BAC204 Advanced Management Accounting

Question:

Answer:

Introduction:

Spice Girls is the company that provides the spices all around the Australia, and most of its products are imported from the small countries like Bermuda and Qumran. In the recent time, the company realized that the cost of production to manufacture the spices is getting high.

This report is created in order to understand the various issues that the company is facing in terms of its existing Geelong plant. Different issues related to finance, environment, economic, etc. are discussed that the company needs to undertake before opening a new plant. All the information needed to solve these issues has also been presented.

Main Body

` Spice Girl is one of the biggest companies in Australia that supplies the spices to all over the country, but recently it was decided to open a new plant for preliminary processing of the spices in Bermuda. It is believed that the total cost to set up the plant will only be A$3.6 million which is very less and will per kilogram processing of the spice will be reduced to $0.99 to $0.33 (Schaltegger & Csutora, 2012). However, there are several accounting and financials that the company will have to undertake in order to set up a plant. One of the biggest financial issues that company will have to take care is the establishment of the new filtration system that will cost around $870000 to purchase, and its maintenance cost will be around $52,500 per annum which is very high. Although, the company meets all the environmental standards that are set by the government still the management believes that the way in which the company operates still affect the environment and because of that the company is always in the news (Bebbington, Unerman & O'Dwyer, 2014). The health of the local community, as well as the workers, is getting affected because of the chemical fumes. If the new filtration is installed, it will not only increase the reputation of the company but will also allow them to get a good brand image in the market. However, purchasing this machinery is a very big decision because the cost is too high and is over the budget of the company. Another financial issue that the company will have to take care is the per hour rate of the work which is currently at $4, and that is very low as per the standard. Due to this lower per hour wages, the employees are not happy and are not working as they should which has dropped the quality as well as the production quantity of the plan (Gond, Grubnic, Herzig & Moon, 2012). Increasing the workers’ wages will again cause a financial burden on the company, and they will have to bear it from the revenues. There are many more financial issues that the company will have to bear like one of the issues that the plant faces is related to the low morale of the workers because of the strict behaviour of the managers. The managers decided to hire a consultant who can help the company to reduce the tensions between the plant managers and the workers. However, the cost of the consultant will be approximately $129000 per annum which is again very high and directly affect the finance of the company (Bennett, Schaltegger & Zvezdov, 2013).

Other than the financial issues there are several environmental issues that are faced by the company, and it is very important for the Spice Girls to handle them as soon as possible. One of the biggest threats that the company faces is that all the spices of the company are imported from the small countries that are Bermuda and Qumran where the toxic chemicals are used in order to grow the plants which have completely handicapped the natural vegetation (Ball, Grubnic & Birchall, 2014). The spoil is filled with chemicals, and all the plants that are produced have the ingredients. Other than, it has been seen that the production and processing of the spices release the toxic air in the environment which is affecting the health of local people and also releases the bad smell. The communities nearby are complaining about this on a regular basis, and it has reduced the reputation of Spice girls a lot. Other than this, it was also found that, the company is also considered to be as the water polluter as all the contaminated water is released into the river which not only affects the health of local people but has also affected the local marine life on large basis (Gray, Adams & Owen, 2014). Proper nearby areas of the plant are also not managed properly as there is lots of waste and no septic system which degrades the land and increases local diseases. It has become very important for the company to address all these local environmental issues in a very urgent manner.

There are some of the social issues that the company has to handle as the reputation of the company in the local market and community is very poor because of various claims related to environmental degradation, and other relate factories (Christ & Burritt, 2013). Due to all these factories, the company has to face strikes from the local people who affect the production because the workers are not able to work at that time. Other than that, the company also has to face the wrath of the local news channels as well as the newspapers which on the regular basis releases the news about the work of the company in terms of the ways that they are affecting the workers health as well as the environment which has really affected the company a lot (Schaltegger, Gibassier & Zvezdov, 2013).

Another issue that company needs to address is related to the health of the workers which is getting worst on a regular basis. Because of the use of the chemical toxic used in order to grow a plant the workers come in contact with all those chemical waste and breathe them while working them for the long hours. This chemical has completely burned their lungs, and many of the workers are facing very serious illness (Adams, 2013). Other than that, the toxic air releases during the time of the manufacturing of the spices are also affecting the health of the local community as the children are getting severe breathing issues and children have developed the diseases like asthma, etc. Due to the contaminated drinking water, the local communities, as well as workers, are also developing braces on the skin which are very harmful. It has become very important for the company to address these issues before setting up a new plant (Gadenne, Mia, Sands, Winata & Hooi, 2012).

Broader economic issues are also very important to be considered by the company as the taxation policies of the government is increasing on a regular basis, and because of that, the Spice Girls will have to pay higher prices to export the goods. Other than that, the government has also increased the heavy taxes on some of the spices which have increased the cost of production for the company on a regular basis (Songini & Pistoni, 2012).

