General (videos)

Question 1

BO currently use absorption costing. What must be considered when using ABC? Intro

Answer 1

We currently use absorption costing to allocate production overheads. ABC is more complex and will tend to require expenditure on computer equipment to enable the calcs to be carried out. Suitability may depend on whether the Modis pack production is carried out separately from the BPs currently produced. There are 5 criteria to assess to enable a useful judgement of suitability

Question 2

What are the 5 criteria to assess suitability of ABC?

Answer 2

1. Diverse range
2. Small batches
3. Different Methods
4. Overhead cost proportion
5. Complexity vs Volume

Question 3

Explain what BO must consider when assessing the criteria of diverse range in ABC?

Answer 3

There are not a diverse range of BPs. There will be a small number of removeable packs. They are made using similar processess. ABC is more appropriate when the range is diverse.
Overhead costs are not significantly different from one BP to another. It is likely that each of the removeable packs will have a similar overhead cost

Question 4

Explain what BO must consider when assessing the criteria of batch sizes in ABC?

Answer 4

Small batch sizes are appropriate for ABC. Batch production of BPs takes place. Within the 4 stages there is scope for activities where more than one part of a pack is produced. Sewing includes the cut fabric. the zippers and attaching the back section. Each activity can be identified. This enables the use of ABC

Question 5

Explain what BO must consider when assessing the criteria of different methods in ABC?

Answer 5

The methods of production for the packs do not vary very much. Each pack will be produced using similar methods. The end results differ because of the different materials used. This does not support the view that ABC would be suitable

Question 6

Explain what BO must consider when assessing the criteria of overhead production in ABC?

Answer 6

The overhead costs are low in proportion to total costs. For a BP they make up c.15% of the cost. The removable packs can be expected to be a similar proportion. Any additional equipment can be expected to add to overhead costs. The low overhead cost supports the view that ABC is not suitable

Question 7

Explain what BO must consider when assessing the criteria of complexity vs volume in ABC?

Answer 7

When the overhead cost of a product is caused by the complexity of production, ABC is a better way to allocate the costs. When the no. of units produced is more significant, ABC is less beneficial. The labour proportion of the total cost of each BP reflects the labour time each requires. This does not support the use of ABC

Question 8

The SMT is considering using ZBB for the development of new BPs. What are the ZBB process steps?

Answer 8

1.Identify activities
2. Decision packages
3. Mutually exclusive decision packages
4. Incremental decision packages
5. Ranked

Question 9

The SMT is considering using ZBB for the development of new BPs. Explain the ‘identify activities’ step in ZBB

Answer 9

We would need to identify objects that generate cost. Each activity has an objective. The objective would be to design a BP which has the characteristics that are critical for customers

Question 10

The SMT is considering using ZBB for the development of new BPs. Explain the ‘Decision packages’ step in ZBB

Answer 10

We would need to develop decision packages for alternative approaches for design. Each decision package would be an analysis and costing of different ways to achieve the objective

Question 11

The SMT is considering using ZBB for the development of new BPs. Explain the ‘mutually exclusive decision packages’ step in ZBB

Answer 11

These involve either / or scenarios. We could have testing of prototypes using our own staff or give this role to a specialist research company. We would even ask known BPs users who have bought in the past

Question 12

The SMT is considering using ZBB for the development of new BPs. Explain the ‘incremental decision packages’ step in ZBB

Answer 12

This can be developed for each option. The starting point would be testing by BO staff and asking for individual comments that represent the lowest cost. Then packages can be assed on such as arranging to meet the people concerned using a teams meeting or inviting them to a venue for a focus meeting in person

Question 13

The SMT is considering using ZBB for the development of new BPs. Explain the ‘Ranked’ step in ZBB

Answer 13

The decision packages are analysed and costed. They are then reviewed and ranked on a cost benefit basis. The benefits of a person to person meeting would be the opp to develop a good rapport with people testing the BPs, The team could expand beyond a pre-planned set of questions. Relying on individuals comments will not generate discussion. Such info may not be useful

Question 14

Discuss BOs variance analysis approach?

Answer 14

I suggest that BO uses standards that are subject to change more often than once a yr. Variance analysis using out of date standards is not good practice. Standards could be revised more often.

The price of RMs such as cotton fleece, could be volatile as they depend on nature

Question 15

Why might more regular revisions of the standards be more suitable for BO?

