Reference no: EM132729843 , Length: word count:2800

GAA6000 Advanced Performance Management - Gulf College

Aim(s)

The module is designed to build on the finance related knowledge and skills acquired by students in their earlier studies, particularly those acquired via study of the Management Accounting and Performance Management modules. It will also provide a strategic understanding of performance measurement techniques and practice.
The assessment in this module enables students to secure exemption from the ACCA paper F5.

Learning Outcome 1: Demonstrate a working understanding of more specialised management accounting techniques;
Learning Outcome 2: Solve decision making problems involving scarce resources, pricing and make versus buy;
Learning Outcome 3: Compute and interpret cost & sales variances for a range of complex situations;
Learning Outcome 4: Measure organisational & divisional performance using a range of financial and non-financial measures;

1. Research skills. Students are able to search for relevant literature and studies to support the assignment theories and concepts.
2. Decision making and problem solving using accounting and mathematical technics.
3. Critical thinking and evaluating the different scenarios given in the assignment and apply solutions.

Task 1

Assessment Tasks

A budget is a financial plan for a defined period, often one year. It may also include planned sales volumes and revenues, resource quantities, costs and expenses, assets, liabilities, and cash flows. Companies, governments, families, and other organizations use it to express strategic plans of activities or events in measurable terms.
The business organisations prepare the budgets as per their business operation requirement. Critically evaluate the various classifications of budgets prepared by the business entities.
Within your discussion, please discuss the:

a. Introduction on the importance of budget
b. Different classifications of budgets

Task 2 (1200 words equivalent)

Turki Construction Ltd considers tendering a contract which would take three months to complete. It is felt that tenders over OMR 80,000 are extremely unlikely to be successful. The company is in a specialised, highly competitive market and new contracts are difficult to win and keep. If the contract is taken, Turki Construction Ltd still expects to complete its other current contracts. The management accountant submitted the cost estimates below:

	OMR
Direct materials
Type A (already in stock)	8,000
Type B (firm order placed)	6,000
Type C (not yet ordered, shown at current purchase price)	5,000
Direct labour	30,000
Other costs:
Variable overheads	3,000
Depreciation of equipment (straight-line basis)	3,750
Supervisors' salaries (Two supervisors @ OMR 4,000 each per month)	24,000
(Two supervisors @ OMR 4,000 each per month)
General fixed overheads	12,000
TOTAL COSTS	91,750

Additional information with respect to the above cost is given below:

1. Type A material, originally cost OMR 8,000, is already in stock. The material is not in common use and would realise about OMR 6,000 if sold. If Material A is not used in this contract, all materials could be used later in the year as substitute to a material that currently costs 30% less than A's original price.
2. Type B material is in regular use by the company. The order for Type B material was placed twelve days ago and cannot be cancelled anymore. Due to a world-wide shortage which is expected to continue for the foreseeable future, Material B's price has increased by 50% since the order was placed. Material B could be sold at this new higher price (after deducting 15% selling costs) to a competitor who urgently needs this material. Alternatively, it can be used on other contracts later in the year.
3. A team of semi-skilled staff would be recruited locally specifically for the duration of this contract. The wages of these semi-skilled staff will amount to a total of OMR 17,000. Skilled staff would also need to be reallocated to this contract from within the company. They have already worked for the company and are currently being paid although there is very little work for them to do. The estimated wages for these workers for the period of the contract are OMR 10,000. On top of this re-allocation of skilled staff, it is estimated that a further OMR 3,000 of overtime will also need to be incurred by specialist employees who are currently fully employed on other jobs within the company.
4. The management accountant has calculated variable overheads for the contract using the company's standard policy of 10% of direct labour cost. However, the project manager has estimated that, due to the unique nature of this work, the actual variable overhead arising as a result of the contract is likely to be about OMR 4,750.
5. The equipment to be used on the contract cost OMR 180,000 when it was purchased in May 2011. It was planned to keep it for ten years after which its scrap value was expected to be OMR 30,000. The depreciation charge in the cost estimate is based on this data. At present, the equipment is worth OMR 45,000. If used on the contract its current value is likely to decline to approximately OMR 40,000. Turki Construction Ltd has no further use for the equipment and if the contract is not accepted they would sell it now.
6. The new contract is so specialised that one of the two supervisors need to be recruited from a competitor. She is expected to be paid a premium salary of OMR 5,000 per month. The second supervisor, who is currently paid OMR 4,000 per month, can be temporarily transferred from another department. However, he will only transfer to the project if he is incentivised through a one-off bonus payment of OMR 800. His current role will be filled by a temporary upgrading of an existing worker with an estimated additional cost of OMR 400 per month.
7. The management accountant allowed fixed overheads for the contract using the company's pre-determined policy of 40% of direct labour cost. The general fixed overhead absorption rate is calculated based on budgeted rent, rates, insurance, general expenses and similar fixed costs. However, it is anticipated that this additional contract would cause general expenses to increase by OMR 750 per month for the duration of the contract.

Required:

a) Using a relevant/opportunity cost approach, prepare a revised cost estimate for the contract in the light of the above information.
b) For each item of cost referred to in the question, clearly explain your reasoning behind its inclusion in (or omission from) your estimate in a) above.
c) On the basis of your estimate in (a) above, state whether the company should tender this contract.

d) What is transfer pricing and what is the risk and benefits of transfer pricing for enterprises?

Task 3 (900 words equivalent)

P roduct	Q uantity	Contribution per unit (£)
X	90,000 (60%)	10
Y	45,000 (30%)	25
Z	1 5,000 (10%)	40

1 50,000

Actual sales quantities were:

P roduct	Q uantity
X	68,000
Y	45,000
Z	22,000
	1 35,000

The budgeted sales for the Venicci Company for the most recent period were as follows:

The budgeted sales volume represented a 25% share of the expected market size.
Actual industry sales were 482,000 units i.e. the company's actual market share was 135/482*100 = 28% (to the nearest %).
Required: Calculate the following and to explain nature of the variance and whether it is favourable or unfavourable:
a. Sales volume variance
b. Sales quantity variance
c. Sales mix variance
d. Market size variance
e. Market share variance

Attachment:- Advanced Performance Management.rar