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Accounting For Management Control 2nd Edition David Otley And Kenneth Merchant Clive Emmanuel - Solutions
=+4. What do you think will happen to Altex? To Frank? To Ted?
=+1. Should ESI use 'impact on shareholder value' as the primary financial criterion on which to evaluate:(a) business-unit plans?
=+(b) managerial accomplishments?
=+2. If not, what criterion (or criteria) should be used for each purpose?Should impact on shareholder value be considered at all?
=+3. If the impact on the shareholder value criterion is used, how should the issues raised in the case be resolved?
=+3. machine M2 and M3 replaced Product profit f 1 185000
=+1. labour turnover rose to 10%, among skilled craftsmen 2. union did not agree to washing-up allowance and productivity proposals
=+3. credit terms reduction caused 1 % of customers not to purchase Product costs
=+1. GNP stable Actual Flexible budget 2. competitor's brand test marke ted on East coast
=+3. replacement of machine M2 Product profit expected to be EI 450000 an increase of E250000 over last year.384 Accounting tor management control Financial highlights Budget Expected output (units)Sales f Controllable costs labour f materials f administration costs f Service costs maintenance hrs
=+2. union agreement on washing-up time allowance and productivity payments
=+1. GNP remaining stable 2. competitor's new brands unavailable this period 3. impact of change in credit terms to customers assumed to be zero Product cost savings expected to be reduced by 2% subject to 1. labour turnover confined to 5% in respect to skilled craftsmen
=+(d) Outline the ways to improve the report.Garden Tools and Utensils Division Annual operating budget report far year ending 31.12.85 Assumptions: at 1.1.1985 Product sales growth expected to be 5% subject to
=+(c) explain in which set of circumstances such areport may be viewed as appropriate.
=+(b) explain why these features are included.
=+6. Examine the following annual operating budget report for a divisional manager responsible for the manufacturing and marketing of a wide range of garden tools and utensils.Required:(a) highlight any unusual features it contains.
=+(d) Assume that the department manager performs the timekeeping function for this manufacturing department. From time to time, analysis of overhead and direct labour variances have shown that the department manager has deliberately mis-classified labour hours (e.g., listed direct labour hours as
=+(c) Prepare areport that details the overhead budget variance.The report, which will be given to the manufacturing department manager, should display only the part of the variance Exercises 383 that is rhe responsibility of the manager and should highlight the information in ways that would be
=+(b) The company has divided its responsibility such that the purchasing department is responsible for the price at which materials and supplies are purchased. The manufacturing department is responsible for the quantities of materials used.Does this division of responsibilities solve the
=+The purchasing department normally buys about the same quantity as is used in production during a month. In November, 5200 pounds were purchased at aprice of f2.10 per pound.Required:(a) Calculate the following variances from standard costs for the da ta given:(i) materials purchase price(ii)
=+The overhead cost per unit was calculated from the following annual overhead-cost budget far a 60000 unit volume.Variable overhead cost:Indirect labour 30000 hours @ f4.00 Supplies - oil 60000 gallons @ f.50 Allocated variable service - departmental costs Total variable overhead cost f120000
=+5. The Carberg Corporation manufactures and seIls a single product.The cost system used by the company is a standard cost system.The standard cost per unit of product is shown below:Material- one pound plastic @ f2.00 f2.00 Direct labour 1.6 hours @ f4.00 6.40 Variable overhead cost 3.00 Fixed
=+(d) What are the implication's of your analysis for achieving behaviour congruence?
=+(c) Using your analysis in (a) and (b), above, how will the accounting information for decision making differ from that used for control purposes?
