Question 1 (20 marks) Managerial techniques (20 marks)Management decisions Learning outcome C4, PLO 1

Fusion designs womens apparel and sells it through retail outlets across the country. All of the companys clothing lines are manufactured by contract manufacturers around the world. A division manager is responsible for each of the companys retail divisions. Each divisions controller, assigned by the corporate controllers office, manages the divisions accounting system and provides analysis of financial information for the division manager. The division manager evaluates the performance of the division controller and makes recommendations for salary increases and promotions. However, the final responsibility for promotion evaluation and salary increases rests with the corporate controller. Each of Fusions divisions is responsible for product design, sales, pricing, operating expenses, and profit. However, corporate management exercises tight control over divisional financial operations. For example, all capital expenditure above a modest amount must be approved by corporate management. The method of financial reporting from the division to corporate headquarters provides further evidence of the degree of financial control. The division manager and the division controller submit to corporate headquarters separate and independent commentary on the financial results of the division. Corporate management states that the division controller is there to provide an independent view of the divisions operations, not as a spy.

Required:

1. Discuss the arrangements for line and staff reporting in Fusion. (8 marks)
2. The division manager for Fusion has a dual reporting responsibility. The controller is responsible both to the division manager, who makes recommendations on salary and promotion, and to the corporate controller, who has the final say in such matters.
   1. Identify and discuss the factors that make the division controllers role difficult in this type of situation. (6 marks)
   2. Discuss the effect of the dual reporting relationship (6 marks)

Question 2 (20 marks) Real world focus C4, PLO3

Accounting provides much information to help managers make economic decisions in their various workplaces.

Required:

1. Explain with relevant illustration on how economic decisions of a marketing manager, a production manager, the Chief Executive Officer of a company and the manager of a company would need to make with the use of accounting information. (10 marks)
2. Accounting is irrelevant in decision making because the information it provides relates only to the past. Evaluate this remark. (10 marks)

Question 3 (30 marks)

Saya is the director of Kita Berhad. The company has been in business for past 15 years and has in the past achieved very good levels of growth and return on capital, but this is now changing. In recent time it has failed to introduce new product lines, relying on traditional products and little has been invested in Research or Product Development.

You are a business planning consultant for a firm of Management Consultants. Kita Berhad is one of your clients. In recent times the business has experienced increased turnover but a downturn in overall performance.

Saya has had a meeting with your Director and he has stated that he wants to introduce tighter management control within the company by introducing a system of responsibility accounting.

You receive the following memo from your Director, Si Changer, regarding this case.

Memorandum

To: Business Planning Assistant

Date: 21st May 2021

From: Si Changer, Director

Subject: Kita Berhad. - accounts information

You are aware that I met with Saya yesterday and that he is concerned with the latest results shown in the final accounts that have recently been prepared at year end.

The file attached contains a summary of the company's abbreviated profit statements and balance sheets for the past three years; together with additional information and performance indicators for their business sector as a whole for the period under review.

I would like you to examine this information and meet with me on Friday morning to discuss the form and presentation of a detailed financial analysis of the company over the three-year period.

Signed: Si Changer

Financial information on Kita Berhad.

1. Summary profit statements

RM

(in million)

RM

(in million)

RM

(in million)

201820192020Sales turnover4.905.306.60Operating costs4.174.435.82Operating profit before tax0.730.870.78Taxation0.240.300.27Profit after tax0.490.570.51Dividends0.120.160.16Retained profit0.370.410.35

N.B. The firm's detailed breakdown of costs is as follows:

Years

2018

RM

(in million)

2019

RM

(in million)

2020

RM

(in million)

Labour costs0.930.981.25Distribution costs0.440.490.61Administration costs0.190.220.27

2. Summary balance sheets

RM

(in million)

RM

(in million)

RM

(in million)

201820192020Non-current assets2.402.772.88Current assetsInventories:Raw materials0.090.120.15Finished goods0.400.430.45Receivables1.141.321.84Bank0.030.040.051.661.912.49Less Current liabilities1.351.561.90Net current assets0.310.350.592.713.123.47Capital and reserves0.50.911.26Bank loans2.212.212.212.713.123.47

3. Yacht Builders Federation (Average ratios for federation members 2020)

% Return on capital employed26.0%Asset turnover1.79 timesNet profit margin14.5%Current ratio1.5:1Acid test ratio1.03:1Debtors collection period83 daysGearing ratio32.0%Labour cost % of sales18.1%Operating cost % of sales85.5%Distribution costs % of sales9.5%Admin costs % of sales4.5%

Required:

In your role of planning assistant you are to prepare an analysis of the company's figures over the three-year period using the performance criteria listed in the inter-firm comparison table.

