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Section B – TWO questions ONLY to be attemptedCuthbert is based in Ceeland and manufacture

Section B – TWO questions ONLY to be attempted

Cuthbert is based in Ceeland and manufactures jackets for use in very cold environments by mountaineers and skiers. It also supplies the armed forces in several countries with variants of existing products, customised by the use of different coloured fabrics, labels and special fastenings for carrying equipment. Cuthbert incurs high costs on design and advertising in order to maintain the reputation of the brand.

Each jacket is made up of different shaped pieces of fabric called ‘components’. These components are purchased by Cuthbert from an external supplier. The external supplier is responsible for ensuring the quality of the components and the number of purchased components found to be defective is negligible. The cost of the components forms 80% of the direct cost of each jacket, and the prices charged by Cuthbert’s supplier for the components are the lowest in the industry. There are three stages to the production process of each jacket, which are each located in different parts of the factory:

Stage 1 – Sewing

The fabric components are sewn together by a machinist. Any manufacturing defects occurring after sewing has begun cannot be rectified, and finished garments found to be defective are heavily discounted, or in the case of bespoke variants, destroyed.

Stage 2 – Assembly

The garments are filled with insulating material and sewn together for the final time.

Stage 3 – Finishing

Labels, fastenings and zips are sewn to the finished garments. Though the process for attaching each of these is similar, machinists prefer to work only on labels, fastenings or zips to maximise the quantity which they can sew each hour.

Jackets are produced in batches of a particular style. in a range of sizes. Throughout production, the components required for each batch of jackets are accompanied by a paper batch card which records the production processes which each batch has undergone. The batch cards are input into a production spreadsheet so that the stage of completion of each batch can be monitored and the position of each batch in the factory is recorded.

There are 60 machinists working in the sewing department, and 40 in each of the assembly and finishing departments. All the machinists are managed by 10 supervisors whose duties include updating the batch cards for work done and inputting this into a spreadsheet, as well as checking the quality of work done by machinists. The supervisors report to the factory manager, who has overall responsibility for the production process.

Machinists are paid an hourly wage and a bonus according to how many items they sew each week, which usually comprises 60% of their total weekly wages.

Supervisors receive an hourly wage and a bonus according to how many items their team sews each week. The factory manager receives the same monthly salary regardless of production output. All employees are awarded a 5% annual bonus if Cuthbert achieves its budgeted net profit for the year.

Recently, a large emergency order of jackets for the Ceeland army was cancelled by the customer as it was not delivered on time due to the following quality problems and other issues in the production process:

– A supervisor had forgotten to input several batch cards and as a result batches of fabric components were lost in the factory and replacements had to be purchased.

– There were machinists available to sew buttons onto the jackets, but there was only one machinist available who had been trained to sew zips. This caused further delay to production of the batch.

– When the quality of the jackets was checked prior to despatch, many of them were found to be sewn incorrectly as the work had been rushed. By this time the agreed delivery date had already passed, and it was too late to produce a replacement batch.

This was the latest in a series of problems in production at Cuthbert, and the directors have decided to use business process reengineering (BPR) in order to radically change the production process.

The proposal being considered as an application of BPR is the adoption of ‘team working’ in the factory, the three main elements of which are as follows:

1. Production lines would re-organise into teams, where all operations on a particular product type are performed in one place by a dedicated team of machinists.

2. Each team of machinists would be responsible for the quality of the finished jacket, and for the first time, machinists would be encouraged to bring about improvements in the production process. There would no longer be the need to employ supervisors and the existing supervisors would join the teams of machinists.

3. The number of batches in production would be automatically tracked by the use of radio frequency identification (RFID) tags attached to each jacket. This would eliminate the need for paper batch cards, which are currently input into a spreadsheet by the supervisors.

You have been asked as a performance management consultant to advise the board on whether business process reengineering could help Cuthbert overcome the problems in its production process.

