MACQUARIE SEAT NUMBER: .. ROOM: UNIVERSITY This question paper must be returned. Candidates are not permitted to remove OTHER NAMES.. any part of it from the examination room. FAMILY NAME... ‘STUDENT NUMBER... SESSION 1 FORMAL EXAMINATIONS — JUNE/JULY 2014 EXAMINATION DETAILS: Unit Code: ‘ACCG301 Unit Name: Organisational Planning and Control Duration of exam (incl. reading ime | 3 hours and 10 minutes reading time Total no. of questions: 10 Total no. of pages (incl. this cover 20 sheet): INSTRUCTIONS: 1. All questions have to be answered on the question paper 2. Do not write during reading time MATERIALS PERMITTEDINOT PERMITTED: No dictionaries permitted. Non-programmable calculators (no text retrieval capacity) permitted. © Candidates are required to obey all instructions provided by the Final Examination Supervisor and must refrain from communicating in any way vith another student once they have entered the final examination venue, ‘= Candidates may not write or mark the exam materials in any way during reading time. ‘Candidates may only access authorised materials during this examination. A list of authorised material is available on this cover sheet. If is alleged you have breached these rules at any ime during the examination, the matter may be reported tothe University Discipline Commitee forQuestion 1 (10 marks) Beginning with 9 stores in 1987, Coffeeland chairman and chief global strategist, Stan Howard, has dramatically expanded the company’s chic cafes throughout the USA and internationally. Service is anything but fast, and the coffee is expensive, but each week millions of customers around the globe hit Coffeeland to sip skinny lattes or no- whip mochas. Since it made its first acquisition in 1994, buying the 23-store rival Barista Connection Inc., Coffeeland has pursued rapid expansion. From 400 store: the USA in 1994, Howard has built his coffeehouses into a global enterprise with over 4700 locations in just 7 years. Coffeeland teamed up with foreign partners to open its first international coffeehouse in 1996 in Tokyo. Since then, Peter Maslin, President of Coffeeland Coffee International, "has been amazed by the global acceptance and visibility of Coffeeland’s brand all over international markets”. In 2001, Coffeeland had nearly 900 coffeehouses in 22 markets outside North America, including Australia, New Zealand, China, Hong Kong, Taiwan, Singapore and the Philippines. In the USA, Coffeeland has formed joint ventures with The Cola Company to make a bottled Frappe, and with Mayer's Grand Ice Cream Inc. to produce the number one brand of coffee ice cream in the USA. Coffeeland also supply airlines such as United and Canadian Airlines and hotel chains and has extended its brand into grocery channels across the USA. Many of Coffeeland’s managers have years of experience from such companies as Burger King, Wendy's and Blockbuster. Howard believes a CEO should “hire people smarter than you are and get out of their way” Equally crucial to Coffeeland’s success are the “baristas” who prepare coffee. (2) Which corporate level strategy is Coffeeland pursuing? Provide evidence from the case to support and elaborate on your answer. (4 marks) (b) Which of Porter's competitive strategies is Coffeeland using? Provide evidence from the case to support your answer. (6 marks)Question 2 (12 marks) Selected sales and operating data for two isions of different structural engineering firms are given as follows. (The three divisions define their investment capital as total assets less current liabilities.) Division A Division B- Division © Sales $12,000,000 | $44,000,000 $25,000,000 Total assets a $3,050,000 | $7,085,000 $5,325,000 Current liabilities $50,000 ‘$85,000 $325,000 Net profit after tax (tax rate 30%) | $420,000 $392,000 $560,000 Minimum required rate of return | 14% 10% 16% (a) Compute the return on investment (RO!) for each division. Show your computations (4.5 marks). (b) Compute the residual income for each division (3 marks)() ‘Assume that each division is presented with an investment opportunity that yields a 15.5% rate of return, If performance of the division’s manager is being measured by ROI, the managers of ” which division or divisions will probably accept the opportunity? The managers of which division or divisions will probably reject the opportunity? Explain for each division why the managers would reject or accept the opportunity ( 2.25 marks). If performance is being measured by residual income, which division or divisions will probably accept the opportunity that yields a 15.5% rate of return? The managers of which division or divisions will probably accept the opportunity? The managers of which division or divisions will probably reject the opportunity? Explain for each division why the managers would reject or accept the opportunity. (2.25 marks)Question 3 (9 marks) Ultra Sound has two decentralized divisions: Machining and Assembly which operate as profit centres. The Machining Division transfers partially completed speaker components to the Assembly Division at a predetermined transfer price. The Machining Division's standard variable production cost per unit is $115. This division has excess capacity and it could sell all its components to outside buyers at $365 per unit in a perfectly competitive market. {a) Determine a minimum transfer price between Machining and Assembly. (1.5 marks) (b) Would the transfer price change