SECTION A
SECTION A CONSISTS OF QUESTION 1. YOU MUST ANSWER THIS QUESTION.
QUESTION 1 ANSWER ALL PARTS OF THIS QUESTION
In the case of Quality Metal Service Center you were asked to consider the impact of the use of return on investment measures for paying managers’ bonuses.
REQUIRED:
a. Is performance-related pay, including the use of bonuses for managers, a good idea for organisations in general? You should discuss the arguments for and against the use of performance-related pay and explain why you have to come to your final conclusion about the use of this approach. You should not consider the specific situation of Quality Metal Service Center in this answer. [15 marks]
b. Is performance-related pay, including the use of bonuses for managers, a good idea for Quality Metal Service Center? You do not need to repeat the answers given in part a, but you should explain why your answer to part b is the same or different from your answer to part a. [4 marks]
c. Why should land, warehouse buildings, and equipment be included in the denominator of return on investment for calculating district managers’ bonuses at Quality Metal Service Center? You should explain why these assets should be included in the denominator and discuss the possible values that might be used for them. You should identify, with reasons, your preferred valuation method from those that you identify. [15 marks] TOTAL 34 MARKS
SECTION B
SECTION B CONSISTS OF QUESTIONS 2, 3 AND 4. ANSWER ONLY TWO QUESTIONS FROM SECTION B.
QUESTION 2 ANSWER ALL PARTS OF THIS QUESTION
Dimbleby Ltd. produce vacuum cleaners and have developed a new product called the Ricardo model. The company do not know exactly what economic conditions will be like when they launch the product but they believe that there is a 10% chance that demand for the Ricardo model will be strong at 1300 units in the next accounting period, a 60% chance that demand will be moderate at 1000 units and a 30% chance that demand will be weak at 600 units. The net profit on each unit of the Ricardo model will be £25 after all relevant costs except for marketing. The marketing department are considering three alternative product launches; Blitz – this launch will incur total marketing costs of £6,000 but will increase demand by 10% in all conditions. This increase in demand will enable Dimbleby Ltd. to produce the Ricardo model at a lower cost and yield £27 net profit per unit before marketing costs.
General – this launch will incur total marketing costs of £2,500 and will only increase demand in weak market conditions from 600 units to 750 units. All other demand levels will remain the same. There will be no impact on product costs. Trial – this launch will incur total marketing costs of £1,000 and will increase demand in moderate market conditions from 1000 units to 1250 units. All other demand levels will remain the same. There will be no impact on product costs.
REQUIRED:
a. Identify the optimal launch campaign for the Ricardo model and show your workings to reach this conclusion. [20 marks]
b. A consultancy firm has offered to provide an economist’s report for £1,000 to Dimbleby Ltd. The report will provide Dimbleby Ltd. with perfect information about demand for the Ricardo model. Should Dimbleby Ltd. pay for this report? You should show your calculations in arriving at your answer. [13 marks] TOTAL 33 MARKS
QUESTION 3 ANSWER ALL PARTS OF THIS QUESTION
Osiris plc is an online retail firm that distributes a range of household goods from several warehouses across the UK. The management accountant for the firm has collected the following data for the year to 31st March 2021;
The management accountant has calculated two linear regression equations for the total fuel costs for a month in £’000s as follow;
• Fuel costs = 0.007a – 4.211, where a is the number of customers in each month. This equation has an R² value of 0.753.
• Fuel costs = 4.913 + 0.040b, where b is the value of sales in each month.
This equation has an R² value of 0.651.
REQUIRED:
a. What do the numbers in the two equations mean statistically? You should explain what each element in each equation represents as well as the meaning of R². [9 marks]
b. What do the numbers in the two equations mean commercially? You should explain what the equations tell you about the behaviour of the fuel costs and identify which of the two equations provides a better model for the estimation of future fuel costs. [6 marks]
c. Identify and discuss three aspects of the behaviour of the fuel costs during the year to 31st March 2021 that you think the management accountant should investigate. You should explain what the data in the table tells you about the behaviour of fuel costs and suggest what has caused this behaviour. [15 marks]
d. How is it possible that the intercept in the first equation is negative? [3 marks] TOTAL 33 MARKS
QUESTION 4 ANSWER ALL PARTS OF THIS QUESTION
You work for a publicly-funded, not-for-profit organisation as a management accountant. The Chief Executive Officer of the organisation is looking for possible cost savings and has identified your post as one that may be cut. ‘I don’t understand why we need management accountants,’ she says. ‘After all we don’t need to make a profit so how can management accounting techniques add value to our organisation?
REQUIRED:
a. Explain what the role of a management accountant is and justify why your post should not be cut as part of cost savings. [15 marks]
b. Identify 3 management accounting techniques that we have discussed on this course and explain, with an appropriate example, how each of these could be applied to add value to your organisation. [18 marks] TOTAL 33 MARKS
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