Management Accounting For Decision Makers 5th Edition Peter Atrill, Eddie McLaney - Solutions

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11.8 Goliath plc is a retail business operating in Ireland. The most recent financial statements of the business are as follows:Income statement for the year to 31 May£000 £000 Sales revenue 2,400.0 Less Cost of sales Opening inventories 550.0 Add Purchases 1,450.0 2,000.0 Less Closing
11.7 Delphi plc has recently decided to enter the expanding market for minidisc players. The business will manufacture the players and sell them to small TV and hi-fi specialists, medium-sized music stores and large retail chain stores. The new product will be launched next February. Predicted
11.6 Boswell Enterprises Ltd, an electrical wholesale business, is reviewing its trade credit policy.The business, which sells all of its goods on credit, has estimated that sales revenue for the forthcoming year will be £3m under the existing policy. Credit customers representing 30 per cent of
11.5 Mayo Computers Ltd has an annual turnover of £20m before taking into account bad debts of£0.1m. All sales made by the business are on credit, and, at present, credit terms are negotiable by the customer. On average, the settlement period for trade receivables is 60 days. Trade receivables
11.4 Your superior, the general manager of Plastics Manufacturers Limited, has recently been talking to the chief buyer of Plastic Toys Limited, which manufactures a wide range of toys for young children. At present, Plastic Toys is considering changing its supplier of plastic granules and has
11.3 The managing director of Sparkrite Ltd, a trading business, has just received summary sets of financial statements for last year and this year:Sparkrite Ltd Income statement for years ended 30 September last year and this year Last year This year£000 £000 £000 £000 Sales revenue 1,800
11.2 International Electric plc at present offers its customers 30 days’ credit. Half the customers, by value, pay on time. The other half takes an average of 70 days to pay. The business is considering offering a cash discount of 2 per cent to its customers for payment within 30 days.The credit
11.1 Hercules Wholesalers Ltd has been particularly concerned with its liquidity position in recent months. The most recent income statement and balance sheet of the business are as follows:Income statement for the year ended 31 December last year£000 £000 Sales revenue 452 Less Cost of sales
11.4 Identify the costs of holding:(a) too little cash, and(b) too much cash.
11.3 What are the reasons for holding inventories? Are these reasons different from the reasons for holding cash?
11.2 How might each of the following affect the level of inventories held by a business?l an increase in the number of production bottlenecks experienced by the business;l a rise in the level of interest rates;l a decision to offer customers a narrower range of products in the future;l a switch of
11.1 Tariq is the credit manager of Heltex plc. He is concerned that the pattern of monthly sales receipts shows that credit collection is poor compared with budget. Heltex’s sales director believes that Tariq is to blame for this situation, but Tariq insists that he is not. Why might Tariq not
10.8 AB Ltd operates retail stores throughout the country. The business is divisionalised. Included in its business are Divisions A and B. A centralised and automated warehouse that replenishes inventories using computer-based systems supports the work of these divisions.For many years this
10.7 The University of Devonport consists of six faculties and an administration unit. Under the university’s management philosophy, each faculty is treated, as far as is reasonable, as an independent entity. Each faculty is responsible for its own budget and financial decision making.A new
10.6 Glasnost plc is a large business organised on divisional lines. Two typical divisions are East and West. They are engaged in broadly similar activities and, therefore, central management compares their results in order to make judgements on managerial performance. Both divisions are regarded
10.5 The following information applies to the budgeted operations of the Goodman division of the Telling Company.£Sales revenue (50,000 units at £8) 400,000 Variable costs (50,000 units at £6) 300,000 Contribution 100,000 Fixed costs 75,000 Divisional profit 25,000 Divisional investment 150,000
10.4 The following information applies to the planned operations of Division A of ABC Corporation for next year:£Sales revenue (100,000 units at £12) 1,200,000 Variable costs (100,000 units at £8) 800,000 Fixed costs (including depreciation) 250,000 Division A investment (at original cost)
10.3 You have recently taken a management post in a large divisionalised business. A substantial proportion of the business of your division is undertaken through inter-divisional transfers.Required:(a) What are the objectives of a system of transfer pricing?(b) Describe the use of, and problems
10.2 Measures are required to assess the performance of divisions and of divisional managers. Three financial measures are:l contribution;l controllable profit; and l return on investment (ROI).Required:(a) For each of the above measures show:l the way in which each measure is calculated;l for what
10.1 In divisionalised organisations, complete autonomy of action is impossible when a substantial level of inter-divisional transfers take place.Required:(a) In this context, what is meant by ‘divisionalised organisation’ and ‘autonomy of action’?(b) Is this autonomy good? Why?(c) Are
10.4 A UK survey of decentralised businesses revealed that negotiated prices are the most popular form of transfer pricing method.Is this approach necessarily the best approach in theory? Why?
