Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Franc Bank Holding (FBH) is a commercial bank with headquarters in Kampala and was licensed by the central bank in 2007. The banking industry is

Franc Bank Holding (FBH) is a commercial bank with headquarters in Kampala and was licensed by the central bank in 2007. The banking industry is very competitive and characterised by development of new products, use of recent technology and increasing complexity in customers' expectations which has made players' survival difficult.

In line with the ever evolving technology, FBH is considering introducing mobile banking and agency banking onto the market to target new customer base involving low, middle and high income earners. The estimated fixed costs of introducing the two products are Shs 49.267 million and Shs 68.45 million respectively.

FBH made a profit of Shs 85 million for the year ended 31 December 2018 and the operations director expects an annual profitability growth of 10% without introduction of new products.

The marketing director anticipates that introduction of new products will grow FBH's customer base by either 8,390 platinum customers or 9,460 gold customers. There is a 60% chance of getting a platinum customer. Revenue of Shs 50,000 is expected to be collected from each new customer.

The following information relates to direct costs to be incurred on each new customer from different income levels with their respective probabilities of occurrence (Pf):

Income level

Direct cost per new customer

Mobile banking

Agency banking

Pc(Pf)

Gc(Pf)

Pc(Pf)

Gc(Pf)

Low

25,000

0.25

0.5

0.1

0.2

Middle

28,000

0.3

0.3

0.4

0.7

High

35,000

0.45

0.2

0.5

0.1

Where: Pc = Platinum customers Gc = Gold customers

FBH has been printing Automated Teller Machine (ATM) cards at Shs 4,500 each, but with the new trend of technology, management is not certain of the costs to

be incurred on printing Visa cards. However, there is a proposal to outsource the printing services.

The following information relates to costs of printing Visa cards:

SECTION B

Attempt three of the four questions in this section

Question 2

Bato Group of Hotels (BGH) was established in the 1950s by twin sisters after completion of a diploma course in Catering and Hotel Management from France. BGH owns 20 medium and high class hotels located in different districts of Uganda. Member hotels are headed by general managers (GM) who report directly to BGH's chief executive officer (CEO). All hotels charge a full board fee

Management Decision & Control - Paper 11

Cost (Shs)

Probability

3,500

0.18

3,000

0.17

4,000

0.14

4,500

0.16

5,500

0.21

6,000

0.14

FBH has identified you as a consultant to provide advisory services to keep the business competitive.

Required:

  1. (a)Using the decision tree analysis, determine the expected profit per new product.
  2. (26 marks)
  3. (b)Considering the information in (a) above, advise management of FBH on which product:
  4. (i)satisfies the maximin criterion. (2 marks)
  5. (ii)maximises the expected profit. (2 marks)
  6. (iii) has the maximum chance of yielding profit of at least Shs
  7. 100million.
  8. (2 marks)
  9. (c)Basing on the three risk attitudes, advise management of FBH on whether
  10. to continue printing cards or outsource the printing services.

(8 marks) (Total 40 marks)

to clients, which is inclusive of accommodation and restaurant services except conference services. BGH uses variance analysis for financial control of all activities and evaluating GMs' performance for rewards.

The newly recruited CEO found the current management control to be ineffective in evaluating GMs' performance and proposed the use of flexible budgets. He wants GMs to know that they head responsibility centres and this controllability principle must apply. He has decided to test his proposal by using the performance of BHM for the year ended 31 December 2018.

The budgeted and actual performance of BHM for the year ended 31 December, 2018 was as below:

evaluating GMs' performance in financial control. (b) With reference to BGH:

(3 marks)

(i) (ii)

(iii)

distinguish between responsibility centre and controllability principle.

(2 marks)

discuss appropriate methods that can be applied to address the effects of uncontrollable factors before assigning performance rewards.

(4 marks)

describe the different forms of responsibility centres.

Particulars

Budget

Actual

Variance

Number of guests

7,500

8,000

500F

Shs '000'

Shs '000'

Shs '000'

Revenue

900,000

982,000

82,000F

Direct labour costs

243,000

260,000

17,000A

Other variable costs

417,000

460,000

43,000A

Fixed costs

210,000

200,000

10,000F

Headquarter allocated expenses

25,000

25,000

-

The CEO of BGH has tasked you, as the company senior management accountant, to elaborate on various budget concerns.

Required:

(a) Using variance analysis and flexible budgets:

  1. (i)determine profit variances. (7 marks)
  2. (ii)advise the CEO, with reasons, on the best method to use in

Question 3

Natural Food Restaurant (NFR) is an African based restaurant located in Semuto town. NFR specialises in the preparation of three main traditional dishes using the same production methods and machine equipment. The dishes prepared include Luwombo (L), Boil (B) and Pillao (P). Each dish is sold at a standard price of Shs 10,000 per plate.

NFR has grown rapidly and has won several contracts to supply lunch to staff of five districts. However, NFR is facing cash flow problems due to traditional budgeting systems based mostly on incremental approach. Management has resolved to introduce activity-based budgeting (ABB) technique to solve the problem.

