QUESTION 1
You have recently joined Marine Insurance Sell Ltd (MIS), a call centre based in
Plymouth. Its main customer is Drake Insurance plc, for whom MIS sells maritime
insurance to boat and ship owners throughout
...
QUESTION 1
You have recently joined Marine Insurance Sell Ltd (MIS), a call centre based in
Plymouth. Its main customer is Drake Insurance plc, for whom MIS sells maritime
insurance to boat and ship owners throughout the world. MIS employs 500 people
who answer the telephone (call operatives), who are all employed on short term
contracts. The managing director refuses to employ staff on long term contracts and
believes that replacement staff are easily obtainable if staff decide to leave the
company. He states that there is a high level of competition in the worldwide call
centre market, notably from call centres located in India.
The company has two main performance targets, which it has to report to Drake
Insurance every month:
The average time taken to answer incoming telephone calls
The average number of sales made per 100 incoming calls
Each call operative is continuously measured against these performance targets,
the information being collected by computers in the telephone switchboard.
Upon enquiring about MIS’s approach to its annual budgeting you receive the
following reply:
“During month 12 the managing director reviews the available information for the two
performance targets, plus the profit and loss information, for the previous 11 months
and then drafts estimates for the three targets for the following 12 months. These
are then distributed to all departments indicating the targets with which they are
expected to comply. The managing director requires that the actual monthly results
are supplied to him by the middle of each succeeding month. He generally reviews
the results at his golf club, and any managers whose results are out of line are
summoned to the club and reprimanded. Any individual call operative who fails to
meet their individual targets in any two months out of five months automatically
loses their job.”
Required:
Discuss the adequacy of the above planning and control procedures and make
recommendations for both technical and behavioural improvements
KeepFlow plc supplies items to several large supermarkets as well as a greater
number of very small retailers. KeepFlow plc requires payment from its customers
within 30 days of the date of the sale, but finds that customers take an average of 85
days to pay. This has resulted in KeepFlow plc constantly requiring the use of an
overdraft, interest on which is charged at 14% per annum. KeepFlow plc also spend
much management time chasing customers in order to receive the debts, but find
that bad debts are at the level of 1.25% of turnover, sales currently being £8 million
per year.
The Managing Director is considering a plan to improve this situation. All customers
will receive a discount when they pay cash within 30 days, the discount being 5.0%
of the amount due. If they pay after 30 days, but within 65 days, they will receive a
discount of half of one percent of their purchases. It is expected that 40% of the
customers (by value) will pay 30 days after the sale, and the remaining debts will be
all paid 65 days after the sale.
KeepFlow plc plan to spend £4,000 writing to all of the past and present customers
to advertise this new credit policy, and it is expected that the offering of discounts
will cause sales to increase by 8%. The Managing Director expects that the new
scheme will save so much time that the company will be able to release one
member of the credit control department, thus saving £22,000 a year.
Required:
You are to write a memo to the Managing Director to suggest whether KeepFlow plc
should offer the new credit terms to customers.
You should support your answer with any calculations and explanations that you
consider necessary. You are to assume that there are 365 days in the year. All
calculations are to be shown to the nearest £000. You are to ignore the time value
of money. Fancy Bakers Ltd is company that makes meringues, which it sells to retail
supermarkets. The main ingredients are egg whites and sugar. Fancy Bakers Ltd
uses the Just In Time approach and does not carry any raw materials or work in
progress stock of any sort, and it sells immediately all that it manufactures. Its
budget for week 17 was:
You are the management accountant for Flowing plc, and it is your job to prepare
the budget for the six months to 31st December. You have the following information
Tyrol Selections Limited manufactures three different types of office desk. Desk A
has extra drawers, Desk B has a printer shelf and Desk C has a moveable footrest.
In the company's present factory, space is limited and there is a restriction on the
number of machine hours available. The directors have considered moving to larger
premises, but are unwilling to make the move just at the moment because of fears of
a downturn in the office furniture market due to the economic recession.
Costs and selling price information for the financial year 1 January to 31 December
2009 for each type of desk is as follows: Tavistock Hospital Services Ltd (THS) provides cleaning services for the hospitals in
Devon. Its focus is to try and eliminate the MRSA bacterium by ensuring that the
hospital wards are always clean. So far the work has been labour intensive and few
machines have been employed.
However, the business is now considering the purchase of some new cleaning
machines at a total cost of £218,000. The machines will have a life of four years,
after which they are expected to be sold with net proceeds of £24,000. The
machines are likely to result in a considerable saving of labour costs, which will
increase the profits of THS.
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