问答题
Cement Co is a company specialising in the manufacture of cement, a product used in the building industry. The company has found that when weather conditions are good, the demand for cement increases since more building work is able to take place. Last year, the weather was so good, and the demand for cement was so great, that Cement Co was unable to meet demand. Cement Co is now trying to work out the level of cement production for the coming year in order to maximise profits. The company doesn’t want to miss out on the opportunity to earn large profits by running out of cement again. However, it doesn’t want to be left with large quantities of the product unsold at the end of the year, since it deteriorates quickly and then has to be disposed of. The company has received the following estimates about the probable weather conditions and corresponding demand levels for the coming year:<br>Each bag of cement sells for $9 and costs $4 to make. If cement is unsold at the end of the year, it has to be disposed of at a cost of $0·50 per bag.<br>Cement Co has decided to produce at one of the three levels of production to match forecast demand. It now has to decide which level of cement production to select.<br>Required:<br>(a) Construct a pay off table to show all the possible profit outcomes. (8 marks)<br>(b) Decide the level of cement production the company should choose, based on the following decision rules:<br>(i) Maximin (1 mark)<br>(ii) Maximax (1 mark)<br>(iii) Expected value (4 marks)<br>You must justify your decision under each rule, showing all necessary calculations.<br>(c) Describe the ‘maximin’ and ‘expected value’ decision rules, explaining when they might be used and the attitudes of the decision makers who might use them. (6 marks)
问答题
Heat Co specialises in the production of a range of air conditioning appliances for industrial premises. It is about to launch a new product, the ‘Energy Buster’, a unique air conditioning unit which is capable of providing unprecedented levels of air conditioning using a minimal amount of electricity. The technology used in the Energy Buster is unique so Heat Co has patented it so that no competitors can enter the market for two years. The company’s development costs have been high and it is expected that the product will only have a five-year life cycle.<br>Heat Co is now trying to ascertain the best pricing policy that they should adopt for the Energy Buster’s launch onto the market. Demand is very responsive to price changes and research has established that, for every $15 increase in price, demand would be expected to fall by 1,000 units. If the company set the price at $735, only 1,000 units would be demanded.<br>The costs of producing each air conditioning unit are as follows:<br>Note<br>The first air conditioning unit took 1·5 hours to make and labour cost $8 per hour. A 95% learning curve exists, in relation to production of the unit, although the learning curve is expected to finish after making 100 units. Heat Co’s management have said that any pricing decisions about the Energy Buster should be based on the time it takes to make the 100th unit of the product. You have been told that the learning co-efficient, b = –0·0740005.<br>All other costs are expected to remain the same up to the maximum demand levels.<br>Required:<br>(a) (i) Establish the demand function (equation) for air conditioning units; (3 marks)<br>(ii) Calculate the marginal cost for each air conditioning unit after adjusting the labour cost as required by the note above; (6 marks)<br>(iii) Equate marginal cost and marginal revenue in order to calculate the optimum price and quantity. (3 marks)<br>(b) Explain what is meant by a ‘penetration pricing’ strategy and a ‘market skimming’ strategy and discuss whether either strategy might be suitable for Heat Co when launching the Energy Buster. (8 marks)
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The Equine Management Academy (EMA) which was founded in 1990 is a privately owned organisation located in Hartland, a developing country which has a large agricultural sector and where much transportation is provided by horses. EMA operates an Equine College which provides a range of undergraduate and postgraduate courses for students who wish to pursue a career in one of the following disciplines:<br>Equine (Horse) Surgery<br>Equine Dentistry, and E<br>quine Business Management.<br>The Equine College which has a maximum capacity of 1,200 students per annum is currently the only equine college in Hartland.<br>The following information is available:<br>(1) A total of 1,200 students attended the Equine College during the year ended 31 May 2010. Student mix and fees paid were as per the following table:<br>(2) Total operating costs (all fi xed) during the year amounted to $6,500,000.<br>(3) Operating costs of the Equine College are expected to increase by 4% during the year ending 31 May 2011. This led to a decision by the management to increase the fees of all students by 5% with effect from 1 June 2010. The management expect the number of students and the mix of students during the year ending 31 May 2011 to remain unchanged from those of the year ended 31 May 2010.<br>(4) EMA also operates a Riding School at which 240 horses are stabled. The Riding School is open for business on 360 days per annum. Each horse is available for four horse-riding lessons per day other than on the 40 days per annum that each horse is rested, i.e. not available for the provision of riding lessons. During the year ended 31 May 2010, the Riding School operated at 80% of full capacity.<br>(5) Horse-riding lessons are provided for riders in three different skill categories. These are ‘Beginner’, ‘Competent’ and ‘Advanced’.<br>During the year ended 31 May 2010, the fee per riding lesson was as follows:<br>(6) Total operating costs of the Riding School (all fi xed) amounted to $5,750,000 during the year ended 31 May 2010.