Capital budgeting characters (case study) for work integrated in BCOM accounting.

Sthembiso a recent MBA who is the only cost and accountant at a manufacturing plant which is the largest employer in illovo Valley a town about 20 000 people.

Zama the plant manager.

Zama : sthembiso come into my office for a minute. You know that the company brass wants to increase the amount of automation in some of the factories, I just got word that this plant will be the first to be automated.

Sthembiso : but the cost and accounting analyses we sent to headquarters last year showed that it wouldn't be profitable to make changes like that in this plant, why did they pick this one?

Zama: apparently top management wants to try robots and all the high-tech gadgets one factory to see if they increase product quality and pay for themselves. They think that in the long run stakeholders will benefit from automation. Anyway the decision has been made and its our job to make it work. We're going to sell the work force and the community decision.

Zama: some of the factory people will be able to stay on if they get some additional training. We can convince the workers and people in town that the was necessary, if we can show them accounting and cost information to justify the decision. If they see good, sound reasoning for the action they'll be less likely to resist and cause trouble. We need for them to maintain productivity and efficiency until the new equipment is here. I want you to work on a cost summary we can release to the employees and the town newspaper, showing why automation is a good idea.

Sthembiso : but the net present value and other analyses I did earlier showed this plant should stay the way it is.

Zama:when we were working on the analyses, you said yourself that the benefits of automation are hard to identify and assign numbers to. You had to make several assumptions in order to do those analyses. If you can change some of your assumptions, you can make the numbers look better. Try a longer useful life for the new equipment or change some of the projected cost information. As soon as you have the new numbers, bring them to me to look at.

Now the student is required to do the accounting evaluation of the above case study, the answer should take the following factors into account. The answer should apply Basic Accounting Knowledge that the student has gathered during the studies.

1. Introduction

2. What are the relevant facts

3. What are the accounting issues that need to be considered

4. Who would be the stakeholders concerned

5. What are some of the assumptions that sthembiso can change to improve the numbers

6. What accounting information that will be considered as relevant to your investigation

7. What actions should sthembiso take and why

8. What factors should sthembiso consider before making a decision

9. The plant manager Zama would want key factors to be kept in mind by Sthembiso Namely profitability and productivity

10. Conclusion