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ACCT3583 MANAGEMENT ACCOUNTING 2
Term 3, 2021
Sample Exam Questions

Final Exam Sample Questions

To aid your final exam preparations, attached is a selection of past final exam questions
relevant to the topics covered in MA2.

Before you attempt these sample questions, please note that:
• We strongly encourage you to attempt these questions under “exam conditions” – give
yourself approximately 2 minutes per mark. Even if you think the questions are easy, you
should try them anyway as often it is much harder to attempt the question under time
pressure.
• We encourage you to attempt these questions and then review the guides for the solutions.
• You can then bring your answers along to our consultation time. We will then look at
your answers and give you some constructive comments.
• You must attempt the questions BEFORE you come to our consultation – our comments
will be based on your written answers.
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Question 1 [18 Marks]

QuikSpeed Ltd is an Australian company that is in the business of designing, developing,
producing, and marketing athletic footwear and sporting apparel. An organisation chart,
outlining the main categories of activity in the QuikSpeed business, is provided in Figure 1
below.

Figure 1: QuikSpeed Organisation Chart

Chairman and Board of Directors
CEO
(Gordon Speed)
Procurement & Logistics
• Sourcing raw materials
• Inbound logistics
• Warehousing
• Outbound logistics
Research & Development
• Product aesthetics
• Technological R&D
Corporate Services
• Legal services
• Accounting
• Information
technology support
Sales & Marketing
• Negotiation and management of
retail distributors
• Product marketing
• Intra-corporate communications
Manufacturing
• Production of all
athletic footwear
and sporting
apparel
Retail Sales
• Online Sales
• Management of
concept stores (1)
• Management of
discount factory
stores (2)
Human Resources
• Recruitment
• Training
• Performance Appraisal

(1) Concept stores are QuikSpeed branded retail outlets, which only stock QuikSpeed
products and, according to Gordon Speed, aim to provide a "veritable retail sports arena
of information about QuikSpeed products and sports heritage, and an inspiration for the
athlete in everybody."

(2) Discount factory stores are retail outlets that sell discontinued lines of QuikSpeed
products at discounted prices.


QuikSpeed is gaining acceptance in the Australian market as a high-quality provider of
innovative and technologically superior sportswear. As a result, the business is growing
rapidly.

As an Australian owned company, QuikSpeed has devoted itself to manufacturing its
products in-house, thereby keeping Australians employed and maintaining full control over
design and production activities. The CEO and founder of QuikSpeed, Gordon Speed, is a
staunch advocate of this operational approach and has openly promoted this quality of their
business in the marketplace. However, keeping all operating activities in-house is
increasingly becoming a constraint on the business. For example, QuikSpeed is finding it
more difficult to keep up with the growing demand for its products.
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Another issue is that much of the equipment used by QuikSpeed is aging and becoming
outdated. As a result, Gordon is considering the possibility of outsourcing some of their
operational activities. Gordon has sought your advice regarding this matter.

Required:

(a) What is a core competency? Identify four (4) characteristics of a core competency that
distinguish it from an organizational capability. (3 marks)
(b) Why is the concept of core competencies relevant in outsourcing considerations?
(2 marks)
(c) Gordon Speed has sought your advice about activities that may be potentially suitable to
outsource. From the organisation chart provided in Figure 1 above, identify two (2) main
categories of activity that may potentially be suitable for QuikSpeed to outsource. Justify
your selection with specific reference to the context of the QuikSpeed business. (4
marks).
(d) Assume that QuikSpeed has decided to consider the possibility of outsourcing their
manufacturing activities. Gordon Speed has again sought your advice, because of your
expertise in this area. Identify two (2) potential benefits of outsourcing QuikSpeed’s
manufacturing activities. Justify the benefits identified with specific reference to the
context of the QuikSpeed business. (4 marks).
(e) Simons (2000) discusses three sources of strategic risks (i.e., operations, asset
impairment and competitive). Identify and discuss two (2) asset impairment risks for
QuikSpeed Ltd. (5 marks)
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Question 2 [17 Marks]

PART A
Stellar Enterprises is an Australian company that manufactures refrigerator elements. Stellar
has grown at a rapid pace in recent years. However, to stay ahead of the competition, the
company’s new CEO, Robyn Reddy, believes that the company should look for ways of
improving value delivered to customers. But first, Robyn would like to get a better idea of
who her more profitable customers are. In terms of calculating customer profitability, Robyn
has been receiving conflicting advice. The Executive Vice President of Sales, Jemma Toms,
has emphasised allocating all selling, general and administrative costs (SG&A) on the basis
on sales dollars: “Our business is about generating sales from customers, so any customer-
related costs should be allocated according to the sales revenue from each customer.

