1 ACCT3583 MANAGEMENT ACCOUNTING 2 Term 3, 2021 Sample Exam Questions Final Exam Sample Questions To aid your final exam preparations, attached is a selection of past final exam questions relevant to the topics covered in MA2. Before you attempt these sample questions, please note that: We strongly encourage you to attempt these questions under “exam conditions” – give yourself approximately 2 minutes per mark. Even if you think the questions are easy, you should try them anyway as often it is much harder to attempt the question under time pressure. We encourage you to attempt these questions and then review the guides for the solutions. You can then bring your answers along to our consultation time. We will then look at your answers and give you some constructive comments. You must attempt the questions BEFORE you come to our consultation – our comments will be based on your written answers. 2 Question 1 [18 Marks] QuikSpeed Ltd is an Australian company that is in the business of designing, developing, producing, and marketing athletic footwear and sporting apparel. An organisation chart, outlining the main categories of activity in the QuikSpeed business, is provided in Figure 1 below. Figure 1: QuikSpeed Organisation Chart Chairman and Board of Directors CEO (Gordon Speed) Procurement & Logistics Sourcing raw materials Inbound logistics Warehousing Outbound logistics Research & Development Product aesthetics Technological R&D Corporate Services Legal services Accounting Information technology support Sales & Marketing Negotiation and management of retail distributors Product marketing Intra-corporate communications Manufacturing Production of all athletic footwear and sporting apparel Retail Sales Online Sales Management of concept stores (1) Management of discount factory stores (2) Human Resources Recruitment Training Performance Appraisal (1) Concept stores are QuikSpeed branded retail outlets, which only stock QuikSpeed products and, according to Gordon Speed, aim to provide a “veritable retail sports arena of information about QuikSpeed products and sports heritage, and an inspiration for the athlete in everybody.” (2) Discount factory stores are retail outlets that sell discontinued lines of QuikSpeed products at discounted prices. QuikSpeed is gaining acceptance in the Australian market as a high-quality provider of innovative and technologically superior sportswear. As a result, the business is growing rapidly. As an Australian owned company, QuikSpeed has devoted itself to manufacturing its products in-house, thereby keeping Australians employed and maintaining full control over design and production activities. The CEO and founder of QuikSpeed, Gordon Speed, is a staunch advocate of this operational approach and has openly promoted this quality of their business in the marketplace. However, keeping all operating activities in-house is increasingly becoming a constraint on the business. For example, QuikSpeed is finding it more difficult to keep up with the growing demand for its products. 3 Another issue is that much of the equipment used by QuikSpeed is aging and becoming outdated. As a result, Gordon is considering the possibility of outsourcing some of their operational activities. Gordon has sought your advice regarding this matter. Required: (a) What is a core competency Identify four (4) characteristics of a core competency that distinguish it from an organizational capability. (3 marks) (b) Why is the concept of core competencies relevant in outsourcing considerations (2 marks) (c) Gordon Speed has sought your advice about activities that may be potentially suitable to outsource. From the organisation chart provided in Figure 1 above, identify two (2) main categories of activity that may potentially be suitable for QuikSpeed to outsource. Justify your selection with specific reference to the context of the QuikSpeed business. (4 marks). (d) Assume that QuikSpeed has decided to consider the possibility of outsourcing their manufacturing activities. Gordon Speed has again sought your advice, because of your expertise in this area. Identify two (2) potential benefits of outsourcing QuikSpeed’s manufacturing activities. Justify the benefits identified with specific reference to the context of the QuikSpeed business. (4 marks). (e) Simons (2000) discusses three sources of strategic risks (i.e., operations, asset impairment and competitive). Identify and discuss two (2) asset impairment risks for QuikSpeed Ltd. (5 marks) 4 Question 2 [17 Marks] PART A Stellar Enterprises is an Australian company that manufactures refrigerator elements. Stellar has grown at a rapid pace in recent years. However, to stay ahead of the competition, the company’s new CEO, Robyn Reddy, believes that the company should look for ways of improving value delivered to customers. But first, Robyn would like to get a better idea of who her more profitable customers are. In terms of calculating customer profitability, Robyn has been receiving conflicting advice. The Executive Vice President of Sales, Jemma Toms, has emphasised allocating all selling, general and administrative costs (SG&A) on the basis on sales dollars: “Our business is about generating sales from