PLEASE HELP TO SOLVE ALL QUESTION.

QUESTION 1 (20 MARKS)

Cahaya Berhad is one of the companies in Malaysia that implement decentralization. The company has two main divisions, that are Division A located in Selangor and Division B located in Perlis. Division A currently sells a condenser to manufacturers of cooling systems in local and overseas market for the price of RM520 per unit. The variable costs of the condenser amount to RM380, and demand for this product currently exceeds the division's ability to supply to the marketplace.

Cahaya Berhad is considering the condenser as one of its important component in enhancing the refrigeration system that would be produced by Division B. The expected selling price of the refrigeration system is RM1,285, the variable manufacturing costs is RM820 and the expected transfer price of the condenser is RM490.

The top management is anxious to introduce the new refrigeration system. However, it is not possible for Division B to find other suppliers of the condensers in the quality and quantity desired. The company uses responsibility accounting and Return on Investment (ROI) in measuring divisional performance, and awards bonuses to divisional management.

Required:

a.How would Division A's divisional manager likely react to the decision to transfer

condensers to Division B? Show computations to support your answer.

(3 marks)

b.How would Division B's divisional management likely react to the RM490 transfer price?

Show computations to support your answer.

(6 marks)

c.Assume that a lower transfer price is desired. What parties should be involved in setting the new price?

(3 marks)

d.From a contribution margin perspective, advise the top management of Cahaya Berhad on the transfer of condensers from Division A to Division B. Does the company benefit more if Division A sells the condensers to external market, rather than transfers the condensers to Division B? Support your answer by showing relevant workings.

(8 marks)

QUESTION 1 (20 MARKS)

A.In a large multiproduct, multi-location and hierarchical entities of modern business enterprises, managers must decide who in the organization will have the authority and responsibility for making particular decisions and how such a decision maker will be evaluated and rewarded. In view of this, a certain amount of decentralization is necessary within an organization.

Required:

i.Briefly explain the meaning of the term decentralization.

(3 marks)

ii.Briefly explain the FIVE (5) motivations for decentralization?

(5 marks)

B.The Alpha Division of the Beta Berhad manufactures product X at a variable cost of RM40 per unit. Alpha Division's fixed costs, which are sunk, are RM20 per unit. Product X is saleable in a competitive market where the market price of product X is RM70 per unit.

On the other hand, Gamma Division of Beta Berhad uses product X to make product Y. The variable costs to convert X to Y are RM20 per unit and the fixed costs, which are sunk, are RM10 per unit. The product Y sells for RM80 per unit.

Required:

i.Both Alpha and Gamma divisions are to be treated as a profit center. What will be the best transfer price of product X that the divisional managers should choose in order to ensure that Beta Berhad's profit will be maximized?

(3 marks)

ii.Given that the price from part (a) above is chosen as the transfer price of Product

X. What should the divisional manager of the Gamma Division do?

(4 marks)

iii.Suppose there is no market price for product X. What transfer price should be used for decentralized decision-making?

(2 marks)

iv.If it is assumed that there is no market for product X, will the operations of the Gamma Division be profitable?

(3 marks)

QUESTION 2 (20 MARKS)

A.Strategic Management Accounting is a new form of management accounting that focus on information relating to external business situations, non-financial information or other internal information relating to various business decisions. With new challenges in business environment such as the global competition and vital needs for customer focus, managers are now looking for new approach in business that is Strategic Management Accounting.

The new Strategic Management Accounting is concerned with providing "management accounting in the context of business strategies being planned and implemented by an organisation". With new challenges in business environment such as the global competition and vital needs for customer focus, managers are looking for new technique that is Strategic Management Accounting, in order to gain competitive advantages in business.

Required:

Explain about the definition and the three areas of Strategic Management Accounting that makes it different from conventional management accounting.

(14 marks)

B.Indah Enterprise manufactures pretty cardboard boxes. The company competes and plans to grow in the market by selling high quality boxes at a low price and by delivering them to customers quickly after receiving the customer's orders. There are many other manufacturers who produce similar boxes as Indah Enterprise.

Indah Enterprise believes that continuously improving its manufacturing processes and having satisfied employees are critical to implementing its strategy in the year 2016.

Required:

i.Define the word strategy.

(2 marks)

ii.Evaluate the strategy being used by Indah Enterprise in relation to Strategic Management Accounting.

(4 marks)

QUESTION 3 (20 MARKS)

Gemilang Berhad is a decentralized wholesaler with four autonomous divisions that operate in similar markets, that are Division A, B, C and D. Each division is being monitored based on its Return on Investment (ROI), with investment defined as total net operating assets employed.

The following investment opportunities are available to a Financial Controller:

Division Initial Investment Annual Earnings

A RM800,000 RM90,000

B RM100,000 RM20,000

C RM300,000 RM25,000

D RM400,000 RM60,000

Required:

a.Elaborate on how the Financial Controller could improve the division's ROI.

(3 marks)

b.It is assumed that the cost of capital of Gemilang Berhad is 10 percent. Based on ROI, which project(s) should be chosen by the Financial Controller?

(8 marks)

c.If Gemilang Berhad is currently making a return on investment of 16 percent, which project(s) would the Financial Controller choose as the best investment?

(2 marks)

d.Based on the Residual Income (RI), advice Gemilang Berhad on which division should be chosen as the best investment.

(7 marks)

QUESTION 4 (20 MARKS)

The Balanced Scorecard (BSC) is a set of measures that gives top management a fast but comprehensive view of the business. It pulls together all important elements of a company's competitive agenda, and through this, the top management can better understand the internal trade-offs whether the value addition in one area is achieved at the cost of another.

Burger Queen Berhad, a national fast-food chain, has experienced a number of problems in the past few years, and the management is considering the adoption of a BSC as part of a turnaround effort for the company in the year of 2018.

Required:

a.Critically evaluate the four perspectives of the BSC. Explain the linkages among these perspectives.

(12 marks)

b.Assumed that Burger Queen is very concerned about customer satisfaction. List FOUR

(4) different (and specific) customer-satisfaction measures that may be appropriate for the company (and for other fast-food providers).

(4 marks)

c.Briefly explain TWO (2) common pitfalls in implementing the Balanced Scorecard and suggest ways to avoid the pitfalls.

(4 marks)

QUESTION 5 (20 MARKS)

Cantik Berhad manufactures and sells pottery products to departmental stores. The Management Accountant is preparing the annual budget and has asked the sales group to prepare the sales estimates. All members of the sales force have been asked to estimate sales in their territory for their products.

It is found that the Sales Director uses the sales estimates to develop the target levels at which commissions begin. Specifically, the Sales Manager takes the sales estimate, add 15%, and the result becomes the sales hurdle level. If sales are less than the hurdle level, no commission is paid. If sales are above the hurdle level, commissions are paid at varying rates.

Required:

a.Define the term of budgetary slack and briefly describe how it can cause problems to Cantik Berhad. Explain how the budgetary slack can adversely affect the company's performance.

(5 marks)

b.What will be the behaviour of the sales force if they know the relationship between their estimates and the target level of sales?

(2 marks)

c.What is the likely consequence of basing the company's budgets on these estimates?

(3 marks)

d.If you were the Management Accountant in this company and were responsible for both reward system and budgeting system, what would you do?

(4 marks)

e.Explain how an organization would reduce the problems caused by the budgetary slack. Briefly discuss how Cantik Berhad can reduce the amount of slack into its budget.

(6 marks)