<br>(7) It is anticipated that the operating costs of the Riding School will increase by 6% in the year ending 31 May 2011. The management have decided to increase the charge per lesson, in respect of ‘Competent’ and ‘Advanced’ riders by 10% with effect from 1 June 2010. There will be no increase in the charge per lesson for ‘Beginner’ riders.<br>(8) The lesson mix and capacity utilisation of the Riding School will remain the same during the year ending 31 May 2011.<br>Required:<br>(a) Prepare a statement showing the budgeted net profi t or loss for the year ending 31 May 2011. (7 marks)<br>Some time ago the government of Hartland, which actively promotes environmental initiatives, announced its intention to open an academy comprising an equine college and riding school. The management of EMA are uncertain of the impact that this will have on the budgeted number of students and riders during the year ending 31 May 2011, although they consider that due to the excellent reputation of the instructors at the riding school capacity utilisation could remain unchanged, or even increase, in spite of the opening of the government funded academy. Current estimates of the number of students entering the academy and the average capacity utilisation of the riding school are as follows:<br>Required:<br>(b) (i) Prepare a summary table which shows the possible net profi t or loss outcomes, and the combined probability of each potential outcome for the year ending 31 May 2011. The table should also show the expected value of net profi t or loss for the year; (9 marks)<br>(ii) Comment briefl y on the use of expected values by the management of EMA; (3 marks)<br>(iii) Suggest three reasons why the government of Hartland might have decided to open an academy comprising an equine college and a riding school. (6 marks)
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Section A – BOTH questions are compulsory and MUST be attempted<br>The Superior Business Consultancy (SBC) which is based in Jayland provides clients with consultancy services in Advertising, Recruitment and IT Support. SBC commenced trading on 1 July 2003 and has grown steadily since then.<br>The following information, together with that contained in the appendix, is available:<br>(1) Three types of consultants are employed by SBC on a full-time basis. These are:<br>Advertising consultants who provide advice regarding advertising and promotional activities<br>Recruitment consultants who provide advice regarding recruitment and selection of staff, and<br>IT consultants who provide advice regarding the selection of business software and technical support.<br>(2) During the year ended 31 May 2010, each full-time consultant was budgeted to work on 200 days. All consultations undertaken by consultants of SBC had a duration of one day.<br>(3) During their 200 working days per annum, full-time consultants undertake some consultations on a ‘no-fee’ basis. Such consultations are regarded as Business Development Activity (BDA) by the management of SBC.<br>(4) SBC also engages the services of subcontract consultants who provide clients with consultancy services in the categories of Advertising, Recruitment and IT Support. All of the subcontract consultants have worked for SBC for at least three years.<br>(5) During recent years the directors of SBC have become increasingly concerned that SBC’s systems are inadequate for the measurement of performance. This concern was further increased after they each read a book entitled ‘How to improve business performance measurement’.<br>Required:<br>Prepare a report for the directors of SBC which:<br>(i) discusses the importance of non-fi nancial performance indicators (NFPIs) and evaluates, giving examples, how a ‘balanced scorecard’ approach may be used to improve performance within SBC; (13 marks)<br>(ii) contains a calculation of the actual average cost per chargeable consultation for both full-time consultants and separately for subcontract consultants in respect of each of the three categories of consultancy services during the year ended 31 May 2010; (7 marks)<br>(iii) suggests reasons for the trends shown by the fi gures contained in the appendix; (5 marks)<br>(iv) discusses the potential benefi ts and potential problems which might arise as a consequence of employing subcontract consultants within SBC. (6 marks)<br>Professional marks will be awarded in Question 1 for appropriateness of format, style. and structure of the report. (4 marks)
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Noble is a restaurant that is only open in the evenings, on SIX days of the week. It has eight restaurant and kitchen staff, each paid a wage of $8 per hour on the basis of hours actually worked. It also has a restaurant manager and a head chef, each of whom is paid a monthly salary of $4,300. Noble’s budget and actual figures for the month of May was as follows:<br>The budget above is based on the following assumptions:<br>1 The restaurant is only open six days a week and there are four weeks in a month. The average number of orders each day is 50 and demand is evenly spread across all the days in the month.<br>2 The restaurant offers two meals: Meal A, which costs $35 per meal and Meal B, which costs $45 per meal. In addition to this, irrespective of which meal the customer orders, the average customer consumes four drinks each at $2·50 per drink. Therefore, the average spend per customer is either $45 or $55 including drinks, depending on the type of meal selected. The May budget is based on 50% of customers ordering Meal A and 50% of customers ordering Meal B.<br>3 Food costs represent 12·5% of revenue from food sales.<br>4 Drink costs represent 20% of revenue from drinks sales.<br>5 When the number of orders per day does not exceed 50, each member of hourly paid staff is required to work exactly six hours per day. For every incremental increase of five in the average number of orders per day, each member of staff has to work 0·5 hours of overtime for which they are paid at the increased rate of $12 per hour. You should assume that all costs for hourly paid staff are treated wholly as variable costs.