IB2320 Issues in Management Accounting Assignment

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Mark Distribution
Job one 30%
Job two 30%
Job three 30%
Academic writing 10%
Word Limit
3000 word limit
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Questions
Overview
You work for Bonanza International PLC as a Management Accounting trainee. The company was
established in 1978 and has built up a reputation as a cost-efficient organisation which has customer
value and quality at the centre of its vision.
Over the last few weeks a number of jobs have been sent to you to complete, you are required to
present your findings for each of the jobs into a portfolio for your line manager who will use your
work to present information to the Board of Directors.
Job 1
Your organisation has several divisions including the Steel Division and the Brinkman Division, whilst
the other divisions are completely autonomous, these two, trade together and have had a longstanding transfer price for the component the Steel division make and sell to the Brinkman division
for inclusion in their final product, which is high tech security cameras for homes and businesses.
A complaint has been received from the Manager of the Steel division (Shirley Thomas) that the
current transfer price is unfair to her division and you have been asked to investigate.
You find:
The Steel Division is currently required by Bonanza International to transfer its total yearly output of
400,000 units of the component X to the Brinkman Division at 110% of full manufacturing cost.
The Brinkman Division undertake further processing and the final camera is sold to customers at a
price of £150 per unit
Unlimited quantities of component X can be purchased and sold on the outside market at £90 per unit.
To sell the Component X it produces at £90 per unit on the outside market, the Steel Division would
have to incur variable marketing and distribution costs of £5 per unit. Similarly, if the Brinkman
Division purchased component X from the outside market, it would have to incur variable purchasing
costs of £3 per unit.
The following table gives the manufacturing costs per unit in the Steel and Brinkman Divisions (For
Brinkman this excludes the transfer cost of component X) for the year 2019:
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Notes: Manufacturing overhead costs are, 25% fixed and the remaining variable in the Steel Division,
and 60% fixed and the rest variable in the Brinkman Division.
Bonanza International rewards each division manager with a bonus, calculated as 1% of divisional
operating profit
Required:
In your portfolio to your manager you must address the following issues in a section labelled JOB 1:
a) The current transfer price is based on full cost plus a mark-up, compare and contrast this
method of transfer pricing with using the market price method. Use numerical illustrations to
support your evaluation of the methods, ensure you comment on which method if any would
be more acceptable to Shirley Thomas.
b) Provide a recommendation to your manager as to where in your opinion the transfer price
should be set.
(Continued…/)
Steel Division Brinkman Division
£ £
Direct materials 12 6
Direct manufacturing labour costs 16 20
Manufacturing overhead costs 32 25
Manufacturing costs per unit 60 51
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Job 2
Another of the divisions Speedy Curry is a manufacturer of curry ready meals, and it has used a
traditional incremental budgeting system for a number of years. In the past the system has seemed
to work well, the budgets prepared by the accounting team have been well received by managers and
targets set have been generally achieved.
In the last few years however, it has become apparent that the budgeting system has not been running
as smoothly. The production manager has been called to see the Divisional Managing Director to
explain why the production budget has not been met. The sales manager has also been called on to
explain why the number of customer complaints has risen in relation to quality and why delivery times
and sales targets have not been achieved.
On investigation you find the following information:
1. The divisional accounting team have been preparing production and sales budgets without
any participation from the production manager or sales manager. This budgeted information
has been used to set targets for these two managers.
2. In an attempt to keep costs down the production manager altered the raw material mix to use
more of the cheaper sauce and less of the expensive chicken in the best-selling curry.
3. The sales manager took on an extra order for the best-selling chicken curry of 2,000 units even
though the factory was at 95% capacity [full capacity would be 100,000 units].
4. There is a big swing in the ready meal market towards customers preferring vegan curry rather
than chicken.
Required:
In your portfolio to your manager you must address the following issues in a section labelled JOB 2:
a) Critically discuss the role of participation in the budgeting process. Comment on why the
information found above may lead to ineffective budgeting and inability to meet targets.
b) Consider how variances such as Mix and Yield and Planning and Operational variances could
be used by the division to aid in the evaluation of the managers performance. Use numerical
illustrations to support your answer.
(Continued…/)
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Job 3
The Board of Directors have expressed that they feel that the organisation is not keeping pace with
the changes in the business environments’ that the divisions operate in, and financial performance
measurement of the divisions reveal that there has been little growth in the last three years.
Your manager has discussed with you the feeling that the management accounting function could be
better equipped to aid in the strategy of the organisation and has asked you to undertake further
investigation.
Required:
In your portfolio to your manager you must address the following issues in a section labelled JOB 3:
Produce a briefing note (introduction, main findings and conclusion with academic literature to
support) which addresses the following:
a) Why “traditional” management accounting may be considered less relevant to the modern
business.
b) What is “Strategic Management Accounting”.
c) Outline how the Balanced Scorecard which is considered a strategic tool may benefit the
organisation.
END OF QUESTIONS