Answer 15

Seasonal variations
Prices of materials –> inflation
Cost control

Implications - finance department - lumbered with extra work!

Judgement: does the greater accuracy of the control information produced outweigh the additional costs of the work required to review the standards?

Question 16

Last week we completed the draft financial statements for june 24. We know that some BPs included in the inventory valuation were sub-standard. This would usually mean scrapping them. The SMT are considering selling the sub-standard BPs to a retailer specicialising in sub-standard goods. The retailer would buy at 50% of usual price, less a $5 per item handling fee. Explain how would be affected by IAS10.

Answer 16

IAS 10 splits events after the end of the reporting period into adjusting and non-adjusting events.

Adjusting events arise after the end of an accounting period that provide evidence of conditions existing at the end of the reporting period. The discovery that some BPs were sub-standard is an adjusting event.

These backpacks were included in the inventory at 30 June 24. We treated them as being saleable finished goods. The discovery of the faults shows this was incorrect. They should be included in the inventory at their NRV.

The financial statements have not yet been authorised and filed. We need to adjust the value of the inventory in respect of the sub-standard BPs. This will provide the correct carrying value of the inventory

Question 17

Last week we completed the draft financial statements for june 24. We know that some BPs included in the inventory valuation were sub-standard. This would usually mean scrapping them. The SMT are considering selling the sub-standard BPs to a retailer specicialising in sub-standard goods. The retailer would buy at 50% of usual price, less a $5 per item handling fee. Explain how would be affected by IAS2.

Answer 17

IAS2 requires inventory to be valued in the financial statements at the lower of cost and NRV

The BPs have been included in the FS for the yr ended 30 June 24 at cost. This cost is the cost of all the costs incurred in bring them to their present location and condition. The NRV of the BPs is the estimated selling price less any estimated costs of completion and any costs to make the sale.

If the plan is to sell the sub-standard BPs through the retailer goes ahead, the NRV will be 50% of the normal retailer price less the handling fee per BP. If the SMT choose to scrap the sub-standard BPs the NRV will be 0.

The NRV of the faulty BPs is lower than cost. The inventory value in the FS should be written down to the NRV.

If the SMT decides to scrap them, it should be noted that any parts such as packaging that is salvaged and retained in inventory should be included in the FS at cost

Question 18

What terms should be used for risk and uncertainty

Answer 18

Uncertainty - do not use the word risk

1. Maximin - pessimistic
   2.Maximax - Optimistic
   3.Minimax regret - bad loser

Risk
1.Best outcome (irrespective of prop) = Risk seeker
2.Highest EV (ignores SD and coefficient) = Risk neutral
3. Lowest risk (the lowest coefficient of variation)= Risk adverse

Question 19

BO have been approached by a dealer outside Europe wanting them to supply them with a large order of specialist BPs. To fufill the order, BO would need to employ staff on overtime rates. The client is willing to pay a premium price for availability.

How would the shadow price for labour help to identify whether this proposal will be profitable?

Answer 19

Do we know what the hourly rates are for labour? The standard cost for Uffico shows standard hourly rates of $22 ad $18

What might holdback the decision to accept the order? They are prepared to pay a premium, i.e. incorporate shadow prices

Question 20

Using knowledge of BO, discuss benefits and issues of switch to JIT?

Answer 20

There are two types of JIT.

1. Purchasing JIT - inventory that comes into production comes straight onto production line. No holding of raw materials.
2. Production JIT - produce the products as we sell them e.g. Dell computers.

BO have 80 days of inventory sitting in accounts at 30 June 24. Is June a seasonal high point? Selling BPs to people coming out of uni ready to start work in July for instance so need a higher inventory holding amount at that time of yr

BO appear to produce at constant rate through year which provides website customers and retailers with the products when they order them

We don’t know BO approach to bulk discounts. We know about Balistic nylon and cotton fleece and they can’t but simply as when need so need some holding

Question 21

How could BO use Porters generic strategies? Intro paragraph

Answer 21

BO sells a range of BPs sold to a high specification. This suggests BO aims to achieve competitive advantage through superior quality. To succeed with this approach a focused differentiation approach is used.
They currently focus on the market in HLand and to a lesser extent Europe.

