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Section B – TWO questions ONLY to be attemptedStillwater Services (SS) is a listed water u

Section B – TWO questions ONLY to be attempted

Stillwater Services (SS) is a listed water utility company providing water and sewage services to the public and businesses of a region of Teeland. The company was formed when the government-owned Public Water Company of Teeland was broken up into regional utility companies (one of which was SS) and sold into private ownership over four years ago.

As a vital utility for the economy of Teeland, water services are a government-regulated industry. The regulator is principally concerned that SS does not abuse its monopoly position in the regional market to unjustifiably increase prices. The majority of services (80%) are controlled by the regulator who sets an acceptable return on capital employed (ROCE) level and ensures that the pricing of SS within these areas does not breach this level. The remaining services, such as a bottled water operation and a contract repairs service, are unregulated and SS can charge a market rate for these. The regulator calculates its ROCE figure based on its own valuation of the capital assets being used in regulated services and the operating profit from those regulated services.

The target pre-tax ROCE set by the regulator is 6%. If SS were to breach this figure, then the regulator could fine the company. In the past, other such companies have seen fines amounting to millions of dollars.

The board of SS are trying to drive the performance for the benefit of the shareholders. This is a new experience for many at SS, having been in the public sector until four years ago. In order to try to better communicate the objective of maximising shareholder wealth, the board have decided to introduce economic value added (EVA?) as the key performance indicator.

The finance director has asked you to calculate EVA? for the company, based on the following financial information for the year ending 30 September 2012:

Stillwater Services

Section B – TWO questions ONLY to be attemptedStil

2. Economic depreciation is assessed to be $83m in 2012.

Economic depreciation includes any appropriate amortisation adjustments.

In previous years, it can be assumed that economic and accounting depreciation were the same.

3. Tax is the cash paid in the current year ($9m) and an adjustment of $0·5m for deferred tax provisions. There was no deferred tax balance prior to 2012.

4. The provision for doubtful debts was $4·5m on the 2012 statement of financial position.

5. Research and development is not capitalised in the accounts.

It relates to a new project that will be developed over five years and is expected to be of long-term benefit to the company. 2012 is the first year of this project.

Section B – TWO questions ONLY to be attemptedStil

Required:

(a) Evaluate the performance of SS using EVA?. (13 marks)

(b) Assess whether SS meets its regulatory ROCE target and comment on the impact of such a constraint on performance management at SS. (7 marks)

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更多“Section B – TWO questions ONLY to be attemptedStillwater Services (SS) is a listed water u”相关的问题

第1题

The Drinks Group (DG) has been created over the last three years by merging three medium-s

The Drinks Group (DG) has been created over the last three years by merging three medium-sized family businesses. These businesses are all involved in making fruit drinks. Fizzy (F) makes and bottles healthy, fruit-based sparkling drinks. Still (S) makes and bottles fruit-flavoured non-sparkling drinks and Healthy (H) buys fruit and squeezes it to make basic fruit juices. The three companies have been divisionalised within the group structure. A fourth division called Marketing (M) exists to market the products of the other divisions to various large retail chains. Marketing has only recently been set up in order to help the business expand. All of the operations and sales of DG occur in Nordland, which is an economically well-developed country with a strong market for healthy non-alcoholic drinks.

—————————————————————————————————————————

The group has recruited a new finance director (FD), who was asked by the board to perform. a review of the efficiency and effectiveness of the finance department as her first task on taking office. The finance director has just presented her report to the board regarding some problems at DG.

Extract from finance director’s Report to the Board:

‘The main area for improvement, which was discussed at the last board meeting, is the need to improve profit margins throughout the business. There is no strong evidence that new products or markets are required but that the most promising area for improvement lies in better internal control practices.