Required:

(a) Advise how the proposed use of BPR would influence the operational performance of Cuthbert. (14 marks)

(b) Evaluate the effectiveness of the current reward systems at Cuthbert, and recommend and justify how these systems would need to change if the BPR project goes ahead. (11 marks)

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更多“Section B – TWO questions ONLY to be attemptedCuthbert is based in Ceeland and manufacture”相关的问题

第1题

Section A – This ONE question is compulsory and MUST be attemptedFlack Supermarkets (Flack

Section A – This ONE question is compulsory and MUST be attempted

Flack Supermarkets (Flack) is a multi-national listed business operating in several developing countries. The business is divided into two divisions: Metro, which runs smaller stores in the densely populated centres of cities and Hyper, which runs the large supermarkets situated on the edges of cities. Flack sells food, clothing and some other household goods.

Competition between supermarkets is intense in all of Flack’s markets and so there is a constant need to review and improve their management and operations. The board has asked for a review of their performance report to see if it is fit for the purpose of achieving the company’s mission of being:

‘…the first choice for customers by providing the right balance of quality and service at a competitive price. We will achieve this through acting in the long-term interests of our stakeholders: earning customer loyalty, utilising all our resources and serving our shareholders’ interests.’

This report is used at Flack’s board level for their annual review. The divisional boards have their own reports. Also, there has been criticism of the board of Flack in the financial press that they are ‘short-termist’ and so the board wants your evaluation of the performance report to include comments on this. A copy of the most recent report is provided as an example at Appendix 1.

The board is considering introducing two new performance measures to address the objective of ‘utilising all our resources’. These are revenue and operating profit per square metre. The CEO also wants an evaluation of these two measures explaining how they might address this aspect of the mission, what those ratios currently are and how they could be used to manage business performance. There is information in Appendix 1 to assist in this work.

There have been disagreements between Flack’s divisional management about capital allocation. The divisions have had capital made available to them. Both sets of divisional managers always seem to want more capital in order to open more stores but historically have been reluctant to invest in refurbishing existing stores. The board is unsure of capital spending priorities given that the press comments about Flack included criticism of the ‘run-down’ look of a number of their stores. The board wants your comments on the effectiveness of the current divisional performance measure of divisional operating profit and the possibility of replacing this with residual income in the light of these problems.

As the company is opening many new stores, the board also wants an assessment of the use of expected return on capital employed (ROCE) as a tool for deciding on new store openings, illustrating this using the data in Appendix 2 on one new store proposal. The focus of comments should be on the use of an expected value not on the use of return on capital employed, as this is widely used and understood in the retail industry.

Finally, the CEO has proposed to the board that a new information system be introduced. She wishes to spend $100m on creating a loyalty card programme with a data warehouse collecting information from customers’ cards regarding their purchases. Her plan is to use this information to target advertising, product range choices and price offers more efficiently than at present.

Required:

Write a report to the board of Flack to:

(i) Evaluate the performance report of Flack, using the example provided in Appendix 1, as requested by the board. (14 marks)

(ii) Evaluate the introduction of the two measures of revenue and operating profit per square metre, as requested by the CEO. (8 marks)

(iii) Assess the proposal to change the divisional performance measure. Note: No calculations of the current values are required. (8 marks)

(iv) Calculate the expected return on capital employed for the new store and assess the use of this tool for decision-making at Flack. (8 marks)

(v) Explain how the proposed new information system can help to improve business performance at Flack. (8 marks)

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

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第2题

Godel Goodies (Godel) manufactures a variety of own-label sweets for the two largest super

market chains in Seeland. The business makes several different flavours of the same basic product. The strategy of the business has been to be a cost leader in order to win the supermarkets’ business. The sales of Godel vary up and down from quarter to quarter depending on the state of the general economy and competitive forces. Most of the sweet manufacturers have been in business for decades and so the business is mature with little scope to be innovative in new product development. The supermarkets prefer to sign suppliers to long-term contracts and so it is difficult for new entrants to gain a foothold in this market. The management style. at Godel is very much command-and-control which fits with the strategy and type of business. Indeed, most employees have been at Godel for many years and have expressed their liking for the straightforward nature of their work.

The chief executive officer (CEO) of Godel has asked your firm of accountants to advise him as his finance director (FD) will be absent for several months due to a recently diagnosed illness. As the CEO is preparing for the next board meeting, he has obtained the operating statement and detailed variance analysis from one of the junior accountants (Appendix 1).

The CEO is happy with the operating statement but wants to understand the detailed operational and planning variances, given in Appendix 1, for the board meeting. He needs to know what action should be taken as a result of these specific variances.

