BATES BOATYARD CASE ANALYSIS

EDM MANAGERIAL ACCOUNTING

SUBMITTED BY:
CLAIRE D. SANTILLANA

SUBMITTED TO:
FREDDIE C. MANINGO, Ph.D. CPA
 CLAIRE D.
BATES BOATYARD CASE ANALYSIS
SANTILLANA

STATEMENT OF THE PROBLEM

As any other businessman, one must learn the ins and outs of the
business he intends to get himself into. The proprietor in this case study, Ms.
Sarah Bates needs to first create internal controls, systems and procedures
that she should implement in order for her business to become sustainable.
Specifically, in this situation Ms. Bates must decide the accounting system
suitable for her business, since Bates did not have any proper accounting
system; she only has record for cash disbursement and cash receipts. This
system is suitable for her as she can identify and assign the cost to each
department.

OBJECTIVES

1. To identify the lines of businesses the boatyard can generate profit.

2. To establish the accounting system suitable for the business.

ALTERNATIVE COURSE OF ACTION

1. IMPLEMENT COST ACCOUNTING SYSTEM AND SEGMENTAL

REPORTING

 ADVANTAGE
By using cost accounting system, she can easily identify the cost per line
of business. Also, she has potential of generating profit not only in boat
manufacturing, thus she should identify these other different activities
within her business. She needs to implement segmental reporting for
each line of business she thinks is profitable and can generate greater
revenue. By doing so, she can compare each line of business as to profit
or loss it generates. This is effective in identifying which department she
shall focus on because it is profitable and remove the unprofitable
department. She can identify whichever departments that contribute
profit or loss to her business. At the same time she can remove the
unprofitable department. She needs to keep other accounting records
other than the cash disbursement and cash receipts, implement a
computerized accounting system in order to generate proper accounting
records, since manual records are subject to greater human error, and
can be easily misplaced.
 DISADVANTAGE
Because her existing accounting records – cash disbursement and cash
receipts are insufficient if she implements the cost accounting system,
the best route is to implement a computerized system to generate reports
since the manual system may generate greater human error. It will be
costly to implement and maintain. She should identify which activity she
wants to focus on and to be able to make it as her core business.
 RECOMMENDATION

The cost accounting system for this business is most appropriate to

implement and financial records will be more accurate, leading to more
sound decisions when it comes to future undertakings the business will

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 CLAIRE D.
BATES BOATYARD CASE ANALYSIS
SANTILLANA

have. Having an automated system is a must because it can help her

keep track of inventory.

2. IDENTIFY COST OBJECTS AND COST DRIVERS

 ADVANTAGES

Since she plans to invest more money into adding a fishing tackle,
sporting goods and refreshment to her retail shop aside from her existing
business activities. A cost benefit analysis can be very beneficial. It can help
identify which of these 3 future undertakings will add more value into her
business and which one can be foregone. Also, she needs to study on what
season her business will be more profitable, so that the space can be used
more efficiently and effectively and segregation of duties can be done to suit the
demand. The Boatyard operates 3 different businesses. The first one is a large
shed for winter storage boats. There is great demand for space since it is a very
suitable space for boats. Also there is more space for storage and haul of boats
in on equipment on the front. The second one is a large sized work shed
containing woodworking tools and space to construct about six boats up to 40
feet in length at one time. Lastly a good size wharf and float, store for the sale
of marine hardware, supplies and gasoline pumps also a great spot for people
who surfs to be around.

 DISADVANTAGES

As it will entail gathering a great amount of data. it can be tedious and time
consuming to implement. Bates needs to determine how much labor is used
and the amount of materials used since accounting helps decide the amount of
time spent on each customer to maximize profit.

 RECOMMENDATION

A cost benefit analysis is highly recommended in order for decisions to be more

reliable since it presents financial data.

3. IDENTIFY COST OBJECTS AND THE CORRESPONDING COST

DRIVERS

 ADVANTAGES

Cost objects need to be identified for measuring and assigning costs. Since she
offers an array of different services, the cost objects for all these departments
must be clearly defined. The cost must be identified, measured and assigned to
each department for planning, controlling and decision making. Direct costs
can be identified by knowing the cause and effect relationship with each
department. At the same time indirect cost must be assigned through
allocation.

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 CLAIRE D.
BATES BOATYARD CASE ANALYSIS
SANTILLANA

 DISADVANTAGES

Identifying and defining cost objects is hard and can't be done by a single
person only.

RECOMMENDATION

To be able to successfully identify and define cost objects she can hire or add
man power to help her with the necessary steps to achieve such goal. These
costs must be measured with high degree of accuracy so that the profit can be
calculated correctly. This cost information is needed for setting up objectives
such as quality of painting and repair work, on order to reduce inspection
costs, customer complaints, and waste material. Evaluate suppliers and
signing a contract with the suppliers for long term supply of defect free
hardware tools and supplies at a fixed rate. Maintenance costs must also be
identified as well as budgeted, and a maintenance schedule should be made to
reduce labor costs.

CONCLUSION

Since the business is something unfamiliar yet to Ms. Bates, she needs first to
understand the business. By doing so, she can make the right decisions before
she starts investing more money into expansion. She is involved in so many
different lines of the business at the moment, and management and control of
all the departments can become a struggle. She may opt to focus on the ones
that are more profitable and defer the ones that may be too costly for the time
being. Or she may challenge herself by maintaining all the departments but
that will entail accurate, effective and efficient managment and financial
controls. She should take some intensive classes in how to use managerial
accounting correctly or hire someone with accounting background that would
advise her and collect the necessary data in order to used it properly, and to
make the right decisions. Also since she should study the industry that she is
getting involved and at the same time focus in one business at a time to make
sure everything gets handle the way it should be, as she could start earning
some profit as soon as possible. Lastly she needs to understand that since she
borrow some money she would need to start adjusting her finances, and
increase profit in order to comply with all of her obligations that would be
coming up.