Control

As DG was formed from an integration of the original businesses (F, S, H), there was little immediate effort put into optimising the control systems of these businesses. They have each evolved over time in their own way. Currently, the main method of central control that can be used to drive profit margin improvement is the budget system in each business. The budgeting method used is to take the previous year’s figures and simply increment them by estimates of growth in the market that will occur over the next year. These growth estimates are obtained through a discussion between the financial managers at group level and the relevant divisional managers. The management at each division are then given these budgets by head office and their personal targets are set around achieving the relevant budget numbers.

Divisions

H and S divisions are in stable markets where the levels of demand and competition mean that sales growth is unlikely, unless by acquisition of another brand. The main engine for prospective profit growth in these divisions is through margin improvements. The managers at these divisions have been successful in previous years and generally keep to the agreed budgets. As a result, they are usually not comfortable with changing existing practices.

F is faster growing and seen as the star of the Group. However, the Group has been receiving complaints from customers about late deliveries and poor quality control of the F products. The F managers have explained that they are working hard within the budget and capital constraints imposed by the board and have expressed a desire to be less controlled.

The marketing division has only recently been set up and the intention is to run each marketing campaign as an individual project which would be charged to the division whose products are benefiting from the campaign. The managers of the manufacturing divisions are very doubtful of the value of M, as each believes that they have an existing strong reputation with their customers that does not require much additional spending on marketing. However, the board decided at the last meeting that there was scope to create and use a marketing budget effectively at DG, if its costs were carefully controlled. Similar to the other divisions, the marketing division budgets are set by taking the previous year’s actual spend and adding a percentage increase. For M, the increase corresponds to the previous year’s growth in group turnover.’

End of extract

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At present, the finance director is harassed by the introduction of a new information system within the finance department which is straining the resources of the department. However, she needs to respond to the issues raised above at the board meeting and so is considering using different budgeting methods at DG. She has asked you, the management accountant at the Group, to do some preliminary work to help her decide whether and how to change the budget methods. The first task that she believes would be useful is to consider the use of rolling budgets. She thinks that fast-growing F may prove the easiest division in which to introduce new ideas.

F’s incremental budget for the current year is given below. You can assume that cost of sales and distribution costs are variable and administrative costs are fixed.

On the basis of the Q1 results, sales volume growth of 3% per quarter is now expected.

The finance director has also heard you talking about bottom-up budgeting and wants you to evaluate its use at DG.

Required:

(a) Evaluate the suitability of incremental budgeting at each division. (8 marks)

(b) Recalculate the budget for Fizzy division (F) using rolling budgeting and assess the use of rolling budgeting at F. (8 marks)

(c) Recommend any appropriate changes to the budgeting method at the Marketing division (M), providing justifications for your choice. (4 marks)

(d) Analyse and recommend the appropriate level of participation in budgeting at Drinks Group (DG). (6 marks)

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第2题

Section A – BOTH questions are compulsory and MUST be attemptedLincoln & Lincoln Adver

Section A – BOTH questions are compulsory and MUST be attempted

Lincoln & Lincoln Advertising (LLA) is an advertising agency based in Veeland, which is a large well-developed country considered to be one of the wealthiest in the world. LLA operates out of three regional offices (North, East and West) with its head office functions based in the East offices. The business offers a wide range of advertising services:

Strategic: Advising on an overall advertising campaign (mix of advertising channels and overall themes);

Buying: Advising and buying advertising space (on television, radio, websites and in newspapers and magazines); and

Creative: Designing and producing specific adverts for the customers’ use.

The company is one of the three largest agencies in Veeland with many years of experience and many awards won. Competition in advertising is fierce, as advertising spending by businesses has suffered recently during a general economic downturn. Most new business is won in tender competitions between different advertising agencies.

Veeland is a large country with considerable diversity of markets, economic conditions and fashions across its regions. As a result, the regional offices have developed with a considerable amount of decision-making autonomy. This also reflects the temperament of the key creative employees of the firm who have a strong attachment to their campaign ideas and take great personal pride in their success. The individualism of the key employees also comes from the way that LLA has grown. The business has been built through acquisition of small, local businesses in each of the three regions. Each of these acquisitions has been consolidated into the appropriate regional office.

