New Semester
Started
Get
50% OFF
Study Help!
--h --m --s
Claim Now
Question Answers
Textbooks
Find textbooks, questions and answers
Oops, something went wrong!
Change your search query and then try again
S
Books
FREE
Study Help
Expert Questions
Accounting
General Management
Mathematics
Finance
Organizational Behaviour
Law
Physics
Operating System
Management Leadership
Sociology
Programming
Marketing
Database
Computer Network
Economics
Textbooks Solutions
Accounting
Managerial Accounting
Management Leadership
Cost Accounting
Statistics
Business Law
Corporate Finance
Finance
Economics
Auditing
Tutors
Online Tutors
Find a Tutor
Hire a Tutor
Become a Tutor
AI Tutor
AI Study Planner
NEW
Sell Books
Search
Search
Sign In
Register
study help
business
management accounting
Accounting For Management Control 2nd Edition David Otley And Kenneth Merchant Clive Emmanuel - Solutions
=+7. A small company producing a single product estimates that it will seIl the following amounts of its product in the next few months:Month January February March April Estimated sales (units)900 1800 1200 600 It wishes to construct a profit budget for the first 3 months of the new year and has
=+(d) The finished goods inventory at the end of December amounts to 200 units, valued at HO each. Finished goods inventory is valued on an average actual-cost basis.Required:
=+(a) Compute, the budgeted profit for January, February and March, presenting your workings in the form of a neat schedule.(b) Compute the net cash flow for March, assuming that 40% of debtors pay after I month and the remainder after 2 months, and that aIl other cash costs are paid by the end of
=+(c) Prepare abrief report for management explaining the differences in budgeted profit each month, and also the difference between the March cash flow and profit figures.Would you have preferred to have valued inventory on a different basis?
=+8. The Caradoc Company has two divisions. The Argent Division makes three products (Al, A2 and A3) which are transferred to the Belvoir Division. The Belvoir Division uses Argent's products as raw materials which it converts into two different final products (BI and B2). Production and cost
=+(a) The Caradoc Company wishes to make the maximum possible contribution. Formulate its decision problem as a linear programme, clearly indicating the interpretation of the variables you use.(b) How would your formulation need to be amended if the intermediate products could be sold in an
=+(c) The optimal solution to the Caradoc Company's problem is for it to produce 45 units of product BI and 15 units of B2. The limiting constraints prove to be the utilization of machines Land Y, wh ich are given the following shadow prices:Machine L Machine Y fO.375 per hr f1.000 per hr Derive
=+(d) What are the limitations of this method of setting transfer prices?
=+1. Explain the different reasons why a manager might submit a budget estimate that is biased.
=+ What might a senior manager do in order to detect and correct such biased information?
=+3. Outline the contribution that the techniques of work measurement and standard costing can make to budgetary control. To
=+what extent are control budgets suitable for planning purposes ?
=+9. The Mammoth Manufacturing Company had introduced a budgetary control system in J anuary 1982. In October 1982 senior managers were reviewing the past nine month's results before beginning work on the 1983 budget, and the following conversation ensued:Accountant: Our results look very
=+Outline the different functions of the budget system as seen by each manager and carefully explain how these different views might be reconciled in constructing the budget for 1983.From: Certified Diploma in Accounting and Finance, Paper 2, December 1982.
=+10. In the face of poor operating results, the Chief Executive of a multidivisional manufacturing company called a meeting of his divisional managers. At the meeting he exhorted them to improve the profitability of their divisions du ring the coming year and announced that he would hold each
=+(a) By assuming that the company's cost of capital is 10%, carefully explain whether you consider the Chief Executive's concern is justified.
=+(b) What steps would you advise the Chief Executive to take to improve the accountability arrangements in future?From: Certified Diploma in Accounting and Finance, Paper 2, lune 1982.
=+1. What are the structural causes of non-programmed decisions?Categorize the following as programmed or non-programmed decision takers, making your assumptions clear:
=+(a) the local manager of a franchized fast-food restaurant.
=+(b) the manager in charge of research and development in a large, decentralized company.
=+(c) the manager in charge of the cold mill division, the last process in a steelmaking company.
=+(d) the manager in charge of a division manufacturing and selling microcomputers.
=+(e) the head of the accounting department within a large university.(f) the bar steward of a rugby club who is concerned about the number of helpers to employ on a regular basis.
