Task 4: Analysing decision making and control using management accounting tools

Question 1

NPV
Limiting factor
Target costing

Answer 1

.

Question 2

Assessing viability eg. new location when extra HO costs apportioned

Answer 2

Doesn’t matter fixed costs as incurred either way.. marginal costs only for decision

Question 3

If doing a NPV cashflow what to remember?

Answer 3

Only outlay goes in Y0 (if there is initial investment)

Cash inflows start at Y1

Question 4

Short spiel about use of contribution to decide what to produce … marginal cost for decision making

also about limiting factor decision.

Answer 4

… so can not just make the right choice but satisfy the ‘explain’ part of the question if needed..

Question 5

Other factors

Outsourcing

Answer 5

Reliability of service, quality of product

Guarantee of continuity of pricing

Laying off staff… might not work can’t get them back
Also remaining staff feel threatened, affect motivation

Social sustainability - eg closing a location sell site to holiday park.. less well paid work.

Question 6

Limiting factor

After calculating what to make what are some other things to think about

Answer 6

USE UP existing INVENTORY to meet demand.

Talk to customers

Move production to another branch

Outsource/ buy in

Question 7

Target costing questions

Answer 7

take care - remember the Malt barley osborne q.
I made the assumption that the raw material was the only input.. thought the question was about working out its cost by working backwards from SP/req.profit and then working out the per tonne cost since 1 tonne raw mat only produces 0.7 Finished product.. but this was all wrong. part a only wanted the target cost … ie. given sell rice and profit required and just simply calculate the target TOTAL cost. easy… then told what price was for the raw material and asked to calculate the target ‘other’ cost… dead simple… i read it wrong and answered a different question!

RTFQ !!!!

Question 8

The last two tasks (4 & 2) require essay style answers and may need even more time for you to analyse the scenario, do some calculations and then write meaningful points about them.

Task 4 tests MDCL which you have passed already. There are some calculations but most of the marks are for narrative answers. Make sure that you make your answers relevant by referring to the task requirements frequently before writing anything. It’s easy when you are in your flow of writing to start to deviate away from what the task actually wants you to do.

Answer 8

.

Question 9

BPP 4.14
decision making about discontinuing product.

Given the contribution and fixed costs allocated.. negative profit.
Given a possible new product same details.. positive profit.
Given Directly Attributable fixed costs for both..

How to assess?

Answer 9

Ignore profit and go back to contribution.

Take contribution minus DIRECTLY ATTRIBUTABLE fixed costs only into consideration.

Work out the new contributions and compare those..

IGNORE fixed costs that are not directly attributable.

Question 10

BPP 4.15

When scaling up Blossoms operations after closure of Dandelion I was a bit confused how to scale up variable Material cost since qty wasn’t given..

Answer was that it scales the same amount as the % increase in revenue that was specified.

Answer 10

I suppose this is because since no change in selling price was indicated the increase in revenue was all due to volume … so can scale up variable costs proportionally..

watch out for a little extra like (5% discount for the increased vol of materials.. treat this separately…. so scale up the material cost by 40% (same as revenue increase) …. then apply the 5% reduction.

Question 11

Ref BPP 4.16 where the answer for b is just a long series of ‘points’ …

is this in line with what Carol? said in her revision lecture about …

Answer 11

.

Question 12

Watch out on relevant costs

Answer 12

I got one wrong in FI example … Development chef’s time… it gave her salary and said would take 2 months of her time and I fell in the trap of putting in 2/12 of her salary !!!!

Question 13

cannot take too much care.

Error I made …
Cash from operations 275k after a management chrge of 50k

I realised the management charge was an irrelevant cost (allocated HO costs). but failed to notice the 275 was ‘after’ it so I needed not to just omit it but had to actually add it back on…. sloppy concentration

Answer 13

.and another one.

Calculating target costs for manufacturing malt extract from barley:

Didn’t pay attention to what was being asked. in a

in b was given cost of a tonne of the material and asked what the residual target cost of a tonne of malt extract would be. … I just deducted the cost of a tonne from the overall target cost when in fact had been told that a tonne of material made 0.7 tonnes malt extract so I should have scaled the material cost first !!!

Just carelessness

Question 14

look for sustainability somewhere

Triple bottom line

Answer 14

eg. skilled staff laid off in a restructure where holiday park jobs are the alternative…

Question 15

Other considerations

Answer 15

Operational risk (Capacity)

Loss of skilled staff

Loss of control over quality

Question 16

possible practical steps if limited factor means production of A or B is cut

Answer 16

1. Use up stocks of finished inventory
2. Transfer production
3. Buy in ? (Not in book)
4. Talk to customers