You have been recruited in to LLA in order to take up the newly created post of senior management accountant. Your recruitment caused some concern amongst the board but was championed by the chief executive officer (CEO) as ‘necessary to stay ahead of the game’. The board have asked that you prove yourself and also give a fresh perspective on LLA by providing them with a report. Initially, you have been asked to provide an assessment of the current financial position of the three regional offices. The most recent management accounts are in Appendix 1. The basic assessment calculations have already been accurately completed by one of the junior staff and the results are in Appendix 2.

As part of the briefing for this exercise, you attended part of a recent board meeting where you were told that the board want your views on the choice of net income as the performance measure for each of the regional offices. They want you to suggest other measures and why they are appropriate for each office. The CEO has advised you that you may want to use different key measures for each office, rather than have a ‘one-size fits all policy’. During the board’s discussion, issues around controllability and responsibility accounting appear to be the main concerns of the board. The CEO also stated that the board would not be interested in a long list of which numbers have gone up and which have gone down. They will want to be given a coherent picture of what is going on at each of the regional offices.

Finally, the CEO said, ‘Well, if you are not completely tired out at the end of this little project then I’d also like you to comment on our remuneration policy at the regional offices including ideas based on your assessment of performance measures.’ Later, the CEO gave you a note (see Appendix 3) describing these policies at LLA.

Required:

Write the report to the board of LLA to:

(i) Assess the recent performance of the three regional offices by interpreting the data given in Appendices 1 and 2. (10 marks)

(ii) Evaluate the choice of net income as the performance measure for the regional offices and suggest other measures and why they are appropriate for each office. (10 marks)

(iii) Using the information provided, evaluate LLA’s remuneration policy suggesting changes as appropriate. (10 marks)

Professional marks will be awarded in question 1 for the format, style, structure and clarity of the discussion of your answer. (4 marks)

Note: the Appendices follow on the next two pages.

Appendix 1: LLA financial data

The figures are drawn from the regional offices’ management accounts for year to September 2012.

Notes:

1. East office data is for the regional office only. It excludes any costs of the head office function based there other than the allocated costs listed.

2. Notional cost of capital at LLA is 9%.

3. Current assets contains only accounts receivable for each office.

Appendix 2: Basic calculations

[These can be assumed to be calculated correctly.]

Notes

1. Other costs and allocated head office costs are fixed.

2. Margins are calculated as a percentage of revenue.

Appendix 3: Note on remuneration from the CEO:

There are broadly five grades of staff at each regional office. The following is an outline of their remuneration packages. (The head office staff are treated separately and are not part of this exercise.)

Senior management

All staff at this level are paid a basic fixed salary, which reflects industry norms over the last few years, plus a bonus dependent on the net income of their office.

Creative staff

The ‘creatives’ are on individual packages which reflect the market rates in order to recruit them at the time that they were recruited. Some are fixed salary and some have a fixed element plus a bonus based on their office’s revenues.

Buying staff

The buyers are paid a fixed salary plus a bonus based on the prices for advertising space that they negotiate compared to the budgeted cost of space. The budget is set by the finance team at head office based on previous years’ experience and their forecast for supply and demand in the year in question.

Account management staff

Account management handles relationships with clients and also develops new clients. They are paid a fixed marketbased salary.

Administration staff

These staff are paid the market rate for their jobs as a fixed salary based on hours worked.

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第3题

Callisto Retail (Callisto) is an on-line reseller of local craft products related to the h

istoric culture of the country of Callistan. The business started ten years ago as a hobby of two brothers, Jeff and George. The brothers produced humorous, short video clips about Callistan which were posted on their website and became highly popular. They decided to use the website to try to sell Callistan merchandise and good initial sales made them believe that they had a viable business idea.

