advanced management accounting


Advanced Management Accounting Questions 

QUESTION 1:

There is a company called Blake Inc. and it refines gasoline and sells the gasoline in its own Blake gas stations. Blake ascertains that 60% of its customers (medium to high income people) will pay a higher price for its gas if the gas stations provide exceptional customer service (i.e. clean facility, convenience store, quick turnaround, friendly employees, ability to pay by credit card, and high octane premium fuel). The previous is based on market research. In 2005, the market wide prices for the inputs and outputs and the size of the market didn't change. Blake's balanced scorecard for 2005 is below. We have assumed that the initiatives taken under each objective are omitted, for simplicity sake.

Objectives

Measures

Target Performance

Actual Performance

FINANCIAL PERSPECTIVE: Increased shareholder value

Operating income changes from price recovery.

 

Operating income changes from growth

$90,000,000

 

 

 

$65,000,000

$95,000,000

 

 

 

$67,000,000

CUSTOMER PERSPECTIVE: Increase market share

Market share of total gasoline market

10%

9.8%

INTERNAL BUSINESS PROCESS PERSPECTIVE:

 

Improve gasoline quality.

 

Improve refinery performance.

 

Ensure gasoline availability.

 

 

 

 

 

Quality index

 

 

Refinery reliability index (%)

 

Product availability index (%)

 

 

 

 

 

94 points

 

 

91%

 

 

99%

 

 

 

 

 

95 points

 

 

91%

 

 

100%

LEARNING AND GROWTH PERSPECTIVE:

Increase refinery process capability

Percentage of refinery processes with advanced controls

88%

90%

 

REQUIRED:

a)      In 2005, do you think that Blake was successful with the implementation of its strategy? Please explain your answer thoroughly.

b)     Do you think some measure of employee satisfaction and employee training in learning and growth perspective should have been included? For the implementation of its strategy, do you think these objectives are crucial for Blake? Why or why not? Please explain your answer thoroughly.

c)      How did Blake not achieve its market target share in the total gasoline market but was still able to surpass its financial goals? Please explain your answer thoroughly. For the measure of market share, do you think the "market share in the total gasoline market" is right? Please explain your answer thoroughly.

d)     Do you think that there exists a clear and concise cause-and-effect relationship between improvements in the internal business process perspective measures and the customer perspective measures? For the internal business process perspective or the customer perspective, do you think you would add other measures? Why or why not? Please explain your answer thoroughly.

e)      Blake made the choice to not include measures of changes in operating income from productivity improvements under the financial perspective of the balanced scorecard, do you agree with this choice? Please explain your answer thoroughly.

 

QUESTION 2:

There is a company called Macy's. This company manufactures and sells five types of products. All five types of products are serviced and sold by an individual sales force, and none have its own product manager or marketing staff. Macy's manufacturing facilities are general-purpose facilities. Furthermore, all the products require operations in each department of the factory. Below are details for the five products (all dollar amounts are averages per unit).

 

 

PRODUCT A

PRODUCT B

PRODUCT C

PRODUCT D

PRODUCT E

Annual sales (units)

200,000

1,000,000

500,000

400,000

800,000

Discounts and allowances

$0.05

$0.03

$0.12

$0.16

$0.10

Variable costs

1.42

0.84

2.81

3.12

5.22

Fixed costs

0.84

0.46

1.95

2.42

1.46

Unit price

2.50

1.50

3.95

5.70

8.00

 

It is known that none of the fixed costs can be traced to a specific product. Also, the costs are allocated to products based on various predetermined overhead rates. Also, the amounts allocated to any one of the products is dependant on its relative use of the different portions of the company's facilities. It is known that no overhead costs stay unassigned at the volumes and rates shown above.

 

REQUIRED:

a)      For each product compute the break-even volume (in dollars of gross sales), reflecting the fixed costs the company plans to assign to that product.

b)     For the company as a whole compute the break-even volume (in dollars of gross sales), at the present product mix. Why is it that the answer computed in part (a), i.e. the sum of the break-even volumes, is different from your answer in part (b)?

c)      How dependable do you think are the approximations of the break-even volume obtained in parts (a) and (b), based on your understanding of the nature of the fixed costs of Macy's? Please explain your answer thoroughly.

d)     Write down a forecast of Macy's income before taxes if Macy's selling efforts generates the products sales below instead of the ones shown in the table above (all other factors remain unaffected).

PRODUCT

UNIT SALES

A

150,000

B

800,000

C

400,000

D

500,000

E

1,000,000

 

e)      If the fixed selling expenses needed to be augmented by $400,000 a year in order to cause the move in product mix described in part (d), do you think that you would advocate doing this? Please explain your answer thoroughly.

 

Intermediate Accounting Question

 

QUESTION 3:

For the following statements, please state whether each one is True or False. Please explain your reasoning thoroughly.

 

1)     The declining balance method of amortization ignores residual value in the calculation of an asset's depreciable base.

________________

2)     The accounting profession has developed specifically recommended procedures for recording appraisal increases with respect to plant assets.

________________

3)     The straight-line method of amortization is based on the assumption that amortization expense can be regarded as a constant function of time.

________________

4)     An asset's cost minus its accumulated amortization equals its book value.

________________

5)     Plant assets should be written down (below cost) when their market value has declined temporarily.

________________

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