Case Report on FreeAir Skate Pty Ltd

The company listed in the case report FreeAir Skate Pty Ltd began its operations in the year 2014 specialising on the manufacture of skate boards. It has 3 different production lines that include SnowSkate, SurfSkate and DirtSkate. The purpose of the report is to try and convince the companys officer in charge- Mr. John Eustace why management accountants are significant assets to organizations and the competitive advantage they possess as compared to other agencies without management accountants operating in the same industry. The report also looks at the financial options available if Snowskate production line was to be discontinued and weighs in on the best option for the company to consider. Finally, the report also discusses Activity-based costing and looks the merits and demerits of introducing it in the company. The report findings indicate that indeed management accountants are significant assets since they help in increasing the value of a company as well as maintaining a favorable competitive edge amongst rivals. Additionally, it finds that Activity-based costing (ABC) strategy assessed was good for FreeAir Skate Pty Ltd. Recommendations were made to introduce and actualize the ABC technique.

1.0 Introduction

Alexis Kindig 2017, defines accounting as the process of documenting, organizing and condensing financial information in a manner that enables users to make economic decisions based on it. Running successful businesses requires access to information, records, reports, investigation, precise data about resources, obligations, liabilities, benefits. In the past three decades, most corporate and businesses operating in Australia have faced increased competition from other global partners due to a lack of management accountants. For instance, the Australian manufacturing industry that experienced a systemic decline affecting a massive shift to part-time employment.

Yazdifar and Tsamenyi 2005, argues that at this point, the role of a management accountant to a company becomes critical. The Cambridge dictionary defines management accountants as individuals who assist managers in making decisions of increasing profits or making savings by analyzing the information associated with the expenses of running a business and breaking down profit gains from different parts of the company. In recent years, their role has been changing as far as the making of new methods and frameworks to suit adjustments of societal changes additionally. The paper looks at why management accountants are significant assets to organizations and the competitive advantage they possess as compared to other agencies without management accountants operating in the same industry. 2.0 Management Accounting and how it adds Value to FreeAir Skate Pty LtdThe business dictionary defines management accounting as the procedure of compiling administration reports and records that give precise and auspicious monetary and factual data required by managers to make daily and interim choices. Different to financial accounting that generates yearly reports predominantly for external stakeholders, management accounting produces weekly and monthly reports for company's internal stakeholders such as managers and officers in charge. These reports commonly demonstrate the measure of available money, deals income created, the ratio of demands close by, the condition of records payable and records receivable, remarkable obligations, crude material and stock, and may likewise incorporate pattern diagrams, change examination, and different insights. Management accountants in companies dependably play crucial and indispensable roles towards their success. They have tremendous command of varying accounting standards and approaches, which makes them critical individuals of the organizations they work in, particularly in the decision-making process.

Management accountants additionally have the right skills of delivering important, significant and helpful data. They do as such by increasing the value of the data and changing it over into helpful data. As Hilton (2011, 5) claims, they can add value by influencing the best utilization of the company's assets, individuals and exercises to achieve the hierarchical objectives.

In FreeAir Skate Pty Ltd, a management accountant can add value by giving the two sorts of data, standard and specially appointed, which are essential for making decisions. Additionally, a management accountant in FreeAir Skate Pty Ltd would settle on choices by analysing both inner and outer data, while a financial accountant utilizes internal data as it were. Besides, the data presented by the management accountant can be of the past, present or future, however, is continuously significant, subjective and convenient, and is set up to suit particular needs of various managers. In conclusion, a financial accountant would concentrate on the organization in general. However, a management accountant focuses on multiple segments, since management accounting, for the most part, concentrates on sectorial bookkeeping.

2.1 How Management Accounting Contributes to Organization Strategy

Management accounting adds to a companys strategy, as the data sourced from an accountant is valuable to help the creation and also the execution of a companys strategy. As expressed by Langfield-Smith et al. (2015, 15) strategic planning is characterized as long-haul planning as a rule directed by senior administrators to help accomplish the company's objective. Numerous companies are rapidly executing strategic planning into their systems, as it encourages them with issues, for example, overcoming high rivalry and the regularly developing changes to the business condition. Furthermore, management accountants assume a crucial part in executing a strategy, with the utilization of planning which is articulating the bearing for future operations, and the usage of control frameworks that give data about daily activities that can help with control, are both basic for detailing a business' long haul design.