Callisto has gone from strength to strength and now boasts sales of $120m per annum, selling anything related to Callistan. Callisto is still very much the brothers’ family business. They have gathered around themselves a number of strategic partners into what Jeff describes as a virtual company. Callisto has the core functions of video clip production, finance and supplier relationship management. The rest of the functions of the organisation (warehousing, delivery and website development) are outsourced to strategic partners.

The brothers work from their family home in the rural North of Callistan while other Callisto employees work from their homes in the surrounding villages and towns. These employees are involved in video editing, system maintenance, handling customer complaints and communication with suppliers and outsourcers regarding inventory. The employees log in to Callisto’s systems via the national internet infrastructure. The outsourced functions are handled by multinational companies of good reputation who are based around the world. The brothers have always been fascinated by information technology and so they depend on email and electronic data interchange to communicate with their product suppliers and outsourcing partners.

Recently, there have been emails from regular customers of the Callisto website complaining about slow or non-delivery of orders that they have placed. George has commented that this represents a major threat to Callisto as the company operates on small profit margins, relying on volume to drive the business. He believes that sales growth will drive the profitability of the business due to its cost structure.

Jeff handles the management of outsourcing and has been reviewing the contracts that exist between Callisto and its strategic partner for warehousing and delivery, RLR Logistics. The current contract for warehousing and delivery is due for renewal in two months and currently, has the following service level agreements (SLAs):

1. RLR agree to receive and hold inventory from Callisto’s product suppliers.

2. RLR agree to hold 14 days inventory of Callisto’s products.

3. RLR agree to despatch from their warehouse any order passed from Callisto within three working days, inventory allowing.

4. RLR agree to deliver to customers anywhere in Callistan within two days of despatch.

Breaches in these SLAs incur financial penalties on a sliding scale depending on the number and severity of the problems. Each party to the contract collects their own data on performance and this has led to disagreements in the past over whether service levels have been achieved although no penalties have been triggered to date. The most common disagreement arises over inventory levels held by RLR with RLR claiming that it cannot be expected to deliver products that are late in arriving to inventory due to the product suppliers’ production and delivery issues.

Required:

Assess the difficulties of performance measurement and performance management in complex business structures such as Callisto, especially in respect of the performance of their employees and strategic partners.

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第4题

Ganymede University (GU) is one of the three largest universities in Teeland, which has ei

ght universities in total. All of the universities are in the public sector. GU obtains the vast majority of its revenue through government contracts for academic research and payments per head for teaching students. The economy of Teeland has been in recession in the last year and this has caused the government to cut funding for all the universities in the country.

In order to try to improve efficiency, the chancellor of the university, who leads its executive board, has asked the head administrator to undertake an exercise to benchmark GU’s administration departments against the other two large universities in the country, AU and BU. The government education ministry has supported this initiative and has required all three universities to cooperate by supplying information.

The following information has been collected regarding administrative costs for the most recent academic year:

The key drivers of costs and revenues have been assumed to be research contract values supported, student numbers and total staff numbers. The head administrator wants you to complete the benchmarking and make some preliminary comment on your results.

Required:

(a) Assess the progress of the benchmarking exercise to date, explaining the actions that have been undertaken and those that are still required. (8 marks)

(b) Evaluate, as far as possible, Ganymede University’s benchmarked position. (9 marks)

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第5题

Section B – TWO questions ONLY to be attemptedThebe Telecom is a large national telephone

Section B – TWO questions ONLY to be attempted

Thebe Telecom is a large national telephone business in Fayland. Thebe provides telephone service to more than 11 million customers through its fixed line and mobile services. Thebe has three strategic business units: mobile; fixed line telephone (incorporating broadband); and corporate services (serving other businesses’ telephone needs). It has become the largest mobile operator in Fayland through a series of acquisitions of competitors and operating licences.

Thebe’s CEO has won many awards for being an innovative businessman who recognises the rapid changes in technology, regulation and competitor action that occur in the sector. Thebe’s major competitor in Fayland is the original nationalised telephone company, FayTel, which was privatised 20 years ago but which retains many of the features of a monopoly supplier including a massive infrastructure. As a result, Thebe’s CEO realised long ago that competition on the basis of price and volume would not work against such a large competitor and so he has focused on customer service as the key to growing the business.

