Exam Name: ADVANCED MANAGEMENT ACCOUNTING – RE-SIT
Unit refs:
INSTRUCTIONS TO CANDIDATES
- Calculators are allowed. Any other type of electronic equipment able to display textual information, including mobile phones and smart watches, must be left at the front of the examination room.
- Candidates who break UNIVERSITY OF BOURNEMOUTH regulations, or commit any misconduct, will be disqualified from the exams.
- Round all your calculations to one decimal point
- Answer ALL questions. Where necessary, show all your workings in order to gain maximum marks
Question 1
Excelsior Plc is seeking to enter into a new market, offering logistical planning and delivery services.
As an established company the financing of this development is secure, however the Board is concerned about the pricing policy to be adopted. This is a competitive market and initial profits are not anticipated,
As financial advisor your opinion is sought on the first tender to be completed and you have been provided with the following information:
- The contract is for a 6 month (180 days) period.
- To complete this phase the following staffing will be required :
| 1 | Project manager. |
| 7 | Senior Consultants. |
| 12 | Development staff. |
| 3 | Technical staff. |
Excelsior do not have any Project Managers available and will have to employ a new manager for a minimum 12 month period. The company currently has 2 Senior Consultants and 3 Development staff working on a contract that ends soon and may
deployed on this contract; all other staff must be appointed before the commencement of the contract, on renewable monthly contracts.
- Materials are required to the value of £95,000 during the first three months; payments can be phased over this period with payment terms of 30 days. These materials are dangerous and all staff will need training, in the first month of the contract, in handling the materials. Training will cost £1,500 per person. The training will be conducted by Excelsior’s internal training unit, applying its standard 50% margin.
- The project requires the use of specialist machinery which is not available for hire. The options are to either buy the machinery at a cost of £200,000 or cancel another project, where an existing machine is due to be used, losing a contribution of £100,000. It is anticipated that Excelsior will need to buy the specialist machinery in 9 months’ time for use on existing contracts.
- You can claim the value of the hours worked and the materials purchased in each month from the client. The money will be paid the following month.
- The outstanding balance will be claimed in the final month of the project and paid the following month.
- Annual salaries per person are:
Project Managers £95,000
Senior Consultants £75,000
Development Staff £40,000
Technical Staff £38,000
- The Directors estimate that the contract should be allocated £50,000 of company overheads plus costs incurred so far in preparing the tender estimated to be £10,000. If Excelsior continues with this bid it will incur professional charges of £5,000.
- As this is Excelsior’s first contract in this new market it is recognised that there will be a steep learning curve for the staff involved and it is estimated that approximately 10% of staff time will be non-productive.
REQUIRED
- Advise the board of Excelsior of the minimum market penetration price the company could tender and calculate when, during the contract the invoices could be raised. You should explain your treatment of each element of cost considered in your determination of the price.
20 Marks
- Discuss on the use of standard margins in determining an internal transfer price and options for evaluating divisional performance.
10 Marks
Total 30 marks Question 2:
Save the Children is a UK based charity which establishes and operates charitable projects such as fighting river blindness and malnutrition among young children and vulnerable adults in Somaliland, in the horn of Africa.
The trustees of Save the Children UK consist of a group of highly successful business people and politicians around the Westminster and as a result are not rewarded for their services to Save the Children UK. However, they are required to use their business and political connections to solicit for donations and attract a talented pool of volunteers for the charity. However, the past two years have been a difficult for Save the Children UK resulting to them losing a greater share of their market (both for donations and volunteers) to rivals, CARE International.
The major reason advanced as to why Save the Children UK is losing its market share to rivals is with non-disclosure of its financial and non-financial information to guarantee donor confidence. In order to turn things around, the trustees of Save the Children UK have identified the role of Management Accountant is key to bringing the charity its old success days. You have been hired as the Management Accountant.
REQUIREMENT:
- Suggest four performance measures which you think can help the charity regain its leader position. Explain in detail why you think each measure is useful for this purpose.
(8 marks)
- The trustees believe that one of the measures to help them take back their leader position is by implementing the balanced scorecard and have contacted you to know more about the balanced scorecard. Explain to the trustees how they can design and use a balanced scorecard. You should include an explanation of each of the four perspectives of the balanced scorecard, by using the case of Save the Children UK to illustrate this.
(12 marks)
[Total: 20 marks]
Name of Unit Leader: Dr Akanga
Ext.No: 65633
Name of PSO: Click here to enter text.
Ext.No: Click here to enter text.
