Project 3: Costing and Cost Allocations
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MBA620 Project3 Introduction

You will now begin Project 3, which consists of demonstrating your understanding of cost. Continuing in your role as a consultant, you will consider the costs associated with producing products, and how to improve margins. You will need to determine if your fictional client has a thin gross margin and if  fixed/variable costs mix is optimal. As a tip, focus on the basics of cost-allocation techniques to zero into the optimal fixed/variable costs mix. Remember to ask: How do we make appropriate corrections? This question will guide you to the most realistic outcomes for your client,
Largo Global Inc. 

Further, always consider your stockholders’ expectations. How do you ensure their confidence and maintain a promise of growing wealth through increased net income? At the end of this project, you will start considering your options of investing in assets, adding units of production, or investing in technology. 

Please contact your instructor if you encounter any issues in this project. Don’t forget to check deadlines for projects and ensure graded deliverables are submitted correctly.
Best of luck! 

Scenario

In your last business report, you recommended a strategic decision about the revenue target to make LGI competitive. In Project 3, you will help LGI’s leadership move the company forward on a path toward a sustainable future. The company needs to restore the confidence of shareholders and other stakeholders by maintaining a satisfactory level of operating performance.

LGI, like all companies, needs robust earnings before interest, taxes, depreciation, and amortization (EBITDA). In other words, earnings must be sufficient to cover LGI’s investing activities, debt service, and taxes—with a healthy profit left for reinvestment and distributions to stockholders

Your Project 3 business report will focus on strengthening EBITDA. To do this, you will analyze LGI’s cost structure and determine how to increase productivity. These tasks are prerequisites for identifying a future investment (Project 4) and how to finance it (Project 5).

Competencies

Your work will be evaluated using the competencies listed below.

· 3.1: Identify numerical or mathematical information that is relevant in a problem or situation.

· 3.2: Employ mathematical or statistical operations and data analysis techniques to arrive at a correct or optimal solution.

· 3.3: Analyze mathematical or statistical information, or the results of quantitative inquiry and manipulation of data.

· 10.3: Determine optimal financial decisions in pursuit of an organization’s goals.

· 10.5: Develop operating forecasts and budgets and apply managerial accounting techniques to support strategic decisions.

Step 1: Prepare for the Project

For the next two weeks, you will focus on the specific actions LGI can take to strengthen its EBITDA. You will analyze cost-volume-profit, pricing decisions, and activity-based costing. 
Log into O’Reilly by following these instructions before accessing the chapters and completing the required reading.
https://libanswers.umgc.edu/faq/259998

Required Reading

Davis, C. E. & Davis, E. (2011). 
Managerial Accounting. Wiley.

Chapter 3: Cost-Volume-Profit Analysis and Pricing Decisions

· Section 3.1 to 3.3

Chapter 7: Activity-Based Costing and Activity-Based Management

· Sections 7.1–7.2

Recommended Reading

Chapter 2: Cost Behavior and Cost Estimation

· Sections 2.1–2.3

Step 2: Review and Practice

Using the 
Project 3 Review and Practice Guide, review EBITDA and cost structures to set LGI on the path toward a sustainable future. Then apply what you have learned by completing the exercises and problems referenced in the 
Project 3 Review and Practice Guide.

You must review the guide and do the practice exercises and problems so that you

· are prepared to have informed discussions with your team about LGI’s income statement,

· understand what the cost data reveal about operational efficiency, and

· can use this information to make recommendations for improvements.

Complete this review and practice by the end of Week 5. 

Review and Practice

You must complete the review and practice content to participate in the discussion in Step 3.

Project 3 Review and Practice Guide

Step 3: Participate in the Required Project 3 Discussion

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You have finished reviewing the material and performing the exercises, but you have some questions. Participate in the Project 3 class discussion. Respond to the two questions below by posting in the discussion; then, respond to two of your classmates’ discussion posts by the end of the week.

Discussion

Answer the following questions:

1. Discuss the concepts that were most challenging for you in the readings and review material. How did the practice exercises help clarify these?

2. What did you learn that will help you analyze LGI’s cost structure to increase its productivity and put the company on a path to a sustainable future?

Before you participate in the discussion activity see 

MBA discussion guidelines
. 

Course Resource

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MBA Discussion Guidelines

Throughout the MBA program, you will be asked to participate in discussions. Assigned discussions, both individual and group work, are part of the process of developing your project deliverables.

In general, address your discussion posts to your classmates, rather than the instructor. Do not attach files; use only the discussion textbox. Your posts do not need the structure or format of formal business memos or reports. These discussions should be an informal exchange of ideas with your peers. You should, of course, still adhere to the norms of standard written English.

To receive the maximum benefit, you should participate in accordance with the guidelines provided below.

· timeliness

· initial posting(s) submitted by 11:59 PM ET on Saturday

· response(s) to other discussion postings submitted by 11:59 PM ET on Tuesday

· proper citation

· cite sources any time you quote or paraphrase an idea or evidence from another work

· use APA citation style (example below)

· meaningful engagement

· posts contribute to substantive scholarly discussion

· student demonstrates professionalism in interaction with peers

· posts critically discuss topics presented in the current week and, when appropriate, in previous weeks

· posts are grounded in the theories and concepts presented in the course

Example:

Based on the 

UMGC library’s guidance on APA citations
, including guidance on how to cite content from the UMGC online classroom, please use the following format for classroom resources with no author or no date:

Title of resource. (n.d.). Document posted in University of Maryland Global Campus Course Name Course Number online classroom, archived at: 
hyperlink

SWOT 
analysis. (n.d.). Document posted in University of Maryland Global Campus MBA 610 2182 online classroom, archived at:

 https://lti.umgc.edu/contentadaptor/page/topic?keyword=SWOT%20Analysis

© 2023 University of Maryland Global Campus

All links to external sites were verified at the time of publication. UMGC is not responsible for the validity or integrity of information located at external sites.

Step 4: Complete the Analysis Calculation for Project 3

Your team has provided you with an Excel workbook containing LGI’s financials. You will use the workbook to

· Determine how LGI can strengthen EBITDA

· Discover ways for LGI to increase productivity

· Perform cost calculations in the worksheets 

Complete the analysis calculation for the project:

· Download the 
Project 3 Excel Workbook, click the Instructions tab, and read the instructions.

· Calculate and evaluate costs using the worksheets.

· If you would like instructor feedback on this step, follow the instructions in the box below to submit your Excel file to the Assignments folder as a milestone by the end of Week 5. This is optional. If you choose to submit the milestone, you will receive instructor feedback you may use to make corrections before submitting your final Project 3. To distinguish the milestone submission from the file you will submit in Step 5, label your file as follows: P3_milestone_lastname_Calculation_date

Take Action

Submit your assignment to your instructor for review and feedback.

Follow these steps to access the assignment:

· Click My Tools in the top navigation bar.

· Click Assignments.

· Select the relevant assignment.

· You should use the comments your instructor made about your optional milestone submission to revise your calculations as needed. Next, proceed to Step 5, where you will answer questions about your analysis, make recommendations for the client, and compile and submit your final report. 

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