In order to improve the company’s competitive position, the CEO decided that the company should consider a Six Sigma initiative to give an immediate step change improvement to the service quality at Thebe. The initiative involved a number of projects including one to improve the quality of customers’ bills. FayTel was publicly criticised by the government’s consumer advocate who pointed to occasional misallocations of call minutes to the wrong numbers and also, more frequently, the application of incorrect tariffs in calculating the costs of calls. Thebe’s CEO is aware that all telephone businesses (including Thebe) have these problems but this is an area in which Thebe can gain a competitive advantage and has taken a special interest in this project by championing it himself.

The project is focused on improving the accuracy of customers’ bills and the handling of complaints. Within the billing department, the company divided activities into normal money collection, credit control on overdue payments and managing complaints. Process diagrams were created for each of these areas and then data was sourced from customer feedback at the various points of interaction with Thebe employees (such as complaint handling) and internal measurables created. The project team was formed from line managers from all three strategic business units and the billing department.

Required:

(a) Explain how the general way in which Six Sigma is implemented helps improve the quality of performance illustrating your answer with reference to Thebe. (8 marks)

(b) Explain and illustrate how the DMAIC method for the implementation of Six Sigma could be applied at Thebe. (9 marks)

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第6题

Amal Airline (Amal) is the national airline of Jayland. It was originally owned by the gov

ernment but was listed on the local stock exchange when sold to private investors more than 20 years ago. The airline’s objective is to be the best premium global airline.

Amal provides long- and short-haul services all over the world and is based at its hub at Jaycity airport. Amal has been hit by a worldwide reduction in air travel due to poor economic conditions. The most recent financial results show a loss and this has caused the board to reconsider its position and take action to address the changed environment.

Amal has cut its dividend in order to conserve cash and it is trying to rebuild profitability by reducing costs by 14%. The airline is capital intensive as it requires to maintain a large fleet of modern aircraft. The two major costs for the airline are staff and fuel. In trying to renegotiate working conditions and pay, the management have angered the unionised workforce. There has already been some strike action by the unions representing the aircraft crew and ground staff and more is threatened. They are upset about changes to pension provisions which will require them to make larger contributions and also, a reduction in the number of crew on each aircraft which they believe will require them to work harder and so they want a compensating pay-rise.

Additionally, the board are pushing forward a large project to improve the design of the company website in order to increase the number of passengers who check-in on-line and so would not require as much assistance at the airport. The new design is also aiming to increase the number of passengers who book their tickets through the company’s website rather than other resellers’ websites or at booking agents. The project is currently two months behind schedule due to one of the main software suppliers becoming insolvent.

Finally, the board has been considering taking advantage of new technology in aircraft engines by making a large investment ($450m) in new low-noise, fuel-efficient aircraft in an effort to reduce the environmental complaints surrounding air travel and also cut costs.

Given all of the issues and projects affecting Amal, the CEO has tried to find a unifying view that will explain the airline’s performance. She has heard that the performance prism may provide such a framework.

As further background, the CEO has supplied the data below on Amal and two of its main competitors. Kayland Air is a government owned and run airline in the neighbouring country of Kayland. It has a similar mix of business to Amal and targets a similar market. Cheapo Air is currently one of the most successful of the new privately-owned airlines that have gained significant market share over the last 15 years by offering a cheap but basic short-haul service to customers in and around Jayland. Cheapo Air subcontracts many of their activities in order to remain flexible. The CEO wants you to calculate some suitable performance measures and explain the results.

Data provided by the CEO:

Data for the most recent calendar year

Note: A seat kilometre is generated for every one kilometre flown by an available seat on the company’s aircraft.

