors.the strategy of Delictrends Ltd can be categorized as product differentiation strategy. Product differentiation is creating a difference for products produced and other products available in the market. This is a strategy to create a unique identity product by its feature and use. This is a strategy which attract customers to purchase their products in the highly competitive market.

Advanced Management Accounting - Solution 2

2. Balanced Scorecard:

Balanced Scorecard is a kind of report card of the performance of the organization for their identified key indicators or KPI’s. It is a management tool to measure the performance of the Strategies they have implemented to achieve the organizational goals. It is used to find the gaps and identify the deficiencies in the internal control system. There are four types of KPI’s as gives the overall perspective:-

  • Financial perspective
  • Customer perspective
  • Internal business perspective
  • Learning and growth perspective

In this case, after seeing the financial performance of the company there are two elements Delictrends Ltd should consider in its balanced scorecard

Financial perspective:

The average cost per T-shirt has been reduced by $2 between 2018 and 2019, even

the number of purchase has been increased, and number of customer still has been declined, So this is an improvement area that whether the company should continue increasing the sales price or should reduce it to gain more customers, so financially an evaluation is required.

Customer perspective:

The number of customers has been decreased from 2018 to 2019 (from 3,600 to 3,500).

Thus, Delictrends Ltd really need to implement this measure in its balanced scorecard. They must improve the number of customers by providing trendy T-shirt based on customer’s

tastes, one time delivery and getting feedback from customers for further improvement. It is important to look into this area because Balance Score Card is the reports card for different KPI’s and helps in identifying the improvement areas, and here it is clear that company is losing customers.

Strategic Analysis of Operating Profit - Part B

Advanced Management Accounting - Solution 1

 

2018

2019

1.       Number of shirts purchased

215000

245000

2.        Number of shirts discarded

15000

20000

3.        Number of shirts sold (row 1 − row 2)

200000

225000

4.        Average selling price

 $                30.00

 $                   31.00

5.        Average cost per shirt

 $                15.00

 $                   13.00

6.       Administrative capacity (number of customers)

4500

4250

7.        Administrative costs

 $       16,33,500

 $          15,93,750

8.        Administrative cost per customer (row 7 ÷ row  6)

 $    363

 $       375

9. Actual Number of customer

3600

3500

Advanced Management Accounting - Solution 2

The growth, price-recovery and productivity components that explain the change in operating profit from 2018 to 2019

 

2019

 

Sales growth % from 2018 to 2019

116%

 

Profit growth % from 2018 to 2019

169%

 

Increases in Selling price

103%

 

Decrease in purchase price

87%

 
 

2018

2019

Discard % against purchase

7%

8%

Profit % over sales

24%

36%

Advanced Management Accounting - Solution 3

Operating profit has changed from $1468200 in 2018 to $2477500, which can be attributed to the following factor i.e. Sales Growth which has increased by 16% in 2019. There is minor increase of 3% in the sales price and decrease in Cost price by 13% which has helped to increase the operating profit by 12% more. This ultimately shows that overall productivity has improved. When cost/ product declines it has direct relation with productivity or improvement.

Moreover the number of actual customers , and administrative cost attributed to that is also one of contributor for good change as though the sales has increased but number of customer have reduced from 3600 to 3500 in 2019, and administrative cost / customer though more in 2019 but overall there is not much change.

Advanced Management Accounting - Part C

Advanced Management Accounting - Solution 1

Suppose that the market for silk-screened T-shirts grew by 10% during 2019. All other increases in Delictrends’s sales were the result of its own strategic actions, then following two options can be there

Where sales increases by 10% and others variables /unit are same as shown in 2019 to find out how much is the impact due to sales growth due

 

2018

2019(10% increase)

1. Number of shirts purchased

215000

237600

2. Number of shirts discarded

15000

17600

3. Number of shirts sold (row 1 − row 2)

200000

220000

4. Average selling price

 $30.00

 $ 31.00

5. Average cost per shirt

 $ 15.00

 $ 13.00

6. Administrative capacity (number of customers)

4500

4250

7. Administrative costs

 $ 16,33,500

 $ 15,93,750

8. Administrative cost per customer (row 7 ÷ row 6)

$ 363

 $ 375

9. Actual Number of customer

3600

3500

Assumptions:

Discard % is same i.e. 8% ,

Sales has increased by 10%from 2018

Operating Profit

2018

2019

A: Sales Revenue

 $60,00,000.00

 $ 68,20,000.00

     

Purchase Cost

 $30,00,000.00

 $ 28,60,000.00

Cost of discarded shirts (Waste)

 $ 2,25,000.00

 $ 2,28,800.00

Administrative Cost(Row no 9 X row no8)

 $ 13,06,800

 $ 13,12,500

B: Total Operating Cost

 $45,31,800.00

 $ 44,01,300.00

     

C : Operating profit

 $14,68,200.00

 $ 24,18,700.00

Second option is Sales is increased by !0 % from 2018, and other variables remain same as per 2018 , this will give the actual benefit or profit component due to increase in profit

2018

2019(10% increase)

1. Number of shirts purchased

215000

237600

2. Number of shirts discarded

15000

17600

3. Number of shirts sold (row 1 − row 2)

200000

220000

4. Average selling price

 $ 30.00

 $ 30.00

5. Average cost per shirt

 $ 15.00

 $ 15.00

6. Administrative capacity (number of customers)

4500

4250

7. Administrative costs

 $ 16,33,500

 $ 15,93,750

8. Administrative cost per customer (row 7 ÷ row 6)

 $ 363

 $ 363

9. Actual Number of customer

3600

3600

 

Operating Profit

2018

2019

A: Sales Revenue

 $ 60,00,000.00

 $ 66,00,000.00

     

Purchase Cost

 $ 30,00,000.00

 $ 33,00,000.00

Cost of discarded shirts (Waste)

 $ 2,25,000.00

 $ 2,64,000.00

Administrative Cost(Row no 9 X row no8)

 $ 13,06,800

 $ 13,06,800

B: Total Operating Cost

 $ 45,31,800.00

 $ 48,70,800.00

C : Operating profit

 $ 14,68,200.00

 $ 17,29,200.00

So, Actual change in profit due to sales growth is 1729200-1468200= $ 2, 61,000.

And rest of the profit change from 2018 to 2019 is due to the Management Strategic and productive factors

Evaluation of Management Strategy Implementation - Solution 2

The case study, and subsequent number of 2018 and 2019, clearly shows that Management’s strategy of product differentiation and cost leadership has given required benefit, success and growth. With a unique design, it is be able to improve the sales % and with continuous improvement on cost side company is able to reduce the operating cost to great extent , and both together has overall helped in gaining a good profit margin from 2018 to 2019.

It is very important for the management not only to make good thoughtful strategies but also ensure religious implementation of it. In this case it has been very much visible that strategies have been implemented successfully to gain the desired results of cost benefits, and increase in sales by not increasing the sales prices much even when the demand increased. However, management should also work to increase the number of customers which has decreased from 2018.

Reference for Advanced Management Accounting

https://talentedge.com/articles/three-basic-types-business-strategies/

https://www.dummies.com/business/start-a-business/business-plans/understanding-the-types-of-business-strategies/

https://balancedscorecard.org/

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Accounting and Finance Assignment Help

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