SECTION A QUESTION 1 Prodcon plc manufactures and sells product Y which has a further expected life of four years

to 30 June 20X4. In the company long term plan the target for production!sales of product Y is "0#000 units per year. $urrent mar%et predictions# howe&er# indicate that sales of product Y in the years to 30 June 20X"# 20X2# 20X3 and 20X4 are li%ely to 'e (#000# )#000# *#000 and +#000 units respecti&ely. It is company policy to produce on a ,ust in time 'asis with no stoc% holding. -trategy changes in ad&ertising and product design should ena'le the sales of product Y for the four years to 30 June 20X4 to 'e 'oosted to "0#000 units per year# there'y meeting the company long term plan. .he current estimates for product Y for the year to pro,ection of (#000 units# are as follows/ 0i1 Unit data 2 -elling price "#2+0 -u' assem'ly P 0material cost1 -u' assem'ly 3 0material cost1 4ther direct material cost $on&ersion costs +*0 30 June 20X"# 'ased on the current &olume

2+0 "20 200

.he con&ersion costs are incurred on a dedicated production line that ma%es su'assem'lies P and 3 and uses them with the other direct materials to produce product Y. 5ll unit costs are &aria'le with output except that con&ersion costs contain a )+6 fixed element. .his fixed element is directly attri'uta'le to product Y. 0ii1 Total additional costs allocated to the product 5dministration cost/ 2+00#000. .his is "006 fixed and contains a 306 element that is directly attri'uta'le to product Y# the 'alance 'eing company fixed cost. -ales!mar%eting cost/ 2)+0#000. .his contains a 406 element that &aries with sales &olume. .he remaining *06 is fixed. 7alf of this is directly attri'uta'le to product Y and the remainder is a company fixed cost. 8istri'ution cost/ 2"00#000. .his contains an (06 element that &aries with sales &olume. .he remainder is a company fixed cost. It is estimated that the proposed strategy change in ad&ertising and product design in order to 'oost sales of product Y to "0#000 units per year for the four years to 30 June 20X4 would ha&e the following implications/ 9 5dditional ad&ertising expenditure of 2+00#000# 2400#000 and 2200#000 in each of the years to 30 June 20X"# 20X2 and 20X3 respecti&ely would 'e incurred. 9 -u' assem'ly 3 would 'e outsourced. .he proposed supplier is a leader in this field and would charge 222+ per unit for the su' assem'ly. Prodcon plc would 'e a'le to a&oid one :uarter of the &aria'le con&ersion cost per unit of product Y where the outsourcing of su' assem'ly 3 ta%es place. In addition# 23*0#000 of the fixed production line con&ersion costs per year would also 'e a&oided.

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;ote/ Ignore the possi'ility of cost changes during the four years to 30 June 20X4 due to supplier price increases# wage awards# etc. 5lso# assume that the selling price of product Y will remain unchanged.

Required: (a) repare a !inancial anal"sis o! the situation !or each "ear and in total and hence deter#ine each o! the !ollo$in% !or the !our&"ear period to '( )une *(+,: (i) The product&speci!ic pro!it or loss $hich $ould result !ro# the current #ar-et pro.ections (i/e/ 0e!ore the proposed chan%es)/ (1, #ar-s) (ii) The total product&speci!ic pro!it or loss $hich $ould 0e achie1ed i! the proposed strate%" is i#ple#ented2 and hence $hether the proposed strate%" should 0e i#ple#ented on !inancial %rounds/ (1, #ar-s) (0) (i) E1aluate the !inancial cost30ene!it o! the plan to outsource su0&asse#0l" Q/ (4 #ar-s) (ii) Co##ent on other ar%u#ents !or and a%ainst the plan to outsource su0asse#0l" Q/ (5 #ar-s) (c) E6plain the procedure 0" $hich a spreadsheet #odel o! the proposal could 0e used in order to test !or each o! the !ollo$in%: (i) The co#0ined e!!ect on pro!it o! (A) sales achie1ed in all o! the "ears to '( )une *(+12 *(+*2 *(+' and *(+, 0ein% 0et$een 1(2((( and 72((( units per "ear in 4(( unit steps and (8) the outsourced su0& asse#0l" Q cost 1ar"in% 0et$een 9*,( and 9*1( per unit in 94 steps/ (4 #ar-s) (ii) The sensiti1it" o! the #odel to errors in the esti#ates used !or EAC: o! (A) su0&asse#0l" Q cost per unit and (8) sellin% price per unit $here an o1erall net attri0uta0le pro!it o! 912(((2((( is the #ini#u# le1el at $hich rodcon plc $ould proceed $ith the strate%" chan%e/ (5 #ar-s) (Total: 4( #ar-s)

SECTION 8 T;O questions ON<= to 0e ans$ered Question * I;5 Inc manufactures and distri'utes generic paper 'ased products and currently has an annual turno&er of 2"00 million. 5t present# the management of I;5 Inc are uncertain whether the purchasing department is maximising its potential in terms of purchasing efficiency and effecti&eness. .he management are currently considering the introduction of a system of 'enchmar%ing to measure the performance of the purchasing department. Required: (a) E6plain the ter# >0ench#ar-in%? and 0rie!l" discuss the potential 0ene!its that can 0e o0tained as a result o! underta-in% a success!ul pro%ra##e o! 0ench#ar-in%/ (7 #ar-s) (0) @escri0e ho$ a s"ste# o! 0ench#ar-in% could 0e introduced to #easure the per!or#ance o! the purchasin% depart#ent/ (1( #ar-s) (c) @iscuss the pro0le#s that the #ana%e#ent o! INA Inc #i%ht encounter in i#ple#entin% a s"ste# o! 0ench#ar-in% and reco##end ho$ such pro0le#s should 0e success!ull" addressed/ (A #ar-s) (Total: *4 #ar-s) QUESTION ' You are responsi'le for managing the preparation of all re&enue and cost 'udgets for a motor component manufacturer. You are aware that the external en&ironment has a significant impact on the 'usiness acti&ity and financial performance of your company and that the current information systems are underde&eloped and ineffecti&e in this respect. Required: (a) Identi!" $hich aspects o! the e6ternal en1iron#ent "ou are li-el" to consider and %i1e reasons !or "our choice/ (1* #ar-s) (0) Identi!" $here "ou #i%ht !ind the rele1ant sources o! in!or#ation/ (5 #ar-s)

(c) Su%%est ho$ an e6ternal en1iron#ent in!or#ation s"ste# could 0e introduced into an or%anisation o! "our choice/ (4 #ar-s) (Total: *( #ar-s) QUESTION , Required: (a) @escri0e BOUR $a"s in $hich 0ud%etin% #a" 0e 1ie$ed as a use!ul #ana%e#ent accountin% technique/ (1( #ar-s) 3

(0) @iscuss $h" an acti1it" 0ased 0ud%etin% s"ste# #a" 0e 1ie$ed as #ore use!ul than a traditional incre#ental 0ud%etin% s"ste#/ (7 #ar-s) (c) Su%%est reasons !or the 1ie$ that the #a.or annual 0ud%et preparation e6ercise #a" not 0e an e!!ecti1e use o! 0usiness resources/ (A #ar-s) (Total: *4 #ar-s)