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ACCT1046 Accounting in Organisations and Society

Week 4: Assessment Activity

Shortly after receiving her Bachelor of Business with honours in 2005 from RMIT, Sally established ‘Beautiful Nails’ providing manicures and pedicures. She located her first store within a ten-minute walk from the campus because she knew there was likely to be a high demand from both students and staff. She rented suitable premises, installed the required equipment, and then started recruiting and training a team of beauticians. Her first store started generating a profit within one year of opening. In 2010, Sally raised additional capital and opened further stores. Beautiful Nails Pty Ltd (BN) now operate ten stores across Melbourne and surrounding suburbs and employ more than 15 store managers and 30 beauticians.

Sally studied management accounting at university and is meticulous when recording costs. Table 1 provides some data about the business. Note that sales volume is measured in “jobs”. A “job” may be a manicure or a pedicure. If a customer has both a manicure and a pedicure in a single visit, it is counted as two jobs.

Shop managers are employed on a permanent basis and receive a monthly salary. Beauticians are employed on a casual basis and get paid by the hour. A beautician typically does about 9 jobs per day. BN shops open every day of the year except Sundays and public holidays.

With annual inflation in excess of 6%, BN’s customers are becoming more concerned about prices in recent months. Competition is also becoming more intense. BN is known to offer a higher quality service in terms of hygiene, quality of work and customer experience but is struggling to remain profitable. Sally knows that most of BN’s stores charge significantly higher prices than nearby beauticians. In an attempt to maintain sales, BN is offering discounts when customers get a manicure and a pedicure in one visit or when they book and pay more than one week in advance. Sally’s target for the year ending 30 June 2023 is to maintain the same sales volume at an average selling price 5% less than the prior financial year.

Sally is always able to recruit the best beauticians at short notice as and when required. Inspectors from the Department of Health are always impressed with the standard of safety and hygiene in BN’s stores. However, BN’s investors are getting restless. Dividends have been modest, and some investors want to sell the business. Sally needs to do something that will significantly improve BN’s profits within the next two years.

REQUIRED:

1. Explain whether Beautiful Nails Pty Ltd (BN) are taking a shareholder or stakeholder approach regarding the business ensuring you use two (2) examples of the choices made by BN and explain how they each impact the shareholders/stakeholders in this case study.

(4 marks)

2. Identify one variable cost incurred by Beautiful Nails Pty Ltd and explain why you believe it is a variable cost.

(1 mark)

.  Use the high-low method and the data provided to:

a) estimate the cost function for Beautiful Nails Pty Ltd (ensure that you retain ALL decimal points during calculations) and

b) use the cost function to estimate the total expense in April 2022 based on 705 projected average daily sales (round final answer to a whole number).

 Ensure you show all workings as no marks will be awarded without workings (4+1 = 5 marks)