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ACFI5001 – Management Accounting Assignment 2022/23 Semester 1

Mo’s Marvellous Meals Ltd

Introduction

This assignment consists of a case study which requires you to prepare a spreadsheet and to write a report addressed to the owner of a small company.  It is designed to test your knowledge and understanding of overhead cost analysis, improve your spreadsheet design skills, develop your strengths in applying management accounting information to business decisions, and assess your report writing skills.

This assignment accounts for 30% of your module grade.

Case context

Mo’s Marvellous Meals Ltd is a catering business set up five years ago by Mo, a qualified chef.  Mo both owns and runs the business.  He employs on a permanent contract an assistant chef, an administrative assistant Lexi who also does the accounting, and an event supervisor.  He employs a number of staff on zero hours contracts to use when he needs.  These work as waiters and waitresses, catering staff, additional event supervisors, and clear-up staff.  

Mo’s business prepares meals in an industrial unit rented by the company just outside Oxford and meals are delivered to each clients’ premises in a van owned by the company.  Some meals include both hot and cold dishes (in which case some additional cooking is done at the client’s premises) and some are entirely cold.  A meal is made up of several dishes. For some clients the food is delivered but no staff are provided (self-serve meals).  For other clients the food is delivered and served by Mo’s staff, and his staff clear up after the event (served meals), with the staff managed by a supervisor.  Mo’s company provides food for three main sorts of event to clients; weddings, dinner parties, and office lunches.

The price charged to clients is per individual meal provided.  Mo sets the prices by charging a mark-up of 60% on the cost of the food ingredients.  

Overheads allocated to products are the cost of meeting clients to discuss requirements, menu planning, shopping for ingredients, preparing hot dishes, preparing cold dishes, serving meals, clearing up, supervising events, and delivering food to events.

Lexi currently calculates an overhead absorption rate per meal produced.  This overhead rate is the same for meals for all sorts of event, although the price, food cost and therefore profit of meals varies at different sorts of event

Weddings: Mo particularly enjoys providing the food for weddings, although it is a lot of work.  There is high competition between catering firms locally, so he thinks that it would be difficult to raise the price per meal beyond what he currently charges (£64.00).  A typical wedding has 120 people attending. His average food cost for a wedding is £40 per meal.

Dinner parties:  Mo’s assistant chef likes cooking for dinner parties.  There is an expanding market for people to host friends in their homes without having to do the cooking themselves.  At the moment, Mo charges £41.60 per head, and typically there are 10 covers per dinner party.  Office lunches: Mo’s biggest sales by volume are of office lunches.  These are delivered without staff and all dishes provided are cold.  Typical food costs are £12 per meal.

Mo is anxious because Lexi’s figures suggest he may be making a loss on office lunches, and, as with weddings, there is a lot of competition between local catering firms, so he does not think he can put the prices up.  He is worried that the only way he can reduce food costs will be by reducing quality, which might result in lost business.  He thinks that his weddings and dinner party business are both very profitable and wonders whether he should stop doing office lunches.

He has heard that ABC is a more accurate way to allocate overhead costs to products than the current method Lexi is using of one overhead absorption rate across all products.  He has therefore invited you in to analyse his costs and make recommendations, using the ABC technique.  He has given you the following information to analyse:

Financial information

The frequency of each driver in the year was found to be approximately:

· 80 meetings to discuss requirements

· 45 new menus planned

· 3,650 meals provided (each meal made up of several dishes), of which 1,400 were served meals, and the remainder were serve-yourself type)

· 5,600 hot dishes provided

· 23,500 cold dishes provided

· 1,800 miles travelled

Examples of Mo’s three main products are to be used to:

· Check whether Mo is right about the relative profitability of one meal served at weddings, dinner parties and office lunches under OAR.

· Calculate the revised profit per meal served for each sort of product under ABC.

· Advise Mo about the implications of your results for the future direction of his business.

The driver incidences relating to one meal of each of the three main products are as follows:

Product 1 – Wedding meal  

Three meetings take place for every wedding and one new menu is provided. At each wedding 120 meals are served.  Each guest is served one served meal (and no ‘serve-yourself’ meals), which includes 4 hot dishes and 8 cold dishes.  The average total distance travelled is 26 miles per wedding – so 0.2167 miles (26/120) miles per meal provided.