=+(b) re-appraise your decision above in the light of new information concerning the 40% of materials not transferred in from the other division. The historicallbook cost of this material to satisfy one month's pro duc ti on of the order is f1040. It can be sold now for f1500, less 10% selling
=+Inquiry elicits that wages are directly variable with output up to 22000 units per month, but rise to fl.OO per unit thereafter.Capacity per month is limited to one-twelfth annual capacity -there is no slack labour or machinery transferable in the short run from other products. 60% of the
=+A chain store offers to buy on contract a quantity of Twisteze that may average 4000 drums per month at f1.75 per drum. The chain store would re-seIl the drums under their own brand name: costs of colouring and substitute labeIling of the drums are insignificant and may be ignored. Sales to the
=+The company is currently producing and selling 252000 drums per year of Twisteze, which represents 70% of annual capacity.Factory accounts show the following monthly costs for average output:Total cost Unit cost f f Materials 13650 0.65 Wages and salaries 16800 0.80 Depreciation 5250 0.25 Rent
=+4. The Bailriggers Division specializes in manufacturing rigging for sailing dinghies and smaIl yachts - a growth industry. But the firm also has a sideline in wire products for garden use, including Twisteze, a high-quality, plastic coated wire supplied in small drums for various uses in
=+(d) What changes in the overall design of the AIS might you recommend?
=+(c) Outline the motives individuals may generaIly have to bias budgets and steps that may be taken to counter bias.
=+(b) Would you recommend that Brian continues to allow the supervisors to set standards in this situation?
=+The financial results using the new standards have just become available for the year ended 31 October 1985:Budget Actual Production (linear feet of hose) 8.0m. 8.8m.Direct labour hours worked 20000 hrs 18000 hrs Materials used 100000lb 104000lb Costs f f Direct labour 20000 21600 Direct material
=+3. Brian Catchpole is the manager of the rubber hose department of the BBR Company. His department manufactures hose of a single quality, although the lengths and specific nozzle attachments comply with individual customers' instructions. The department's workforce consists of 25 people, of whom
=+(c) a company making chocolate confectionery in wh ich it is the brand leader;(d) a division producing gas which is used mainly by other divisions in the firm.
=+(b) a division producing microchips;
=+2. In broad outline, suggest the main features of an AIS designed to be appropriate for:Ca) a production process whose output is standard steel rods made far stock;
=+(c) The manager of the quality control section associated with the new microcomputer project approaches you informally with a problem. The project chief is not allowing hirn to spend the Exercises 379 funds allocated for quality and reliability testing. Instead so me of these funds are being
=+(b) The head of an airframe design section continually uses component parts that result in the aircraft working perfectly but being overweight. On inquiring, the head of design argues that if his design fails, the blame can be traced back to hirn.For any one section, the part is only a few
=+(a) You have discovered by on-site inspection that a manager is consistently mis-recording the amounts of materials used on individual jobs. In total, the amounts recorded equal the budgeted total.
=+1. Identify the AIS design problems in the following abbreviated cases, and suggest ways for improvements:
=+3. What rewards (penalties) are to be associated with the achievement (non-achievement) of these performance targets?
=+2. What are the appropriate standards of performance in each of these areas, both for the organization as a whole and for the segments wh ich make it up?
=+1. What are the dimensions of good performance that the organizati on is seeking to promote?
=+1. Explain the decision process you followed in making an important decision in the past wh ich has now taken effect (e.g., the choice of a course of study and the university to attend; the choice of your present job). Then explain the same process in relation to adecision you are currently
=+How do the two processes differ? Does your analysis illuminate the role of objectives in decision making?
=+5. 'Doing things wrong is a necessary pre-condition for learning'. To what extent is this statement true? Analyse its implications for:
=+(a) the design of a production control system(b) the design of a university course.
=+6. Design a set of controls that could be used to evaluate how weIl each of the following people were performing their jobs adequately:
=+(a) a production worker on a car assembly line(b) a double-glazing salesman allocated a particular town as his territory(c) a research and development scientist in a pharmaceutical company(d) a managing director of a chain of retail shops.
=+7. Design a system to control student learning on a degree course.Explicitly identify:(a) objectives, including possible conflicts(b) measures of performance to be used(c) the predictive model to be used(d) available control actions.
=+Would you like to be controlled by the system you have designed?If not, can you design a better one?
=+5. Outline the main tenets of the contingency theory of organizational structure and the contingency theory of management accounting.
