ACC804 Advanced Management Accounting

Mid Test

Trimester 2, 2016

Suggested answers
Question 1

Answers to include explanation of:

Vision, mission and goals/objectives and their links with strategy(2 marks)

Strategy

The direction that the organisation intends to take over the long term to meet its mission and
achieve its objectives

Ways to manage the organisation's resources to create value for customers and shareholders.

(3 marks)

Three types of strategies:

Cost leadership - Through economies of production, superior process technologies and tight cost
control. Managing costs by managing drivers.(3 marks)

Product differentiation - Superior quality, customer service, delivery performance, product

features, innovative products. (3 marks)

Focus/hybrid combination of above (2 marks)

Some firms may adopt strategies based on quality leadership and or sustainability. Quality cost
reports and sustainability reports are MACS tools that assist. (2 marks)

Question 2

Elements of a control system:

Plans, budgets, targets, standards

Actual cost performance

Deviations or variances
Corrective measures.

(2 marks each with explanations, total 8 marks)

Cybernetics notion of control:

Existence of desired objectives

Measurement of process outputs as per objectives

Ability to predict the effects of potential control actions

Ability to act in a way to reduce deviations from the objectives

MACS examples (among others):

performance measurement and control

Profit performance

Cost performance

Quality performance

Sustainability performance

(3 marks each with explanations in MACS context, total 12 marks)

Question 3 A

Porters Five Forces:

New entrants

Customers

Substitutes

Suppliers

Competitors
Identify and explain Porters five forces: 3 marks

Analysis: 1 mark each, 5 marks

Question 3 B

(1 marks)

(1 marks)

(b) What changes are there between the two value chains? (2 Marks)

Students should talk about replacement of inbound raw material acquisition, production,
distribution and customer service with a single value chain activity of contract
management. They should also talk about R&A activities, skills to analyse trends and
innovations in the industry.

(c) What problems might you see for an organisation that has outsourced most of its value
chain? (3 Marks)
Students should talk about decisions to outsource, product design, primary and upstream
links where organization loses direct managerial control. Outsourcing arrangement will
depend on how well the organizations other partners will perform. KPI related factors
should be specified in various contracts that Jone enters into with its suppliers.
Over time, Jone should develop a long term arrangement with particular suppliers and
develop trust which will lead to an open and transparent relationship.

QUESTION 4

Part A

1. Overhead to be assigned to film development chemical order:

Assigned
Activity Cost Pool Level of Overhead
Pool Rate Cost Driver Cost
Machine setups $2,000 per setup 5 setups $10,000
Material handling $2 per KG 10,000 KG 20,000
Hazardous waste control $5 per KG 2,000 KG 10,000
Quality control $75 per inspection 10 inspections 750
Other overhead costs $10 per machine 500 machine hours 5,000
hour
Total $45,750

(1 mark each, 5 marks)

2. Overhead cost per 45,750

box of chemicals = $45.75per box
1,000boxes (1 mark)

3. Predetermined total budgeted overheadcost $625,000

=
overhead rate total budgetedmachine hours 20,000
= $31.25 per machine hr.
(2 MARKS)

4. Overhead to be assigned to film development chemical order, given a single

predetermined overhead rate:
 a. Total overhead assigned = $31.25 per machine hr. 500 machine hr.
= $15,625
(1 mark)
b. Overhead cost per $15,625
box of chemicals = $15.625per box
1,000boxes (1 mark)

( Total = 10 marks)

Part B

ABC Paradox

Despite favourable context for the adoption and the implementation of ABC and even though
ABC existed for almost 3 decades, surveys have shown that the diffusion process for ABC has
not been as intense as it may have been expected.

(5 marks)

Factors:

Not suitable for all firms

Significant facility level costs

Inadequate resources

Lack of senior management commitment constraining diffusion

Problems associated with identifying activities and their drivers

Cultural issues

(Any 5, 5 marks)

The End