Management Accounting For Decision Makers 10th Edition Peter Atrill, Eddie McLaney - Solutions

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=+(b) Should Dr Williams, who is ambitious and believes that his promotion prospects depend on high profit performance in the current period, retain or seIl the asset?
=+(c) If Dr Williams had only recently been appointed as divisional manager, would he retain or seIl the asset?(d) What difference, if any, would it make to your decisions in parts (a) and (b) if the asset could be sold for 05000 instead of OOOOO? What conclusions might you make about the
=+7. The Angler-Cost Company recently established two new plants for the manufacture of toy go-carts (plant X) and skate-boards(plant Y). The investment decisions were made on the following basis:Initial investment Present value of future cash flows discounted at cost of capital 8% p.a.Economic
=+Discuss the appraisal of performance and the assumptions of the original expectations.Briefly outline what action, if any, should be taken in respect of the individual plant manager's performance.
=+8. A divisional manager is considering the following two machines, each of which has an initial cost of f800000 and an optimal usefullife of four years, with an estimated scrap value of zero.The machines produce constant outputs from year to year:Machine I Machine II Annual operating costs in
=+You may assume that the company owning the machines has a required rate of return of 10% per annum, and that sales revenues and operating costs are settled in cash at the end of the year to which they relate.Required:
=+(a) Determine the minimum annual sales revenue required to justify the purchase of each of these machines.
=+(b) Using the caIeulation in (a), above, determine the ROI and RI for each machine each year of its life. Straight-line depreciation is the company's preferred policy.
=+(c) Follow the instructions in (b), above, except that now annuity depreciation is to be applied.
=+(d) Give reasoned arguments to help the manager decide which machine to sub mit in his formal capital budget.Show all caIeulations. State your answers to the nearest f 1000.Ignore taxation and inflation.
=+9. Cathode pIe has 2 divisions. The managing director has told the divisional managers that a bonus will be paid to the more profitable division. However, absolute profit as conventionally computed will not be used. Instead the ranking will be affected by the relative investments in the 2
=+(a) Which method for computing profitability do you think each manager chose to show that his results were the best?Briefly state to which manager you would award the bonus and give your reasons.
=+(b) Each divisional manager is actively contemplating a project with the following cash flows:Investment of 00000 now, giving expected net cash inflows beginning in one year's time of f4000 per annum for 10 years.There will be no scrap value at the end of the project's life.
=+(i) What will be the likely investment decision each manager will make when appraising this separate project?Will each manager's decision be consistent with the company's best interest? (You are to assurne that from the first year of operation the project's net cash inflow is equivalent to net
=+(ii) Under which set of conditions may residual income measures lead to corporately acceptable investment decisions?
=+(c) Why is it important that in the multidivisional company the short-term performance measure coincides with the longterm planning model to evaluate capital projects?
=+10. Oklahoma Chemicals Inc is contemplating changing the method of measuring divisional performance. At present, rate of return on investment (RO!) is used. Each division's return is calculated by dividing net income by the net investment base at the beginning of the year. Straight line
=+The proposed RI measure will also use straight-line depreciation and the net book value of the asset at the beginning of the year.Assurne that the net cash flow is equal to net income before deprecia tion.Required:
=+(a) Provide the information requested by Dr Nathy and also advise hirn as to what to do in the company's best interests.Why may he not accept your advice?
=+(b) Show hirn how the RI computation can be adapted to give a decision consistent with the company's view, and list the conditions under which it will hold.
=+(c) Demonstrate how Gregory's leased payment scheme would achieve equivalence with NPV.
=+(d) The discretion which investment centre managers have over the capital budgeting process makes the choice of short-term performance measures by which they are evaluated of paramount importance. Discuss.
=+(e) Evaluate the suggestion of Henderson and Dearden (1966)that an integrated cash flow budget would overcome many of the defects of accrual income performance measures.
=+11. (a) Why do companies divisionalize?(b) What advantages, if any, does the multidivisional structure possess as opposed to the unitary or functional structure?
=+(c) Peter James is an investment centre manager in the divisionalized company named the T. Tilling Co. Peter has an opportunity to invest f60000 now in machinery that will genera te the following data over the next 3 years:Variable costs per item produced Revenue per item Annual maintenance
=+(a) Show whether the present short-term performance measure (RO!) will lead Peter to take an investment decision that is consistent with the company's best longterm interests.
=+(b) Provide an alternative analysis that will bring the longterm planning and short-term control models into coincidence. Make clear the assumptions under which this solution applies.