The FD had been looking at the budgeting process before she fell ill. The CEO has decided that you should help him by answering some questions on budgeting at Godel.

Currently, the budget at Godel is set at the start of the year and performance is measured against this. The company uses standard costs for each product and attributes overheads using absorption costing based on machine hours. No variations are allowed to the standard costs during the year. The standard costs and all budget assumptions are discussed with the relevant operational manager before being set. However, these managers grumble that the budget process is very time-consuming and that the results are ultimately of limited value from their perspective. Some of them also complain that they must frequently explain that the variances are not their fault. The CEO wants to know your views on whether this way of budgeting is appropriate and whether the managers’ complaints are justified. He is satisfied that there is no dysfunctional behaviour at Godel which may lead to budget slack or excessive spending and that all managers are working in the best interests of the company.

Finally, in the last few months, the FD had been reading business articles and books and had mentioned that there were a number of organisations which were trying to go beyond budgeting. The CEO is concerned that he does not understand what budgeting does for the business and this is why he wants you to explain what are the benefits and problems of budgeting at Godel before considering replacing it.

Required:

(a) Advise the CEO on the implications for performance management at Godel of analysing variances into the planning and operational elements as shown in Appendix 1. (6 marks)

(b) Evaluate the budgeting system at Godel. (11 marks)

(c) Evaluate the proposal to move to a beyond budgeting method of control at Godel, giving a recommendation on whether to proceed. (8 marks)

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第3题

Turing Aerodynamics (Turing) has formed a joint venture (JV) with Riemann Generators (Riem

ann) in order to design and manufacture high-performance wind turbines which generate electricity. The joint venture is called TandR with each party owning 50%. Turing will design and build the pylons, housing and turbine blades while Riemann will supply the generators to be fitted inside the housing.

Turing is a medium sized firm known for its blade design skills. It is owned by three venture capital firms (VCs) (each holding 30% of the shares), with the remaining 10% being given to management to motivate them. The VCs each have a large portfolio of business investments and accept that some of these investments may fail provided that some of their investments show large gains. Management is an ambitious group who enjoys the business and technical challenges of introducing new products.

On the other hand, Riemann is a large, family-owned company working in the highly competitive electricity generator sector. The shareholders of Riemann see the business as mature and want it to offer a stable, long-term return on capital. However, recently, Riemann had to seek emergency refinancing (debt and equity) due to its thin profit margins and tough competition, both of which are forecast to continue. As a result, Riemann’s shareholders and management are concerned for the survival of the business and see TandR as a way to generate some additional cash flow. Unlike at Turing, the management of Riemann does not own significant shareholdings in the company which has preferred to pay fixed salaries.

TandR is run by a group of managers made up from each of the JV partners. They are currently faced with a decision about the design of the product. There are three design choices depending on the power which the wind turbines can generate (measured in megawatts [MW]):

The engineering for the 1 MW and 3 MW units is well understood and so design is much simpler than for the 8 MW unit which would be world leading if completed.

The demand for the different types of units will depend on government subsidies of the electricity price charged by the electricity generating companies who will buy the wind turbines and the planning regulations for building such large structures. It is believed that there will be orders for either 1,000 or 1,500 or 2,000 units but there is no clear picture yet of which demand level is more likely than the others.

The estimated costs and prices for the units are:

Notes:

1. The fixed costs cover the initial design, development and testing of the units.

2. The costs and prices are in real terms with the 8 MW unit likely to take two more years to develop than the others.

Required:

(a) Assess the risk appetites of the two firms in the joint venture and provide a justified recommendation for each firm of an appropriate method of decision-making under uncertainty to assess the different types of wind turbines. (9 marks)

(b) Evaluate the choice of turbine design types using your recommended methods from part (a) above. (8 marks)

(c) Discuss the problems encountered in managing performance in a joint venture such as TandR. (8 marks)

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第4题

Section B – TWO questions ONLY to be attemptedBooxe is a furniture manufacturing company b

Section B – TWO questions ONLY to be attempted

Booxe is a furniture manufacturing company based in the large, developed country of Teeland. Booxe is the largest furniture manufacturer in Teeland supplying many of the major retail chains with their own-brand furniture and also, making furniture under its own brand (Meson). In a highly competitive market such as Teeland, Booxe has chosen a strategy of cost leadership.

