ACC202 Management Accounting Problem Of Testa Limited Assessment 3 Answer

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Assessment 3

Assessment Type: Group Case Study – 2000 +/- 10% word report and analysis.

Purpose: This assessment is designed to assist students to combine the technical skills learned with the theoretical aspects of a number of management accounting concepts. The assessment will allow students to demonstrate their ability to analyse the information provided for a given scenario and present their findings as they relate to the requirements of this assessment.

As this is a team-based assessment, it will allow students to further develop their team-working and problem-solving skills. It contributes to learning outcomes a, b, c.

Value: 20%. %. Each member of the group will receive a mark based on their level of contribution. Students must specify their level of contribution on the title page and it must be agreed by each member. If the level of contribution is not mentioned it will be assumed that each member contributed equally.

Group formation: Groups of between 3-4 students are to be formed by the students themselves.

Submission: One member only of each group must upload the final submission to the Turnitin assignment link on the KOI Moodle. All submissions must be accompanied by a signed KOI group assignment sheet attached to the front cover, listing all group members (including student ID, email, first and last names).

The group should complete any ‘tables’ or calculations using the spread sheet application and then copy and paste these into a ‘document’ incorporated with their submission.

Tips for submission:

  • For ease of formatting within a MS Word document, either ‘paste’ the selected sections of the Excel Worksheet as a ‘PICTURE’, or copy and paste smaller sections.

Groups may find it helpful to use Zoom to complete their assignment if members are unable to meet at a physical location.

  • A word of warning: Ensure you take regular online (e.g. Google Drive saves) and offline (e.g. USB Memory stick) backups.
  • As noted above only 1 copy per group should be submitted. If you update your assignment before the due date and time, then each updated submission must be made by the same group member otherwise you will duplicate the work and the latest edition may not be marked.

Topic: Management accounting problem (case study).

Task details: Testa Limited manufactures small cars and is located in Sydney. More than 80 per cent of the cost of the company’s cars consists of materials and components, which are purchased from Australian suppliers. About three years ago, Testa introduced a comprehensive supplier evaluation system to monitor the performance of its suppliers. Each supplier was given a three-year contract that guaranteed large orders as long as it performed according to Testa’s strict requirements. Each supplier’s performance was measured by considering its adherence to delivery schedules (Testa works on a JIT system), accuracy of orders delivered, number of components rejected on delivery, and its achievements in reducing its production costs (and, therefore, its material and component prices) over the contract period. Performance in all of these areas will determine whether Testa renews the supplier’s contract, or offers the contract to another supplier. The suppliers are aware that; there are many alternative component suppliers who would be eager to enter into a long-term contract with Testa.

After holding discussions with the purchasing manager, as part of the review process, the financial controller has conducted a study to determine the full cost of dealing with suppliers. While the company uses a series of non-financial performance measures to measure most aspects of supplier performance, the financial controller believes that the calculation of the total cost of ownership will provide an additional perspective to viewing supplier performance. For the most recent year, the following supplier-related activities and costs have been identified:

Order components from supplier$1 800 0006 000 orders
Receive order$9 000 00010 000 deliveries
Return reject components to supplier$38 50055 returns
Receive late deliveries$260 000130 late deliveries
Production downtime due to late delivery$2 400 000800 hours
Production downtime due to defective material$3 600 0003 000 hours
Process invoice and pay supplier$1 050 0003 000 invoices
Dispute invoice amount$40 00050 disputes
Quality audit of supplier$500 00010 audits

Testa obtains its exhaust systems from two suppliers: Hot Exhausts and Chrome Manufacturers. Last year, Testa purchased 3 000 units from Hot Exhausts at $100 per unit, and 4 000 units from Chrome Manufacturers at $90 per unit. Both suppliers provide an identical component. The analysis revealed that last year the following activities related to the two suppliers:

Order components from supplier90 orders130 orders
Receive order90 deliveries150 deliveries
Return reject components to supplier15 returns16 returns
Receive late deliveries6 late deliveries28 late deliveries
Production downtime due to late delivery45 hours59 hours
Production downtime due to defective material20 hours29 hours
Process invoice and pay supplier12 invoices130 invoices
Dispute invoice amount3 disputes3 disputes
Quality audit of supplier1 audit2 audits


  1. Determine the cost per unit of activity driver for each supplier-related activity.
  2. Calculate the total cost of ownership and the per-unit cost of ownership for the two suppliers.
  3. Calculate the supplier performance index for the two suppliers.
  4. Analyse the performance of the two suppliers.
  5. What is the total cost of ownership and the per-unit cost of ownership for Chrome Manufacturers if the number of late deliveries is reduced to 12 and the production downtime due to late deliveries is reduced to 30 hours?
  6. Describe the changes that the purchasing manager and the financial controller could implement to minimise supplier-related costs.
  7. Consider the various criteria used by Testa to determine whether or not supplier contracts should be renewed. For each criterion, suggest two performance measures that Testa might use to evaluate a supplier’s performance.
  8. Testa is considering implementing electronic systems for transacting with suppliers. Outline some advantages that might accrue to both Testa and its suppliers for such systems.
  9. What is the meaning of a collaborative relationship with a supplier and how can Testa Limited benefit from having a collaborative relationship with its suppliers?

Research requirements: Students need to support their analysis with reference from the text and a minimum of six (6) suitable, reliable, current and academically acceptable sources – check with your tutor if unsure of the validity of your sources. Groups seeking higher grades should support their analysis with an increased number of reference sources comparable to the grade they are seeking.

Presentation: Report format. Title page, executive summary, table of contents, appropriate headings and sub-headings. Single spaced.

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