ACCY 302 Assignment – Trimester 2 2024 Kāpiti Home Heating Solutions Limited Case Study

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ACCY 302 Assignment – Trimester 2 2024

Kāpiti Home Heating Solutions Limited Case Study

Instructions and information

Weighting: 25%

Total marks: 100 marks.

Due: Friday, 14 August 2024 at 4.00 pm.

Submission: Online via Nuku (under assignments)

Word Limit: 2000 words (+ 10%) including the executive summary. This does not include the appendices or any references.

The only things that can be in your appendices are the calculations relating to parts c, d and e. Any information in the appendices relating to other parts will not be marked.

This is an individual assignment.

All students are required to keep a copy of all work submitted and check that their work has been submitted successfully. In line with the University Academic Integrity Policy, the reuse of a student's own work (i.e., work that has previously been submitted for another assessment task in the same or different course) is prohibited for this course. The use of generative AI in this course is prohibited.

Penalties

In fairness to other students, any assignment submitted after the deadline will be subject to a penalty of 5% of the total maximum available marks for every day or part of a day (including Saturdays and Sundays) that the assignment is submitted late.

No marks will be awarded to any assignment or test submitted after the assignment has been discussed in class or marked and returned to other students, or after 10 days have elapsed, whichever occurs first.

Extensions

An extension or waiver (with no penalty) will only be granted in exceptional personal circumstances. Students should contact the Course Co-ordinator or Course Administrator before the assessment due date if they need to apply for an extension for an assignment. Note that, depending on the length of extension or waiver requested, it may be necessary to provide supporting documentation.

Background

For the past 2 years, Kāpiti Home Heating Solutions Limited (KHHS) has been struggling. Kyra Sun, the Managing Director and part owner, observes that sales of home heating products have decreased, and she suspects that this is because of strong competition from other Wellington heating providers, such as “Temperature Solutions” and “Smart Air Solutions”.

Kyra decides that the only way KHHS can survive is to modify the strategic position of the firm. Currently, KHHS competes by selling heating products and solutions to customers at the lowest price. However, this has resulted in a “price war” with its competitors. Therefore, Kyra has decided to alter the firm’s strategy to differentiate the way they package and market their heating products by offering a value-added service to their customers, using a new “Kyra home heating package” brand to add to the six low-cost heating solutions it currently offers, making a total of nine heating packages. Kyra believes this approach will enable KHHS to charge higher prices and she has set a net profit margin (return on sales) target of 15% for the “Kyra home heating package”.

Another strategy she is considering is whether to open a retail store in Paraparaumu to complement her online (website) and phone ordering service. As Kyra states “This way I will not have all my eggs in the same home heating solutions basket – so to speak.”

The “Kyra home heating package” will be tailored to the specific house based on its size. The sales representative consults with the homeowner, determines the customer’s heating requirements and prepares a quote. The heating products required are generally a heat pump(s) and one, or a combination of another electric or gas product. These heating products and other equipment are obtained from several suppliers and installed by KHHS’s heating engineers.

In addition, as part of the initial consultation, the KHHS sales representative also provides the customer with advice about other heat-saving products, such as draught stops, double-glazed windows and thermal-lined curtains to improve household sustainability. This advice also includes contact details and information about special deals offered by independent suppliers from whom the customer can directly purchase these other products. Currently, KHHS does not receive any commission or fees from these recommendations.

Home Heating Packages

Following 3 months of research into suitable “home heating packages”, Kyra, and her senior heating consultant, Kamari, subsequently designed three specific “Kyra home heating packages” after consultation with potential customers and exploring general market trends. The total research and design costs ($64,800) are to be split across the three new “home heating packages” in proportion to the average floor area each package is designed to cover.

Details relating to the three “Krya home heating packages” that KHHS plans to launch onto the market are as follows:

The home heating packages have an expected market life of 4 years and during this time, Kyra estimates KHHS will sell the following number of packages:

An analysis of the costs for each home heating package” indicates that the following per package consultation and installation costs are expected:

Kyra is happy with these figures “It looks like based on the per package selling price and the consultation and installation costs per package, I will make a healthy profit and easily achieve my required 15% net margin.”

KHHS plans to spend a total of $27,000 per year, marketing all their nine (9) home heating solutions including the new heating packages. The annual marketing costs are to be allocated in equal amounts to each package. Based on experience, KHHS expects that customer service claims and repairs will cost them 3% of sales revenue.

Kyra recently attended a presentation on a cost management approach called “Strategic Cost Management” (SCM). The presentation covered value chains, value chain analysis, designing to meet customer price and quality expectations, and managing activities to reduce costs. Kyra thought that she could utilise this SCM approach including activity-based concepts at KHHS and improve its strategic position whilst reducing her costs at the same time and increasing her net margin.

Following this presentation, she has come to you, her accountant, for advice.

Required:

Prepare a report for Kyra.

Use a suitable report style: clear and concise with an executive summary, appropriate format and the use of diagrams and tables.

(6 marks)

Your report should:

a. Outline the key features of Shank and Govindarajan’s Strategic Cost Management approach, explaining the role that value chains and value chain analysis play in a business like Kāpiti Home Heating Solutions Limited (KHHS).

(8 marks)

b. Present a diagram that outlines the second level (major processes) value chain for a “Kyra home heating package” with an accompanying narrative. Explain how this value chain would change if KHHS opened a retail store in Paraparaumu.

(16 marks)

c.  Calculate the target cost for each of the three “home heating packages” (Helios, Ra and Sol), and explain how Kyra can use this information to help manage her home heating business.

(10 marks)

d.  Present a lifecycle budget for the total anticipated sales quantity of each “Kyra home heating package” and compare the budgets of the three home heating packages.

Calculate the cost category percentages. Ignore the time value of money.

(32 marks)

e.  Calculate the lifecycle cost per “home heating package” and comment on the result.

(6 marks)

f. Compare the target cost to the lifecycle cost per package calculated from your lifecycle budget and comment on the results. Discuss how KHHS may achieve the target cost for each heating package (if necessary).

(14 marks)

g.  Using examples and the relevant information from the case and your answers to parts (a) to (f) recommend (with reasons) whether Kyra should implement her strategies (differentiation and opening a retail store) and adopt a strategic cost management approach to strengthen KHHS’s strategic position.

(8 marks)

[TOTAL OF 100 MARKS]