Australian fashion designer Sean Ashby commenced his men’s swimwear and clothing business

Australian fashion designer Sean Ashby commenced his men’s swimwear and clothing business aussieBum in 2001. A keen swimmer and surfer, he was unable to find a good pair of men’s cossies and used his life savings of $20 000 to make a series of prototypes, buy materials and commence manufacturing in Australia. Despite rejection from local retailers who did not see the potential for aussieBum to compete with international brands, Ashby has proven critics wrong. He had no choice but to take his business online, with instant exposure to the international market. It now takes thousands of orders a day.

Since the company’s inception, Ashby says that aussieBum has ‘taken on its own little cult revolution’, with celebrities such as Ewan McGregor, Billy Connolly and David Beckham fans of the aussieBum brand. Even Kylie Minogue’s male dancers wore aussieBum cossies in the film clip for her song ‘Slow’. The marketing thrust behind Ashby’s aussieBum is to live the dream — ‘the dream to be independent and present our gear in a way that gets noticed. We don’t apologise for pushing the boundaries . . . We have a saying at aussieBum — If you doubt yourself, wear something else’.6 The company doubled in size every year in its first five years and continued to grow by 20 per cent every quarter. By 2018, aussieBum had an average annual turnover of between $17 million and $20 million, and 90 per cent of its customers were international. The aussieBum brand now takes pride of place in stores such as Selfridges in the UK; Brown Thomas in Ireland; La Maison Stores in Canada; Alpha Male in Melrose Drive, Los Angeles; KaDeWa in Germany; as well as others in Spain, The Netherlands, Sweden, Poland and Russia. As well as direct department store sales, aussieBum’s internet retail orders are booming, with aussieBum being distributed to more than 70 countries. It now has over 200 000 consumers ordering direct via its custom built e-commerce site.

Most of the raw materials are sourced from Italy and China. By manufacturing in Australia, aussieBum hopes to promote Australia’s culture and relaxed lifestyle as well as eliminate restrictions that might come with outsourcing production to other countries. Moreover, producing locally (through independent manufacturers) provides flexibility and a reduced timeframe in getting new products to market. With a heavy emphasis on innovative product design, aussieBum pays close attention to the design phase of the product process.

Two examples of aussieBum’s flexibility and innovative approach to product development and marketing are worthy of note. First, it was able to capitalise on the consumer backlash against competitor Bonds when that company transferred more of its manufacturing offshore. Ashby estimates that aussieBum’s sales grew by at least 40 per cent as a result. Second, aussieBum was able to achieve continued growth during the global financial crisis. The company continues to avoid debt and own all its assets outright.7

Required

(a) With reference to the information provided, distinguish between structural and executional cost drivers.

(b) Illustrate and describe the industry and organisational value chain in which aussieBum operates.

(c) Classify aussieBum’s likely strategy as low cost or product differentiation. Explain.

(d) Classify aussieBum’s organisational structure as centralised or decentralised. Explain.

(e) With reference to disruptive innovation, do you consider aussieBum to be a disruptor to the traditional garment industry value chain? Discuss why or why not.

Suppose that the following are activities conducted by Microsoft Corporation.A. Comparing the

Suppose that the following are activities conducted by Microsoft Corporation.
A. Comparing the timeliness of development steps of a new release of Windows with the timeline that was laid out to guide development.
B. Developing a timeline for the release of new Windows and Microsoft Office products over the next year.
C. Debugging the next version of Windows.
D. Providing technical support to customers who are having problems with Microsoft Office.
E. Estimating cash expenditures for the next year.

F. Comparing budgeted costs to actual costs and discussing major differences with department managers.
G. Deciding whether to construct a new building on the Microsoft site.

Required
Identify whether each activity is most likely part of:
(a) organisational strategies
(b) operating plans
(c) actual operations
(d) measuring, monitoring and motivating.
For each item, explain why.

