The Better Electricals Group (BEG) which commenced trading during 2002 manufactures a range of high quality electrical appliances such as kettles, toasters and steam irons for domestic use which it sells to electrical stores in Voltland.
The directors consider that the existing product range could be extended to include industrial sized products such as high volume water boilers, high volume toasters and large steam irons for the hotel and catering industry. They recently commissioned a highly reputable market research organisation to undertake a market analysis which identifi ed a number of signifi cant competitors within the hotel and catering industry.
At a recent meeting of the board of directors, the marketing director proposed that BEG should make an application to gain ‘platinum status’ quality certifi cation in respect of their industrial products from the Hotel and Catering Institute of Voltland in order to gain a strong competitive position. He then stressed the need to focus on increasing the effectiveness of all operations from product design to the provision of after sales services.
An analysis of fi nancial and non-fi nancial data relating to the application for ‘platinum status’ for each of the years 2011, 2012 and 2013 is contained in the appendix.
The managing director of BEG recently returned from a seminar, the subject of which was ‘The Use of Cost Targets’. She then requested the management accountant of BEG to prepare a statement of total costs for the application for platinum status for each of years 2011, 2012 and 2013. She further asked that the statement detailed manufacturing cost targets and the costs of quality.
The management accountant produced the following statement of manufacturing cost targets and the costs of quality:
Required:
(a) Explain how the use of cost targets could be of assistance to BEG with regard to their application for platinum status. Your answer must include commentary on the items contained in the statement of manufacturing cost targets and the costs of quality prepared by the management accountant. (8 marks)
(b) Assess the forecasted performance of BEG for the period 2011 to 2013 with reference to the application for ‘platinum status’ quality certifi cation under the following headings:
(i) Financial performance and marketing;
(ii) External effectiveness; and
(iii) Internal effi ciency. (12 marks)