Goliath plc is a food wholesaler. 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 Cost of sales Opening inventories 550.0 Purchases 1,450.0 2,000.0 Closing inventories (560.0) (1,440.0)Gross profit 960.0
Boswell Enterprises Ltd 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£3 million under the existing policy. Credit customers representing 30 per cent of trade receivables are expected to
Mayo Computers Ltd has annual sales of £20 million. Bad debts amount to £100,000 a year. 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 are financed by
Delphi plc has recently decided to enter the expanding market for digital radios. The business will manufacture the radios 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 and predicted sales
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 offered
International Electric plc at present offers its customers 30 days’ credit. Half of 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
Hercules Wholesalers Ltd has been particularly concerned with its liquidity position in recent months. The most recent income statement and statement of financial position of the business are as follows:Income statement for the year ended 31 December last year£000 £000 Sales revenue 452 Cost of
The chief executive officer of Sparkrite Ltd, a trading business, has just received summary sets of financial statements for last year and this year:Income statements for years ended 30 September Last year This year£000 £000 £000 £000 Sales revenue 1,800 1,920 Cost of sales Opening inventories
Evidence tends to show that most businesses are less effective than the best ones in their industry in controlling their working capital. Can you think of some reasons why this might be the case?AppendixLO1
In the solution to Activity°12.16, one of the three reasons for holding cash was to exploit opportunities. The example was given of the acquisition of a competitor business.What other types of opportunity could holding cash enable a business to pursue?AppendixLO1
discuss the purpose of working capital, it’s scale and the nature of the working capital cycle;AppendixLO1
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 AB Ltd has given
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 course in
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 to help it to make judgements on managerial performance.Both divisions are regarded as
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 cost (50,000 units at £6) (300,000)Contribution 100,000 Fixed cost (75,000)Divisional profit for the period 25,000 Divisional
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 cost (100,000 units at £8) 800,000 Fixed cost (including depreciation) 250,000 Division A investment (at original cost) 500,000 The
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
Measures are required to assess the performance of divisions and of divisional managers.Three financial measures are: contribution; controllable profit; and return on investment (ROI).Required:(a) For each of these measures explain: the way in which each measure is calculated; for what purpose
‘In divisionalised organisations, complete autonomy of action is impossible when a substantial level of inter-divisional transfers take place.’Required:(a) In this context, explain what is meant by ‘divisionalised organisation’ and ‘autonomy of action’.(b) What are the benefits of this
A UK survey of decentralised businesses revealed that negotiated prices are the most popular form of transfer pricing method.Is this necessarily the best approach in theory? Why?AppendixLO1
Jerry and Co. is a large computer consultancy business that 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?AppendixLO1
Westcott Supplies Ltd has an operating division that 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 or
What problems might be encountered when a business attempts to incorporate nonfinancial measures into its management reports?AppendixLO1
explain the increasing importance of non-financial measures in managing a business and how they may be used for decision-making purposes.AppendixLO1
describe the problems of determining transfer prices between divisions, and outline the methods used in practice; and AppendixLO1
identify the major methods of measuring the performance of operating divisions and divisional managers and assess the usefulness of such methods;AppendixLO1
discuss the potential advantages and disadvantages for a business of adopting a divisional structure;AppendixLO1
discuss the issues to be considered when setting the long-term direction of a business;AppendixLO1
explain the role of management accounting within a business and describe the key principles upon which management accounting rests;AppendixLO1
explain the changes that have occurred over time in both the role of the management accountant and the kind of information provided by management accounting systems.AppendixLO1
Accounting is sometimes described as ‘the language of business’. Why do you think this is the case? Is this an apt description of what accounting is?AppendixLO1
‘Management accounting information should be understandable. As some managers have a poor knowledge of accounting, we should produce simplified financial reports to help them.’ To what extent do you agree with this view?AppendixLO1
You have been speaking to a friend who owns a small business, and she has said that she has read something about strategic management and that no modern business can afford not to get involved with it. Your friend has little idea what strategic management involves.Required:Briefly outline the steps
identify and quantify the costs and benefits that are relevant to a particular decision;AppendixLO1
use relevant costs and benefits to make decisions; and AppendixLO1
set out relevant costs and benefits analysis in a logical form so that the results can be clearly communicated to managers.AppendixLO1
How are opportunity costs different from other costs mentioned in the chapter? Can you see any problems with using opportunity costs when making management decisions? What role does opportunity cost play in the allocation of resources?AppendixLO1
Historic costs should never be used when deciding what costs are relevant to a decision.Despite this, historic costs are the principal inputs for preparing the main financial accounting statements (income statements and statements of financial position).Why is this?AppendixLO1
A bus company is concerned about one of its routes, which serves a rural community. The management has decided to undertake a cost–benefit analysis to see whether it is worthwhile continuing with the route.Apart from the quantifiable costs, are there other costs, which may prove impossible to