Product 2-  Dinner party meal

One meeting takes place for every dinner party and one new menu is provided. On average, each dinner party has 10 guests.  At each dinner party each guest gets one served meal, and no ‘serve-yourself’ meals.  On average dinner party guests are served 4 hot dishes and 2 cold dishes each.  The average total distance travelled is 17 miles per dinner party.

Product 3 – Office lunch.

Office lunches are provided for a group of clients who do not require many regular meetings or changes of menu.  On average, the incidence of meetings per meal is 0.0125 (ie one meeting for every 80 meals provided) and of new menus per meal is 0.0067 (one new menu for every 150 meals provided).  Each office lunch guest receives one ‘serve-yourself’ meal, and no served meals. Office lunches are all cold, and each meal consists of 6 cold dishes.  On average, the total distance travelled to deliver the lunches is 8 miles, and 15 meals are delivered.

The rent and insurance of the industrial unit are not included in the overheads allocated to products under the existing OAR system.  You should not include them either under ABC.  

Required

1) Set up an excel spreadsheet to analyse the profitability and overhead costs.

2) Discuss the main findings and implications of your analysis in a short report to Mo.

You may ignore VAT.

Detail of expectations

Spreadsheet

Clearly set out workings showing the current average overhead cost and profit for one of each type of meal provided (wedding meal, dinner party meal, office lunch), using OAR.

Set out tables showing the activity costs, drivers, driver incidences per meal and allocations of costs to products for one of each type of meal provided using ABC, and compare the cost and profitability of each type of meal under OAR and ABC.

Show your results 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’ analysis and should have appropriate headings and explanatory text so that a non-accountant can easily understand what the tables and graphs are showing.  Understandable and easy-to-use spreadsheets are likely to use colour coordination, consistency in elements such as fonts, decimal places and justification, correct spelling, and appropriate formulae linkage for automatic updating (single input point flexibility for what-if analysis).

Report

Write a 1500 word report addressed to Mo.  You should:

1) Discuss whether ABC is a more appropriate method for cost allocations in Mo’s business than his current system of OAR, including any limitations of the method

2) Explain clearly to Mo the relatively profitability of one meal served at weddings, dinner parties and office lunches, using the analysis of profits under ABC and OAR and Mo’s current prices (information drawn from your spreadsheet.) You should set out your calculations on a per meal basis (rather than calculating the cost for an event and then dividing by the number of covers).

3) Explain why it makes sense to exclude rent and insurance costs from the cost of products that you have calculated using ABC.

4) Discuss the implications of the findings revealed by the ABC analysis if the business stops doing office lunches, including considering significant cost differences by meal type;

5) Make recommendations about future prices, possible cost savings, and product mix of the three types of meal, with clear reasons based on your analysis.

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.  I 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 Mo’s Marvelous Meals ltd but if you decide to use them, please make sure you do so properly.

Please note

· You do not need an executive summary for such a short report

· The word count does not include references (but see above on the expectation that you are not likely to have references)

· Remember you are writing a report to a businessman who knows something about management accounting, but is not an expert

· It can be useful to illustrate your report with extracts from your spreadsheet – such extracts will not be counted towards the word count

· You do not need a cover sheet or index.  Include a title for your report and then start typing your text.

Submission rules

Your report (as a Word file) and spreadsheet (as an Excel file) need to be submitted electronically into the Moodle Dropbox by 13:00hrs on Wednesday 2^nd November 2022. Please include your student number in the file name (for example 18123456 – Report.doc & 18123456 – Spreadsheet.xls – but NOT your name.

More details of the assessment rules, including regulations about resits, are given in the module guide.

Academic Conduct and Responsibility

All work should be your own. Any suspicion of academic misconduct will be investigated and is likely to be referred to the Student Investigation and Resolution Team (SIRT).  Investigations are conducted as quickly as possible but may result in your results being delayed, even where the charge is not proven. 

Make sure you have drafts of your work and take regular back-ups (including emailing yourself draft and final work). Loss of work due to computer malfunction will not be accepted as a reason for exceptional circumstances.

Marking and feedback

We expect to return your marked assignment to you within 3 weeks under normal circumstances. Written feedback will be provided (see the marking criteria below) and you are encouraged to seek more feedback if you need it. All marks are provisional until confirmed by the examination committee in January 2020.

Any Questions

A discussion area will be set up in Moodle where questions about this assignment can be posted. We will help as much as is appropriate. The use of Moodle should ensure all students receive consistent guidance 

Criteria Grid

Candidate number