The Covid-19 pandemic forced more than a third of the planet's population under some form of restriction resulting in grave impact on manufacturing firms. Due to the severity of the pandemic, many companies are facing significant operational, financial and liquidity challenges. [1] Analysts have identified the following as some of the key factors that give rise to these challenges: . Collapse of demand due to locked-down imposed by the government. Supply shortages and increased prices - Until affected factories can resume production, manufacturers will need to rely on inventory stockpiles. However, these resources are limited and will run out eventually. When existing inventory runs dry, shortages and/or price increases will occur throughout supply chains if alternate sources aren't secured.[2] Fulfilment delays - Quarantines, travel restrictions and workforce shortages can make it difficult or impossible for affected manufacturers to fulfil their contractual obligations to their customers. A shortage or delay of products can seriously impact a company's reputation and may result in lost customers or even legal consequences.[3] Fast depletion of cash reserve - as cash inflows from revenue decline, cash reserves may be depleted rapidly when cash outflows to pay for expenses and other commitments are not reduced fast enough. This may severely affect the manufacturer's ability to weather the crisis. While most governments were quick to announce measures to soften the blow, many analysts believe that these measures can bring only temporary relief. [1] PWC (2020), Covid 19 Managing your cash pressures, PWC. [2] Pradhan et al (2020), Navigating COVID 19 impacts on manufacturers and distributors, AICPA. [3] Kelp et al (2020), Managing costs in times of COVID 19", Oliver Wyman. [4Deloitte (2020), COVID 19, Managing cash during a period of crisis, Deloitte. Required: (a) Define management accounting and describe the key components of the management accounting system. (14 marks) (b) us Explain how the various components of the management accounting systems can be Screenshot turers face the challenges brought about by the pandemic. (28 marks) (c) Many consultants have prescribed the following as some of the key responses to weather the crisis: (i) Develop a robust supply chain by performing vendor risk assessment. Ensure financing remains viable by focusing on working capital management. (iii) Contain costs by reducing variable costs and converting fixed to variable costs where possible. (iv) Consider non-traditional revenue streams. Give three (3) examples of management accounting information (two internal and one external) that could be used by a manager to make decisions in the above areas. (28 marks)
