Case 15-1

Bates Boatyard

Prepared by

For

Professor

St. Thomas University

May 12, 2020

Issues

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1. What would you tell Bates concerning her accounting

2a. The boatyard operates how many businesses?

2b. What are the accounting information needs for managing each of these business?

3. What do you recommend that Ms. Bates do to establish her accounting information

system?

Facts

Sarah Bates retired from the Navy and wanted to open her own business. She saved

money through the years and found a boatyard for sale, where she spent many summers. The

owner of the business for sale desired to retire and was selling the company for a fair amount.

However, the business was larger than she expected to finance by herself, therefore, she

borrowed from a friend the additional funds.

As an entrepreneur, Ms. Bates plans to establish the priorities for having a successful

business and having adequate accounting and control systems are essential for her. The

information provided by the previous owner was cash receipts and disbursements, plus the

balance sheets and profit and loss statements for tax purposes. Although she has some

accounting knowledge, she asked for help to set up her accounting information system. She

intends to find a suitable accounting system and seek an expert opinion from an old friend

who has a vast knowledge in the area. Her two main questions were, what type of accounting

records should be kept and what kind of financial and cost information should be developed

to control operations and charge the proper amount to customer for rendered services.

She explained to her friend that one property of the business is a large shed, use to store

boats for the winter. Due to the quality of the storage, this one is the most convenient for

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 such storage creating an excellent demand from expensive boats' owners for summer.

Additionally, there is plenty of outdoor space that is used for rent, and, in most cases, the

yard was also hired to haul the boats in on equipment that it had for the purpose. In the spring

season and sporadically in other seasons, there is a good amount of business for painting and

repair boats. Furthermore, there is a large-sized work shed with woodworking tools and space

to build about six ships up to 40 feet in length simultaneously, for local anglers and summer

people. She is not expecting to get many orders for such work. The property included a good-

sized wharf and float, a store for the sale of marine hardware and supplies, and gasoline

pumps. Without a yacht club in town, Bates intended to encourage those summer people who

gather around this wharf and store and add fishing tackle, sporting goods, and refreshments

to the items marketed by the store.

Analysis

Answer 1

The system that was herein by Ms. Bates was not the proper system for the business. A

computerized cost accounting system should be implemented. This kind of system accumulates

product cost information, helps stockholder in the decision-making process, and are suitable for

manufacture business. The Boatyard is a service and manufacture company; this system will be

the most reliable and valuable. According to Borad, 2019, "Management uses cost accounting

systems to estimate the cost of the products for profitability analysis, cost control and inventory

valuation. In order to analyze whether the process is profitable or not, it is important to

understand the accurate cost of products." Also, the raw material can be tracked through the

entire process, and this saves time if a decision needs to be made. The proper controls enable to

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identify the relevant items, maximize revenues, and keep enough inventory.

Answer 2a

The Boatyard business operates in five:

1- A large shed to store boats

2- Rent of the outdoor space

3- Painting and repairing boats

4- The construction of about six ships up to 40 feet in length

5-The store for the sale of marine hardware and supplies, and gasoline pumps

Answer 2b

Each business should be evaluated as an individual process, and the cost of the administration

and support allocated adequately to each one of them. For the rental and storage spaces, the

information of the property value and depreciation is needed. The multiple activities provided by

the Boatyard contain direct labor, direct material, and indirect expense. When painting, repairing,

and constructing boats, these three elements must be carefully analyzed because the price will be

fundamentally based on that. Proper tracking of inventory is necessary for most of the business,

for the store will be inventory for sale and the painting, repairing, and constructing boat material

inventory.

Answer 3

According to Karmakar, 2015, "Management Accounting is the presentation of accounting

information in order to formulate the policies to be adopted by the Management and assist its

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day-to-day activities. In other words, it helps the Management to perform all its functions,

including planning, organizing, staffing, directing, and controlling."

The accounting information should be implemented by segment, delivering the cost and

contribution information by department, and allowing to conduct cost/benefits analysis. This will

show Ms. Bates the strengths and flaws of the company and where her attention must be

directed. The cost of producing the services and products does not only determine the price of

them, but the market is also a fundamental factor for this value. Ms. Bates needs to research and

compare competitors' prices and determine the gross margin for her products and services to

evaluate if it is competitive or not. A strategic plan should be done to establish the departmental

accounting system to cover all the aspects that must be recorded and how to keep them.

Furthermore, the implementation of the proper accounting system should be done before adding

fishing tackle, sporting goods, and refreshments to the shop; first, to better understand the

business and second to deviate capital where is needed. Also, Ms. Bates might need to hire

someone else with the proper accounting knowledge to develop and control the many businesses

she has, or she needs to receive the appropriate training to handle them.

References:

Borad, S. B. (2019, October 17). Cost Accounting Systems – Meaning, Importance And More.

Retrieved May 12, 2020, from https://efinancemanagement.com/costing-terms/cost-accounting-

systems

Karmakar, R. (2015, October 26). Management Accounting: Meaning, Functions and

Characteristics. Retrieved May 12, 2020, from http://www.yourarticlelibrary.com/management-

accounting-2/meaning/management-accounting-meaning-functions-and-characteristics/65345