Oxford Brookes University ACFI5001 – Management Accounting 2021-22 – Coursework Brief
Introduction
This assignment consists of a case study which requires you to prepare a spreadsheet and to write a report to senior management. It is designed to test your knowledge of overhead cost analysis, improve your spreadsheet design skills and assess your report writing skills.
This assignment accounts for 30% of your module grade.
Case Context
Dunstan Veterinary Practice (DVP) was set up several years ago by two friends who met at veterinary school. The business has been successful because of the two vets’ complementary interests and skills.
DVP offers services to two main groups of animals: ▪ domestic animals (pets), which are brought in by their owners ▪ farm animals, where the vet travels to the farm Following recent expansion to include an approved animal hospital wing, operations can now be carried out on both groups of animals. Farm animals needing surgery will be brought back to the hospital unless an on-site operation is possible.
The charge to customers uses a cost-plus profit margin approach, based on three cost elements: ▪ Veterinary time ▪ Drugs used ▪ A share of overhead cost
Overheads include costs of running the property, non-labour surgery costs, travel, boarding, practice support, marketing, appointments and customer care.
Under the current system, an overhead absorption rate (OAR) is calculated on the basis of the expected number of appointments and expected total overheads. Each animal treated is generally counted as one appointment, regardless of the complexity of the case.
Following an increase in government support for local agricultural business DVP has, rather unexpectedly, expanded quite rapidly in the more complex farm work. The nature of domestic pet ownership has also changed as the availability of exotic pets has increased. Lack of experience by the general public in caring for such pets has increased the need for complex vet services for this segment too.
The DVP partners suspect their simple method of overhead costing is no longer fit for purpose and wish to review it. Their part time accountant has gathered data from the previous accounting year to enable comparison of overheads under the current method and an alternative one based on ABC principles.
Financial information
Overheads for the last accounting period were £100,820. The ABC breakdown of this overhead spend together with the most likely cost drivers is:
Overhead activity pool £ Driver Property costs 31,250 Appointments Non-labour surgical 13,100 Per operation Travel 1,970 Miles Boarding care 5,600 Nights in hospital Practice support 21,400 Hours of vet time Appointments and customer care 27,500 Appointments £100,820
The frequency of each driver in the year was ascertained to be approximately: ● 2500 appointments ● 310 animal operations ● 4300 miles of travel by vet ● 375 nights stay in hospital ● 2375 hours of vet time
Four real life example cases are to be used to analyse a change from the current approach to an ABC costing approach. ▪ Case A. A routine domestic pet case needing two appointments with a total of 1.5 hours vet time. ▪ Case B. A routine farm vet case involving one appointment, one hour of vet time and a 40 mile round trip. ▪ Case C. A complex domestic pet case where the animal needed an operation, two nights’ stay in hospital to recover, 3 hours of vet time and 3 appointments in total ▪ Case D. An ultra-complex farm animal case. The animal needed two operations and 3 nights’ recovery in hospital. The vet time was 5 hours and he completed a 50 mile round trip. The whole treatment involved 3 appointments.
Required 1. Set up an excel spreadsheet to analyse the overhead costs.
2. Discuss the main findings and implications from your analysis in a short report, addressed to DVP. Detail of requirements Spreadsheet
Clearly set out workings showing the current overhead cost allocated to each type of Case (A to D) under the current absorption costing system.
Then set out clearly for the DVP partners the allocation of overhead costs to Cases A to D using ABC. You will need clear tables showing activity costs, drivers, driver incidences per Case and the final allocation of costs to Cases.
The results must be shown both graphically (two well-chosen graphs are expected) and as tables of figures.
The spreadsheet must be designed so that input variables can be changed to enable ‘what if’ (sensitivity) analysis and it should be clear to the user (work on the assumption that the end user is not an accountant) which numbers can be changed to see their effect on overall costs and which cannot. Any sensitivity analysis should update both the OAR and ABC results from one change in inputs.
Report
Write a 1500 word report to the DVP partners. You should:
1) Briefly explain to the partners the difference between the OAR and ABC methods and why ABC might be a better tool to use for their business;
2) Set out the differences in costings between methods for the four Cases you have analysed;
3) Discuss the implications of these differences for the business and recommendations about how the business might become more profitable.
Your recommendations should be sensitive to the business environment and take into account costs, drivers and pricing decisions.
You will also be marked on report writing skills, which include structure (use of headings, an appropriately addressed brief introduction and short conclusion) and use of English. We do not necessarily expect citations and references in this work (you will largely be applying ‘common knowledge’ and indeed common sense to the particular circumstances of DVP) but if you decide to use them, please make sure you do so properly, using the Brookes guidance :-
https://www.brookes.ac.uk/students/academic-development/online-resources/referencing /