2.2 Management Accounting: Contributing to Competitive Advantage

Management accounting also contributes to an organization's advantage which is the favorable position that one business has over different organizations of the same industry. This can be reflected through offering customers more noteworthy esteem. For example, bringing down costs as well as offering more unique advantages. This is the point at which the data acquired by a management accountant is helpful, as it concentrates on the company's wellsprings of competitiveness.

2.3 Management Accounting Systems

Management accounting systems or frameworks refer to the systemic utilization of management accounting data to accomplish a company's objective. This framework is concerned with the running of the company, and the utilization of any financial and operational data focused on helping managers in making decisions, planning, and control. By using management accounting data, it will influence the company's exercises and the decisions made by managers. It is additionally a wellspring of propelling managers and workers to coordinate their energies towards the company's objectives as opposed to their objectives.

3.0 Financial Overview of Whether to Shutdown Snowskate

If it is not shutdown: Variable Cost = $157,500, Sales = $175,000, Fixed Cost = $64,000

Therefore Operating Income (Loss) = $(221500 175000) = $46,500. Alternatively, if Snowskate is shut down: Increase in sales income of Surfskate = 0.15 * 2100000 = $315000. Subtract (Increase in fixed cost) = $(324000/3) = $108000. Subtract (Remodelling cost) = $65000. Adding money gained from selling machine = $45000. Hence profit/loss gained in the event Snowskate is discontinued = $(315000 108000 65000 + 45000) = $187000.

The correlation above delineates the thought of FreeAir to proceed or suspend the production of SnowSkate. According to the analysis, it is seen that FreeAir would make a loss of $46, 500 if it maintains the Snowskate production line and makes profits of $187,000 if it quits production of SnowSkate items.

4.0 Assessment of ABC

Activity-based costing (ABC) is a strategy which doles out the assembling overhead expenses in a more efficient procedure to items, contrasted with the conventional approach which assigned expenses, with relationship to machine hours. An ABC framework follows a two-phase approach with a specific target of appointing overhead expenses to items. The first stage included is estimating the cost of assembling overhead exercises. This incorporates perceiving real assembling exercises and afterward deciding the spending totals for each of these exercises. Stage two includes relegating the expenses of assembling exercises to the items.

4.1 Benefits and Costs of Implementing ABC

The advantage of achieving an activity-based costing framework is that it conveys more accurate data since it gives a breakdown of indirect costs, that is absent in conventional costing structures. The real value of executing an action-based costing into a company is that it requires up to a considerable measure of investment and is intensely reliant on assets. The more significant part of the company's exercises must be broken down and afterward isolated into singular fragments. This procedure utilizes essential holdings as it includes information being gathered, estimated and later moved into another framework. At this point, the company requires an external auditor who has some expertise in the system accounting with an aim to educate and help workers in the utilization of the new framework, which can prompt the reluctance of managers and workers to abide.

4.2 Whether FreeAir Pty Ltd Should Introduce ABC

To assess whether ABC ought to be presented or not, we should think about both its expenses and advantages. Likewise, regular item costing strategy conveys issues since the unfortunate assignment of overheads frequently prompts over and under-pricing of objects, numerally. Subsequently, ABC is a more effective strategy, as it chooses suitable cost drivers for each of the activities. ABC additionally contrasts from Traditional costing since it would have no less than at least two Cost pools and Cost Drivers, while Traditional costing has just a single cost pool and cost driver. The portion of overheads likewise makes ABC a mind-boggling technique. By embracing the ABC strategy, the issue of misshaped item costs and even poor cost controls can be tapped. Despite the fact that, the truth of the matter is that ABC is an exorbitant technique to use. However, it can be used for both, management and costing purposes.

4.3 Recommendation

The recommendation towards executing the ABC framework is that since FreeAir Pty Ltd is a genuinely new organization that has just been set up recently, it would be profoundly prescribed that if this costing structure was to be actualized, it is smarter to do it within the near future. As such, it will only become harder and expensive. Moreover, it is seen that the dominant part of associations is receiving mor...