<br>6 Energy costs are deemed to be related to the total number of hours worked by each of the hourly paid staff, and are absorbed at the rate of $2·94 per hour worked by each of the eight staff.<br>Required:<br>(a) Prepare a flexed budget for the month of May, assuming that the standard mix of customers remains the same as budgeted. (12 marks)<br>(b) After preparation of the flexed budget, you are informed that the following variances have arisen in relation to total food and drink sales:<br>(c) Noble’s owner told the restaurant manager to run a half-price drinks promotion at Noble for the month of May on all drinks. Actual results showed that customers ordered an average of six drinks each instead of the usual four but, because of the promotion, they only paid half of the usual cost for each drink. You have calculated the sales margin price variance for drink sales alone and found it to be a worrying $11,700 adverse. The restaurant manager is worried and concerned that this makes his performance for drink sales look very bad.<br>Required:<br>Briefly discuss TWO other variances that could be calculated for drinks sales or food sales in order to ensure that the assessment of the restaurant manager’s performance is fair. These should be variances that COULD be calculated from the information provided above although no further calculations are required here. (4 marks)
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Section B – TWO questions ONLY to be attempted<br>Perkin manufactures electronic components for export worldwide, from factories in Ceeland, for use in smartphones and hand held gaming devices. These two markets are supplied with similar components by two divisions, Phones Division (P) and Gaming Division (G). Each division has its own selling, purchasing, IT and research and development functions, but separate IT systems. Some manufacturing facilities, however, are shared between the two divisions.<br>Perkin’s corporate objective is to maximise shareholder wealth through innovation and continuous technological improvement in its products. The manufacturers of smartphones and gaming devices, who use Perkin’s components, update their products frequently and constantly compete with each other to launch models which are technically superior.<br>Perkin has a well-established incremental budgeting process. Divisional managers forecast sales volumes and costs months in advance of the budget year. These divisional budgets are then scrutinised by the main board, and revised significantly by them in line with targets they have set for the business. The finalised budgets are often approved after the start of the accounting year. Under pressure to deliver consistent returns to institutional shareholders, the board does not tolerate failure by either division to achieve the planned net profit for the year once the budget is approved. Last year’s results were poor compared to the annual budget. Divisional managers, who are appraised on the financial performance of their own division, have complained about the length of time that the budgeting process takes and that the performance of their divisions could have been better but was constrained by the budgets which were set for them.<br>In P Division, managers had failed to anticipate the high popularity of a new smartphone model incorporating a large screen designed for playing games, and had not made the necessary technical modifications to the division’s own components. This was due to the high costs of doing so, which had not been budgeted for. Based on the original sales forecast, P Division had already committed to manufacturing large quantities of the existing version of the component and so had to heavily discount these in order to achieve the planned sales volumes.<br>A critical material in the manufacture of Perkin’s products is silver, which is a commodity which changes materially in price according to worldwide supply and demand. During the year supplies of silver were reduced significantly for a short period of time and G Division paid high prices to ensure continued supply. Managers of G Division were unaware that P Division held large inventories of silver which they had purchased when the price was much lower.<br>Initially, G Division accurately forecasted demand for its components based on the previous years’ sales volumes plus the historic annual growth rate of 5%. However, overall sales volumes were much lower than budgeted. This was due to a fire at the factory of their main customer, which was then closed for part of the year. Reacting to this news, managers at G Division took action to reduce costs, including closing one of the three R&D facilities in the division.<br>However, when the customer’s factory reopened, G Division was unwilling to recruit extra staff to cope with increased demand; nor would P Division re-allocate shared manufacturing facilities to them, in case demand increased for its own products later in the year. As a result, Perkin lost the prestigious preferred supplier status from their main customer who was unhappy with G Division’s failure to effectively respond to the additional demand. The customer had been forced to purchase a more expensive, though technically superior, component from an alternative manufacturer.<br>The institutional shareholders’ representative, recently appointed to the board, has asked you as a performance management expert for your advice. ‘We need to know whether Perkin’s budgeting process is appropriate for the business, and how this contributed to last year’s poor performance’, she said, ‘and more importantly, how do we need to change the process to prevent this happening in the future, such as a move to beyond budgeting.’<br>Required:<br>(a) Evaluate the weaknesses in Perkin’s current budgeting system and whether it is suitable for the environment in which Perkin operates. (13 marks)<br>(b) Evaluate the impact on Perkin of moving to beyond budgeting. (12 marks)
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