if Machining Division has no excess capacity? And if so how? (1.5 marks) (c) The Machining division has limited excess capacity of 150 units and can sell its components to outside buyers at $365 per unit in a perfectly competitive market. Machining has been approached by Assembly division with a special offer to produce 200 units. To supply the full order, Mac! ion would need to forgo production and sales of 50 units to external sup} Determine the transfer price using the general transfer price rule. (2 marks)(d) Independent of the requirements (a), (b) & (c) of this question, Machining division has decided to set their transfer price based on their absorption cost 160 (which includes $45 fixed cost) plus 15% mark up. Assembly division has received a special offer of $300 for the final product. The Assembly division incurs own costs of '$130/unit in addition to the transfer price of Machining. Both divisions have spare capacity. Determine the new transfer price based on absorption cost (1 mark) (e) Should the Assembly Division manager accept or reject the special offer? Why? (1.5 marks) (f) Is the offer acceptable for Ultra Sound company as a whole? (1.5 marks)Question 4 (10 marks) Mulligan Ltd manufactures electrical instruments. The company has gathered the following data about two of its customers, Alpha and Omega: Alpha Omega Sales revenue $190 000 $123 800 Cost of goods sold ‘80 000 62.000 General selling costs 24 000 18 000 General administrative 49 000 16 000 costs Cost driver data for the two customers for the most recent year are: Customer Driven Activities Cost Driver Cost driver rate Sales activity Sales visits $1000 Order taking Purchase orders $200 Special shipping ‘Shipments $500 ‘Special handling Units handled $50 Customer Driven Activities Alpha Omega Sales activity 8 Sales visits 6 Sales visits Order taking 15 Purchase orders 20 Purchase orders Special shipping 18 Shipments 20 Shipments ‘Special handling 800 Units handled 600 Units handled(a) Perform a customer profitability analysis for Mulligan Ltd. Calculate the gross margin and operating income on transactions relating to Alpha and Omega. Use the table below (4 marks) Alpha ‘Omega (b) Calculate the gross margin as a percentage of sales revenue. Then calculate total customer-related costs as a percentage of gross margin (2 marks).(c) On the basis of your calculations provided in parts (a) and (b) of this question, explain which customer is more profitable, Explain why the customer is more profitable (4 marks)Question 5 (9 marks) APM XCell is a boutique book publishing business operating in Sydney's Inner West. ‘The paper used in publishing is produced in New Zealand and shipped to Sydney in xpecting annual demand of 9,000 boxes. The purchase information associated with ordering and maintaining the inventory of paper is provided below. - The costs incurred in the purchase order department for placing and processing orders tend to increase by 15% annually. In 2013 the processing cost per order was $8. - An Australian Customs Officer inspects each order and a fee of $36 is charged. - The paper orders are received by a clerk in the Receiving Department, an activity that requires 3 hours per order received. The clerk has no other responsibilities and is paid at a rate of $28 per hour. Related variable overhead costs in this department are applied at a rate of $15 per hour. - To store the paper, a warehouse space is rented at a cost of $2,800 per year plus 4.25 per box. - Damage and shortage cost is estimated to average $6.25 per box. - Insurance on the inventory costs $2.5 per box. - Other holding costs amount to $7 per box. APM XCell works a 6 day week for 50 weeks a year and 8 working days are required from the time the order is placed with the supplier until it is received. Required: Assuming that all costs other than the purchase price remain the same, calculate the following for APM XCell for next year: (a) The amount of the ordering cost that should be used to calculate Economic Order Quantity. Show your calculations. (2.5 marks) (b) What is the amount of carrying cost that should be used to calculate the Economic Order Quantity? Show your calculations. (2.5 marks) 10(c) Calculate the Economic Order Quantity. Show your calculations. (2 marks) (d) Calculate the Reorder Poi in units. Show calculations. (2 marks) 1"Question 6 (10 marks) The Memory Division of The Technology Corporation manufactures a variety of electronic storage equipment. The company has recently introduced the concept of identifying cost of quality and has identified the following costs for the month: Finished product inspection $1,100 Cost of repairs under warranty $25,000 Quality inspections during processing $2,250 Cost of defective products that are scrapped $2,000 Cost of quality training programs $1,500 Rework time $3,000 Customer complaints $15,500 Costs of recalling product $8,000 {a) Using the information above, prepare a cost of quality report: Write your answer in the table provided. (5 marks) 12(b) Comment on the relative proportions of each of the four categories of quality costs. How do you think management should react to the relative size of the four categories? (5 marks) 13Question 7 (13 marks) St. Vincent's Hospital is currently redesigning its performance measuremer Up until now it has relied heavily on monthly cost variance reports to control its operations. They would like to adopt Balanced