10.3Jerry and Co. is a large computer consultancy firm which has a division specialising in robotics.Can you identify three non-financial measures that might be used to help assess the performance of this division?
10.2 Westcott Supplies Ltd has an operating division which produces a single product. In addition to the conventional RI and ROI measures, central management wishes to use other methods of measuring performance and productivity to help assess the division.Identify four possible measures (financial
10.1 What problems might be encountered when a business attempts to incorporate non-financial measures into its management reports?
9.8 Aquarius plc has estimated the following free cash flows for its five-year planning period:Year Free cash flows£m 1 35 2 38 3 45 4 49 5 53 Required:How might it be possible to check the accuracy of these figures? What internal and external sources of information might be used to see whether
9.7 Pisces plc produced the following balance sheet and income statement at the end of the third year of trading:Balance sheet as at the end of the third year£m £m Non-current assets Goodwill 40.0 Machinery and equipment 80.0 Motor vans 18.6 Marketable investments 9.0 147.6 Current assets
9.6 Leo plc is considering entering a new market. A new product has been developed at a cost of£5m and is now ready for production. The market is growing and estimates from the finance department concerning future sales revenue of the new product are as follows:Year Sales revenue £m 1 30 2 36 3
9.5 Virgo plc is considering introducing a system of EVA® and wants its managers to focus on the longer term rather than simply focus on the year-to-year EVA® results. The business is seeking your advice as to how a management bonus system could be arranged so as to ensure the longer term is
9.4 (a) The shareholder value approach to managing businesses is different to the stakeholder approach to managing businesses. In the latter case, the different stakeholders of the business (employees, customers, suppliers and so on) are considered as being of equal importance and so the interests
9.3 Sharma plc makes one standard product for which it charges the same basic price of £20 a unit, though discounts are allowed to certain customers. The business is in the process of carrying out a profitability analysis of all of its customers during the financial year just ended.Information
9.2 You have recently heard someone making the following statement about competitor profitability analysis (CPA).CPA is an assessment of how profitable competitors are, that is carried out in an attempt to establish a benchmark by which one’s own business’s success can be measured. Usually most
9.1 Aires plc was recently formed and issued 80 million £0.50 shares at par and loan capital of£24m. The business used the proceeds from the capital issues to purchase the remaining lease on some commercial properties that are rented out to small businesses. The lease will expire in four years’
9.4 What are the four main areas on which the Balanced Scorecard is based?
9.3 What is the principle on which shareholder value analysis is based?
9.2 Both Customer A and Customer B buy 1,000 units of your business’s service each year, paying the same price per unit. Why might your business regard Customer A as a desirable customer, but not Customer B?