=+What are their similarities and differences?
=+8. Explain what you understand by the terms' decentralization' and'divisionalization', clearly indicating the difference between them.
=+What are the major accounting problems that have to be over- come in constructing a profit-based measure of performance for a division of a multidivisional company?
=+8. Find out how a professional accounting firm organizes its auditing activities, and how it attempts to motivate and control its staff.
=+What theories of organization and motivation do you think lie behind the way it operates?
=+9. Elegant Electronics compensates its salesmen according to the following scheme. A salesman's remuneration comprises three components:(a) a basic salary of f200 per month,(b) a sales commission amounting to 1% of gross sales, and(c) a bonus amounting to 5% of all gross sales made in excess of a
=+(a) Calculate the total remuneration for Simon Smooth and for Percival Plodder.
=+(b) Evaluate the compensation system, and suggest any changes you would recommend to improve it.From: Certified Diploma in Accounting and Finance, Paper 2, Pilot papers 1980.
=+4. The lack of use of accounting information by managers clearly displays their ignorance and lack of confidence in this area. Most managers admit to a poor understanding of how to interpret financial information; wh at is needed is better training in the use and interpretation of accounting
=+What would you wish to include in a course on using accounting information for (a) production managers (b) marketing managers?
=+10. As a manager becomes more senior, it appears that he needs to rely more on formal information yet that his style of life encourages hirn to use it less. How would you explain this apparent paradox?
=+12. If informal information systems are so pervasive, why do organizations need formal information and control systems?
=+13. A group of senior managers from the Exacta Electronics Company had recently attended a seminar on the application of organizational theory to management control systems design.They meet a week later to discuss whether changes should be made in their own management control system. Part of the
=+Marketing Manager: Not only have the products changed, but so has the market. A product that didn't exist yesterday can be obsolete by tomorrow. We must have up-to-date information so that we can adapt quickly to market changes and competitor's strategies.
=+Rand D Manager: Our existing system is far too rigid. In the past it might have been possible to estimate how much it would cost to develop a new product, but it isn't possible now. Trying to hold me accountable to a budget made months ago is ridiculous.Sometimes 1'11 spend twice as much because
=+Production Manager: That's as may be, but a vital part of our business is ensuring that our production runs are efficient and cheap. Once a product has been designed we must make it quickly and cheaply so as to fi11 the orders that have been received. If we don't maintain dose control here, our
=+Accountant: That's quite right. The heavy development costs can only be recouped by se11ing a large number of efficiently manufactured products. But although dose budgeting control is needed in the factory, it doesn't seem to work in Rand D and Marketing. What sort of system can I design that
=+1. What is the difference between the 'contro!' and 'strategy implementation' functions of management?
=+4. It has been said that results controls should be used wherever they are feasible because, after aU, the primary organizational purpose is to generate results. Do you agree or disagree with this statement?
=+1. Note: although this exercise ideally requires a computerized spreadsheet, it is possible to complete it manuaIly.Pygmalion Products manufactures and seIls two products, A and B, which are both made in the same factory using the same machinery. At present A is the main product, but sales of
=+Inventory is valued at the standard variable cost of production, and at the end of December will amount to 2000 units of product A and 1000 units of product B. The company has decided that it would be wise to maintain month-end stocks at a half of the following month's expected sales for product
=+(a) Using a financial planning package, produce statements for the Managing Director for next year, clearly showing:(i) the monthly profit for the company, and for each product individually, using a variable costing format.
=+(ii) cash flow forecasts for the same period.(iii) annual totals for the above figures (NB, although only a calendar year's figures are required to be presented, you will find it useful to extend your spreadsheet by two months at the beginning and end of the period).
=+(b) Repeat the exercise twice for each of the two sets of assumptions:
=+(i) sales of A will decline at 5% per month (cumulatively)during next year (although at only 3% in this December).Sales of B will grow at only 10% per month (cumulatively) during next year (although at 12% this December).(ii) sales of A and B remain at their December levels indefini tely.