ADVANCED MANAGEMENT ACCOUNTING RE-SIT SUGGESTED SOLUTIONS
Question 1:
| Penetration Price | 6 month | Marks | |||
| Project Manager 1 95000 | 47500 | ||||
| Seniors 5 75000 | 187500 | ||||
| Development 9 40000 | 180000 | ||||
| Technical 3 38000 ( excludes available staff) Project Manager consequential | 57000 | 472000 | 4 | ||
| costs | 47500 | 1 | |||
| Materials | 95000 | 1 | |||
| Materials Training | staff (note this is all 23 staff) | 1500 | |||
| markup | 50% | 23000 | 2 | ||
| Machinery | Machine is due to be purchased anyway so buy now but treat as a | ||||
| Professional | committed cost | 0 | 2 | ||
| Charges | 5000 | 1 | |||
| Overheads | Assume these are fixed costs – no marginal cash implications | 0 | 1 | ||
| Tender Prep | Sunk costs | 0 | 1 | ||
| Learning Curve | Issue is whether the 10% non-productive time should |
be charged
to the first client. As there are cash flows generated and no
information about the recovery of these costs
elsewhere 0
it is assumed these costs are marginal to the contract as no reduction in chargeable costs made.
2
Up to half the available marks can be given for a well argued treatment of cost reduction
642500 15
Monthly cash flows
contract 1 2 3 4 5 6 Balance
| 472000 | 78666.67 | 78666.67 | 78666.67 | 78666.67 | 78666.67 | 78666.67 |
| 95000 | 31666.67 | |||||
| 567000 | 110333.3 | 110333.3 | 110333.3 | 78666.67 | 78666.67 | 78666.67 |
| 47500 23000 | 23000 | |||||
| 5000 | 5000 | |||||
| 75500 | 28000 | 0 | 0 | 0 | 0 | 0 |
| 642500 | 138333.3 | 110333.3 | 110333.3 | 78666.67 | 78666.67 | 78666.67 |
Staff 1
Materials 1
monthly for 6
Project Man 7916.667 months
Training Prof Ch
1
Total
Cash In Flow 0 110333.3 110333.3 110333.3 78666.67 78666.67 154166.7
Net Monthly cash flow -138333 0 0 31666.67 0 0 154166.7 2
20
Part b
Transfer Pricing – Balance between
Cost recovery
Comparative pricing
Motivation for both parties
Standard mark-up – treating internal and external clients the same recovers cost but could lead to the company losing contracts because of poor motivation in the receiving section and costs being too high
up to 5 marks per issue discussed
max 10 marks
Question 2:
A. Save the Children UK
Four examples of performance measures:
- Long-term improvements in health levels in the specific areas targeted. Given the long-term focus of Save the Children UK efforts, it should be no problem for DMA to demonstrate a clear relationship between its expenditure on a particular project and the related improvement in (for example) blindness or nutrition, despite the inevitable time-lag between expenditure and health effects.
- Average length of stay of volunteers who participate in Save the Children UK projects in the third world. If this is shown to be impressively high, then this demonstrates (1) that the personnel taking part perceive that their efforts are making a real difference (2) that donations spent on flying volunteers to distant locations represent good value for the donor’s money.
- Proportion of donations collected which is spent on projects (rather than on, for example, the charity’s expenses in UK). Given that the trustees do much of the important work and receive no payment for doing so, it is likely that this proportion is impressively high and this should encourage donors to give their money to Save the Children UK rather than to other charities.
- Measures of the collective expertise of the trustees, because their input is vital to the success of the charity. In terms of raising public confidence in Save the Children UK, the trustee’s strong discretion about their involvement in the charity may not be optimal. For example, by publicising the size and financial success of the businesses which the trustees operate, Save the Children UK could convince the public that resources donated to Save the Children UK are likely to be used efficiently for the charity’s stated objectives.
B. For an outline of the four perspectives of a balanced scorecard, see Drury 9th edition (pp. 601-606). As specified in the question, the explanation must be illustrated by reference to the specific example of Save the Children UK and include at least one possible performance measure for each section:
- Financial perspective: In this case, this section is concerned with Save the Children UK success in using its financial resources for achieving its specified objectives of bringing about long-term health improvements. An example of a measure in this section, which would be of considerable interest to the trustees in channelling the charity’s resources, is the cost of restoring one individual’s sight at various Save the Children UK project locations.
- Customer perspective: In this case, this is concerned with how Save the Children UK is perceived by potential donors and volunteers, who are the “customers” who provide the charity with the resources which it needs to operate successfully. Market share indicators (e.g., proportion of the total number of Irish medical volunteers choosing Save the Children UK rather than another charity) are important in signalling the extent to which the charity is successful in convincing these customers of the value of Save the Children UK activities.
- Internal “business” perspective: Even though Save the Children UK is not a business, nevertheless the trustees will be quick to embrace the idea that there are certain processes at which the charity must excel in order to achieve its objectives. An example of such a measure is the speed with which the charity is able to obtain customs and visa clearance to enable it to bring resources and personnel to the locations of its projects.
- Learning and growth perspective: This is concerned with Save the Children UK ability to continually improve and “add value” from its experience, so that its future success and ability to operate are assured. This is particularly important for Save the Children UK given the long-run focus of its efforts. An example of such a measure is the speed with which the charity is able to resume operations following significant on-site events such as natural disasters, sudden influxes of refugees, or changes of government. The more quickly the charity can resume operations in the face of such events, the more successful it is likely to be in achieving its objectives.