9.1 How does strategic management accounting differ from its more traditional counterpart?
8.8 Kernow Cleaning Services Ltd provides street-cleaning services for local councils in the far south west of England. The work is currently labour intensive and few machines are employed.However, the business has recently been considering the purchase of a fleet of street-cleaning vehicles at a
8.7 Simtex Ltd has invested £120,000 to date in developing a new type of shaving foam. The shaving foam is now ready for production and it has been estimated that the new product will sell 160,000 cans a year over the next four years. At the end of four years, the product will be discontinued and
8.6 Chesterfield Wanderers is a professional football club that has enjoyed considerable success in both national and European competitions in recent years. As a result, the club has accumulated£10m to spend on its further development. The board of directors is currently considering two mutually
8.5 Newton Electronics Ltd has incurred expenditure of £5m over the past three years researching and developing a miniature hearing aid. The hearing aid is now fully developed, and the directors are considering which of three mutually exclusive options should be taken to exploit the potential of
8.4 Arkwright Mills plc is considering expanding its production of a new yarn, code name X15.The plant is expected to cost £1m and have a life of five years and a nil residual value. It will be bought, paid for and ready for operation on 31 December Year 0. £500,000 has already been spent on
8.3 The accountant of your business has recently been taken ill through overwork. In his absence his assistant has prepared some calculations of the profitability of a project, which are to be discussed soon at the board meeting of your business. His workings, which are set out below, include some
8.2 C. George (Controls) Ltd manufactures a thermostat that can be used in a range of kitchen appliances. The manufacturing process is, at present, semi-automated. The equipment used costs £540,000, and has a written-down (balance sheet) value of £300,000. Demand for the product has been fairly
8.1 The directors of Mylo Ltd are currently considering two mutually exclusive investment projects.Both projects are concerned with the purchase of new plant. The following data are available for each project:Project 1 2£000 £000 Cost (immediate outlay) 100 60 Expected annual net profit
8.4 Why are cash flows rather than profit flows used in the IRR, NPV and PP methods of investment appraisal?
8.3 Research indicates that the IRR method is a more popular method of investment appraisal than the NPV method. Why might this be?
8.2 The payback method has been criticised for not taking the time value of money into account.Could this limitation be overcome? If so, would this method then be preferable to the NPV method?
8.1 Why is the net present value method of investment appraisal considered to be theoretically superior to other methods that are found in practice?
7.7 Varne Chemprocessors is a business that specialises in plastics. It uses a standard costing system to monitor and report its purchases and usage of materials. During the most recent month, accounting period six, the purchase and usage of chemical UK194 were as follows:Purchases/usage: 28,100
7.6 Mowbray Ltd makes and sells one product, the standard costs of which are as follows:£Direct materials (3 kg at £2.50/kg) 7.50 Direct labour (15 minutes at £9.00/hr) 2.25 Fixed overheads 3.60 13.35 Selling price 20.00 Standard profit margin 6.65 The monthly production and sales are planned to
7.5 Bradley-Allen Ltd makes one standard product. Its budgeted operating statement for May is as follows:£ £Sales (volume and revenue): 800 units 64,000 Direct materials: Type A 12,000 Type B 16,000 Direct labour: Skilled 4,000 Unskilled 10,000 Overheads (All fixed) 12,000 54,000 Budgeted
7.4 You have recently overheard the following remarks:(a) When calculating variances, we in effect ignore differences of volume of output, between original budget and actual, by flexing the budget. If there were a volume difference, it is water under the bridge by the time that the variances come
7.3 Antonio plc makes product X, the standard costs of which are:£Sales revenue 31 Direct labour (2 hours) (11)Direct materials (1 kg) (10)Fixed overheads (3)Standard profit 7 The budgeted output for March was 1,000 units of product X; the actual output was 1,100 units, which was sold for
7.2 Pilot Ltd makes a standard product, which is budgeted to sell at £5.00 a unit. It is made by taking a budgeted 0.5 kg of material, budgeted to cost £3.00 a kilogram, and working on it by hand by an employee, paid a budgeted £5.00 an hour, for a budgeted 15 minutes. Monthly fixed overheads
7.1 You have recently overheard the following remarks:(a) ‘A favourable direct labour rate variance can only be caused by staff working more efficiently than budgeted.’(b) ‘Selling more units than budgeted, because the units were sold at less than standard price, automatically leads to a
7.4 Should all variances be investigated to find their cause? Explain your answer.
7.3 What is the point in flexing the budget in the context of variance analysis? Does flexing imply that differences between budget and actual in the volume of output are ignored in variance analysis?
