Strategic management accounting

Management accounting practice has traditionally focused on techniques to assist Question IM 23.1
organisational decision-making and cost control. In concentrating on the internal Advanced
environment, the management accounting function has been criticised for not
addressing the needs of senior management to enable effective strategic planning.
In particular, the criticism has focused on inadequate provision of information
which analyses the organisation’s exposure to environmental change and its
progress towards the achievement of corporate objectives.
Requirement:
Explain how Strategic Management Accounting can provide information which
meets the requirements of senior managers in seeking to realise corporate objectives.
(20 marks)
CIMA Stage 4 Strategic Management Accountancy and Marketing

The new manufacturing environment is characterised by more flexibility, a readi- Question IM 23.2
ness to meet customers’ requirements, smaller batches, continuous improvements Advanced
and an emphasis on quality.
In such circumstances, traditional management accounting performance mea-
sures are, at best, irrelevant and, at worst, misleading.
You are required:
(a) to discuss the above statement, citing specific examples to support or refute the
views expressed; (10 marks)
(b) to explain in what ways management accountants can adapt the services they
provide to the new environment. (7 marks)
(Total 17 marks)
CIMA Stage 3 Management Accounting Techniques

Research on Performance Measurement in Service Businesses, reported in Question IM 23.3

Management Accounting, found that ‘performance measurement often focuses on Advanced
easily quantifiable aspects such as cost and productivity whilst neglecting other
dimensions which are important to competitive success’.
You are required:
(a) to explain what ‘other dimensions’ you think are important measures of
performance; (8 marks)
(b) to describe what changes would be required to traditional information systems
to deal with these ‘other dimensions’. (9 marks)
(Total 17 marks)
CIMA Stage 3 Management Accounting

STRATEGIC MANAGEMENT ACCOUNTING 173

Question IM 23.4 The ‘Balanced Scorecard’ approach aims to provide information to management to
Advanced assist strategic policy formulation and achievement. It emphasises the need to pro-
vide the user with a set of information which addresses all relevant areas of per-
formance in an objective and unbiased fashion.
Requirements
(i) Discuss in general terms the main types of information which would be
required by a manager to implement this approach to measuring
performance;
and
(ii) comment on three specific examples of per-formance measures which
could be used in a company in a service industry, for example a firm of
consultants. (10 marks)
CIMA Stage 4 Strategic Financial Management

Question IM 23.5 Duit plc has recently acquired Ucando Ltd which is a regional builders’ mer-
Advanced: Design chants/DIY company with three outlets all within a radius of 40 miles. Duit plc is
and discussion of building up its national coverage of outlets. Duit plc has set up regional companies
key performance each with its own board of directors responsible to the main board situated in
indicators for DIY London.
outlets and It is expected that eventually each regional company will have between 10 and
regional 20 outlets under its control. A regional company will take over control of the three
companies Ucando Ltd outlets. Each outlet will have its own manager, and new ones have just
been appointed to the three Ucando Ltd outlets.
The outlets’ managers will be allowed to hire and fire whatever staff they need
and the introduction of a head count budget is being considered by Head Office.
Each outlet manager is responsible for his own sales policy, pricing, store layout,
advertising, the general running of the outlet and the purchasing of goods for
resale, subject to the recommendations below. Duit plc’s policy is that all outlet
managers have to apply to the regional board for all items of capital expenditure
greater than £500, while the regional board can sanction up to £100 000 per capital
expenditure project.
The outlets will vary in size of operations, and this will determine the number of
trade sales representatives employed per outlet. There will be a minimum of one
trade sales representative per outlet under the direction of the outlet manager.
Each manager and representative will be entitled to a company car.
Outlet sales are made to both retail and trade on either cash or credit terms.
Debtor and cash control is the responsibility of regional office. Cash received is
banked locally, and immediately credited to the Head Office account. Credit sales
invoices are raised by the outlet with a copy sent to regional office. Within each
outlet it is possible to identify the sales origin, e.g. timber yard, saw mill, building
supplies, kitchen furniture, etc.
Timber for resale is supplied to an outlet on request from stocks held at regional
office or direct from the ports where Duit (Timber Importers) Ltd has further
stocks. Duit Kitchens Ltd provides kitchen furniture that the outlets sell. Duit plc
also has a small factory making windows, doors and frames which are sold through
the outlets. When purchasing other products for resale, the outlet is requested to
use suppliers with which Head Office has negotiated discount buying arrange-
ments. All invoices for outlet purchases and overheads are passed by the respective
outlet manager before being paid by regional office. In existing Duit outlets a per-
petual inventory system is used, with a complete physical check once a year.

