Intermediate Management Accounting Portfolio Case Study

Background: Farmset Corporation

Farmset Corporation is a company that grew from humble beginnings, with shareholders comprising a collection of village-based cooperatives in the highlands of Papua New Guinea, whose main source of income was from growing Arabica coffee on their small plots of land. Following a period of high coffee prices, the company expanded their business interests significantly to include the following: poultry farming, green-bean processing, green-bean exporting, a printing press, a bulk fuel distributorship, fuel service stations, new and used car sales, a mechanical workshop, paper packaging manufacturing, and coffee plantation management services.

The Managing Director Andy Birk originally came as a volunteer to assist the cooperatives, and was integral to the growth of the business entity from cooperatives to a company. 'Accounting records' consisted of a multi-column cashbook and a notebook containing narratives of non-cash transactions. Having a healthy balance in the bank account was an indication of 'good' performance, and during tougher times, very low-interest government-backed loans were easily accessible via the many development banks that were set up to encourage local businesses during that era.

A year ago, Anthony Joseph, a chartered accountant was employed to spruce up the accounting records and overall management process of the company.  After a prolonged analysis and study of the various business interests of the company, he decided to engage the assistance of a former colleague to help with the enormous task that lay ahead.

Required:

Assume that you are Anthony Joseph, and that you have identified several critical issues that need to be brought to the attention of the Managing Director and ultimately, the Board of Directors (mainly village elders representing the various village cooperatives).

You are required to submit two (2) reports to Andy Birk to address the various issues identified.

In your submission, you are encouraged to use examples that are specific to this business to present and argue your points. (Use your initiative to think about the various products and activities associated with the many business interests of a company like Farmset). You should not just provide a textbook summary of the theory and principles.

(Please read the Guidelines available on Blackboard prior to writing up your reports. There are strict requirements as regards formatting and layout)

Issue 3:

In the past, Andy Birk made most business decisions regarding new ventures and new products and services based primarily on the requests of the major shareholders, and his 'pet' interests. Anthony Joseph and Zac Anthony are concerned that this approach to decision making coupled with an insufficient level of understanding of the relationship between business activities and the cost of those activities (cost behaviour) will ultimately result in financial ruin.

In your submission:

(a) Explain the benefits arising from having a good understanding of how costs behave, and briefly explain two (2) commonly-used methods to derive a cost function

(b) Discuss the difficulties that may be faced in the process of gathering information for such analysis in general.

Issue 4:

In trying to encourage Andy Birk to make informed decisions, and for the company to become proactive in the pricing of products and services, Anthony and Zac are keen to undertake a Cost-Volume-Profit analysis(CVP) of the various income generating activities within Farmset.

In your submission:

(a) Explain the various benefits CVP analysis modelling can provide for planning purposes, particularly in the light of such a diverse range of products and services sold by Farmset, and

(b) Explain why the assumptions necessarily made in undertaking CVP analysis can cause problems for businesses in reality.

Attachment:- Assignment Files.rar