Universities in Teeland have three stated objectives:1. To improve the overall standard of

Universities in Teeland have three stated objectives:

1. To improve the overall standard of education of citizens in Teeland.

2. To engage in high quality academic research.

3. To provide well-qualified university graduates to meet the needs of the graduate jobs market in Teeland.

Each university is funded by a fixed sum of money from the Teeland government according to the number of students studying there. In addition, universities receive extra funds from the government and also from other organisations, such as large businesses and charities. These funds are used to support academic research.

Following the onset of an economic recession, the Teeland government has stated its intention to reduce spending on publicly funded services such as the universities. One senior politician, following his recent visit to neighbouring Veeland, was controversially quoted as saying:

‘The universities in Veeland offer much better value for money for the citizens there compared to our universities here in Teeland. There are 25 students for each member of academic staff in Veeland, whereas in Teeland, the average number is 16, and yet, the standard of education of citizens is much higher in Veeland. The Veeland government sets targets for many aspects of the services delivered by all the universities in Veeland. Furthermore, league tables of the performance of individual universities are published on the internet, and university leaders are given bonuses if their university falls within the top quarter of the league table. In Veeland, the system of performance measurement of the universities is considered so important that there is a special government department of 150 staff just to measure it.’

He went on to add, ‘I want to see a similar system of league tables, targets and bonuses for university leaders being introduced here in Teeland. To appear near the top of the league tables, I think we should expect each university to increase the number of graduates entering graduate jobs by at least 5% each year. I would also like to see other steps taken to increase value for money, such as reducing the number of academic staff in each university and reducing the salary of newly recruited academic staff.’

You have been asked to advise the Teeland government on the measurement of value for money of the universities and the proposed introduction of league tables for comparing their performance. Appendix A contains details and existing performance data relating to four of the best known universities in Teeland.

Northcity University is famous for its high teaching standards and outstanding academic research in all subjects. As such, it attracts the most able students from all parts of the world to study there.

Southcity University is a large university in the capital city of Teeland and offers courses in a wide range of subjects, though most of the funding it receives for academic research is for science and technology in which it is particularly successful.

Eastcity University is a small university specialising in the teaching of arts and humanities subjects such as history and geography.

Westcity University currently offers less strict entry standards to students to attract students from more diverse backgrounds, who may not normally have the opportunity of a university education.

Appendix A

Existing university performance data

Key to performance data

1 – Entry requirements represent students’ average attainment in examinations prior to entering university. The entry requirement of the highest ranking university is scored as 100, with the score of all other universities being in proportion to that score.

2 – The number of graduates each year who go on to further study or who begin jobs normally undertaken by university graduates. In Teeland, students attend university for an average of 3·2 years.

3 – The TSOR (Teeland students overall satisfaction rating) survey is undertaken by the Teeland government to assess students’ overall satisfaction with the standard of teaching, the social and support aspects of university life and their optimism for their own future job prospects.

4 – The education department of the Teeland government has produced a provisional league table ranking the overall performance of each of the 45 universities in Teeland, with 1 being the highest ranking university. This has been compiled using a number of performance measures, weighted according to what the government believes are the most important of these measures.


(a) Advise the Teeland government how it could assess the value for money of the universities in Teeland, using the performance data in Appendix A. (12 marks)

(b) Assess the potential benefits of league tables for improving the performance of universities in Teeland and discuss the problems of implementing the proposal to introduce league tables. (13 marks)


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Dibble is formed of two autonomous divisions, Timber and Steel, and manufactures component

Dibble is formed of two autonomous divisions, Timber and Steel, and manufactures components for use in the construction industry. Dibble has always absorbed production overheads to the cost of each product on the basis of machine hours.

Timber Division

Timber Division manufactures timber frames used to support the roofs of new houses. The timber, which is purchased pre-cut to the correct length, is assembled into the finished frame. by a factory worker who fastens the components together. Timber Division manufactures six standard sizes of frame. which is sufficient for use in most newly built houses.

Steel Division

Steel Division manufactures steel frames and roof supports for use in small commercial buildings such as shops and restaurants. There is a large range of products, and many customers also specify bespoke designs for short production runs or one-off building projects. Steel is cut and drilled using the division’s own programmable computer aided manufacturing machinery (CAM), and is bolted together or welded by hand.

Steel Division’s strategy is to produce novel bespoke products at a price comparable to the simpler and more conventional products offered by its competitors. For example, many of Steel Division’s customers choose to have steel covered in one of a wide variety of coloured paints and other protective coatings at the end of the production process. This is performed off-site by a subcontractor, after which the product is returned to Steel Division for despatch to the customer. Customers are charged the subcontractor’s cost plus a 10% mark up for choosing this option. The board of Steel Division has admitted that this pricing structure may be too simplistic, and that it is unsure of the overall profitability of sales of some groups of products or sectors of the market.

Recently, several customers have complained that incorrectly applied paint has flaked off the steel after only a few months’ use. More seriously, a fast food restaurant has commenced litigation with Dibble after it had to close for a week while steel roof frames supplied by Steel Division were repainted. Following this, the production manager has proposed increasing the number of staff inspecting the quality of coating on the frames, and purchasing expensive imaging machinery to make inspection more efficient.

The chief executive officer (CEO) at Dibble has approached you as a performance management expert for your advice. ‘At a conference recently’, he told you, ‘I watched a presentation by a CEO at a similar business to ours talking about the advantages and disadvantages of using activity based costing (ABC) and how over several years the adoption of activity based management (ABM) had helped them to improve both strategic and operational performance.’

‘I don’t want you to do any detailed calculations at this stage, but I’d like to know more about ABC and ABM, and know whether they would be useful for Dibble’, he said.

You are provided with extracts of the most recent management accounts for Timber and Steel Divisions:


(a) (i) Advise the CEO how activity based costing could be implemented. (4 marks)

(ii) Assess whether it may be more appropriate to use activity based costing in Timber and Steel Divisions than the costing basis currently used. (8 marks)

(b) Advise the CEO how activity based management could be used to improve business performance in Dibble. (13 marks)


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.


(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)


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.


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)


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

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


(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)


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

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


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.


(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)


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.


(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)


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


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


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)


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

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.


(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)


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

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


(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)


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.


(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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