174 STRATEGIC MANAGEMENT ACCOUNTING

 Information concerning last year’s actual results for one of Ucando Ltd’s outlets
situated at Birport is given below:

Birport DIY outlet

Trading and profit and loss accountfor year to 31 March
(£) (£)

Sales (1) 1 543 000

Less Cost of sales 1 095 530
Prime gross margin (29%) 447 470
Less:
Wages (2) 87 400
Salaries (3) 45 000
Depreciation:
equipment (4) 9 100
buildings 3 500
vehicles (3 cars) 6 500
Vehicle running expenses 6 170
Leasing of delivery lorry 6 510
Lorry running expenses 3 100
Energy costs 9 350
Telephone/stationery 9 180
Travel and entertaining 3 490
Commission on sales 7 770
Bad debts written off 9 440
Advertising 25 160
Repairs 6 000
Rates, insurance 13 420
Sundry expenses 10 580
Delivery expenses 000 07 400 0269 070
Net profit £178 400
(11.56%)

Position at 31 March
(£)
Debtors 100 900
Stock 512 000

Notes:
(1) Sales can be identified by till code–cash/credit, trade/retail, timber, kitchen
furniture, frames, heavy building supplies, light building supplies, sawmill etc.
(2) Workforce distributed as follows: timber yard (3), sawmill (1), sales (7), general
duties (1), administration (3).
(3) Paid to sales representatives (2), assistant manager, manager.
(4) Equipment used in sales area, sawmill, yard.
Requirements:
(a) Describe a cost centre, a profit centre and an investment centre and discuss the
problems of and benefits from using them for management accounting
purposes. (7 marks)
(b) Suggest key performance indicators which can be used either individually or
jointly by each member of the management team for the regional outlet
network, i.e. those in the regional office, the outlets and their departments, in a
responsibility reporting system for their evaluation purposes. (6 marks)
(c) Justify the key performance indicators that you have suggested in (b)
incorporating, where appropriate, reference to whether the individuals or
entities are being treated as cost, profit or investment centres. (6 marks)

STRATEGIC MANAGEMENT ACCOUNTING 175

 (d) Design a pro forma monthly report without figures which can be used by both
the outlet manager for his management and control needs and by the regional
board to evaluate the outlet. The report can include two or more sections if you
wish. Provide a brief explanation for the format chosen. (6 marks)
Note: The manufacturing companies and the importing company report direct to
the main board. (Total 25 marks)
ICAEW Management Accounting

Question IM 23.6 Scotia Health Consultants Ltd provides advice to clients in medical, dietary and fit-
Advanced: ness matters by offering consultation with specialist staff.
Financial and The budget information for the year ended 31 May is as follows:
non-financial (i) Quantitative data as per Appendix.
performance (ii) Clients are charged a fee per consultation at the rate of: medical £75; dietary
measures £50 and fitness £50.
(iii) Health foods are recommended and provided only to dietary clients at an
average cost to the company of £10 per consultation. Clients are charged for
such health foods at cost plus 100% mark-up.
(iv) Each customer enquiry incurs a variable cost of £3, whether or not it is con-
verted into a consultation.
(v) Consultants are each paid a fixed annual salary as follows: medical £40 000;
dietary £28 000; fitness £25 000.
(vi) Sundry other fixed cost: £300 000.

Actual results for the year to 31 May incorporate the following additional information:
(i) Quantitative data as per Appendix.
(ii) A reduction of 10% in health food costs to the company per consultation was
achieved through a rationalisation of the range of foods made available.
(iii) Medical salary costs were altered through dispensing with the services of two
full-time consultants and sub-contracting outside specialists as required. A
total of 1900 consultations were sub-contracted to outside specialists who were
paid £50 per consultation.
(iv) Fitness costs were increased by £80 000 through the hire of equipment to allow
sophisticated cardio-vascular testing of clients.
(v) New computer software has been installed to provide detailed records and
scheduling of all client enquiries and consultations. This software has an
annual operating cost (including depreciation) of £50 000.
Required:
(a) Prepare a statement showing the financial results for the year to 31 May in
tabular format. This should show:
(i) the budget and actual gross margin for each type of consultation and
for the company
(ii) the actual net profit for the company
(iii) the budget and actual margin (£) per consultation for each type of consul-
tation. (Expenditure for each expense heading should be shown in (i) and
(ii) as relevant.) (15 marks)
(b) Suggest ways in which each of the undernoted performance measures (1 to 5)
could be used to supplement the financial results calculated in (a). You should
include relevant quantitative analysis from the Appendix below for each
performance measure:
1. Competitiveness; 2 Flexibility; 3. Resource utilisation; 4. Quality; 5. Innovation.
(20 marks)
(Total 35 marks)

176 STRATEGIC MANAGEMENT ACCOUNTING

 Appendix
Statistics relating to the year ended 31 May
Budget Actual

Total client enquiries:

new business 50 000 80 000
repeat business 30 000 20 000
Number of client consultations:
new business 15 000 20 000
repeat business 12 000 10 000
Mix of client consultations:
medical 6 000 5 500
(note 1)
dietary 12 000 10 000
fitness 9 000 14 500
Number of consultants employed:
medical 6 4
(note 1)
dietary 12 12
fitness 9 12
Number of client complaints: 270 600
Note 1: Client consultations includes those carried out by outside specialists. There are now 4
full-time consultants carrying out the remainder of client consultations.
ACCA Paper 9 Information for Control and Decision Making

STRATEGIC MANAGEMENT ACCOUNTING 177