Booxe has been in business for more than 70 years and there is a strong sense of tradition and appreciation of craft skills in the workforce. The average time which an employee has worked for the firm is 18 years. This has led to a bureaucratic culture; for example, the company’s information systems are heavily paper based. In addition and in line with this traditional culture, the organisation is divided into a set of functional departments, such as production, warehousing, human resources and finance.

In order to drive down costs, the chief executive officer (CEO) decided to re-engineer the processes at Booxe. She decided that there should be a small pilot project to demonstrate the potential of business process re-engineering (BPR) to benefit Booxe and she selected the goods receiving activity in the company’s warehousing operations for this.

The CEO has asked you as a performance management expert to complete the post-implementation review of the pilot project by assessing what it has delivered in financial terms. The project identified that 10 of the warehouse staff spend about half of their time matching goods delivered documents to purchase orders and dealing with subsequent problems. It was noted that 25% of all such matches failed and the staff then had to identify the issue and liaise with the purchasing department in order to get the goods returned to the supplier and a suitable credit note issued. The project introduced a new information system to replace the existing paper-based system. The new system allowed purchase orders to be entered by the purchasing department and then checked online to the goods delivered as they arrived at the warehouse. This allowed warehouse staff to reject incorrect deliveries immediately.

The following are further details provided in relation to the project:

Notes relating to old system:

1 Average staff wage in warehouse $25,000 p.a.

2 Purchasing staff time in handling delivery queries 8·5 days per week

3 Average staff wage in purchasing is $32,000 p.a. for working a 5-day week

Notes relating to new system:

New IT system costs:

The CEO now plans to apply BPR across Booxe and as well as completing the post-implementation review, she also needs to know how BPR will change the accounting information systems and the culture at Booxe. Booxe’s current accounting system is a traditional one of overhead absorption based on labour hours with variances to budget used as control indicators. She has heard that an activity-based approach using enterprise resource planning (ERP) systems is fairly common and wants to know how these ideas might link to BPR at Booxe.

The CEO is concerned that middle management unrest may be a problem at Booxe. For example, the warehouse manager was uncomfortable with the cultural change required in the BPR project and decided to take early retirement before the project began. As a result, a temporary manager was put in place to run the warehouse during the project.

The CEO has also begun to reconsider the human resources system at Booxe and she wants your advice on how the staff appraisal process can improve performance in the company. The existing system of manager appraisal is for the staff member to have an annual meeting with their line superior to review the previous year’s work and discuss generally how to improve their efforts. Over the years, it has become common for these meetings to be informal and held over lunch at the company’s expense. The CEO wants to understand the purpose of a staff appraisal system and how the process can improve the performance of the company. She also wants comments on the appropriate balance between control and staff development as this impacts on staff appraisal at Booxe.

Required:

(a) Assess the financial impact of the pilot business process re-engineering (BPR) project in the warehousing operations. (6 marks)

(b) Assess the impact of BPR on the culture and management information systems at Booxe. (11 marks)

(c) Advise on the appraisal process at Booxe as instructed by the CEO. (8 marks)

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第5题

Section A – This ONE question is compulsory and MUST be attemptedCantor Group (Cantor) is

Section A – This ONE question is compulsory and MUST be attempted

Cantor Group (Cantor) is a listed company with two subsidiaries, both involved in food and drink retailing in the small country of Deeland. Its mission is ‘to maximise shareholder value through supplying good value food and drink in appealing environments for our customers’.

Cantor Cafes (Cafes) is the original operating company for the group and is a chain of 115 cafes specialising in different coffee drinks but also serving some simple food dishes. Cafes has been running successfully for 15 years and has reached the limit of its expansion as the cafe market is now considered to be saturated with competition. Further growth will occur only as the opportunity to obtain profitable, new sites is presented, although such opportunities are not expected to be significant over the next few years.

Cantor Juicey (Juicey) was started by the Cantor Group two years ago. Now, it is made up of 15 juice bars which serve a variety of blended fruit juice drinks and health snacks. The products served by Juicey have benefited from an increased awareness in Deeland of the need to eat and drink healthily. Cantor Group expects to increase the rate of property acquisition in order to feed the rapid growth of this business, intending to open 25 outlets per year for the next four years.