Stellar’s chief financial officer, Costa Conrads, disagrees. He recommends that a more
detailed allocation of SG&A costs should be carried out. “We should identify drivers of
SG&A costs so that customer differences are better reflected in SG&A cost allocations.”

Required:

Identify two specific decisions that customer profitability information would facilitate in
managing customer value? [2 marks]

PART B
Robyn is still unsure of whose advice to take and so commissioned a pilot analysis of
customer profitability. Robyn selected two of Stellar’s major customers (Halley Refrigeration
and SubZero Corporation) to be the subject of this analysis. Gross profit information about
these two customers and for the company as a whole (for the year ended 30 June 2021)
appears below:

Halley SubZero Company Total
Sales revenue $215,000 $154,000 $1,107,000
Cost of goods sold $95,000 $68,000 $489,000

The following table provides customer-related cost information for all Stellar’s customers
(for the year ended 30 June 2021):

Customer-related
activity
Company total
2021 cost
Cost driver Company total
driver activity
Sales activity $32,400 Sales visits made to
each customer
36 visits
Order taking $23,400 Purchase orders
processed
135 orders
Special handling $103,500 Number of specially
handled units
3450 orders
Special shipping $67,500 Number of special
shipments
135 shipments
Total SG&A Cost $226,800

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Finally, the table below provides customer-related activity information for Halley and
Subzero (for the year ended 30 June 2021):

Cost drivers Halley SubZero
Sales visits made to each customer 4 visits 8 visits
Purchase orders processed 20 orders 25 orders
Number of specially handled units 500 units 600 units
Number of special shipments 20 shipments 25 shipments

Required:

i) Calculate customer profitability and customer profit margin (after the allocation of SG&A
costs) for Halley and SubZero, using the approach advocated by Jemma Toms (Executive
Vice President of Sales). [5 marks]
ii) Calculate customer profitability and customer profit margin (after the allocation of SG&A
costs) for Halley and SubZero, using the approach advocated by Costa Conrads (CFO). [6
marks]

Summary solution:
Halley’s Customer Profitability (CPA Approach)
Customer Profitability $87,933
Customer Profit Margin 40.9%

Sub Zero’s Customer Profitability (CPA Approach)
Customer Profitability $43,967
Customer Profit Margin 28.55%

iii) Based on your calculations and your understanding of calculating customer profitability,
whose advice should Robyn take in calculating customer profitability? Please explain
with reference to the calculations in parts (i) and (ii) above. [4 marks]



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Question 3 [8 MARKS]

Company XYZ has identified the following costs that are environmentally related:

Evaluating environmental risk $35,000
Auditing current supplier’s performance $40,000
Employee medical costs following a chemical spillage $153,000
Fines for environmental damage $22,000
Costs of cleaning up plant following a leakage $68,000
Recycling water used during production $107,000
Depreciation of pollution monitoring equipment $29,000
Salaries of environment compliance employees $81,000
Recall for environmentally damaging products $500,000
Storing and treating toxic waste $11,000
Cost of cleaning up polluted sites $160,000

Required:
a) Prepare an environmental cost report by category. (6 marks)
b) Based on the report in (a), provide one specific recommendations about what XYZ should
do to reduce total environmental cost and improve its environmental performance. Draw
on case information to justify your answer. (2 marks)


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Question 4 [12 marks]

Psycho Mycko specialises in online psychometric profiling. The company was incorporated
in 2018 and has grown rapidly over the past 3 years to a total of 310 staff today. Its
headquarters are located in New York and operating divisions have recently been set up in
Singapore, London and Sydney.

Senior management consists of Tim Jones, an MBA graduate from New York University,
Elenora Young, a psychologist with ten years of industry experience, and Ricki Martin, an IT
graduate specialising in artificial intelligence.

Recently, a new commission based remuneration scheme has been introduced in the sales
division. This has increased competition amongst the sales staff, who are competing fiercely
to attract new customers and meet their performance targets. Tim is aware of this fierce
competition, but aspires to launch Psycho Mycko as an Initial Public Offering (IPO) on the
NY stock exchange later this year and aims to maximise financial performance and turnover
as much as possible. Psycho Mycko’s business model is based on ‘high turnover and low
margins, so increasing sales is the fastest way of growing the business.’

Elenora is concerned about the negative impacts the new remuneration scheme has on the
organisation’s culture. She acknowledges that performance measurement has traditionally
been a weakness of the organisation, but believes Tim has gone too far with the new scheme.