(a) Using the data provided, analyse the three airlines using appropriate performance indicators and comment on your results. (12 marks)

(b) Apply the performance prism model to Amal and suggest improvements to performance management including possible methods of performance improvement and also relevant performance measures. (14 marks)

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第7题

Section A – BOTH questions are compulsory and MUST be attemptedMetis is a restaurant busin

Section A – BOTH questions are compulsory and MUST be attempted

Metis is a restaurant business in the city of Urbanton. Metis was started three years ago by three friends who met at university while doing courses in business and catering management. Initially, their aim was simply to ‘make money’ although they had talked about building a chain of restaurants if the first site was successful.

The three friends pooled their own capital and took out a loan from the Grand Bank in order to fit out a rented site in the city. They designed the restaurant to be light and open with a menu that reflected the most popular dishes in Urbanton regardless of any particular culinary style. The dishes were designed to be priced in the middle of the range that was common for restaurants in the city. The choice of food and drinks to offer to customers is still a group decision amongst the owners.

Other elements of the business were allocated according to each owner’s qualifications and preferences. Bert Fish takes charge of all aspects of the kitchen operations while another, Sheila Plate, manages the activities in the public area such as taking reservations, serving tables and maintaining the appearance of the restaurant. The third founder, John Sum, deals with the overall business issues such as procurement, accounting and legal matters.

Competition in the restaurant business is fierce as it is easy to open a restaurant in Urbanton and there are many competitors in the city both small, single-site operations and large national chains. The current national economic environment is one of steady but unspectacular growth.

The restaurant has been running for three years and the founders have reached the point where the business seems to be profitable and self-sustaining. The restaurant is now in need of refurbishment in order to maintain its atmosphere and this has prompted the founders to consider the future of their business. John Sum has come to you as their accountant looking for advice on aspects of performance management in the business. He has supplied you with figures outlining the recent performance of the business and the forecasts for the next year (see the performance report below). This table represents the quantitative data that is available to the founders when they meet each quarter to plan any short-term projects or initiatives and also, to consider the longer-term future. Bert and Sheila have often indicated to John that they find the information daunting and difficult to understand fully.

John Sum has come to you to advise him on the performance reporting at Metis and how it could be improved. He feels that the current report is, in some ways, too complex and, in other ways, too simple. He wants to look at different methods of measuring and presenting performance to the ownership group. As a starting point, he has suggested to you that you consider measures such as NPV, EVA?, MIRR as well as the more common profit measures. John is na?ve and wants the NPV and MIRR to be appraised as if the business was a three-year project up to 2012 so he knows the performance of the business to date. He has requested that other calculations in your performance review should be annual based on the 2012 figures although he is aware that this may be omitting in his words ‘some important detail’.

At recent meetings, Sheila has been complaining that her waiters and waitresses are not responding well to her attempts to encourage them to smile at customers although her recent drive to save electricity by getting staff to turn off unnecessary lights seems to be working. Bert stated that he was not convinced by either of Sheila’s initiatives and he wants her to make sure that food is collected from the kitchen swiftly and so delivered at the right temperature to the customer’s table. Also, Bert has said that he feels that too much food is becoming rotten and having to be thrown out. However, he is not sure what to do about it except make the kitchen staff go through lengthy inventory checks where they review the food held in store. John is worried about these complaints as there is now an air of tension in the owners’ meetings. He has been reading various books about performance management and has come across the quote, ‘What gets measured, gets done.’ He believes this is true but wants to know how it might apply in the case of his business.

Metis Performance Report

Additional notes:

1. The business was founded with $600,000 which comprised $250,000 of equity from the founders and the remainder in a loan from Grand Bank. Under the terms of the loan, all principal is repayable in 10 years’ time and interest is charged at a fixed rate of 8·4% per year.

2. John has estimated the overall cost of capital to be 12·5%.

3. The company earns 4·5% on any returns in its deposit account.

4. John wishes you to use the $600,000 original investment as the capital employed figure for analysis purposes as no new capital has been input and the owners have taken out all residual earnings so far as dividends.

