Costing Methods, Budgeting and Responsibility Centres: Hamster Hub Ltd
Hamster Hub Ltd (HHL) is a manufacturer of high end bicycles and related accessories. Operating in a highly competitive market, HHL offer a small range of mountain, road and hybrid bikes.
HHL are in direct competition with other manufacturers. They have maintained a competitive advantage through a reputation for innovation and price; offering the latest technologies at affordable prices. One new possible innovation is the development of an electric bike, or e-bike as they have been termed.
Product design, marketing and general management are carried out from the UK. Manufacturing is carried out in China. The Company has warehouses in the USA, the UK and Germany to facilitate timely distribution of the products to their markets in the USA and Europe. Customers comprise mostly of independent bike shops, but also include some bigger, national chains in some countries.
HHL currently use traditional costing and traditional budgeting methods. However the Finance Director, Maria Shipley, is concerned that these methods are not suited to the changing business environment where the focus is on innovation, customer service and quality.
You have recently been hired as the Senior Management Accountant of HHL. Drury, 2015, states that Management Accountants having the ability to understand the wider contextual issues affecting organizations is an important component of strategic management accounting. Drury, 2015, continues that Management Accountants should be able to apply their knowledge, skills and professional judgement in assessing and evaluating strategic management accounting techniques such as budgeting and costing methods. They should also be able to understand the role of responsibility centers in performance management. As such, Mrs. Shipley has requested you compile a report to the board on a number of issues as detailed below:
• Mrs. Shipley would like you to critically evaluate three major alternative costing methods to Traditional Costing to both reduce costs and provide information on product range profitability, with particular attention paid to the potential e-bike project.
• As a result of increasing overhead costs, Mrs. Shipley requires that you critically evaluate three alternatives to traditional budgeting including the ‘beyond budgeting’ approach
• To support increased accountability, Mrs. Shipley also needs guidance on potential responsibility centers that may be created within HHL and suitable transfer pricing policy recommendations for intergroup transfers that will allow for performance evaluation, goal congruence and motivation of managers.
Remember to keep your discussion in the context of the case set. You should make a recommendation for each section as to which is most suitable to HHL. While HHL may be a fictional company, the industry in which they operate is real and your discussion should reflect and acknowledge the issues that may be faced by companies working in this particular industry.
Each of the sections a) to c) is of equal weighting. The overall word limit is 3,000 words (see comments on ‘Word Count’ below). This module is assessed 100% by this assignment.
This assignment does not require a formal report format and can be produced as an essay in 3 parts. You must however follow the conventions of academic writing as described below.