Answer ALL 3 QUESTIONS.
You are expected to present all your workings.
Please start each answer on a fresh page
All workings should be shown and made to the nearest month and pound unless the question requires otherwise.
Coursework Instructions
1. This coursework is based on three different scenarios covering various management accounting topics as well as a theoretical question which covers the balanced scorecard and investment techniques generally (therefore there are four separate elements overall).
2. You must use Word to complete this assignment and you are only permitted to upload one document to Canvas. If you submit more than one document, then only the final one submitted prior to the submission date and time will be marked. Please use a clear font (Arial 11 point is recommended) and tables where appropriate. If you source material from any other publication or website, you must cite your source and include it in a list of references at the end of your work. Use the Harvard referencing system to reference your work.
3. When presenting your computational solutions, you may wish to write some explanations or state the assumptions you have used, and this is acceptable.
However, apart from the theoretical discussion referred to above, this coursework is mostly based on calculations, computations, and the correct application of management accounting concepts. All of your calculations and computations (including cross-referenced supporting workings) should be shown in full and incorporated into the main body of your answer. Do not use appendices for this purpose. You may wish to use Excel for some of your calculations, but you should then copy results (including all of the detail) into the word document to support your work.
4. Computations should be presented in the clear format. Marks will be given for presentation and use of the clear layout for each computation.
Answer ALL THREE questions.
Question 1
Part A Beta Group
Beta Group specialises in the manufacture and sale of motorcycles. Each motorcycle consists of a main unit plus a set of motorcycle fittings. The company is split into two divisions, A and B. Division A manufactures the motorcycle and Division B manufactures sets of motorcycle fittings. Currently, all of Division A’s sales are made externally. Division B, however, sells to Division A as well as to external customers. Both of the divisions are profit centres.
The following data are available for both divisions:
Division A
Current selling price for each motorcycle £900
Costs per motorcycle:
Fittings from Division B £150
Other materials from external suppliers £400
Labour costs £90
Annual fixed overheads £14,880,000
Annual production and sales of motorcycles (units) 80,000
Maximum annual market demand for motorcycles (units) 80,000
Investment £33,625,000
Division B
Current external selling price per set of fittings £160
Current price for sales to Division A £150
Costs per set of fittings:
Materials £10
Labour costs £30
Annual fixed overheads £8, 800 000
Maximum annual production and sales of sets of fittings (units) 200,000
(including internal and external sales)
Maximum annual external demand for sets of fittings (units) 180,000
Maximum annual internal demand for sets of fittings (units) 80,000
Investment £57,250,000
Other relevant information:
Three measures are currently used to evaluate the performance of the divisional managers: Return on Investment (ROI), Residual Income (RI) and net profit margin in relation to sales. The company uses a target Return on Capital of 20%.
Division A is currently achieving a rate of return well below the target set by the central office. The manager blames this situation on the transfer price. The transfer price charged by Division B to Division A was negotiated some years ago between the previous divisional managers, who have now both been replaced by new managers.
Head office only allows Division A to purchase its fittings from Division B, although the new manager of Division A believes that he could obtain fittings of the same quality and appearance for £130 per set, if he were given autonomy to purchase from outside the company. Division B makes no cost savings from supplying internally to Division A rather than selling externally.
Required:
a) Advise the management by preparing a profit statement showing the profit for each of the divisions under the current transfer pricing system and performance measures of each division. Your sales and costs figures should be split into external sales and interdivisional transfers, where appropriate (8 Marks)
b) Calculate the maximum profit that could be earned by each division and performance measures if the Beta group change the transfer pricing policy to ensure maximization of company profits without demotivating either of the divisional managers. Division A will be given autonomy to buy from external suppliers and Division B to supply external customers in priority to supplying to Division A. (8 Marks)
c) Transfer pricing is an accounting practice that represents the price that one division in a company charges another division for goods and services provided. Discuss the importance of setting transfer pricing in companies (4 Marks)
d) There are five methods to determine the transfer pricing: Market-based; Marginal cost; Full cost; Cost-plus a mark-up and Negotiated transfer prices. Discuss how to use these methods to determine the transfer price. (5 Marks)
Total: 25 Marks
END OF QUESTION 1
Question 2:
The Carat Plc a medium sized company, produces a single product in its one overseas factory. For control purposes, a standard costing system was recently introduced and is now in operation.
The standards set for the month of May were as follows:
Production and sales 16,000 units
Selling price (per unit) £140
Materials
Material 007 6 kilo per unit at £12.25 per kilo
Material XL90 3 kilo per unit at £3.20 per kilo
Labour
4.5 hours per unit at £8.40 per hour
Overheads (all fixed)
£86,400 per month. They are not absorbed into the product costs.
The actual data for the month of May, is as follows.
Produced 15,400 units which were sold at £138.25 each.
Materials
Used 98,560 kilos of material 007 at the total cost of £1,256,640 and used 42,350 kilos of materials XL90 at the total cost of £132,979.
Labour
Paid an actual rate of £8.65 per hour to the labour force. The total amount paid out, amounted to £612,766.
Overheads (all fixed)
£96,840
Required:
Prepare a standard costing profit statement, and a profit statement based on actual figures for the month of May. (8 Marks)
Prepare a statement of the variances which reconciles the actual with the standard profit or loss figure. (Mix and yield variances are not required). (12 Marks)
Briefly explain the possible reasons for inter-relationships between material variances and labour variances. (5 Marks)
Total 25 MARKS
END OF QUESTION 2
Question 3
AB has developed two new products, Product A and Product B, but has insufficient resources to launch both products. The success of the products will depend on the extent of competitor reaction. There is a 30 percent chance that competitors will take no action, a 60 percent chance that they will launch a similar product and a 10 percent chance that they will launch a better product.
The profit/loss that will be earned by each of the products depending on the extent of competitor reaction is as follows:
Competitor reaction Product A Product B
No action £500,000 £600,000
Launch a similar product £300,000 £400,000
Launch a better product (£100,000) (£200,000)
Another option for AB would be to launch neither product. If it chooses this course of action there is a 50 percent chance that competitors will take no action and there will be no effect on the company’s profit. There is a 50 percent chance that competitors will launch a new product and company profits will reduce by £150,000.
Required:
a) Demonstrate, using a decision tree and based on expected value, the best course of action for the company. (12 Marks)
b) Discuss Maximin, Maximax and regret criteria with reference to numerical examples.
(6 Marks)
c) ‘Decision tree is useful in decision-making, and budgeting also plays an important role in decision-making’. Discuss the role of budgeting in decision-making, and also evaluate zero-based and incremental budgeting. (7 Marks)
TOTAL 25 MARKS