=+(c) Comment on your results, numerically reconciling the profit and loss figures wi th cash flow figures, and assess their implications for the company.(d) Suppose the company is owned by a holding company and that the Managing Director has been instructed to maximize his profit while exercising
=+2. Taking the LP formulation of the transfer pricing problem of the Jayfax Company as your starting point, analyse the effect of having an additional constraint that limits the total production of A2 to 600 units. What should the new transfer prices be, and how would the allocation of profits to
=+How does the optimal solution change, and what should the interna I transfer prices be?
=+3. Division A of Incorrigible Dysfunctionals Limited is the only source of supply for an intermediate productthat is converted by Division B into its final saleable form. Most of A's costs are fixed.At an output of 1000 units per day its total costs amount to f550 per day and increase by f100 for
=+(a) Prepare a schedule comparing B's costs (including its purchases from A), revenues and net income at various levels of output.
=+(b) What is B's optimum output, and what results does this imply for A and the company as a whole?
=+(c) Suppose the company abandons its divisionalized structure.Instead of being two profit centres, A and Bare combined into a single profit centre with responsibility for the complete production and marketing of the product. Prepare a schedule as in (a) and find the optimal output.
=+(d) Why does (c) differ from (b)? How would you adjust the transfer price system to ensure that corporate optimality is attained when A and Bare maintained as separate profit centres?
=+4. Microchip Manufacturers Ltd, have recently developed a microprocessor that will enable them to market a new computer chessplaying game. Development costs were in excess of f200 000, but the new product is thought to be significantly better than other currently available games. The game
=+5. Megacorp pIe is a large multidivisional company operating primarily within the UK. One of its divisions, Aira, operates a small production plant solely devoted to the manufacture of three materials, Ingots, Jars and Knuts. All the output of the plant is transferred to a factory opera ted by
=+Conversion of Ingots, J ars and Knuts into Lemons and Mavericks also requires three processes, Rolling, Stirring and Turning. To make alernon requires one Ingot, two Jars and two Knuts; a Maverick requires three Ingots, two Jars and one Knut. The processing times and availabilities are as
=+1. Formulate the overall production problem of the two divisions as a linear program designed to maximize the total contribution to profit of the two divisions combined (6 marks).
=+2. The LP solution indicates that only Grinding and Heating are limiting resources. Grinding has a shadow (i.e., dual) price per hour of 62.5p and Heating 31.25p. The optimum daily production is 30 Lemons and 27.5 Mavericks. Using these shadow prices:
=+(a) caIeulate transfer prices for Ingots, Jars and Knuts(3 marks).
=+(b) caIeulate the total contribution the production plan generates for each division (2 marks).
=+3. Describe how divisional profits would be affected if the Aira division provided extra capacity, so that limiting resources now existed only in the Blackside division (4 marks).
=+4. Discuss the practical problems and possible advantages of Megacorp pIe implementing a market price based system of transfer pricing rather than a system based on shadow prices(10 marks).(25 marks)From: ICAEW, PEIl, Management Accounting, July 1988.
=+6. The Argent Company, wh ich makes and seIls a single product, is preparing a budget for the next three months. Because of possible seasonal fluctuations in sales, the company normally keeps finished stock at a level equal to 150% of the budgeted unit sales for the following month.The budgeted
=+The factory can normally produce up to 2000 units per month, but it is possible to increase production by 25% by leasing an extra machine at a cost of f2000 per month and working overtime, wh ich is paid at double the normal rate. The fixed production overheads include a depreciation charge on
=+1. Prepare a budgeted profit and loss account, with supporting schedules, for the period 1 August to 31 October 1988 (10 marks).
=+2. Calculate the budgeted cash flow for the same period and reconcile the net cash flow and profit figures for the quarter(6 marks).
=+3. Write a short report to the managing director outlining the likely impact on profit and the business generally from the level of overtime working expected. Suggest alternative operating strategies which would reduce the level of overtime working and improve business performance (9 marks).(25
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