7.2 What is meant by a variance? What is the point in analysing variances?
7.1 Explain what is meant by feedforward control and distinguish it from feedback control.
6.8 Brown and Jeffreys, a West Midlands business, makes one standard product for use in the motor trade. The product, known as the Fuel Miser, for which the business holds the patent, when fitted to the fuel system of production model cars has the effect of reducing petrol consumption.Part of the
6.7 Prolog Ltd is a small wholesaler of personal computers. It has in recent months been selling 50 machines a month at a price of £2,000 each. These machines cost £1,600 each. A new model has just been launched and this is expected to offer greatly enhanced performance. Its selling price and
6.6 Newtake Records Ltd owns a chain of 14 shops selling compact discs. At the beginning of June the business had an overdraft of £35,000 and the bank had asked for this to be eliminated by the end of November. As a result, the directors have recently decided to review their plans for the next six
6.5 Lewisham Ltd manufactures one product line – the Zenith. Sales of Zeniths over the next few months are planned to be as follows:1 Demand Units July 180,000 August 240,000 September 200,000 October 180,000 Each Zenith sells for £3.2 Receipts from sales. Credit customers are expected to pay as
6.4 Linpet Ltd is to be incorporated on 1 June. The opening balance sheet of the business will then be as follows:Assets £Cash at bank 60,000 Share capital£1 ordinary shares 60,000 During June, the business intends to make payments of £40,000 for a leasehold property,£10,000 for equipment and
6.3 A nursing home, which is linked to a large hospital, has been examining its budgetary control procedures, with particular reference to overhead costs.The level of activity in the facility is measured by the number of patients treated in the budget period. For the current year, the budget stands
6.2 You have overheard the following statements:(a) ‘A budget is a forecast of what is expected to happen in a business during the next year.’(b) ‘Monthly budgets must be prepared with a column for each month so that you can see the whole year at a glance, month by month.’(c) ‘Budgets are
6.1 Daniel Chu Ltd, a new business, will start production on 1 April, but sales will not start until 1 May. Planned sales for the next nine months are as follows:Sales units May 500 June 600 July 700 August 800 September 900 October 900 November 900 December 800 January 700 The selling price of a
6.4 What is a budget committee? What purpose does it serve?
6.3 What do budgets have to do with control?
6.2 What were the five uses of budgets that were identified in the chapter?
6.1 Define a budget. How is a budget different from a forecast?
5.8 A business manufactures refrigerators for domestic use. There are three models: Lo, Mid and Hi. The models, their quality and their price are aimed at different markets.Product costs are computed on a blanket overhead-rate basis using a labour-hour method.Prices as a general rule are set based
5.7 Sillycon Ltd is a business engaged in the development of new products in the electronics industry. Subtotals on the spreadsheet of planned overheads reveal:Electronics Testing Service department department department Overheads – variable (£000) 1,200 600 700– fixed (£000) 2,000 500 800
5.6 The GB Company manufactures a variety of electric motors. The business is currently operating at about 70 per cent of capacity and is earning a satisfactory return on investment.International Industries (II) has approached the management of GB with an offer to buy 120,000 units of an electric
5.5 Comment critically on the following statements that you have overheard:(a) ‘Direct labour hours are the most appropriate basis to use to charge overheads to jobs in the modern manufacturing environment where people are so important.’(b) ‘Activity-based costing is a means of more
5.4 Comment critically on the following statements that you have overheard:(a) ‘To maximise profit you need to sell your output at the highest price.’(b) ‘Elasticity of demand deals with the extent to which costs increase as demand increases.’(c) ‘Provided that the price is large enough
5.3 Kaplan plc makes a range of suitcases of various sizes and shapes. There are 10 different models of suitcase produced by the business. In order to keep inventories (stock) of finished suitcases to a minimum, each model is made in a small batch. Each batch is costed as a separate job and the
5.2 It appears from research evidence that a cost-plus approach influences pricing decisions in practice. What is meant by cost-plus pricing and what are the problems of using this approach?
