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by: Liliane Kunde

ManagementControlSystemsandInformationTechnology ACCT801

Marketplace > University of Delaware > Accounting > ACCT801 > ManagementControlSystemsandInformationTechnology
Liliane Kunde
GPA 3.78


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Class Notes
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This 5 page Class Notes was uploaded by Liliane Kunde on Saturday September 19, 2015. The Class Notes belongs to ACCT801 at University of Delaware taught by Staff in Fall. Since its upload, it has received 43 views. For similar materials see /class/207190/acct801-university-of-delaware in Accounting at University of Delaware.


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Date Created: 09/19/15
THE WILLIAMSON CHOCOLATE CO LTD The Williamson Chocolate Co Ltd which has its headquarters and principal factory in Leicester England has been engaged in the production of chocolate and cocoa products since the early 1900s Subsidiary companies have been established in Canada Australia and South Africa and each of the subsidiaries manufactures the more important of the company s products and markets them in its home market The Australian company is located in Melbourne where all of its manufacturing activities take place and 39 for local quot quot are also 39 39 39 in Sydney Adelaide and Perth The main output at the factory is chocolate in bars Cocoa beans the principal raw material for the manufacturing of chocolate are imported from abroad As a rule the beans are cleaned roasted ground and passed through a press In the press cocoa butter is separated from cocoa powder which comes out of the press in the form of cocoa cake The cocoa butter leaves the press in liquid form because of the heat that is generated from the press operations The cocoa butter is then stored in large tanks ready for use in the current production of chocolate The Melbourne factory was a net user of cocoa butter ie its chocolate production called for more cocoa butter than could be obtained from the pressing of cocoa beans for powder manufacture This eXtra butter could have been imported but it was subject to a heavy import duty and the local management believed it was cheaper to import beans and eXtract the cocoa butter from them As a result of implementing this policy the factory found itself with a steadily mounting stock of cocoa powder The following gures show how the stock of cocoa powder increased during the period 200002 Number of Pounds Stock at January 1 2000 30500 Output ofpress in 2000 416975 447475 LESS Usage in 2000 324500 Stock at December 31 2000 122975 Output ofpress in 2001 658750 761725 LESS Usage in 2001 506420 Sales in 2001 35500 541920 Stock at December 31 2001 219805 Output of press in 2002 792125 1011930 LESS Usage in 2002 641600 Sales in 2002 43385 684985 Stock ofcocoa powder December 31 2002 326945 Adapted from The Williamson Chocolate CO Ltd by Prof David 39 in Mana ement Accountin 39 Text and Cases by John Dearden PrenticeHall 1988 These large stocks of cocoa powder held at the factory caused a serious storage problem and the local management made continuous efforts to nd pro table outlets for the excess cocoa powder However the sale of this powder on the Australian market raised a question as to its proper valuation In accordance with accounting instructions issued by the head office in London in the 1950s the cost of the cocoa beans purchased together with the labor and overhead costs of the pressing process had to be allocated between the cocoa butter and the cocoa cakes on the basis of the fat content remaining in these two products after the pressing operations This gave a cost for cocoa powder of about 23 a pound or about 50 above its current market price at the end of 2002 The company was therefore unable to dispose of its excess stock of cocoa cakes without incuning a considerable loss For balance sheet purposes however the company made a provision in its accounts in order to bring the book value of its stock of cocoa down to the market va ue During 2003 cocoa prices fell further and the subsidiary was unable to sell any large quantities of its excess stocks because its costs were too high There was practically no internal market for cocoa cakes It did succeed however in exchanging 13000 lb of cake against 2000 lb ofcocoa butter with another manufacturer In the middle of 2003 Mr Gannon the marketing manager brought forward a scheme to market a new cocoa preparation for making a hot chocolate drink The marketing prospects seemed good so long as the selling price could be kept low enough This new product offered a promising means of disposing of the excess stocks of cocoa powder but only if they were costed out at substantially less than the cost allocated to them in the books The production manager Mr Parker supported this proposal with enthusiasm He had repeatedly drawn the attention of the subsidiary s managing director Mr Woodstock to the storage problem created by the cocoa stocks and he welcomed the possibility that now opened up of dealing with this problem once and for all Besides he said he had never been able to see the logic of basing the cost of cocoa powder on its fat content It was avor which was important and fat content had little to do with avor Both Gannon and Parker were surprised to nd that Mr Woodstock was not unreservedly enthusiastic about Gannon s proposal He pointed out that if cocoa powder were charged to the new product at present cost levels the product would never show a pro t and without a drop in the price of cocoa beans greater than anyone could at present foresee the only way to reduce the cost of cocoa powder would be to change the basis of cost allocation between cocoa powder and cocoa butter This could not be done without permission from London and he was by no means certain that such permission would be given unless some basis of cost allocation which was clearly better than the present one could be proposed It was all very well to attach the present basis of allocation as Mr Parker had done But unless he or somebody else could suggest a better one why should London agree to a change Mr Woodstock went on to point out that there was another aspect of the matter that makes him reluctant to approach London If the allocation of costs to cocoa powder were reduced with a consequent increase in the cost of cocoa butter the calculation which had been supplied to London in 2003 to support the expenditure of 140000 on a new cocoa press would be completely undermined Only on the basis of the present cost of producing cocoa butter as compared with the cost of importing it could investment in the press be justi ed If more cost were to be allocated to cocoa butter it might be shown that it ought to be imported after all and the investment in the press would be shown to have been misguided Required 1 How should Williamson allocate the cost of the cocoa beans and the processing between the cocoa butter and the cocoa powder 2 Should the company produce the hot chocolate drink THE WILLIAMSON CHOCOLATE COMPANY Cocoa Beans gt Processing cleaned roasted ground passed through press Cocoa Butter Cocoa Powder EXECUTIVE SUMMARY QUESTIONS 46 Grand Jean Company Grand Jean owns 25 plants that it operates as engineered expense centers One plant manager has suggested that the plants be operated as pro t centers because only the best managed plants survive in this business See Question 3 at the end of the case Because you are working on your MBA the president of Grand Jean asks you to prepare an Executive Summary ES in which you evaluate the proposal to treat the plants as pro t centers In your ES 1 Discuss why treating the plants as pro t centers could result in the plants being better managed 2 Discuss what you regard as the strongest arguments for keeping the plants as engineered expense centers 3 Discuss how you feel Mr Wicks responsibilities will change if the plants are treated as pro t centers and 4 Marketing is currently treated as a revenue center If the plants are treated as pro t centers discuss how marketing should be treated ie revenue center pro t center expense center etc and why and NOTE Regardless of how the plants are treated assume that what each plant produces and the plant quotas how much will still be set centrally ie each plant will not be allowed to produce whatever they want Grand Jean Company Outside Suppller Marketing 39 C ustq m e r39s outside Suppller Headquarters r Qutslde Supplrer


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