You are a finance officer of Treadcushy a manufacturer of athletic shoes one morning you receive the following email from your manager. To: Finance Officer Subject: Cost savings Considering our cost base review, I thought that a good place to start would be a review of the standard costs of our main products. The standard costs were updated to be effective from 1 July 2021, but I am concerned that this update was not robust enough. Due to time constraints, it was done quickly and simply involved increasing the previous years standards by 3%. The SMT would like to review the process of setting standard costs in the hope that it will help to improve gross profit margins without compromising on product quality. SECTION A: SHORT ANSWER TASKS 30 TASK ONE As well as updating standards, Emily Queda, Finance Director, thinks we might find additional cost savings if we introduce a zero based budgeting (ZBB) approach. It has been suggested that we pilot ZBB in our warehouse and if successful we can look to adopt this more widely across the organisation. I had a quick chat about this with Pax Ghandi, Head of Finished Goods Warehouse, and will send you some notes from our conversation. (See Reference Material). Sara Gomez, Human Resources Director has expressed concern that our attempts to drive down costs may result in resistance from the work force. She questioned why managers have only limited involvement in budget setting and suggested that we move to a more participative approach. Another area of concern is inventory. Our financial statements for the year ended 30 June 2021 show that our inventory holding period is still extremely high, although it has decreased from 106 days in 2020 to 96 days in 2021. We need to see this ratio improve further. Therefore, I need to prepare some information to explain the costs/risks of holding inventory to Emily so she can work with the SMT to develop and approve an action plan.

a) Please can you produce a draft report that covers the following areas: How standards are used for planning and control, and issues with increasing the previous years standard costs by 3%, suggesting an alternative

b) The costs/risks of holding high levels of inventory.