MAN00003M Advanced Management Accounting
Module Code: MAN00003M
MSc Degree Examinations 2020-1
Department: The York Management School
Title of Exam:
Advanced Management Accounting
24 Hours (PLEASE NOTE: Late papers will not be marked)
Allocation of Marks: Each question is worth 25 marks.
Instructions for Candidates: Answer THREE questions from the FOUR available.
A note on Academic Integrity
We are treating this online examination as a time-limited open assessment, and you are therefore permitted to refer to written and online materials to aid you in your answers.
However, you must ensure that the work you submit is entirely your own, and for the whole time the assessment is live you must not:
- communicate with departmental staff on the topic of the assessment communicate with other students on the topic of this assessment.
- seek assistance with the assignment from the academic and/or disability support services, such as the Writing and Language Skills Centre, Maths Skills Centre and/or Disability Services. (The only exception to this will be for those students who have been recommended an exam support worker in a Student Support Plan. If this applies to you, you are advised to contact Disability Services as soon as possible to discuss the necessary arrangements.)
- seek advice or contribution from any third party, including proofreaders, friends, or family members.
We expect, and trust, that all our students will seek to maintain the integrity of the assessment, and of their award, through ensuring that these instructions are strictly followed. Failure to adhere to these requirements will be considered a breach of the Academic Misconduct regulations, where the offences of plagiarism, breach/cheating, collusion and commissioning are relevant – see AM.1.2.1” (Note this supersedes section 7.3 of the Guide to Assessment).
Please note the York Management School has a policy of checking all submitted assessments using the originality report function of Turnitin text matching software. This policy will be applicable to the 24 hour online examinations. For further information please see the Integrity/Turnitin section of the Study Skills page on the University website.
Answer THREE questions from the FOUR available
Question 1 (25 marks)
MA Training (MAT) is a national organisation which provides private tuition courses in accounting. The courses are generally attended by individuals who work as bookkeepers for other companies and who want to develop their practical skills. None of the attendees is aiming towards any professional qualification or examination.
Courses are run on basic bookkeeping, value added tax, payroll, credit control, company administration and basic business management. Other bespoke courses, run on demand, are charged out at higher than normal rates.
MAT has six branches nationwide with individual branch managers. Head office is situated at Nottingham and has responsibility for company accounting, payroll and inventory ordering activities. Individual branch managers have responsibility for all other areas of the business, such as pricing, product mix and staffing.
Each branch rents its premises (a national company policy) and staff numbers range from 4 in Newcastle to 18 in Cardiff. Staff are generally former accountants, bankers and tax inspectors who concentrate on keeping courses practical and applicable to their customers.
To date managers have always been appraised by return on investment (ROI) with a target return of 40%. Branches have regularly exceeded this target and branch managers seem happy to be appraised in this manner.
John Bright, the company’s main shareholder and managing director recently visited all branches in order to promote corporate identity and inspect performance at a local level. He returned dismayed at the condition of some branch premises and feels overall that, although recent financial performance has been consistent with previous years, the company does not seem to have changed or developed since he last visited branches five years ago.
John believes that he needs to change the appraisal method for branches so that they fit more closely with what he expects from the company. He wants the business to develop and grow and become the leading provider of business training in the UK.
Answer the following questions, considering each independently from the others, and supporting your answers with appropriate calculations:
- Outline the problems the business is likely to have from its use of ROI as its sole performance indicator. [7 marks]
- Describe the balanced scorecard approach to performance measurement and how it might rectify these problems. [10 marks]
- Outline possible performance measures which might be used in each area of the balanced scorecard by MAT. [8 marks]
Question 2 (25 marks)
DK manufactures three products, W, X and Y. Each product uses the same materials and the same type of direct labour but in different quantities. The company currently uses a cost plus basis to determine the selling price of its products. This is based on full cost using an overhead absorption rate per direct labour hour. However, the managing director is concerned that the company may be losing sales because of its approach to setting prices. He thinks that a marginal costing approach may be more appropriate, particularly since the workforce is guaranteed a minimum weekly wage and has a three month notice period.
- Given the managing director’s concern about DK’s approach to setting selling prices, discuss the advantages and disadvantages of marginal cost plus pricing AND total cost-plus pricing. [10 marks]
The direct costs of the three products are shown below:
|Budgeted annual production (units)||15,000||24,000||20,000|
|$ per unit||$ per unit||$ per unit|
|Direct labour ($10 per hour)||40||30||50|
In addition to the above direct costs, DK incurs annual indirect production costs of
- Calculate the full cost per unit of each product using DK’s current method of absorption [3 marks]
An analysis of the company’s indirect production costs shows the following:
|Material ordering costs||220,000||Number of supplier orders|
|Machine setup costs||100,000||Number of batches|
|Machine running costs||400,000||Number of machine hours|
|General facility costs||324,000||Number of machine hours|
The following additional data relate to each product:
|Machine hours per unit||5||4||8|
|Batch size (units)||500||400||1000|
|Supplier orders per batch||4||3||5|
- Calculate the full cost per unit of each product using activity-based costing and briefly comment on the contrast to your results in part (b).
Question 3 (25 marks)
Fisher designs, develops and sells many PC games. Games have a short lifecycle lasting around three years only.
Performance of the games is measured by reference to the profits made in each of the expected three years of popularity. Fisher accepts a net profit of 35% of turnover as reasonable. A rate of contribution (sales price less variable cost) of 75% is also considered acceptable.
Fisher has a large centralised development department which carries out all the design work before it passes the completed game to the sales and distribution department to market and distribute the product.
Fisher has developed a brand new game called Stealth and this has the following budgeted performance figures.
The selling price of Stealth will be a constant £30 per game. Analysis of the costs show that at a volume of 10,000 units a total cost of £130,000 is expected. However at a volume of 14,000 units a total cost of £150,000 is expected. If volumes exceed 15,000 units the fixed costs will increase by 50%.
Stealth’s budgeted volumes are as follows:
|Year 1||Year 2||Year 3|
|Sales volume||8,000 units||16,000 units||4,000 units|
In addition, marketing costs for Stealth will be £60,000 in year one and £40,000 in year two.
Design and development costs are all incurred before the game is launched and has cost £300,000 for Stealth. These costs are written off to the income statement as incurred (ie before year 1 above).
- Explain the principles behind lifecycle costing and briefly state why Fisher in particular should consider these lifecycle principles. [5 marks]
- Produce the budgeted results for the game ‘Stealth’ and briefly assess the game’s expected performance, taking into account the whole lifecycle of the game. [10 marks]
- Explain why incremental budgeting is a common method of budgeting and outline the main problems with such an approach. [6 marks]
- Discuss the extent to which a meaningful standard cost can be set for games produced by Fisher. You should consider each of the cost classifications mentioned above. [4 marks]
Question 4 (25 marks)
‘Business strategy produces long-term plans for the business, taking into consideration plans and possible actions of competitors, the main objective being to position the firm so it has a competitive advantage…
If management accounting is to play this role in strategic management, it must provide managers not only with internal, financial information, but also with information, both financial and non-financial, about the environment in which the firm is operating: strategic management accounting’ (Lord, 2007, p.135).
Discuss the previous statement, taking into consideration the following perspectives:
- The sufficiency of strategic management accounting components in achieving the new firm’s roles in comparison to the traditional management accounting. [15 marks]
- The appropriateness of the new performance evaluation techniques (such as balanced scorecard and strategic management accounting techniques) to the strategic management accounting objectives in comparison to the traditional performance measures. [10 marks]
END OF EXAMINATION