ACC6020 Strategic Management Accounting

Instructions to Candidates:

· This paper contains EIGHT questions, the allocation of marks is indicated for each question.

· The use of non-programmable calculators is permitted

· Candidates should ensure that all workings are shown clearl

This is an individual assessment –

When you submit the assessment you declare that you:

· Have read and understand that university’s guidance on plagiarism and cheating.

· You confirm that it is solely your own work or, in the case of a group submission, that it is the result of joint work by members of the group that you represent.

· That it contains no unreferenced material from another source.

· That you keep a copy of the assessment. (Please do not access/edit this copy after submission)

· Failure to abide by the rules will result in disciplinary action against you.

Question 1:

How long should it take to produce the 90th widget? Note: keep answers to 3 decimal places.

Question 2:

The standard cost card for the widget has been produced, based on the prototype:

What is the overall cost of the first 120 widgets produced?

The following information is for Questions 3 and 4:

Costland Ltd produces three products, the Axa, the Banda and the Cayno. The financial director has discovered a bottleneck in one of the divisions, and would like to maximise the returns on this. The business is currently operating at full capacity.

The details of the products are:

The total bottleneck hours for the division is 1,500 hours, and the total factory costs are £70,000.

Question 3:

What is the optimum production plan for the division?

Question 4:

What is the Throughput Accounting Ratio for each product?

Given your answers, explain which product is of concern, and one reason why it should not be discontinued?

Question 6:

Virgo Ltd is a 10 year old company which runs low-cost gyms in the UK, known as Gymbo. It controls its costs by:

· operating outside the town or city centre to reduce rental costs

· leasing the gym equipment from one provider to reduce maintenance costs

· having no reception area

· not providing television screens for gym users’ viewing

· providing vending machines rather than cafes

The gyms have been ranked seventh in the UK, based on customer retention; income; number of classes offered; staff turnover; plus other measurements. It prides itself on being one of the cheapest gyms in the country, with no joining fees as well as class bookings and information all being available via its phone app.

Required:

a) For each of the four main perspectives of the Balanced Scorecard describe what each of them means within a company

b) For each perspective of the Balanced Scorecard, identify one goal together with a corresponding performance measure which could be used by Virgo Ltd to measure the company’s performance. The goals and measures should be specifically relevant to Virgo Ltd. For each pair of goals and measures, explain why you have chosen them.

c) Critically evaluate the arguments for and against using profit to measure the performance of a company.

Required:

a) Calculate the cost per unit for each of the products using traditional absorption costing, with direct labour hours as the basis for apportionment.

b) Calculate the cost per unit for each of the products using activity based costing.

c) Compare and contrast your answers to parts a) and b) above from the point of view of the manager responsible for each of the products, and the company overall.

Question 8:

Bobdard Ltd has two divisions, W and X. Division W produces a component for mobile phones, which can be sold to external customers and also transferred to Division X, which completes and sells the phones.

If Division W sells the components for £500 there will be no demand, but demand will increase by 60 units for every £30 decrease in price. The variable cost of producing the component is £100. The fixed costs of the division are £1.5m per year. It has the capacity to satisfy the maximum possible demand if required.

If a complete phone is sold for £900 there will be no demand, but demand will increase by 25 units for every £10 decrease in the price. The variable cost is £250, and the annual fixed costs are £1.75m.

Required:

a) Calculate the total revenue generated by the complete phones if the manager of the Division W sets the transfer price of the component equal to the selling price which would be set to maximise profits from the sale of the components to external customers. (Note – the algebraic approach is to be used);

b) Calculate the total revenue generated by the complete phones if the manager of the Division W sets the transfer price of the component equal to the price whichwould be set to maximise profits for the company Bobdard Ltd as a whole, therefore at its Marginal Cost.

Required:

c) Calculate, given the bonus scheme available, the minimum price per box that Division

B would be willing to charge at the moment, on its external sales.

The manager of Division A has calculated that he will only receive his bonus if the internal Transfer Price for the box from Division B is at £5.88. Therefore he is not happy about paying the same price per box as an external customer and thinks that transfer prices should be set using an opportunity cost based approach, i.e. a price that reflects the economic cost and loss to the transferring division.

d) Discuss the view that transfer prices should be set using opportunity cost, based on the scenario of CD Ltd. Your answer should discuss the point of view of each of the managers, plus a calculation of a fair Transfer Price that could be charged using this method.