This [unseen] issue would [support / compromise] a view that BO has adopted a focus differentiation strategy by ………

Question 22

Back to Porters generic strategies - a Manager proposes competing by making budget priced backpacks. Application para

Answer 22

Intro paragraph followed by:

The proposed budget backpacks would compromise a view that BO has adopted a focus differentiation strategy. Why? By changing the emphasis from keeping quality high to be able to sell at a premium price compared to rivals. The low cost BP at a budget price is not compatible with customer perceptions

Question 23

What is Herzbergs motivation hygiene theory - staff issue intro paragraph?

Answer 23

According to Herzberg, people must have their hygiene factors met such as security, safety and good working positions or they will become demotivated at work. To positively motivate someone ‘motivating’ factors such as responsibility, recognition and a chance of promotion must be present

Question 24

What is Herzbergs motivation hygiene theory - staff issue application paragraph?

Answer 24

…. would represent a hygiene factor. Workers needs are not being met. They will become demotivated. BO must work to rectify this
….. (e.g. empowerment) is an important motivating factor and to positively motivate staff in the future BO should work to develop this

Question 25

What is the opening paragraph for Mendelow’s theory?

Answer 25

According to Mendelow, stakeholders can be categorised according to whether they have high or low power, or high or low interest in the company. Depending on these elements they can be categorised, and the typical strategy followed for that stakeholder can be ascertained

Question 26

What is the application paragraph for Mendelow’s theory?

Answer 26

In this issue the [stakeholder] has [high / low ] power because of…… and [high / low] interest because of …….
As such we should….. keep satisfied / keep informed / keep close (key player) / make minimal effort. This would mean….

Question 27

What is the intro paragraph for product life cycle?

Answer 27

Products go through a range of stages in their life, starting with the introduction where sales tend to be low, moving on to the growth phase as sales rise and more competitors enter the market, followed by maturity phase, which is categorised by low growth but high profits, before then sales falling as the product goes into decline.

Question 28

What is the application paragraph for product life cycle?

Answer 28

In this issue, the product s in the …. phase and as such this means that….

Question 29

What is the intro paragraph for marketing mix?

Answer 29

The marketing mix refers to the set of actions or tactics that a company uses to promote its brand in the market. The 7Ps make up a typical marketing mix - Price, Promotion, Product, Place, Physical Evidence, People and Process

Question 30

What is the application paragraph for marketing mix?

Answer 30

In this proposal BO is [keeping / breaking away from] the mix they have used in the past. By placing more emphasis on …… it will mean that…..

BO sell some backpacks to retailers who sell to consumers (B2B) and others using the website to sell directly to end customers (B2C). The marketing mix is likely to include a substantial emphasis on the perceptions of end customers. The recognition of the brand would enable BO to retain demand from the final consumers.

Product = superior functionality, durable and beautiful styling

Price = premium

Premium = A list actor endorsement + website

Place = where it suits the customers. Website & retailers

Physical evidence = website - delivery drivers etc. Retailers in department stores

People = no evidence from pre-seen

Process = Website - shopping basket etc. Retailers - credit terms

The key element? Product. Superior functionality, durability and styling

A cheap and cheerful backpack for instance would be moving away from this. Perhaps towards price

Question 31

Intro paragraph for Porters value chain?

Answer 31

Porters value chain is a structure that enables the analysis of BO to identify how much value is added by each activity that takes place.

How the below help to achieve margin

5 primary activities
1. Inbound logistics
2. Operations
3. Outbound logistics
4. Marketing and selling
5. After-sales service

4 support activities
1. Firm infra
2. Tech Development
3. HR
4. Procurement

Question 32

Application paragraph for Porters value chain?

Answer 32

This proposal lets BO [increase / reduce] the value as it [reduces / increases] the costs associated with …. activity or it enables [prices / volumes] to be increased through perceived value by the customer

Question 33

Intro paragraph for ethics

Answer 33

Strong ethical practices will support a business’s reputation and brand, as well as simply being the right thing to do

One external example of good ethics is outlined in the CIMA code of ethics which states that professionals should operate within 5 key principles - Professional due care and competence, integrity, professional behaviour, confidentiality, and objectivity. In this case …… might be deemed not to be….. and as such the ethics in this situation could be improved

Question 34

How should you outline an ethics question?

Answer 34

• What is the issue?
• What makes the issue an ethical issue?
• What are the commercial / legal considerations?
• Short term recommendations e.g. when we draw up terms of trade with suppliers we make it a condition they follow the ethical route we think is important
• Long term recommendations
  Regular visits to supplier sites to ensure they are following the ethical code

Question 35

What are the key points to raise re variance analysis?