Other issues are the low morale of the workers which is also affecting the company and its production in the regular course of the work. It is seen that the workers are not at all happy with the long working hours and the fewer wages per hour. They are demanding the revision of the timing as well the change of the hourly wages so that they can live the life easier. Also the behavior of managers with these workers are very bad, and they are treated with like the military orders to complete the work (Eccles, Krzus, Rogers & Serafeim, 2012) The relation between the workers and the management is on fire, and because of that there is negativity all around the plant and the production is affected a lot because of that. The workers are not working in the manner that they used to and on every other day, there are conflicts between the managers and workers. Some workers have even been on strikes in order to demand their rights. The company has to consider these factors before setting up the new factory.

Highlight any further information that the company may need to gather before it can resolve these issues

There are lots of information that the company will need to consider before considering all the above-mentioned issues (Contrafatto & Burns, 2013). In terms of the financial issues, the company needs to understand the importance of the purchase of the new filtration machine which is of a whopping cost. The company current follows all the environmental guidelines as declared by the government so is there any real need for the new machinery. If the cost of the machinery can be recompensated with the increase in profits and the reputation then it is worth purchasing the machinery otherwise it will be a waste of cost (Figge & Hahn, 2013). In terms of the appointment of the consultant just to increase the moral of the 12 staff is worthless and instead of that, the company should really indulge the managers and top management to understand the issues that are faced by these people so that it can be solved without shedding lots of money. The workers with this also feel that they are being considered important in the company and because of that, the top management is taking efforts to reduce all their problems. Other than that, the company has assumed that the cost of setting up a new plant is A$3.6 million but is it really the real price because there are a various hidden cost involved which is not considered by the management and at the final stage the overall budgets get increased (Bouten & Hoozée, 2013).

In terms of the environmental issues, it is important for the company to understand the real cause of the tension in terms of the air pollution, waste management or water contamination so that first effort can be drawn towards that in order to satisfy the local community and increase its reputation. Other than that, the reputation of the company in the market is also very low because of the news getting released about the company on a regular basis (Cho, Michelon & Patten, 2012). The company needs to collect the information on which part the company is being discarded, and the news media wants them to focus on which issue.

The health of the workers also needs to be addressed, and the company should take efforts to know the reason of using chemicals to grow plant so that if it can be stopped and workers can be protected from getting ill. In terms of their relations with the management, several actions can be taken in order to understand the main that workers are facing is related to the behaviour of managers, working hours, wages or any other so that efforts can be directed in those directions (Milne & Gray, 2013).

Conclusion

The present report was made in order to understand the different issues that Spice Girls is facing with its plant in Geelong. It was analyzed there are several financial, environmental, social and many other issues that are being faced by the company and it is very important to address these issues before opening up a new plant. Also, before investing amount on these issues, it is very important to find the actual causes so that action can be taken against them.

References 

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Bennett, M. D., Schaltegger, S., & Zvezdov, D. (2013). Exploring corporate practices in management accounting for sustainability(pp. 1-56).

Bouten, L., & Hoozée, S. (2013). On the interplay between environmental reporting and management accounting change. Management Accounting Research, 24(4), 333-348.

Cho, C. H., Michelon, G., & Patten, D. M. (2012). Impression management in sustainability reports: An empirical investigation of the use of graphs. Accounting and the Public Interest, 12(1), 16-37.

Christ, K. L., & Burritt, R. L. (2013). Environmental management accounting: the significance of contingent variables for adoption. Journal of Cleaner Production, 41, 163-173.

Contrafatto, M., & Burns, J. (2013). Social and environmental accounting, organisational change and management accounting: A processual view. Management Accounting Research, 24(4), 349-365.

Eccles, R. G., Krzus, M. P., Rogers, J., & Serafeim, G. (2012). The need for sector?specific materiality and sustainability reporting standards. Journal of Applied Corporate Finance, 24(2), 65-71.

Figge, F., & Hahn, T. (2013). Value drivers of corporate eco-efficiency: Management accounting information for the efficient use of environmental resources. Management Accounting Research, 24(4), 387-400.

Gadenne, D., Mia, L., Sands, J., Winata, L., & Hooi, G. (2012). The influence of sustainability performance management practices on organisational sustainability performance. Journal of Accounting & Organizational Change, 8(2), 210-235.

Gond, J. P., Grubnic, S., Herzig, C., & Moon, J. (2012). Configuring management control systems: Theorizing the integration of strategy and sustainability. Management Accounting Research, 23(3), 205-223.

Gray, R., Adams, C., & Owen, D. (2014). Accountability, social responsibility and sustainability: Accounting for society and the environment. Pearson Higher Ed.

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Songini, L., & Pistoni, A. (2012). Accounting, auditing and control for sustainability.