What practical problems may be encountered when carrying out cost–benefit analysis involving a choice between two possible accounting systems for a business?AppendixLO1
Lombard Ltd has been offered a contract for which there is available production capacity.The contract is for 20,000 identical items, manufactured by an intricate assembly operation, to be produced and delivered in the next few months at a price of £80 each. The specification for one item is as
Andrews and Co. Ltd has been invited to tender for a contract. It is to produce 10,000 metres of an electrical cable in which the business specialises. The estimating department of the business has produced the following information relating to the contract: Materials: The cable will require a
SJ Services Ltd has been asked to quote a price for a special contract to render a service that will take the business one week to complete. Information relating to labour for the contract is as follows:Grade of labour Hours required Basic rate/hour Skilled 27 £24 Semi-skilled 14 £18 Unskilled 20
A business in the food industry is currently holding 2,000 tonnes of material in bulk storage.This material deteriorates with time. In the near future, it will, therefore, be necessary for it to be repackaged for sale or sold in its present form.The material was acquired in two batches: 800 tonnes
Rob Otics Ltd, a small business that specialises in manufacturing electronic-control equipment, has just received an enquiry from a potential customer for eight identical robotic units. These would be made using Rob Otics’s own labour force and factory capacity. The product specification prepared
distinguish between fixed cost and variable cost and use this distinction to explain the relationship between cost, volume of activity and profit;AppendixLO1
discuss the weaknesses of break-even analysis; and AppendixLO1
Is it always reasonable to assume linear relationships between volume and sales revenue/variable cost, even where the activity is within a fairly narrow range?AppendixLO1
Modern businesses tend to have higher levels of operating gearing than businesses had, say, 50 years ago.Why would this be the case?AppendixLO1
One approach to break-even analysis can produce more than one break-even point. Why is this?AppendixLO1
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
Lannion and Co. is engaged in providing and marketing a standard advice service. Summarised results for the past two months reveal the following:October November Sales (units of the service) 200 300 Sales revenue (£) 5,000 7,500 Operating profit (£) 1,000 2,200 There were no price changes of any
Gandhi Ltd renders a promotional service to small retailing businesses. There are three levels of service: the ‘Basic’, the ‘Standard’ and the ‘Comprehensive’. The business plans next year to work at absolute full production capacity. Managers believe that the market will not accept
The management of a business is concerned about its inability to obtain enough fully trained labour to enable it to meet its present budget projection, which is as follows:Service: Alpha Beta Gamma Total£000 £000 £000 £000 Variable cost:Materials 6 4 5 15 Labour 9 6 12 27 Expenses 3 2 2 7
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
Darmor Ltd has three products, which require the same production facilities. Information about the production cost 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 cost 5 10 10 All labour and
Intermediate Products Ltd produces four types of water pump. Two of these (A and B) are sold by the business. The other two (C and D) are incorporated, as components, into other products of the business. Neither C nor D is incorporated into A or B.Costings (per unit) for the products are as
deduce the full (absorption) cost of a cost unit in a single-product and a multi-product environment;AppendixLO1
discuss the usefulness of full (absorption) cost information to managers; and AppendixLO1
compare and contrast the full costing and variable costing approaches.AppendixLO1
Consider the following businesses: a cutlery manufacturer; a satellite manufacturer; an advertising agency; a cereal maker; a courier; a lumber producer; a bottling plant for mineral water; a bespoke tailor; and a toy maker.Try to identify, for each business, which form of full costing
At the beginning of the chapter, one of the uses to which managers might put full cost information was identified as in determining selling prices. Does this mean that businesses can add a profit margin to full cost and set selling prices in that way?Explain your response. Would your answer differ
In Real World4.4 it was mentioned that some small and medium size businesses do not attempt to assign overhead costs to products. What practical problems might managers encounter when trying to assign overheads to products?AppendixLO1
We saw in the chapter that full costing information can be useful for making various types of decisions. It has also been argued, however, that it can help in directing managers’ attention.Can you think how full costing could be used as an attention-directing device?AppendixLO1
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 indirect cost will be absorbed by jobs) is established for the forthcoming year.Required:(a) Why does the business
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 cost £320,000 Direct labour time 16,000 hours Indirect labour cost
Many businesses charge overheads to jobs on a cost centre basis.Required:(a) What is the advantage that is claimed for charging overheads to jobs on a cost centre basis and why is it claimed?(b) What circumstances need to exist for it to make a difference to a particular job whether overheads are
Shown below is an extract from next year’s plans for a business manufacturing three products, A, B and C, in three product cost centres.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
discuss the principles and practical aspects of activity-based costing;AppendixLO1
describe the methods that may be used to manage costs over the life cycle of a product;AppendixLO1
explain the role of value chain analysis and benchmarking in managing costs; AppendixLO1
explain the importance of total quality management in the modern environment and identify the main types of quality costs that may be incurred.AppendixLO1
How does activity-based costing (ABC) differ from the traditional approach? What is the underlying difference between their philosophies?AppendixLO1

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