ACCN10002-Advanced Management Accounting

SECTION A

Answer BOTH questions. This section is worth 50% of the paper

Question 1

Gemma has just completed her first job interview with an accountancy firm. However, she did not clearly understand one of the questions she had been asked: ‘In your opinion can an accountant behave ethically?’. She is also unsure why ethical issues are relevant for accountants. Gemma asks for your views on this specific issue. REQUIRED: Critically discuss the issue that Gemma is inquiring about. [Total for Question 1: 100 marks]

Question 2

Personal control is perceived as the less relevant form of control within a business. However, some suggest that this form of control is the most important in a company. REQUIRED: Critically discuss the above statement. [Total for Question 2: 100 marks]

SECTION B Answer BOTH questions. This section is worth 50% of the paper

Question 3

Lothian Electronics Company (LEC), an electronics firm, buys circuit boards and manually insets various electronic devices into the printed circuit board. LEC sells its products to original equipment manufacturers. Profits for the past three years have been less than expected.

Top management became convinced that the firm needed to adopt a revenue growth and cost reduction strategy to increase overall profits. Top management realized that the main obstacle for increasing revenue and reducing cost was the high defect rate of their products (a ten percent rejection rate). They were convinced that revenues would grow if the defect rate was reduced dramatically. Costs would also decline as there would be fewer rejects and less rework. By decreasing the defect rate, customer satisfaction would increase, causing, in turn, an increase in market share. Top management also felt that the following actions were needed to help ensure the success of the revenue growth and cost reduction strategy:

• Improve the soldering capabilities by sending employees to an outside training course.

• Redesign the insertion process to eliminate some of the common mistakes.

• Improve the procurement process by selecting suppliers that provide higher quality circuit boards.

REQUIRED:

LEC has requested you, as a newly appointed management accountant, to explain what is a general Balanced Scorecard (BSC) and how it can be applied to bring a change the firm’s mission and strategy into operational objectives and performance measures for the four different perspectives: the financial perspective, the customer perspective, the internal business process perspective, and the learning and growth (infrastructure) perspective. (Note: Marks will also be awarded for relevant references, examples and diagrams) [Total for Question 3: 100 marks]

Question 4

Home Gym Company produces a variety of sports equipment.

The company had implemented an activity-based costing system. However, due to competitive pressure in the past couple of years, the company felt that implementing an activity-based management (ABM) system with the objective of reducing costs would be beneficial.

The company had already conducted a comprehensive review of the processes and activities including the investigation of the receiving materials process. The investigation of the receiving materials process revealed that the number of receiving orders was a good driver for purchasing costs. During the year 2021, the company incurred fixed receiving costs of £280,000 (salaries and eight receiving officers).

The fixed costs provided a capacity of processing 32,000 orders (4,000 per employee at practical capacity). Management decided that the value-added standard number of purchase orders is 16,000. The number of actual orders processed in the most recent period was 28,000. 4 The management of Home Gym Company was unable to understand what the information resulting from the investigation of the receiving materials process meant and how to deal with it. However, the management felt that the company would be able to improve the receiving activity and reduce the demand for receiving from 28,000 orders to 24,000 orders.

REQUIRED:

As a newly appointed management accountant, explain to the management of Home Gym Company what activity-based management is and what connection it has to continuous improvement. You are also required to explain to the management about the specific issues and recommendations identified during the investigation of the receiving materials process. [Total for Question 4: 100 marks]

(Note: Marks will also be awarded for relevant references, computations (15 marks for capacity management and interpretation; 15 marks for value-added and interpretation) and diagrams to support the discussion).