=+6. (a) Participation in budget-setting both improves subsequent performance and avoids the problems of biased and manipulated information. Do you agree?(b) Nine independent operating units have the following expections of output and its variability during the coming year:Unit Expected output
=+Unit managers each submit estimates of output having a 16%chance of being exceeded. How likely is it that the total output estimate for the company will be met? (Assume the distribution of output to be Normal.)Corporate management re duces the total estimate, so that it has a 16% chance of being
=+What are the implications for the design of budgetary systems?
=+(c) Aggregation is one potential cause of control loss in large organizations. Identify other potential causes and evaluate the extent to which the multidivisional structure overcomes these problems.
=+7. The owner and managing director of Eaglet pIe, a large, independent garage, is considering how to improve the company's management information system. The garage engages in 3 main activities: the sale of new cars under franchise, the sale of all makes of used cars and the repair and service
=+Outline the factors you would consider important in following the alternative strategies of:(a) a balanced dealership(b) emphasizing new car sales(c) emphasizing used car sales.What are the implications under each strategy for the AIS?
=+8. Sennapods pIe is contemplating an organizational restructuring.At present, the company is organized functionally, as follows:Purchasing Chief Executive Officer Processing Finance Personnel Sales and Marketing Legal Research and Development Sennapods pIe has 3 main product ranges, health foods,
=+(a) Extend the existing functional organization to accommodate the product ranges. What problems of control loss may emerge?
=+(b) Devise an alternative multidivisional structure for Sennapods pIe. Indicate the possible advantages and dis advantages of this structure.
=+(c) Under the multidivisional structure, provide justified arguments for a change in the management accounting performance measurement system highlighting the differences with the system likely to be used under the functionally organized structure.
=+2. In many universities and polytechnics, student performance in a particular course is evaluated by means of regularly submitted course-work and a final examination. Assume that you participate and contribute in classes and conscientiously undertake and submit course-work, but that the scores
=+What changes or modifications would you recommend in both cases?
=+3. A university teacher, active in teaching, administration and research, wishes to obtain further finance from a government research agency. The new research project will build on the findings of his existing and continuing projects. Some of these findings have already been incorporated in the
=+(a) The individual professor's perspective.(b) The central administration's perspective.(c) The research agency's perspective.Under this system, will a comparison of budgeted (i.e., total research monies requested) and actual costs be useful?
=+4. Jayhawker Enterprises has four divisions that produce toasters, washing machines, electric carving knives and tumble driers respectively. They share the same brand name, and the company's reputation has been built on the quality of its products. For this reason, quality control is centralized
=+(b) Repeat the exercise in (a), above, on the basis that the toaster divisional manager has improved efficiency and succeeded in reducing his separable costs to f 16 000 per batch without adversely affecting quality.
=+(c) Repeat the exercise in (a), above, using the original da ta except that now the toaster divisional manager has increased the selling price to f27 000 per batch without adversely affecting demand.
=+(d) What are the implications on your analysis in (a)-(c), above, for rewarding the individual managers on the basis of the book profits recorded?
=+5. Mr T.G.R. Davies of the Grand SIam division has just submitted a budgeted ROI for the next year of 60%. Mr G. Wheel of the TripIe Crown division has submitted a 15% budgeted Rar. The company, Cambrian pIe, has a cost of capital of 30%, and accepts both the target ROIs. Actual performance
=+(a) To present a reasoned argument and analysis to help explain why each manager chose the ROI target he did.
=+(b) To determine whether targets expressed in RI terms would have alte red the divisional managers' actions in any way.(Hint: a comparison of budgeted and actual performance may prove useful.)
=+(c) To explain the cffect on each manager's target-setting if Cambrian imputed a cost of capital charge of 60% to Grand SIam and 15% to Tripie Crown.
=+6. The Blackstone Engineering Company Ltd is a multiproduct firm organized on a product-division basis. The 1986/87 summary of management accounts is as follows:Div.A Div. B Div. C fOOO fOOO fOOO Net sales 9000 6450 5250 Direct production costs 4500 3000 2400 Direct expenses 1350 750 600
=+(a) Restructure the above da ta into a residual income statement, which clearly distinguishes managerial and divisional performance; calculate divisional and corporate ROI; and evaluate the performance of the company and its divisions insofar as the available information permits. The following
=+(i) Sales are made by divisions direct to external customers in all cases, using exclusively their own sales staffs and facili ties.
=+(ii) Depreciation includes an allocation of HO and central R & D facilities' depreciation, the allocation being equal to 1 % of net sales per division.(iii) R & D is conducted centrally and costs have been allocated to divisions on the basis of notional benefits estimated by the Research
=+(iv) Administration expense includes an allocation of HO expense, equal to 2% of net sales per division.(vi) Financial expenses, including interest, insurance and rates, etc., include an allocation of non-traceable central financial expenditure equal to 4% of total capital employed per division.
