Reference no: EM132523557

16:352 Cost Accounting - Brandon University

Case 1. Jessica is a graduate of a University's business school entrepreneurship program. As part of her final year of studies, she developed a business plan for a business that develops websites for individuals and commercial businesses. She put her business plan into action with the help of start-up funding from family and friends, and has been operating for two and a half years.

Jessica has decided to apply the concepts in a balanced scorecard to evaluate and improve her business. Her vision for this business is to provide clients with high quality websites that receive a relatively high number of hits. Recently, word-of-mouth advertising has led to more requests for websites with creative animated graphics. As part of her balanced scorecard, she tracked the following measures over the last two years for her individual clients.

	2018	2019
Average revenue per individual client	$2,000	$1,500
Average time from start to finish (business days)	10	13
Average site ranking on top two search engines	15	21
Total revenue	$80,000	$78,000
Total labour cost	$20,000	$22,000
Total electricity and phone costs	$2,100	$2,400
Number of individual clients	40	52
Employee turnover	1	0

Required:

a) Based on the information above, does Jessica's business compete on the basis of low cost or product differentiation? Explain.

b) Your job is to assist Jessica in interpreting the data she has collected, so that she can determine where her business' performance is satisfactory, and where she needs to concentrate her efforts in order to improve its performance.
i. For each performance measure, indicate how it should be classified on the balanced scorecard. There must be at least one performance measure for each classification. There are, however, measures that can be included in more than one classification. Select the classification that you believe is most appropriate. Fore each performance measure, explain the reasonfor selecting the category chosen.
ii. Analyze the change in each performance measure from 2018 to 2019, but do not consider each performance measure in isolation. Provide one possible explanation for the change that has been observed, making sure it is reasonable given all the information available to you.
iii. Evaluate the change in Jessica's business as a whole from 2018 to 2019. Identify one or two pieces of additional information needed to be able to complete this evaluation. Describe why this information is needed.
iv. Make a recommendation as to the one thing Jessica should concentrate her efforts to improve her business in 2020.
c) Provide three reasons why a company could implement a balanced scorecard successfully but see no improvements in its profitability. Make sure your explanation is sufficiently detailed that it is clear why improvements in profitability were not seen.

Case 2. Omega Inc. is a large business with several divisions, including Delta Division. Omega's headquarters and the majority of its operations are located in Canada, and are concentrated in natural resource extraction and chemical production. The Delta Division is located in Luxembourg and is a manufacturer of luxury soaps and other products aimed at the high-end retail market. Omega has a company-wide ROI of 14% and pays bonuses based on divisional ROI. The before-tax required rate of return on assets for all divisions of Omega is 10%.

Sales revenue	$380,000
Variable costs	$220,000
Fixed costs	$125,000
Total operational assets	$150,000

Delta Division has reported the following results for 2019:

Sales revenue	$73,500
Variable costs	$45,000
Fixed costs	$21,250
Total operational assets	$39,500

20 Required:

a) Based on the information provided above, what type of responsibility centre is the Delta Division? Explain how this was determined.
b) Calculate the ROI of the new product line.
c) Determine the effect of the new product line on Delta's ROI. Would Delta's managers be encouraged to introduce the new product line.
d) What impact would the new project have on Omega's ROI? There is not enough information to calculate the new ROI, but there is enough to determine the direction of the change. Will top management of Omega want to have the product introduced?
e) Calculate the residual income of the Delta Division before and after the new product is added. Would the Delta Division's managers be encouraged to introduce the new product if performance was measured using residual income? Explain.
f) Describe the advantages of using residual income as a performance measure instead of using ROI. Why would Omega choose ROI, given the advantages just described?
g) The decision as to whether or not to delegate decision-making authority is influenced by the type of knowledge required to make decisions. Evaluate whether Omega should delegate decision-making authority to the managers of Delta Division.

Attachment:- Cost Accounting.rar