Answer 35

Sales variances could be linked to lower sales volumes or pricing pressures in the market

Cost variances might be due to higher material costs or labour inefficiencies, possibly linked to supply chain issues

Fixed overhead variances: operational inefficiencies in the manufacturing process could be contributing to unfavourbable variances

Question 36

What are the key points to raise re sustainability?

Answer 36

Sustainability reporting and the need for transparency in how carbon neutrality goals are progressing

Supplier audits to ensure PET polyester suppliers meet environmental and ethical standards

Assessing the cost vs benefit of investing in green initiatives

Question 37

What are the key points to raise re ABC costing?

Answer 37

Trad costing maybe too simplistic for BO range of products e.g. RFID pockets, integrated USB ports

ABC could provide a more precise method of allocating overhead to products that use more sources

However, ABC is costly, complex and requires substantial system changes

Question 38

Key points to raise re costing?

Answer 38

Refer to cost card and budgets in pre-seen
Impact on cost and profit calcs
Suitability and limitations of different costing methods
Incremental budgeting approach
Overheads absorbed on DLH
Wastage included in product cost
Idle time not included in budgets

Question 39

Key points to raise re supply chain?

Answer 39

Great supplier relations (CSF)
Sustainability in supply chain
Some supplier power is high
Importance of quality (CSF)

Question 40

What are the key points to raise re manufacturing issues?

Answer 40

Automation could help reduce costs and improve efficiency
Ensuring that quality is not compromised by any cost-cutting measures
BO facility has room for expansion, which could support new product lines

Question 41

Key points to raise are WC?

Answer 41

Slight decrease in WC cycle
Liquidity metrics are good
Inventory days increased
Payable days extended
Receivables days stable
Out of overdraft (cash)
£1m dividend

Question 42

Key points to raise re decision making?

Answer 42

Investment appraisal techniques should be used to evaluate the potential profitability of new products

Considering the opp cost of allocating resources to new product lines

Thorough market research and product testing are essential to avoid future product failures

Question 43

How do you know if decision making using risk or uncertainty?

Answer 43

If gives payoff tables without probabilities, this is decision making under uncertainty and therefore maximax, minimax regret and maximin are relevant

If gives probabilities, EV, SD and coefficients, this is decision making where there is risk and therefore risk attitudes should be considered

Question 44

BO uses global logistics company to deliver products. SMT are considering whether to set up-in house approach. Char has asked you to assess the arguments in favour of continuing to outsource deliveries using the global logistics company

Answer 44

Outsourcing distribution to a specialist company enables us to make use of the outsource company’s staff and internal resources
WHY important?
This is important as they have up to date knowledge in terms of the tech and legal obligations
WHY important?
They can use the latest tech. This would improve the likelihood of making on-time deliveries to the customers.
WHY important?
Retailers may have narrow time slots. Outsourcing would avoid our drivers having idle time waiting to deliver or wasted journeys if arriving late
WHY important?
Having products at the retailers when they expect to receive them will support our reputation. Reliable timekeeping of deliveries this can help us to make more sales
WHy important?
Sustainabilty when delivering is a challege. There are greenhouse gas emissions which add to BOs carbon footprint
Why important?
The distribution company has the latest tech. They can reduce impact of the distribution process on the environment. They can use vehicles powered by electricity or biogas

Question 45

Smart BP market to witness significant growth by 2030 answer

Answer 45

According to a recent report, the smart backpack market is projected to grow by $444.4m by 2030, driven by rising demand for multifunctional and tech-integrated products. As BO already incorporates advanced features such as USB ports and RFID blocking into business backpacks, it is well placed to leverage this trend. It is essential for the R&D director, Ben Conti, to continue innovating in this space to maintain BOs comp edge and meet the evolving needs of the modern, tech savvy consumer

Question 46

The impact of big data on the BP market?

Answer 46

The integration of big data into the backpack market, as highlighted in
a recent analysis, is transforming how companies operate, offering
insights into consumer behaviour and enabling more efficient supply
chain management. For BackOffice, incorporating big data analytics
could provide a strategic advantage by allowing the company to better
understand customer needs, streamline production, and predict future
market trends. This would not only enhance product development but
also ensure that BackOffice remains competitive in an increasingly
data-driven market environment.