Elenora is also concerned about the new decentralised management structure, which she
believes provide too much decision-making power to the regional managers in London,
Singapore and Sydney. Tim disagrees with her and says that decentralisation is necessary to
get the regional managers to ‘try out new ideas’ – he says rigid policies and control systems
stifle innovation and reduce growth. In fact, Tim intends to implement new performance
measures to reward risk taking and entrepreneurial thinking.

Ricki has recently implemented a new knowledge management system to help ensure
information and knowledge sharing across the operating divisions. Elenora is wondering if
perhaps this will help compensate for the lack of standardised operating policies and
procedures across the regional officers.

Required:

Simon introduces a risk calculator that assigns risk exposure scores to nine pressure points.
Discuss three (3) pressure points that you think are most critical to Psycho Mycko. In your
answer, discuss (i) the score (high, medium or low) you would assign to each of these three
pressure points, (ii) which exposure area each of these pressure points relate to; and (ii) the
justification for these scores.
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Question 5 [10 Marks]


TreadLess.com (TreadLess) is a large Australian shoe company that manufactures shoes.
TreadLess has performed well recently, significantly exceeding its cost of equity of 14%,
over the past three years. Consequently, Jen Wright, CEO of TreadLess would now like to
expand the company. The following 2020 information has been extracted from the
accounting system of TreadLess:

TreadLess 2020
$
Net profit after interest and tax 30,000
Interest expense 10,000
Research and development expense 16,000
Shareholder's equity 100,000
Short term debt 70,000
Long term debt 20,000

For the purpose of calculating EVA, the CFO of TreadLess, VG has provided the following
information for the company:
• Short term debt before tax interest rate is 12%
• Long term debt before tax interest rate is 8%
• Tax rate is 30% (assume tax expense is equal to actual tax paid)

VG has provided the following information on the economic value and use of research and
development (R&D) at TreadLess from an EVA perspective.

The balance of capitalised R&D (before the 2020 amortisation expense) is $35,000 and the
2020 R&D amortisation expense should be $18,000.

Required
(a) You are required to calculate Economic Value Added (EVA) for TreadLess for 2020 (9
marks)
(b) Based on your EVA calculations in part (a), identify and discuss whether TreadLess’s has
created shareholder value? (1 Mark)

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Question 6 [16 Marks]

El Gee Ltd. manufactures television sets that it sells to a broad market in Australia. The
company is located in Woy Woy, New South Wales, Australia. Approximately 60 per cent of
the cost of the company’s television sets consists of material and components, which are
purchased from Australian suppliers.

Two years ago, El Gee introduced a supplier evaluation system to monitor the performance of
its suppliers. Each supplier’s performance was measured by considering its adherence to: (1)
delivery schedules, and (2) accuracy of orders delivered. Performance in both areas will
determine whether El Gee renews the supplier’s contracts or offers the contract to another
supplier.

The chief financial controller, Sandy Lee, has recently conducted a study to determine the full
cost of dealing with suppliers. While the company uses non-financial performance measures
to measure most aspects of supplier performance, Sandy believes that financial measures can
complement nonfinancial measures in evaluating supplier performance. The following
supplier-related activities and costs have been identified:

Activity Total cost Number of activities
Receive late deliveries $260,000 130 late deliveries
Production downtime due to late delivery $2,400,000 800 hours
Production downtime due to defective material $3,600,000 3,000 hours
Process invoice and pay supplier $1,050,000 3,000 invoices
Dispute invoiced amount $40,000 50 disputes


El Gee obtains its speaker systems from two suppliers: Clang Klong and Powers & Bilkins.
Last year, El Gee purchased 3,000 units from Clang Kong at $100 per unit, and 4,000 units
from Powers & Bilkins at $90 per unit. Both suppliers provide an identical component. The
analysis from last year revealed that the following activities are related to the two suppliers:

Activity Clang Kong Powers & Bilkins
Receive late deliveries 6 late deliveries 28 late deliveries
Production downtime due to late delivery 15 hours 59 hours
Production downtime due to defective material 20 hours 29 hours
Process invoice and pay supplier 12 invoices 130 invoices
Dispute invoiced amount 3 disputes 3 disputes


Required
(a) Measure EI Gee’s supplier performance using Total Cost of Ownership (TCO) per unit
and Supplier Performance Index (SPI). Please round off your answer at every step to 2
decimal places. (6 marks)
(b) Compare and discuss the performance of the two suppliers based on your calculations in
part (a). (2 Mark)
(c) Provide recommendations to Sandy Lee on how EI Gee can manage each supplier. Use
the case information where relevant. (6 marks)
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(d) Based on the two criteria noted in the case, suggest two non-financial performance
measures that EI Gee might use to evaluate its suppliers’ performance. (2 marks)