MODULE CODE: ABF205 TITLE OF PAPER: Management Accounting. REVISION AND STUDY QUESTIONS

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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 shi... p 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. [Show More]

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