Cantor Group organises its two subsidiaries in a similar way, as they are involved in similar areas of business. There is one exception to this, namely in the arrangements over the properties from which the subsidiaries operate. Cafes rent their properties on the open market on standard commercial terms with a five-year lease at a fixed rental payable quarterly in advance. Juicey, on the other hand, has made a single arrangement with a large commercial landlord for all of its properties. Juicey has agreed that the rent for its sites is a percentage of the revenue generated at each site. Juicey believes that it can continue its expansion by obtaining more sites from this landlord under the same terms.

The board of Cantor is reviewing their performance reporting systems and would like your evaluation of the current report given in Appendix 1. This report contains information for both of the subsidiaries and the group and is used by all three boards. The CEO has advised you that the board does not require an evaluation of Cantor’s performance. However, the CEO does want you to consider the cost structures at Cantor and advise on the implications of the mix of fixed and variable elements in the key cost areas of staff and property for performance management.

At a recent shareholder meeting of Cantor, one of the large shareholders expressed concern that the group lacks focus and suggested the introduction of value-based management (VBM) using economic value added (EVATM) as the measure of value. Cantor’s CEO has asked you, their strategic management accountant, to give the board more information on the implications of this suggestion. She has asked you to do an example calculation of the EVATM for the Group using the current data (Appendices 1 and 2) and explain how the shareholders might view the result. Next, the board needs to have the VBM system explained and evaluated to be able to make a decision about its use at Cantor.

Finally, the board is considering amending the mission statement to include more information on the ethical values of the company. The area being considered for inclusion in the overall mission is on the treatment of employees as it is felt that they should share in the progress and profitability of Cantor since a happy working environment will help them to better serve the customers.

The proposed new mission statement would read:

‘to maximise shareholder value and to provide a fair deal to our employees by supplying good value food and drink in appealing environments for our customers.’

The CEO has asked you to consider how the Group’s performance in the area regarding employees could be measured using the current management information at Cantor. You have obtained additional information from the management information system to assist with this task, given in Appendix 3.

Appendix 2

Additionally, you have discovered the following data about the group for the financial year:

7 There has been $2·1m of tax paid in the year.

8 It is estimated that half of the marketing spend of $7·638m is building the Cantor brand long term.

9 It is further estimated that there has been the same level of annual spending on long-term brand building in the years leading up to 2014.

Appendix 3

Additional management information

Note:

1. Group numbers include Cafes, Juicey and head office numbers

Required:

Write a report to the CEO of Cantor to:

(i) Evaluate the current performance report in Appendix 1. (15 marks)

(ii) Assess the balance of fixed and variable elements of the CEO’s two key costs in each of the two subsidiaries and the impact which this may have on performance management of these costs. Note: Detailed calculations are not required. (6 marks)

(iii) Evaluate the economic value added (EVATM) of Cantor Group, justifying any assumptions made. (9 marks)

(iv) Explain how value-based management (VBM) could be implemented at Cantor and evaluate its potential impact on the group. (10 marks)

(v) Using the information in the appendices, provide justified recommendations for suitable performance measures to reflect the proposed change in the company’s mission statement. (6 marks)

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

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第6题

Herman Swan & Co (HS) is a family-owned company that has made fashionable clothes and

leather goods for men for over 100 years. The company has been successful in building a strong reputation for quality by sourcing from local textile and leather producers. It sells its goods across the world through a chain of owned shops and also franchised stalls inside large, well-known stores. The company is still owned and run by the family with no other shareholders. The main goal of the firm is to organically grow the business for the next generation of the Swan family.

Customers are attracted to HS products due to the history and the family story that goes behind the products. They are willing to pay the high prices demanded as they identify with the values of the firm, especially the high quality of manufacturing.

The competition for HS has been increasing for more than ten years. It is made up of other global luxury brands and also the rising national champions in some of the rapidly expanding developing countries. The competitors often try to leverage their brands into many different product types. However, the Swan family have stated their desire to focus on the menswear market after an unsuccessful purchase of a handbag manufacturer five years ago.