5. The corporation tax rate for Metis is 30%, paid in the same year as profits are generated. Accounting depreciation is a tax allowable cost. 6. Marketing spending is for the short-term promotion of offers only.

Required:

Prepare a report to Mr John Sum addressing the following issues:

(i) Critically assess the existing performance report and suggest improvements to its content and presentation; (12 marks)

(ii) Calculate and briefly evaluate

(a) the use of John’s suggested performance measures and

(b) other profit-based measures, using the most recent year’s actual figures where appropriate as examples; (14 marks)

(iii) Assess how the quote ‘What gets measured, gets done’ could apply to Metis. (10 marks)

Professional marks will be awarded in question 1 for format, style, structure and clarity of the discussion. (4 marks)

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第8题

Tench Cars (Tench) is large national car manufacturing business. It is based in Essland, a

country that has recently turned from state communism to democratic capitalism. The car industry had been heavily supported and controlled by the bureaucracy of the old regime. The government had stipulated production and employment targets for the business but had ignored profit as a performance measure. Tench is now run by a new generation of capitalist business people intent on rejuvenating the company’s fortunes.

The company has a strong position within Essland, which has a population of 200 million and forms the majority of Tench’s market. However, the company has also traditionally achieved a good market share in six neighbouring countries due to historic links and shared culture between them and Essland. All of these markets are experiencing growing car ownership as political and market reforms lead to greater wealth in a large proportion of the population. Additionally, the new government in Essland is deregulating markets and opening the country to imports of foreign vehicles.

Tench’s management recognises that it needs to make fundamental changes to its production approach in order to combat increased competition from foreign manufacturers. Tench’s cars are now being seen as ugly, pollutive and with poor safety features in comparison to the foreign competition. Management plans to address this by improving the quality of its cars through the use of quality management techniques. It plans to improve financial performance through the use of Kaizen costing and just-in-time purchasing and production. Tench’s existing performance reporting system uses standard costing and budgetary variance analysis in order to monitor and control production activities.

The Chief Financial Officer (CFO) of Tench has commented that he is confused by the terminology associated with quality management and needs a clearer understanding of the different costs associated with quality management. The CFO also wants to know the impact of including quality costs and using the Kaizen costing approach on the traditional standard costing approach at Tench.

Required:

Write to the CFO to:

(a) Discuss the impact of collection and use of quality costs on the current costing systems at Tench. (6 marks)

(b) Discuss and evaluate the impact of the Kaizen costing approach on the costing systems and employee management at Tench. (8 marks)

(c) Briefly evaluate the effect of moving to just-in-time purchasing and production, noting the impact on performance measures at Tench. (6 marks)

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第9题

Albacore Chess Stores (Albacore) is a chain of 12 shops specialising in selling items asso

ciated with the game of chess: boards, pieces, clocks, software and books. Three years ago, the company was the subject of a venture capital buyout from a larger group. A new senior management team was put in place after the buyout. They have the aim of running the business in order to maximise profits.

The Chief Financial Officer (CFO), along with the other members of senior management, sets the annual budget and uses a standard costing approach with variance analysis in order to control individual shop performance. The head office handles all capital purchases and brand marketing. All inventory purchasing is done centrally and the shop opening times are set as standard across the company. As an illustration of senior management attitude, the CFO had set the budget for 2011 staff costs at $7 per hour for part-time staff and this was rigorously observed in the period.

Each shop is run by a manager who reports their financial results to head office. The shop managers recruit and manage the staffing of their shop. They have some autonomy in setting prices locally and have been given authority to vary prices by up to 10% from a master list produced by the CFO. They also have a local marketing budget agreed each year by the shop’s manager and the marketing director as part of the annual appraisal process.

The shop managers have approached the Chairman of Albacore to complain about the way that they are managed and their remuneration. They feel that their efforts are unrecognised by senior management. One manager commented, ‘I have had a successful year in hard economic circumstances. I have run a number of promotions in the shop that have been well received by the customers. However, the budgets that are set are impossible to achieve and as a result I have not been paid any bonus although I feel that I have done everything in my power to bring in good profits.’