customers, so any customer- related costs should be allocated according to the sales revenue from each customer. Stellar’s chief financial officer, Costa Conrads, disagrees. He recommends that a more detailed allocation of SG&A costs should be carried out. “We should identify drivers of SG&A costs so that customer differences are better reflected in SG&A cost allocations.” Required: Identify two specific decisions that customer profitability information would facilitate in managing customer value [2 marks] PART B Robyn is still unsure of whose advice to take and so commissioned a pilot analysis of customer profitability. Robyn selected two of Stellar’s major customers (Halley Refrigeration and SubZero Corporation) to be the subject of this analysis. Gross profit information about these two customers and for the company as a whole (for the year ended 30 June 2021) appears below: Halley SubZero Company Total Sales revenue $215,000 $154,000 $1,107,000 Cost of goods sold $95,000 $68,000 $489,000 The following table provides customer-related cost information for all Stellar’s customers (for the year ended 30 June 2021): Customer-related activity Company total 2021 cost Cost driver Company total driver activity Sales activity $32,400 Sales visits made to each customer 36 visits Order taking $23,400 Purchase orders processed 135 orders Special handling $103,500 Number of specially handled units 3450 orders Special shipping $67,500 Number of special shipments 135 shipments Total SG&A Cost $226,800 5 Finally, the table below provides customer-related activity information for Halley and Subzero (for the year ended 30 June 2021): Cost drivers Halley SubZero Sales visits made to each customer 4 visits 8 visits Purchase orders processed 20 orders 25 orders Number of specially handled units 500 units 600 units Number of special shipments 20 shipments 25 shipments Required: i) Calculate customer profitability and customer profit margin (after the allocation of SG&A costs) for Halley and SubZero, using the approach advocated by Jemma Toms (Executive Vice President of Sales). [5 marks] ii) Calculate customer profitability and customer profit margin (after the allocation of SG&A costs) for Halley and SubZero, using the approach advocated by Costa Conrads (CFO). [6 marks] Summary solution: Halley’s Customer Profitability (CPA Approach) Customer Profitability $87,933 Customer Profit Margin 40.9% Sub Zero’s Customer Profitability (CPA Approach) Customer Profitability $43,967 Customer Profit Margin 28.55% iii) Based on your calculations and your understanding of calculating customer profitabil
ity, whose advice should Robyn take in calculating customer profitability Please explain with reference to the calculations in parts (i) and (ii) above. [4 marks] 6 Question 3 [8 MARKS] Company XYZ has identified the following costs that are environmentally related: Evaluating environmental risk $35,000 Auditing current supplier’s performance $40,000 Employee medical costs following a chemical spillage $153,000 Fines for environmental damage $22,000 Costs of cleaning up plant following a leakage $68,000 Recycling water used during production $107,000 Depreciation of pollution monitoring equipment $29,000 Salaries of environment compliance employees $81,000 Recall for environmentally damaging products $500,000 Storing and treating toxic waste $11,000 Cost of cleaning up polluted sites $160,000 Required: a) Prepare an environmental cost report by category. (6 marks) b) Based on the report in (a), provide one specific recommendations about what XYZ should do to reduce total environmental cost and improve its environmental performance. Draw on case information to justify your answer. (2 marks) 7 Question 4 [12 marks] Psycho Mycko specialises in online psychometric profiling. The company was incorporated in 2018 and has grown rapidly over the past 3 years to a total of 310 staff today. Its headquarters are located in New York and operating divisions have recently been set up in Singapore, London and Sydney. Senior management consists of Tim Jones, an MBA graduate from New York University, Elenora Young, a psychologist with ten years of industry experience, and Ricki Martin, an IT graduate specialising in artificial intelligence. Recently, a new commission based remuneration scheme has been introduced in the sales division. This has increased competition amongst the sales staff, who are competing fiercely to attract new customers and meet their performance targets. Tim is aware of this fierce competition, but aspires to launch Psycho Mycko as an Initial Public Offering (IPO) on the NY stock exchange later this year and aims to maximise financial performance and turnover as much as possible. Psycho Mycko’s business model is based on ‘high turnover and low margins, so increasing sales is the fastest way of growing the business.’ Elenora is concerned about the negative impacts the new remuneration scheme has on the organisation’s culture. She acknowledges that performance measurement has traditionally been a weakness of the organisation, but believes Tim has gone too far with the new scheme. Elenora is also concerned about the new decentralised management structure, which she believes provide too much decision-making power to the regional managers in London, Singapore and Sydney. Tim disagrees with her and says that decentralisation is necessary to get the regional managers to ‘try out new ideas’ – he says rigid policies and control systems stifle innovation and reduce growth. In fact, Tim intends to implement new performance measures to reward risk taking and entrepreneurial thinking. Ricki has recently implemented a new knowledge management system to help ensure information and knowledge sharing across the operating divisions. Elenora is wondering if perhaps this will help compensate for the lack of standardised operating policies and procedures across the regional officers. Required: Simon introduces a risk calculator that assigns risk exposure scores to nine pressure points. Discuss three (3) pressure points that you think are most critical to Psycho Mycko. In your answer, discuss (i) the score (high, medium or low) you would assign to each of these three pressure points, (ii) which exposure area each of these pressure points relate to; and (ii) the justification for these scores. 8 Question 5 [10 Marks] TreadLess.com (TreadLess) is a large Australian shoe company that manufactures shoes. TreadLess has performed well recently, significantly exceeding its cost of equity of 14%, over the past three years. Consequently, Jen Wright, CEO of TreadLess would now like to expand the company. The following 2020 information has been extracted from the accounting system of TreadLess: TreadLess 2020 $ Net profit after interest and tax 30,000 Interest expense 10,000 Research and development expense 16,000 Shareholder’s equity 100,000 Short term debt 70,000 Long term debt 20,000 For the purpose of calculating EVA, the CFO of TreadLess, VG has provided the following information for the company: Short term debt before tax interest rate is 12% Long term debt before tax interest rate is 8% Tax rate is 30% (assume tax expense is equal to actual tax paid) VG has provided the following information on the economic value and use of research and development (R&D) at TreadLess from an EVA perspective. The balance of capitalised R&D (before the 2020 amortisation expense) is $35,000 and the 2020 R&D amortisation expense should be $18,000. Required (a) You are required to calculate Economic Value Added (EVA) for TreadLess for 2020 (9 marks) (b) Based on your EVA calculations in part (a), identify and discuss whether TreadLess’s has created shareholder value (1 Mark) 9 Question 6 [16 Marks] El Gee Ltd. manufactures television sets that it sells to a broad market in Australia. The company is located in Woy Woy, New South Wales, Australia. Approximately 60 per cent of the cost of the company’s television sets consists of material and components, which are purchased from Australian suppliers. Two years ago, El Gee introduced a supplier evaluation system to monitor the performance of its suppliers. Each supplier’s performance was measured by considering its adherence to: (1) delivery schedules, and (2) accuracy of orders delivered. Performance in both areas will determine whether El Gee renews the supplier’s contracts or offers the contract to another supplier. The chief financial controller, Sandy Lee, has recently conducted a study to determine the full cost of dealing with suppliers. While the company uses non-financial performance measures to measure most aspects of supplier performance, Sandy believes that financial measures can complement nonfinancial measures in evaluating supplier performance. The following supplier-related activities and costs have been identified: Activity Total cost Number of activities Receive late deliveries $260,000 130 late deliveries Production downtime due to late delivery $2,400,000 800 hours Production downtime due to defective material $3,600,000 3,000 hours Process invoice and pay supplier $1,050,000 3,000 invoices Dispute invoiced amount $40,000 50 disputes El Gee obtains its speaker systems from two suppliers: Clang Klong and Powers & Bilkins. Last year, El Gee purchased 3,000 units from Clang Kong at $100 per unit, and 4,000 units from Powers & Bilkins at $90 per unit. Both suppliers provide an identical component. The analysis from last year revealed that the following activities are related to the two suppliers: Activity Clang Kong Powers & Bilkins Receive late deliveries 6 late deliveries 28 late deliveries Production downtime due to late delivery 15 hours 59 hours Production downtime due to defective material 20 hours 29 hours Process invoice and pay supplier 12 invoices 130 invoices Dispute invoiced amount 3 disputes 3 disputes Required (a) Measure EI Gee’s supplier performance using Total Cost of Ownership (TCO) per unit and Supplier Performance Index (SPI). Please round off your answer at every step to 2 decimal places. (6 marks) (b) Compare and discuss the performance of the two suppliers based on your calculations in part (a). (2 Mark) (c) Provide recommendations to Sandy Lee on how EI Gee can manage each supplier. Use the case information where relevant. (6 marks) 10 (d) Based on the two criteria noted in the case, suggest two non-financial performance measures that EI Gee might use to evaluate its suppliers’ performance. (2 marks)