Mernda Health Care Centre recently began to offer day surgery procedures. The

Mernda Health Care Centre recently began to offer day surgery procedures. The Centre was not experienced in the costing of such services and, as a temporary measure, the subsidised patientday charge was set at $100. This charge was similar to other providers in the region. Management decided to review the charge once cost data was available for the first two months of operations. The following data was collected by the accounting department, together with the number of patient days.

Required

(a) Classify each cost as fixed, variable or mixed, using patient days as the cost driver. 

(b) Use the high-low method to separate mixed costs into their fixed and variable components.

(c) The accounting department has estimated that the average patient days per month will be 2000. If the Centre is to be operated as a not-for-profit, how much will it need to charge per patient day?

(d) Suppose the Centre averages 2500 patient days per month. How much would need to be charged per patient day for the Centre to cover costs?

(e) Explain why the per-patient-day charge decreased in (d) above.

(f) Briefly explain the benefit of the classification of costs in the planning for the Centre.

The Elder Clinic, a not-for-profit entity, provides limited medical services to low-income

The Elder Clinic, a not-for-profit entity, provides limited medical services to low-income elderly patients. The manager’s summary report for the past four months of operations is reproduced here.

The clinic receives an operating subsidy from the city, but unfortunately, the operating loss that has been incurred through June $(79 392) is larger than anticipated. Part of the problem is the salary increase that went into effect in June, which had been overlooked when the budget was submitted to the city last year. To compound the problem, the cold winter months traditionally bring with them an increase in cold-related health problems. Thus, the clinic is likely to experience an increase in patient visits during July.
The clinic’s managers are considering an increase in patient fees to reduce losses. However, they are reluctant to raise fees because the patients have low incomes. They will raise fees only if it is necessary.

Required
(a) Use your judgement to classify costs as fixed, variable or mixed. Explain how you classified each item.
(b) Create a cost function for the Elder Clinic. Use the high-low method to estimate the function for any mixed costs.
(c) Use the cost function to estimate July expenses based on a projection of 940 patient visits.

(d) List reasons why management of the Elder Clinic cannot know with certainty what the expenses will be during July. List as many reasons as you can.
(e) Describe the pros and cons of using your cost estimate from part (c) to decide whether to raise patient fees.
(f) The managers need your July cost estimate to help them decide whether to raise patient fees.
Use the information you learned from parts (a) to (e) to write a memo to the director of the Elder Clinic presenting your estimate of July costs. Provide the director with appropriate information for understanding your methodology and evaluating the reliability of your cost estimate.

The following is the description of a cost: total fixed costs are

The following is the description of a cost: total fixed costs are $50 000 per month and the variable cost per unit is $10 when production is under 1000 units. The variable cost drops to $9 per unit after the first 1000 units are produced.

Required

(a) Write the algebraic expression of the cost function and graph it.

(b) Assume that the cost function just described is a reasonable representation of total costs. If the accountant performed regression analysis on weekly observations of this cost and did not realise that there were two relevant ranges, what problems would arise in the cost function that was produced? In other words, how would the cost function be mismeasured?

Bridges and Roads is an entity engaged in road construction. Some selected

Bridges and Roads is an entity engaged in road construction. Some selected items from its chart of accounts are listed below.

Required

For each account, indicate whether the account represents a fixed, variable or mixed cost for the operation of road construction activity. If mixed, indicate whether it is predominantly fixed or variable. 

Explain your answers.

(a) Staff wages

(b) Clerical wages

(c) Rent

(d) Licenses

(e) Insurance

(f) Office supplies

(g) Professional dues

(h) Professional subscriptions

(i) Property taxes

(j) Advertising

The Woolworths Group has a goal of having customers put the company

The Woolworths Group has a goal of having customers put the company first across all their brands. To achieve this the Group has identified five priorities.9

1. Building a customer and store-led culture and team.

2. Generating sustainable sales momentum in food.

3. Evolving the drinks business to provide even more value and convenience to customers.

4. Empowering the portfolio businesses to pursue strategies to deliver shareholder value.

5. Becoming a lean retailer through end-to-end process and systems excellence.

Required

(a) Given the strategic priorities, what decisions could management take to influence the structural cost drivers and executional cost drivers?