1. Calculate all the ratios given in the average ratios for federation members for 2018, 2019 and 2020. (18 marks)
2. Prepare a detailed report on the company's performance in terms of profitability and liquidity compared with the average of the sector over the period. (12 marks)

Question 4 (30 marks) Budgetary Planning - Learning outcome C5, PLO 6

Memory and Recall strolled back to their plant from the administrative offices of Maddy Berhad. Memory is manager of the machine shop in the companys factory; Recall is manager of the equipment maintenance department.

The men had just attended the monthly performance evaluation meeting for plant department heads. These meetings had been held on the third Tuesday of each month since Madhavan Jr., the presidents son, had become plant manager a year earlier.

As they were walking, Memory spoke: Boy, I hate those meetings! I never know whether my departments accounting reports will show good or bad performance. Im beginning to expect the worst. If the accountants say I saved the company a dollar, Im called Sir, but if I spend even a little too muchboy, do I get in trouble. I dont know if I can hold on until I retire.

Memory had just been given the worst evaluation he had ever received in his long career with Maddy Berhad. He was the most respected of the experienced machinists in the company. He had been with Maddy Berhad for many years and was promoted to supervisor of the machine shop when the company expanded and moved to its present location. The president (Madhavan, Sr.) had often stated that the companys success was due to the high-quality work of machinists like Memory. As supervisor, Memory stressed the importance of craftsmanship and told his workers that he wanted no sloppy work coming from his department.

When Madhavan, Jr., became the plant manager, he directed that monthly performance comparisons be made between actual and budgeted costs for each department. The departmental budgets were intended to encourage the supervisors to reduce inefficiencies and to seek cost reduction opportunities. The company controller was instructed to have his staff tighten the budget slightly whenever a department attained its budget in a given month; this was done to reinforce the plant managers desire to reduce costs. The young plant manager often stressed the importance of continued progress toward attaining the budget; he also made it known that he kept a file of these performance reports for future reference when he succeeded his father.

Memorys conversation with Recall continued as follows:

Memory: I really dont understand. Weve worked so hard to meet the budget, and the minute we do so they tighten it on us. We cant work any faster and still maintain quality. I think my men are ready to quit trying. Besides, those reports dont tell the whole story. We always seem to be interrupting the big jobs for all those small rush orders. All that setup and machine adjustment time is killing us. And quite frankly, Recall, you were no help. When our hydraulic press broke down last month, your people were nowhere to be found. We had to take it apart ourselves and got stuck with all that idle time.

Recall: Im sorry about that, Memory, but you know my department has had trouble making budget, too. We were running well behind at the time of that problem, and if wed spent a day on that old machine, we would never have made it up. Instead we made the scheduled inspections of the forklift trucks because we knew we could do those in less than the budgeted time.

Memory: Well, Recall, at least you have some options. Im locked into what the scheduling department assigns to me and you know theyre being harassed by sales for those special orders. Incidentally, why didnt your report show all the supplies you guys wasted last month when you were working in Bills department?Recall: Were not out of the woods on that deal yet. We charged the maximum we could to other work and havent even reported some of it yet.

Memory: Well, Im glad you have a way of getting out of the pressure. The accountants seem to know everything thats happening in my department, sometimes even before I do. I thought all that budget and accounting stuff was supposed to help, but it just gets me into trouble. Its all a big pain. Im trying to put out quality work; theyre trying to save pennies.

Required:

1. Identify the problems that appear to exist in Maddy Berhads budgetary control system and explain how the problems are likely to reduce the effectiveness of the system. (15 marks)
2. Explain how Maddy Berhads budgetary control system could be revised to improve its effectiveness. (15 marks)