Question 47

Key players in the smart backpack market

Answer 47

Samsonite and Targus are set to experience projected growth in their
market share by leveraging trade offers and innovating their product
features. There is an increasing demand for multifunctional and tech-
integrated products. BackOffice already includes features like RFID protection and integrated USB ports in its business backpacks. We are well-positioned to capitalise on this growth. BackOffice should continue innovating its product line. New smart features will cater to the evolving needs of the modern professional. This strategy could help BackOffice
capture a significant share of the expanding smart backpack market.

Question 48

Tech trends in the smart BP features

Answer 48

The smart backpack market is experiencing rapid growth. This is driven by the increasing integration of technologies like GPS
tracking, solar charging, and smart locks. BackOffice can
incorporate these advanced features. BackOffice can enhance its appeal to tech-savvy consumers. It
would boost its position as a leader in the premium business backpack market. Adopting these technological trends will be crucial in an increasingly competitive environment.

Question 49

What are the criteria for the transfer of PPE into asset held for sale? What must be fulfilled

Answer 49

• A plan to sell the item actively
• Available for immediate sale
• There is a reasonable probability of selling that item in 12 months
• marketed at fair value
• sellable in current condition
• No plan to withdraw item for sale

SALE
Sensible
Available for immediate sale
Looking for a buyer (unlikely to change)
Expect to sell within 12 months

Question 50

What value is used at the date of reclassification in transferring PPE to AHfS

Answer 50

Lower of the carrying value and the fair value less cost to sell

Question 51

When reclassifying to asset held for sale where do we debit and credit?

Answer 51

Credit the asset within PPE

Debit the asset held for sale (fair value) and selling costs to P&L

Question 52

What is tax depreciation allowance?

Answer 52

If you buy an asset and want to charge tax dep’cn (cap allowances) we do not pro rata in the year of acquisition. If bought in final month of year, you can still apply a full years tax dep’cn, thereby reducing tax paid in year (as reduces profit)

Question 53

What criteria must KPIs meet?

Answer 53

SMART criteria

Question 54

What is the CGMA cost transformation model?

Answer 54

1. Engendering a cost-conscious culture
2. Managing the risks inherent in driving cost competitiveness
3. Connecting products with profitability
4. Generating max value through new products
5. Incorporating sustainability to optimise profits
6. Understanding cost drivers: cost accounting systems and processes

Question 55

Explain how the below areas of the CGMA model could be applied to BO?

3. Incorporating sustainability to optimise profits

Answer 55

If we operate in a sustainable way, this helps to reduce cost (in terms of waste). It potentially gives a competitive advantage. BackOffice is aware of the need for sustainability and has already
instigated an initiative to use recycled water bottles. This
appeals to customers because it is durable and has a luxurious feel as well as because of the “green” credentials. We could go further with this including looking at the life cycle
costs of our products from product design to recycling at the end of their life.

Reducing the detrimental impact of a business’s activities on the natural capital:
1. enhances a brands image (and therefore sales)
2. improves profitability (by reducing long term costs)
3. Helps safeguard the future availability of natural capital

Look at:
1. Sustainability to
a) optimise the use of resources
b) demonstrate CSR
2. Designing costs out of the product (i.e. they don’t add value to customers)
3. Minimising time to market
4. Maximising the life of the products
5. Maximising the life of assets used in production

Question 56

How could CGMA cost model apply to BO? Engendering a cost-conscious culture

Answer 56

Everyone in BO from the Directors to those making backpacks should be aware and conscious of the costs being generated . They should be motivated to reduce cost as far as possible. The culture should be that everybody within the business has a part to play.
Buying inputs such as ballistic nylon and zippers from specialist producers eliminates the need for their complex production at BO.
The use of CAM for sewing the bags together could reduce the cost per BP

Look at:
1. Waste reduction as an expected part of working - take out unnecessary processes and standardise activities
2. Supply chain mgmt
3. Empowering workers to initiate improvements
4. Training and factilitating

Question 57

How could CGMA cost model apply to BO? Managing the risks inherent in driving cost-competitiveness

Answer 57

Risks associated with cost reduction need to be managed. We could reduce costs by CAM technology for sewing the backpacks.
This could lead to quality issues and customers choosing our competitors’ products rather than ours.
We need to balance cost reductions with quality and the impact of reduced quality on our customers. Backpacks may be returned to be repaired or refunds demanded. Initiatives such as TQM would be helpful in ensuring that cost reduction is not achieved at the expense of quality.