The shop managers at Albacore are paid a basic salary of $27,000 with bonuses of up to 30% of basic salary dependent on two factors: performance above budget and the operational director’s performance assessment. The budget for the next year is prepared by the CFO and presented at the shop manager’s annual appraisal.

The Chairman has come to you to ask if you can consider the system of performance assessment for the shop managers and give an independent perspective on the reward systems at Albacore. She has provided the following illustrative information from the previous year for one shop:

Albacore Chess Stores

Tunny Branch Year to Sept 2011

Notes:

Property costs includes heating, lighting and rental.

Positive variances are favourable.

The manager of this shop commented at the appraisal meeting that she felt that the assessment was unfair since her failure to make budget was due to general economic conditions. The industry as a whole saw a 12% fall in revenues during the period and the budget for the period was set to be the same as the previous period. She was not paid a bonus for the period.

Required:

(a) Assess the suitability of the branch information given as a means of assessing the shop manager’s performance for this store, providing suitable additional calculations. (8 marks)

(b) Analyse the performance management style. and evaluate the performance appraisal system at Albacore. Suggest suitable improvements to its reward system for the shop managers. (12 marks)

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第10题

Section B – TWO questions ONLY to be attempted Bluefin School (Bluefin) is a school for 12

Section B – TWO questions ONLY to be attempted

Bluefin School (Bluefin) is a school for 12 to 17-year-old pupils. It currently has 1,000 pupils attending drawn from its local area. The school is run by an executive group comprising the head of school and two deputy head teachers. This group reports to a board of governors who are part-time and selected from the local community and parents. The school is wholly funded by the government.

The school’s ethos is ‘to promote learning, citizenship and self-confidence among the pupils. This is developed from a consensus, led by the board of governors and the head of school and informed by the views of the pupils’ parents.’

The school information systems are highly decentralised. Each department keeps its own records on a stand-alone PC using basic word processing and spreadsheet packages. The school’s administrative department has a small network in its own offices with compatible applications and also a database and financial recording and reporting package for use in schools (provided by the government).

The school is broken down into 11 academic departments such as mathematics, science and history. Each department head must prepare information for reporting to the board by inputting and processing the data. They obtain some help from an administrator who visits each department to spend a few hours per week helping in the recording and preparation of the departmental information. The department heads have different approaches to reporting their performance, with some using average marks in the annual exams for each class and some using pass rates of the annual exams. Some department heads present graphs of their data while most use tables of figures.

The information is passed from each department to the school administration office on a memory stick (USB flash drive). The school administration office prints out the information for each department and adds it to a financial report creating a governors’ pack of usually about 13 pages for the annual review board meeting. The financial report is a detailed income and expenditure statement for the period under review (usually a two page print-out from the reporting package). An example of one of the 11 departments’ report is given in the Appendix.

The board of governors meets every quarter and reviews the governors’ pack once a year. The board are concerned that the information that they are receiving is not meeting their needs and that there are a number of problems with the control and security of some of the data.

It has been suggested that the school should consider improving its information systems by installing a network across the school to link the departmental computers and the administration department. A single database would be created to store all the performance information. The computers would then be linked to the internet in order to facilitate data transfer to other schools in the region and to the government.

Appendix

Bluefin School

Mathematics department

Notes:

Each year contains pupils of the same age.

Annual national exams are set in years 4, 5 and 6.

Each year group is divided into different classes in order to ensure that classes do not exceed 35 pupils.

(Not all pupils take every subject each year.)

Average marks are for the annual examinations.

Required:

(a) With reference to the current situation at Bluefin School, discuss the controls and security procedures that are necessary for management information. (9 marks)

(b) Using the limited information available, evaluate the usefulness of the pack that is provided to the board of governors. (6 marks)

(c) Evaluate the improvements suggested to the information systems at Bluefin. (5 marks)

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