Jetson Engineering (JE) is a specialist structural steel engineering firm who design and produce structural steel items for new and existing buildings.  The recent focus on earthquake strengthening buildings has created significant additional work for JE which has led to issues with the timely completion of design work.

The increased design work has pushed the computer-aided design system (the A2 Designer) beyond its intended capacity which has resulted in slow response times and significant additional support costs for the system.  Colin Wilson, the production manager, decided to purchase a new computer system (the DesignMaster) to absorb some of the additional work.

The DesignMaster system was purchased in October 2014 and has been operational for 5 months.  Colin has noted that few of the engineers are using the new system even though it has several features that simplifies the design work and enables faster completion of some designs and therefore allows more time to complete the fabrication of steel items.  The low usage means the DesignMaster system (the new system) has significant excess capacity and the existing A2 Designer system is still experiencing heavy demand, low response times and significant additional support costs that are caused by the heavy workload put on the system.

Colin discussed the situation with the supervisors of the firms’s six design teams.  They explained that the accountants allocate the cost of each computer system to their work based on the number of hours they use the computer system. One supervisor responded that “as the A2 designer system is highly utilised (even the accounting function uses it) and its purchase costs were low the calculated cost per actual hour is very low.  The new machine, on the other hand, has a high purchase cost and in the first few months we didn’t use it very much as it takes a significant number of hours to learn how to use the new system.   Because of this high cost and low usage the allocated cost per hour was incredible. This high allocated computer cost makes our job costs high which makes our performance look bad”.   The supervisor went on to explain how next month he planned to use only the A2 Designer system as it would produce the “best” cost for the jobs he had scheduled – “It will take longer but will cost us less so the A2 Designer system is the best system to use”.

Colin continued his discussions with Bridget Duns, the firm’s management accountant.   She explained the costs of the computer systems are allocated to jobs on the basis of actual hours of operation each month.  Bridget helpfully explained “We use actual costs as we have to allocate all costs to get full job costs so we can get accurate profit figures for each job.  These profit figures are used to evaluate the performance of each job.  We use actual hours as this ensures each month’s costs are allocated in full to the activity for the month. We also use actual costs for each month so we calculate the overhead rate each month and apply it at to jobs at the end of the month.  Actual costing gives the most accurate allocation of costs”.  Bridget goes on to state “Surely you agree accuracy is the most important aspect of any cost allocation?”

Colin is concerned that the investment the firm made in the DesignMaster system has not resulted in any improvement in the design process and seems to have just increased costs.  He wonders how the cost allocation process could be changed to encourage engineers to use the two systems more effectively.  Colin approaches you as a newly appointed graduate management accountant to see if you can provide a solution.

REQUIRED:

Write a short report for Colin that addresses the following points:

• Two (2) alternative ways of allocating the computer systems costs.  For each of your two (2) selected alternative allocations you need to explain:
  • How the computer costs will be allocated.
  • The capacity you recommend using to allocate the costs?
  • How any under or over allocated costs will be treated if this is a possibility in the allocation approach you discuss.

• A discussion of:
  • The impact each alternative allocation should have on the allocation of costs and the Engineers decision on which computer system to use.
  • How each of your selected alternative allocations addresses Colin’s concerns and any disadvantages of the selected allocations.
  • Your recommendation on how to allocate the computer systems costs– including a justification/explanation of your decision suitable for Colin (a non accountant).
• A clear statement of your recommendation on how to allocate the computer systems costs.

The word limit for the assignment is 1,000 words. The word count excludes the title page and reference list but includes in text reference details and appendices.  Penalties may be applied to reports which exceed the word limit. If an assignment is not materially over the word limit and all material is relevant we will not apply a penalty but if it is materially over the word limit or includes irrelevant material or is not succinct while exceeding the word limit we will apply a penalty.

The short report is for a busy manager so needs to be as brief as possible while conveying the full information required on the stated issue.  You need to carefully consider the information included and its organisation.

The required features of the short report are:

• Title page – topic, author, date, audience and word count must be clearly stated.
• Discussion section – with meaningful headings. Ensure you discuss and justify your recommendations in the discussion section.
• Recommendations section – clear summary of your recommendation. (NB: The justification of your recommendation should be discussed in the discussion section not the recommendation section).

NB: Other common sections of report format are not required i.e you are not required to include an executive summary, introduction or conclusions section or include a cover letter/memo.

A key focus of this assignment is that you can clearly communicate your understanding, conclusions and recommendations to the manager.  Therefore the expectation is that your report will contain the following features:

• Is clearly focused and does not include unnecessary material.
• Clear communication – limited technical jargon used or any jargon used is explained.
• Is tailored to the audience.
• Avoids complex unclear sentences.
• Explicitly explains your opinion and conclusions.
• Conforms to the report structure outlined above.

NB: Penalties will be applied to all late assignments, which may include awarding a grade of 0/20. This is in fairness to all those students who do meet the set deadline.  No assignments will be accepted for grading once marked assignments are returned.  

Remember to complete the honesty declaration quiz on Stream.  Once you have completed the Honesty Declaration quiz the relevant assignment submission box will become visible.

 

Marking Criteria for Assignment Two

The report will be graded against the following criteria:

Presentation 15%

• Conforms to report format
• Language, tone and level of detail is appropriate for the management team
• Material is discussed and explained not just stated or listed.
• Grammar and spelling are correct
• If material from others is used,  referencing is complete and all material is acknowledged

Content 85%

• Addresses all the issues raised in the listed requirements
• Analyses and discusses the issues (a discussion of the issues not just listing points).
• Recommendation is appropriate for the situation and reflects the discussion.
• Clear statements of the recommendation made
• Your recommendation is discussed clearly in the discussion section of the report and only summarised in the Recommendation section
• Material included in the report is succinct and does not include irrelevant material

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