=+(vi) Corporation tax appears to have been fairly allocated.(vii) Divisional capital includes an allocation of centrally controlled capi tal totalling f3 000 000, wh ich for historical reasons has been allocated to A (60%), B (20%)and C (20%).(viii) Corporation cost of capital is assessed at 10%,
=+7. Cubic pIe is a multidivisional company which has principal activities organized into consumer durable, industrial plant hire and leisure divisions. These 3 divisions comprise 60%, 20% and 20% of the total firms value respectively.Cubic is attempting to identify separate costs of capital for
=+The riskless rate of interest is 7%, while the expected return on the market portfolio of all risky assets is 15%. Cubic pIe presently has a capital structure comprising 60% equity and 40% debt.Required:
=+(a) Outline the potential advantage of discovering the cost of capital for individual divisions.
=+(b) Determine the corporate and divisional costs of capital when:(i) debt for Cubic and the competitor companies is regarded as risk-free.
=+(ii) debt for each company has a beta of 0.3.Explain the assumptions underlying your caIeulations. How reliable are they likely to be over time?(c) What are the implications of the divisional costs of capital for short-term performance measures?
=+8. Cathcart Industries pIe began trading in 1926 when Theophilus P.Cathcart started the mechanical engineering business. Success in manufacturing machine tools for the automobile industry allowed Cathcart to expand into engine production, and with the declaration of war, involvement in
=+(a) With reference to Cathcart Industries pIe, analyse the potential advantages and disadvantages of(i) maintaining the functional or unitary organization structure.(ii) restructuring along a multidivisional product market basis.(b) James Christopher views the restructuring as beneficial, at
=+(c) James Christopher is especially interested in the marine engine operations. This activity he estimates to comprise 40%of total value of Cathcart Industries pIc. Cathcart's present capital structure comprises 80% equity and 20% debt.He has identified an independent competitor, Avon Engines
=+(i) debt for Cathcart and the competitor company is regarded as risk-free.
=+(ii) debt for each company has a beta of 0.3.
=+Explain the assumptions underlying your caIculations. How reliable are they likely to be over time?
=+8. If you were a division manager in a large firm, which of the following compensation packages would you prefer:(a) salary of f50000, with no bonus;(b) salary of BO 000, plus an annual bonus of 10% of the excess of your division's profit over budget. (You are not sure exactly
=+what to expect because the environment is uncertain, but your best guess is that your division will exceed its profit budget by f200000.)
=+Does your choice identify you as risk averse or risk loving? If all managers in the firm were like yourself, what implications would that have for the design of incentive compensation schemes?
=+3. The Plantaganet Company is a large conglomerate that has 40 divisions. Division X wants to buy a component for its final product and receives bids from separate external suppliers of f500 and f550. The supplier who bid f550 will buy raw materials for flOO from Division Z, which has excess
=+(a) to identify the potential work flows and forms of interdependence;(b) to discover which offer Division X should choose in the company's best interests;(c) to outline the arguments likely to be heard in seeking to apply the corporate optimal decision;(d) to decide at what price the
=+4. Peat, Ernst and Touche (PET) is a very large accounting firm. Its main activity and revenue earner,is undertaking audits of publicly owned companies' accounts. Increasingly, the audit teams have made use of PET's central computer facility and staff, whose prime role had been to serve senior
=+(a) to isolate clearly the factors that the senior partner should consider in deciding whether to charge the audit teams for the computer services or not;(b) to evaluate the merits and limits of using a marginal cost transfer price for the services in the short and long term;(c) to outline the
=+5. The Baron Company consists of 2 divisions that trade extensively with each other. The relevant revenue and cost functions for the final product are given below:R = 205 - 0.5Q (1)Cm = 19 + Q (2)Cd = 10 + 0.7Q (3)where R is the unit revenue of the final product, C m is the unit cost incurred by
=+(a) to determine the optimal output level to maximize Baron's profit, and the transfer price consistent with this level;(b) to show the profits of each division at the optimal solution;(c) to show the profits for each division and the transfer prices associated with:(i) the supplier acting as an
=+(e) Given the results of (d) above, what might the supplier contemplate doing to improve his profit performance?(f) From the perspective of business strategy, wh at action would you suggest that Baron take?