(b) What type of information would management need in making decisions you have identified in (a)?

Traditionally, government organisations have tended to operate in silos, focusing on their

Traditionally, government organisations have tended to operate in silos, focusing on their own objectives and managing and protecting their own budgets. Recently, however, faced with seemingly intractable economic, social and environmental problems, many government organisations have sought to develop new ways of working. In particular, they have sought to explore how their objectives overlap and depend on other organisations and how they might share information and resources. One example is provided by attempts to reduce crime and enhance public safety in the criminal justice sector.

In New Zealand the Ministry of Justice is the lead agency in the justice sector. The sector includes the New Zealand Police, the Serious Fraud Office, Child Youth and Family, the Department of Corrections and the Crown Law Office.

The organisations in the criminal justice system can be thought of as being involved in a ‘pipeline’ that begins with crime prevention and the investigation of crime and proceeds all the way through to rehabilitation (see the figure below). Looking at the sector as a pipeline, we can see that policies and actions in any part of the system will affect other parts of the system. By working as a coordinated ‘justice sector’, changes can be made that result in the best outcomes for the sector as a whole.

Within this pipeline, the operations within one agency, Public Prisons, can be further analysed to show the links between its key activities and between the department and other organisations in the sector.

Key activities follow this path:

• offenders are convicted in the courts

• offenders are sentenced and sent to prison

• prisoners undergo an initial assessment

• the serving of the sentence is planned

• prisoner’s sentence is managed, including provision of relevant rehabilitation programs

• prisoner’s release is planned and managed.8

Required

(a) With reference to the information provided, distinguish between the structural and executional cost drivers in this value chain.

(b) Is there an ability for governments to outsource any of these value chain activities?

(a) Total fixed costs are $10 000 per week and the variable

(a) Total fixed costs are $10 000 per week and the variable cost per unit is $8. Write the algebraic expression for the cost function and graph it. What are the assumptions of the cost function?

(b) Total fixed costs are $25 000 per week up to 2000 units a week and then jump to $35 000 per week. The variable cost per unit is $8. Write the algebraic expression for the cost function and graph it.

(c) The average cost to produce 10 000 units is $45 and the average cost to produce 12 000 units is $44. Estimate the average cost to produce 15 000 units.

(d) The total cost function for Hot Dog Days, a hot dog cart business, is TC = $5000 + 45% × total revenues. Estimate the total cost for a month when total revenues are $10 000.

Frank owns a caravan and loves to visit national parks with his

Frank owns a caravan and loves to visit national parks with his family. However, the family only takes two one-week trips in the caravan each year. Frank’s wife would rather stay in motels than the caravan. She presented him with the following itemisation of the cost per trip, hoping that he will sell the caravan and use motels instead.

Cost per trip
Caravan:
Cost: ……………………………………………………………………………………..  $20 000
Usable for 10 seasons, two camping trips per season ……………… $1000
Transportation expense:
1000 km @ $0.37 per km …………………………………………………………….. 370
Includes:
$0.15 per km for petrol, oil, tyres and maintenance
$0.22 per km for depreciation and insurance
Groceries ……………………………………………………………………………………. 250
Beverages …………………………………………………………………………………… 100
Cost per trip ……………………………………………………………………………. $1720
Cost per person ($1720/5 family members) ……………………………… $ 344

Required
(a) What are the relevant costs for deciding whether the family should go on one more camping trip this year?

(b) What are the relevant costs for deciding whether Frank should sell the caravan? Assume the family will take the same vacations but stay in motels if the caravan is sold.

(c) What factors other than costs might influence the decision to sell the caravan? List as many as you can.

(d) Consider your own preferences for this problem. Do you expect Frank’s preferences to be the same as yours? How can you control for your biases and consider this problem from Frank’s point of view?

(e) Frank asks you to help him decide what to do. Do you think he should sell the caravan? Why?