5.1 Woodner Ltd provides a standard service. It is able to provide a maximum of 100 units of this service each week. Experience shows that at a price of £100, no units of the service would be sold. For every £5 below this price, the business is able to sell 10 more units. For example, at a price
5.4 According to economic theory, at what point is profit maximised? Why is it at this point?
5.3 What is meant by elasticity of demand? How does knowledge of the elasticity of demand affect pricing decisions?
5.2 The use of activity-based costing in helping to deduce full costs has been criticised. What has tended to be the basis of this criticism?
5.1 How does activity-based costing differ from the traditional approach? What is the underlying difference in the philosophy of each of them?
4.8 Many businesses charge overheads to jobs on a departmental basis.Required:(a) What is the advantage that is claimed for charging overheads to jobs on a departmental basis, and why is it claimed?(b) What circumstances need to exist to make a difference to a particular job whether overheads are
4.7 Read the following statement: ‘In a job costing system, it is necessary to divide up the business into departments. Fixed costs (or overheads) will be collected for each department. Where a particular fixed cost relates to the business as a whole, it must be divided between the
4.6 Shown below is an extract from next year’s plans for a business manufacturing three products, A, B and C, in three production departments.A B C Production 4,000 units 3,000 units 6,000 units Direct material cost £7 per unit £4 per unit £9 per unit Direct labour requirements:Cutting
4.5 Bookdon plc manufactures three products, X, Y and Z, in two production departments: a machine shop and a fitting section; it also has two service departments: a canteen and a machine maintenance section. Shown below are next year’s planned production data and manufacturing costs for the
4.4 Promptprint Ltd, a printing business, has received an enquiry from a potential customer for the quotation of a price for a job. The pricing policy of the business is based on the plans for the next financial year shown below.£Sales revenue (billings to customers) 196,000 Materials (direct)
4.3 Pieman Products Ltd makes road trailers to the precise specifications of individual customers.The following are predicted to occur during the forthcoming year, which is about to start:Direct materials cost £50,000 Direct labour costs £160,000 Direct labour time 16,000 hours Indirect labour
4.2 Athena Ltd is an engineering business doing work for its customers to their particular requirements and specifications. It determines the full cost of each job taking a ‘job costing’ approach, accounting for overheads on a departmental basis. It bases its prices to customers on this full
4.1 Bodgers Ltd, a business that provides a market research service, operates a job costing system. Towards the end of each financial year, the overhead recovery rate (the rate at which overheads will be absorbed by jobs) is established for the forthcoming year.(a) Why does the business bother to
4.4 It is sometimes claimed that the full cost of pursuing some objective represents the long-run break-even selling price. Why is this said, and what does it mean?
4.3 Are direct costs and variable costs the same thing? Explain your answer.
4.2 What is the point of distinguishing direct costs from indirect ones? Why is this not necessary in process costing environments?
4.1 What problem does the existence of work in progress cause in process costing?
3.8 Gandhi Ltd renders a promotional service to small retailing businesses. There are three levels of service: the ‘basic’, the ‘standard’ and the ‘comprehensive’. On the basis of past experience, the business plans next year to work at absolute full capacity as follows:Service Number
3.6 Darmor Ltd has three products, which require the same production facilities. Information about the production costs for one unit of its products is as follows:Product X Y Z£ £ £Labour: Skilled 6 9 3 Unskilled 2 4 10 Materials 12 25 14 Other variable costs 3 7 7 Fixed costs 5 10 10 All labour
3.5 A business makes three products, A, B and C. All three products require the use of two types of machine: cutting machines and assembling machines. Estimates for next year include the following:Product A B C Selling price (£ per unit) 25 30 18 Sales demand (units) 2,500 3,400 5,100 Material
3.4 Motormusic Ltd makes a standard model of car radio, which it sells to car manufacturers for£60 each. Next year the business plans to make and sell 20,000 radios. The business’s costs are as follows:Manufacturing Variable materials £20 per radio Variable labour £14 per radio Other variable
3.3 A hotel group prepares financial statements on a quarterly basis. The senior management is reviewing the performance of one hotel and making plans for next year.The managers have in front of them the results for this year (based on some actual results and some forecasts to the end of this

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Management Accounting For Decision Makers 5th Edition Peter Atrill, Eddie McLaney - Solutions

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