=+6. 'If I were to price these boxes any lower than $480 a thousand', said James Brunner, manager of Birch Paper Company's Thompson division, Td be countermanding my order of last month for our salesmen to stop shaving their bids and to bid fuH-cost quotations. !'ve been trying for weeks to
=+Northern, it probably would buy its linerboard and corrugating medium from the Southern division of Birch. The walls of a corrugated box consist of outside and inside sheets of linerboard sandwiching the fluted corrugating medium. About 70% ofThompson's out-of-pocket cost of $400 for the order
=+Since this situation appeared to be a litde unusual, William Kenton, manager of the Northern division, discussed the wide discrepancy of bids with Birch's commercial vice-president. He told the vice-president: 'We seIl in a very competitive market, where higher costs cannot be passed on. How can
=+The vice-president explored further the cost structures of the various divisions. He remembered a comment that the controller had made at a meeting the week before to the effect that costs wh ich were variable for one division could be largely fixed for the company as a whole. He knew that in the
=+(a) In the controversy described, how - if at all- is the transfer price system dysfunctional?(b) Describe other types of decisions in the Birch Paper Company in which the transfer price system would be dysfunctional.
=+7. Helman pIe is a diversified company having, among others, major interests in the mechanical, civil and structural engineering industries and in motor pump manufacturing.The motor pump division is a separate profit centre, aIthough a significant proportion, sometimes as much as 60%, of its
=+(a) Determine the optimal solution to maximize Helman's profit, and calculate the optimal transfer price, assuming there is no alternative external supplier of motor pumps. Show each division's profit.
=+(b) Clearly identify the main issues and recommend a course of action for Helman's top management when the alternative external suppliers are recognized to exist.
=+(c) Outline the operational difficulties of applying the optimal economic solution in practice.
=+(d) Identify the circumstances when the transfer pricing problem can be distinguished from the allocation problem.
=+8. The Earlswood Company is a multidivisional company which holds divisional managers responsible for their individual profits.The Squire Division produces, among other items, an electric motor which the Knight Division uses.The following information relates to the average unit costs and revenues
=+(a) Determine the optimal output level to maximize Earlswood's profit and calculate the optimal transfer price consistent with this level. Assume that there is no external market for the intermediate produet.
=+(b) Show the profits of eaeh division under the optimal solution.
=+(e) Outline the operational diffieulties of applying the optimal solution in praetiee.
=+(d) Provide a reasoned argument to identify the eireumstanees in whieh the 'true' transfer prieing problem exists and suggest a transfer prieing proeedure whieh may be appropriately used in these eireumstanees.
=+2. Assume that you are part of the top-management team of a large, diversified company. You are aware of the incentives that divisional and lower-Ievel managers have to pre-select projects and provide biased estimates, but the company policy is still to evaluate these managers on a short-term
=+(a) To create the additional head office position of a capital budget 'supremo' whose remit is to monitor and check each project before ultimate authorization.
=+(b) To issue a policy that all capital project proposals that are generated should be evaluated by the divisional accountants and the results sent to the chief accountant at head office.
=+(c) To create a head office based team who are automatically called in by divisional managers to give advice at the cash flow estimation stage.
=+(d) To issue a policy statement that all capital projects will be considered on their merits regardless of their evaluation under the company's DCF criterion.
=+5. HaI Edstrom is the divisional general manager of the Electrical Goods Division of Associated Engineering. The company has used a divisionalized control system for several years. The performance measure of prime concern to divisional general managers was ROI using net book values. This
=+A new chief accountant, Jeremy Grissle, has convinced corporate management that RI is a better measure of division and divisional manager's performance. Jeremy is now trying to convince the divisional managers of the superiority of RI at a special meeting.
=+HaI Edstrom argues that RI is misleading and gives the foIlowing example to illustrate his objections: 'I have a project that will produce net cash flows of f400000 per annum far the next 5 years. It will then be obsolete and worthless. The initial investment is f1500000 and Associated
=+(a) Demonstrate, using the example provided, how HaI Edstrom has reached his conclusion. The company's cost of capital is 10% per annum.
=+(b) How would you counter his argument that RI is nonsense?
=+(c) What are the technical and thearetical advantages of using RI as opposed to ROI?
=+6. The performance of the Tripie Crown Chemical Division of Industrial Chemicals Ltd is appraised by the residual income method, and the divisional manager, Dr Williams, has the power to dispose of redundant assets.The division has an asset with a written-down value of f50000.For the purpose of
=+(a) If Dr Williams decided to seIl the asset, would his decision be in the best interests of Industrial Chemicals Ltd?
Showing 900 - 1000
of 5081
First
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
Last
Step by Step Answers
Get 50% OFF
Claim Now
