March 2021

Mary Fashion Group

The Mary Fashion Group was set up by a couple living in an economically depressed country. They produced a
wide range of women’s clothing built round the theme of traditional style and elegance. The Group had the
necessary skills to design, manufacture and retail its product range. The Mary brand was rapidly developed and
the company established a loyal network of suppliers, workers in the company factory and franchised retailers
spread around the world. Mary Group was able to charge premium prices in the fashion industry. The husband
and wife who were the founders and managers of the group ensured that they remain on good terms with their
network partners.

Unfortunately, changes in the market for women’s wear presented a major threat to Mary Group. Firstly,
women became an important part of the workforce and demanded smarter, more functional outfits to wear at
work. Mary Group’s emphasis on soft, feminine styles became increasingly dated. Secondly, the tight control
over design, manufacturing and retailing left the group vulnerable to competitors who focused on just one
these activities. There was also reluctance by the founding couple and their management team to accept the
fact that a significant fall in sales and profits were because of a fundamental shift in demand for women’s
clothing. Finally, the share price of the company fell dramatically. The couple retained a significant minority
ownership stake but the company’s CEO kept changing every year since.

Another suggestion made in a board meeting is to benchmark group’s performance against suitable
benchmarks. The directors and the CEO are aware of the benchmarking as a useful tool for performance
measurement and management but seem to be unsure about how this exercise will be carried out. So, they
need your advice on how benchmarking can contribute towards improving the position of the company and
the factors that need to be considered when deciding on the benchmarking exercise.

Historically, the group’s management accountant has been kept separate from the operations. This is because
there is a belief amongst group management team that accountants’ involvement in the operations will impair
their independence and hence they will not be able to exercise independent and objective judgment. One of
the directors who has had worked as an accountant for a long time in the past made a suggestion in a board
meeting to transform the role of the management accountant. So, the CEO wants you to cite the reasons for
the change mentioned by the director and also explain the new role that the management accountant can
adopt.

Finally, the members of the board of directors have recognized the fact that there is a need to cope up with
the changes in the fashions and trends in the fashion industry and therefore a division for market research has
been established and the division intends to run different projects in order to research the market and the
costs incurred will be charged to products for which research is incurred. The operational managers are very
doubtful of the value of the division and in their opinion there is no additional expenditure needed for
marketing. However, the board decided at the last meeting that there was a need to make and use a marketing
budget effectively at the Mary Group, if its costs were controlled carefully.

Required:
Write a report to the CEO to:
i. Identify and explain the strategic strengths and weaknesses in the Mary Fashion Group
(16 marks)
ii. Assess the contribution benchmarking could make to improve the position of the Mary Fashion
Group
(15 marks)
iii. Explain the change in the role of the management accountant as requested by the CEO
(9 marks)
iv. Recommend a suitable method of budgeting for the newly setup market research division
(6 marks)
Professional marks are available for the structure and format of the report (4 marks)
(50Marks)
2 Cinque Division produces three types of wooden container which it sells to external
customers and transfers to other divisions within its own group of companies.
Relevant budget information for the period ended 31 December 20X0 on which the unit costs
per container are based is as follows:
Container type: Uno Due Tre
Total production/sales (units) 50,000 25,000 75,000
Direct material per container (square metres) 1.2 0.8 2.4
Material cost per square metre is $30.
Overhead costs for the division are:
$000
Production conversion cost 6,000
Administration cost 1,800
Selling/marketing cost 1,000
Distribution cost 1,400
The current policy in Cinque division is to compile unit cost per container on the basis of
production cost plus distribution cost. Administration and selling/marketing costs are
considered general divisional costs which are not product specific.
The budgeted unit costs per container are calculated as the sum of:
• direct material cost
• production conversion cost absorbed on the basis of an overall percentage on direct
material cost
• distribution cost as an overall average cost per container unit.
Product pricing is based on the achievement of an overall return on capital employed of 15%
(ignore taxation). A single mark-up percentage applicable to all container types is applied to
product specific unit cost in order to achieve this ROCE level. The resulting selling prices form
the basis of selling and marketing strategy. Capital employed is taken as
$16.8 million.

Required:
(a) Prepare calculations which show the detailed unit cost and selling price calculations
for each container type. (8 marks)
(b) The directors of Cinque are considering switching to an activity-based costing system.
As part of their review of the system, activity based unit costs have been prepared
for the period ended 31 December 20X0. These differ from the original unit costs in
a number of cost areas. The relevant amended elements of product specific unit costs
are:
Uno Due Tre

$ $ $
Production conversion cost 42.81 30.69 41.23
Distribution cost 2.40 8.00 14.40
Selling/marketing cost (see note 1) 1.20 6.00 1.20
Note 1: 30% of the budgeted selling and marketing cost has been identified as product
specific. This has been charged to container types after taking into account relevant
activities. The balance of selling and marketing cost is still considered a divisional cost.
 A substantial proportion of sales of Uno are transfers to other divisions within the
group. This business is obtained in competition with potential external suppliers. In
addition, Cinque division is experiencing problems in retaining the level of market
which it has budgeted for Tre.
Prepare a summary which compares original and activity based information per
container for cost, profit and selling price for each type of container, where selling
prices remain as calculated in (a) above. Suggest possible actions that could be taken
by management for EACH of the three types of container in order to improve
divisional and group profitability. (10 marks)
(c) Critically discuss the adoption of activity-based management (ABM) in Cinque.
(7 marks)

(Total: 25 marks)
3 Ochilpark is an engineering manufacturing company specialising in the production of
mobile machinery for the construction industry. The company has identified and defined a
market in which it wishes to operate. This will provide a new focus for an existing product
range. Ochilpark has identified a number of key competitors and intends to focus on close
co-operation with its customers in providing products to meet their specific design and
quality requirements. Efforts will be made to improve the effectiveness of all aspects of the
cycle, from product design to after-sales service to customers. This will require inputs from
a number of departments in the achievement of the specific goals of the new proposal.
Efforts will be made to improve productivity in conjunction with increased flexibility of
methods.
An analysis of financial and non-financial data relating to the new proposal is shown in
Schedule 1 below.

The company is considering the implementation of a new performance measurement system

in an attempt to make a clear link between performance and strategy and to be flexible and
adapt to an ever changing business environment. The directors are considering implementing
the performance pyramid, a modelling tool that can be used in the design of a new
performance measurement system or the re-design of an existing performance
measurement system.
 Required:
• Prepare a table ($m) of the total costs for the new proposal for each of the years 2016, 2017 and 2018,
detailing target costs, internal and external failure costs, appraisal costs and prevention costs. (4 marks)
• Explain the meaning of each of the cost classifications in (a) and comment on their trend and inter-
relationship. You should provide examples of each classification.
(8 marks)

• Prepare an analysis (both discursive and quantitative) of the new proposal for the period 2016 to 2018.
The analysis should use the information provided in the question, together with the data in Schedule 1.
The analysis should contain the following:
• Discussion of the external effectiveness of the proposal in the context of ways in which (1) Quality and
(2) Delivery are expected to affect customer satisfaction and hence the marketing of the product.(4 marks)
• Discussion of the internal efficiency of the proposal in the context of ways in which the management of
(1) Cycle time and (2) Waste are expected to affect productivity and hence the financial aspects of the
proposal.(4 marks)
• Discuss the potential benefits to Ochilpark of implementing the performance pyramid. (5 marks)
(Total: 25 marks)