The company is divided into a number of strategic business units (SBU). Each production site is an SBU, while the whole retail operation is one SBU. The head office previously functioned as a centre for procurement, finance and other support activities. The company has recently invested in a new management information system (MIS) that has increased the data available to all managers in the business. This has led to much of the procurement shifting to the production SBUs and the SBU managers taking more responsibility for budgeting. The SBU managers are delighted with their increased responsibilities and with the results from the new information system but feel there is still room for improvement in its use. The system has assisted in a project of flattening the organisation hierarchy by cutting out several layers of head office management.

You are the management accountant at HS and have been trying to persuade your boss, the finance director, that your role should change. You have read about Burns and Scapens’ report ‘Accounting Change Project’ and think that it suggests an interesting change from your current roles of preparing and reviewing budgets and overseeing the production of management and financial accounts. Your boss is sceptical but is willing to listen to your arguments. He has asked you to submit an explanation of the change that you propose and why it is necessary at HS.

Also, your boss has asked you for an example of how your role as an ‘internal consultant’ would be valuable at HS by looking at the ideas of brand loyalty and awareness. You should consider their impact on performance management at HS, both from the customer and the internal business process perspectives and how to measure them.

Required:

(a) Describe the changes in the role of the management accountant based on Burns and Scapens work. Explain what is driving these changes and justify why they are appropriate to HS. (12 marks)

(b) Using HS as an example, discuss the impact of brand loyalty and awareness on the business both from the customer and the internal business process perspectives and evaluate suitable measures for brand loyalty and awareness. (8 marks)

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第7题

Coal Creek Nursing Homes (CCNH) is a company operating residential care homes for the elde

rly in Geeland. Residents are those elderly people who can no longer care for themselves at home and whose family are unable to look after them. There are 784 homes with about 30,000 residents under the care of the company. There are about 42,500 staff, who range from head office staff through the home managers to the care staff and cleaners and caterers. The company is a private company which aims to make a suitable return to its shareholders. It had revenues of $938m in the last year and is one of the largest providers of residential care places in Geeland.

The company is split into two divisions: General Care (GC) which handles ordinary elderly residents and Special Care (SC), which is a newer operation that handles residents who need intensive care and attention due to physical or mental ailments.

The company does not own its homes but rents these from a number of large commercial landlords. It has taken on a large number of new homes recently in order to cope with the expansion of SC, which has proved successful with 24% pa revenue growth over the last two years. GC is a mature business with little growth in a sector that is now fully supplied. GC has seen volumes and margins falling as price pressure comes from its main customers (public sector health organisations who contract out this part of their care provision).

A new chief executive officer (CEO) has just taken over at CCNH. She was appointed because the board of CCNH believed that the company was in difficulty. The previous CEO had been forced to leave following a scandal involving a number of the homes where residents’ money had gone missing and their families had called in the police. The finance director and the operations director had also resigned, leaving the company without any experienced senior management.

The board have tasked the new CEO with ascertaining the current position of the business and identifying a strategy to address the issues that arise. The CEO wants to address the strategy, deciding whether to divest or retain elements of the business.

The CEO has come to you, as the most senior member of finance staff, for assistance with this task. The first area that she wants help on is the problem that the business is having with its landlords. The company struggled to meet its most recent rental payment, which the bank eventually agreed to cover through an increase to the overdraft, as CCNH had no ready cash. She is upset that the chosen strategic measures of performance (earnings per share growth and operating profit margin) did not identify the difficulties that the firm is now facing. One of the other directors had mentioned gearing problems but she did not follow what this meant.

Also, she has heard of qualitative models for predicting corporate failure and wants to apply one at CCNH. Obviously, she wants to know if CCNH exhibits any symptoms of failure.

You have been given the outline financial statements to help with this task (see Appendix on the next page).

Required:

(a) Discuss why indicators of liquidity and gearing need to be considered in conjunction with profitability at CCNH. Illustrate your answer with suitable calculations. (11 marks)

(b) Explain one qualitative model for predicting corporate failure (such as Argenti) and comment on CCNH’s position utilising this model. You are not expected to give scores, only to comment on the areas of weakness at CCNH. (9 marks)

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第8题

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

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.

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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第9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.

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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10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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