Scorecard that can help the St. Vincent's Hospital to detect problem areas before they become significant. ‘You are hired as a consultant to identify TWO objectives for perspectives of the balanced scorecard. Further, identify ONE lag indicator and ONE lead indicator that would support each of the objectives. Make sure that your objectives, lag indicators and lead indicators relate specifically to the St. Vincent's Hospital. (13 marks) Performance Measures Objectives Lag Indicators Lead Indicators 14Question 8 (9 marks) The management accountant of BackYard Company Pty. Ltd has identified the following activities in the production of lawnmowers and parts: Production Operating machines $7,457,350 Moving inventory and stocks $358,250 Rework on the defective products $145,550 Inspection of finished products $183,220 Distribution ‘Storage of finished goods inventory ‘$525,000 Transport of products to customers ‘$675,000 Maintenance Preventive maintenance of machines $384,125 Machines breakdown repairs $345,155 ‘Administration Processing debtors/account receivables invoices $147,000 Resolving debtorlaccount receivable queries __| $138,500 Processing suppliers invoices ‘$185,000 Resolving suppliers queries $125,000 Preparing salaries $195,500 [information systems and technology operations | $92,400 Sales Process orders from customer $232,000 ‘Customer liaison and relationship management | $365,550 Corporate Management CEO office expenses $325,000 Board of Directors expenses $175,000 ‘Annual reports preparation $125,000 Factory Management Production programming and designing $345,560 Labour supervision $297,000 Facility management $185,500 Order expediting $35,550 Total $7,043,200 15quired: (2) Using the information provided, identify and calculate the cost of the non- value added activities for BackYard Company Pty. Ltd. Write your answer in the table provided (8 marks) (b) Based on your answer in part (a) of this question, what percentage of costs should be targeted for elimination? (1 mark) 16Question 9 (10 marks) ‘When Sasha Mayes, human resources manager, received a call from Mark Burnes, Controller of Farley Glass Works, she anticipated hearing good news to share with the Wage and Bonus Committee. She had already seen the numbers to indicate that the year-end bonus plan, which was instituted by her committee in lieu of the traditional guaranteed raises of the past, was going to exceed expectations. It was a real relief to her - because the plan, devised by a committee representing all levels of the workforce, had taken eleven months to complete. It had also been a real boost to morale at a low point in the company's history. Workers at the glass shower production plant were bringing new effort and energy to their jobs, and Mayes wanted to see them rewarded. ‘She was shocked to see Burnes’ face so grim when she arrived for her meeting. “We have a serious problem Sasha,” Burnes said to open the meeting. "We ran the numbers from third quarter and discovered that the executive bonus objectives, which are based on the net operating profit, would not be met if we paid out the employee bonuses first. The executive bonuses are major source of their income. We can't ask them to do without their salary to insure a bonus for the workers.” Mayes felt her temper rising. After all their hard work, she was not going to sit by and watch the employees be disappointed because the accounting department had not structured the employee bonus plan to work with the executive bonus plan. She was afraid they would undo all the good that the bonus plan had done in motivating the plant workers. They had kept their end of the bargain, and the company's high profits were common knowledge in the plant. In the questions below that relate to the case above, always provide evidence from the case facts (only) to support your answers. (a) In your opinion which motivation theory best explains the potential motivation problem that Farley Glass Works is about to face by not distributing the promised employee bonus? (6 marks) 7(b) Are high-level needs of employees being met under the change to the employee bonus system? (2 marks) (c) Discuss why managers should always try to use positive reinforcement instead of negative reinforcement. (2 marks) 18Question 10 (8 Marks) Fancy Furniture Ltd is looking at two alternatives for disposing of an annual production of 300 kilolitres of waste paint, both of which are acceptable to the NSW Environment Protection Authority. Fancy can pay paint recyclers to remove the waste paint at a cost of $600 per kilolitre. The recycler would then process the waste into 5 kilograms of solid waste compound per kiloliter and dispose of this in landfill. Rent a recycling machine which strips the residues and produces 15 kilograms of solid waste per kiloliter, which then needs to be disposed in landfill. The annual rent of the machine is $80,000 and the operating cost is estimated at $5000. (a) Which alternative is superior based on financial grounds? Show any calculations to support your argument. (2 marks) (b) Is the same alternative superior form the environmentally responsible point of view? (2marks) {c) List two environmental and/or social factors that Fancy may need to consider before selecting an alternative. (2 marks) 19(a) Des environmental and soci: how the capital expenditure evaluation process can take into account costs. (2 Marks) ~End of the Examination-- 20