The following are their budget extracts for the year ending 30 June, 2020:

Luwombo

Boil

Pillao

Cooking hours per plate

0.2

0.2

0.2

Material cost per plate (Shs)

2,200

2,250

2,150

Labour cost per plate (Shs)

2,500

2,400

2,500

Number of plates produced

10,700

10,000

10,250

Number of gas refills

33

32

37

Number of material movements

75

100

80

Number of inspections

450

450

400

Budgeted manufacturing profit (Shs '000')

19,650

22,325

26,062.50

Annual kitchen overheads are analysed into the following cost pools:

Required:

As a senior management accountant at NFR:

  1. (a)Evaluate the effect of ABB technique on NFR's budgeted manufacturing profit for year ending 30 June, 2020.
  2. (16 marks)
  3. (b)Describe any four stages involved in the budgeting process. (4 marks) (Total 20 marks)

Shs '000'

Gas

25,500

Material handling

24,990

Inspection and supervision

27,950

Other cooking overheads

18,570

Question 4

Real Deal Supermarket (RDS) is a family owned business located in Bukunda sub-county, Masaka district and is known for selling cheap and quality consumer products. The supermarket has been suffering from stock outs, obsolescence of products, increasing sugar prices, pilferage and increased operating costs.

In an attempt to avert the above challenges, the proprietors of RDS sought advice from KS Business Consultants who made the following recommendations for consideration:

  1. Stocking sugar in bulk to hedge against increasing sugar prices.
  2. Set economic order quantity (EOQ) for sugar.
  3. Use ABC inventory analysis to manage stock.

The proprietors of RDS made the following action plan to implement the consultants' recommendations:

  1. Purchase ten 50 kg bags of sugar whenever an order is placed with the supplier.
  2. Incur Shs 5,000 on communication with supplier to place an order.
  3. Pay Shs 100 to print an Order Form and Shs 20,000 for transporting
  4. ordered bags of sugar.
  5. Keep sugar in a separate store which incurs the following costs per bag in
  6. a year:

The supermarket would earn interest of 6% per annum if the funds committed in storing sugar were deposited on its fixed deposit account. The proprietors anticipate having an annual demand of 4.8 metric tons of sugar for the year ending 30 June, 2020.

The current market price of sugar is Shs 140,000 per 50 kg bag.

The proprietors have identified cheaper sugar from Divine wholesalers who offer discounts for customers that buy in bulk.

In case sugar is purchased in bulk from Divine wholesalers, inventory costs will vary as follows:

Shs

Rent

10,000

Power

1,000

Fumigation

1,000

Security guard's wages

10,000

Insurance

3,000

RDS is considering buying either 20 bags or 25 bags of sugar to take advantage of the quantity discounts. They have approached you as a senior consultant for advice.

Required:

(a) Determine the EOQ of sugar for the supermarket.

  1. (b)Advise on the quantity of sugar that minimises the total inventory costs.
  2. (13 marks)
  3. (c)Explain to the management of RDS the process of applying ABC inventory management technique.
  4. (4 marks) (Total 20 marks)

Question 5

Link Medical University (LMU) evolved from a humble nursing institute in 1998 and now boasts of high quality services with its rallying slogan, 'Quality Costs but Benefits are Exclusive and Unquantifiable'.

LMU operates the academic year on a semester system with vigour for continuous improvement in service delivery, promoting efficiency and becoming a centre of excellence. A lot of funds have been invested in maintenance of quality but management feels they have not yet reached the level at which they desire to be.

LMU generated turnover of Shs 1,246 million during the second semester ending 30 April, 2019.

The Vice Chancellor (VC) attended a global workshop on sustainability of universities in March 2019, where cost of quality report and benchmarking concepts were extensively emphasised as key engines for the growth of universities.

The Quality Assurance Controller (QAC) presented, in the management meeting, the following costs which were incurred on quality maintenance during the second semester that ends 30 April 2019.

Quantity (bags)

19 - 24

25 or more

Discount (%)

9

12

Increase in storage costs (%)

9

10

Decrease in ordering costs (%)

7

9

(3 marks)

Item

Shs '000'

Annual accreditation fees

9,610

Annual competence assessment

25,000

Correction of processing errors

24,800

Correction of wrong tests issued to patients

58,800

Cost of violation of procedures

14,312

Expired chemicals

2,110

Inspection expenses

18,010

Parents' complaints

25,987

Preventive maintenance contracts

25,580

Process improvement costs

65,424

Quality assurance tests

8,410

Training

95,000

373,043

During the management meeting, the VC demanded that in the next meeting the QAC should report the costs of quality maintenance in a report format.

You are the QAC at LMU.

Required:

  1. (a)Prepare Cost of Quality report for the second semester and explain to the VC the effect of compliance costs on non-compliance costs.
  2. (10 marks)
  3. (b)Advise the VC on the challenges of direct benchmarking from competitors.
  4. (10 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

College Mathematics For Business Economics, Life Sciences, And Social Sciences

Authors: Raymond Barnett, Michael Ziegler, Karl Byleen, Christopher Stocker

14th Edition

0134674146, 978-0134674148

More Books

Students also viewed these Finance questions

Question

5. Give some examples of hidden knowledge.

Answered: 1 week ago