2023 EXAMINATIONS

PART II SECOND AND FINAL YEAR

ACCOUNTING AND FINANCE

Ac.F 303 Advanced Management Accounting

(DURATION: 2 hours plus 15 minutes reading time)

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This examination paper consists of four questions in two sections. Section A contains one
compulsory question. Section B contains three questions from which students must choose
two to answer.

Answer only THREE questions (one from Section A and two from Section B).

The exam is closed-book.

The use of standard calculators with scientific, and standard arithmetic and statistical
functions, is permitted.

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 SECTION A

SECTION A CONSISTS OF QUESTION 1.

YOU MUST ANSWER THIS QUESTION.

QUESTION 1

ANSWER ALL PARTS OF THIS QUESTION

In the case of Newtown University, you were asked to consider suggested savings to the
budget of the University. This question asks you to consider whether these suggestions
represent good opportunities for the University to save money.

a. It is suggested that the University could save money by changing the way that it
allocates the costs of the Central Services Department (CSD) to part-time students.
You are required to explain whether you think this is a good idea. You should justify
your answer with appropriate explanations, including a detailed discussion of the way
in which the university currently allocates these costs.

[10 marks]

b. It is suggested that the university could save money by reducing the number of module
choices available to students in the Newtown Social Sciences Unit. You are required
to explain whether you think this is a good idea. You should justify your answer with
appropriate explanations, including a detailed consideration of the way that the total
costs of a module might be calculated.

[14 marks]

c. It is suggested that there should be a moratorium on all uncommitted expenditure

and that requests for spending of over £100 be approved by the Deputy Vice
Chancellor. You are required to explain whether you think this is a good idea. You
should justify your answer with appropriate explanations, including a discussion of the
possible unintended consequences of such a policy.
[10 marks]

TOTAL 34 MARKS
 SECTION B

SECTION B CONSISTS OF QUESTIONS 2, 3 AND 4.

ANSWER ONLY TWO QUESTIONS FROM SECTION B.

QUESTION 2

ANSWER ALL PARTS OF THIS QUESTION

Throgmorton Accountancy Services specialise in two types of accountancy work; audit

contracts and tax contracts.

Each audit contract requires 30 hours of work from qualified accountants and 12 hours of
work from junior accountants. The revenue per audit contract is £2,500 and direct expenses
relating to each contract amount to £600 per contract.

Each tax contract requires 18 hours of work from qualified accountants and 22 hours of work
from junior accountants. The revenue per tax contract is £2,250 and direct expenses relating
to each tax contract amount to £500 per contract.

Accountants that work for the firm are employed on an hourly basis. Qualified accountants
earn £45 per hour and junior accountants earn £21 per hour. Administration costs are
attributed to contracts using a rate per contract hour and this totals £296 for each audit
contract and £137 for each tax contract. The total administration costs are £80,000 for a four-
week period.

During the four-week period ending on July 31st 2023 the number of working hours available
are 2,000 for qualified accountants and 1,650 for junior accountants. Agreements are already
in place for 20 audit contracts with returning clients. Throgmorton Accountancy Services
must start and complete these projects in the four-week period under consideration. A
maximum of 60 tax contracts may be undertaken during the four-week period to 31st July
2023.

REQUIRED:

a. Calculate the contribution for each of the two types of contract.

[7 marks]
b. Determine the optimal mix of contracts for the four-week period to 31st July 2023
assuming that Throgmorton Accountancy Services are seeking to maximise profit. You
should use a linear programming graph, identifying the feasible region and the optimal
point using whatever equations you need. Your workings should be calculated to one
decimal place and your answers should be rounded to the nearest £.

[26 marks]

TOTAL 33 MARKS

QUESTION 3
ANSWER ALL PARTS OF THIS QUESTION

Sparrowhawk Ltd. is a company that build light aircraft for people who like to fly planes as a
leisure activity. Sparrowhawk Ltd. is considering the introduction of a new product line, the
‘Starling’ model, in 2025. The costs of product design and development are estimated at
£3,695,000, which will be incurred during 2024. Each plane will sell for £1,200,000 with
estimated demand of 25 aircraft in 2025, 30 aircraft in 2026 and 10 aircraft in 2027. The price
of an aircraft will be increased in 2028 to £1,450,000 at which point estimated demand will
fall to 5 aircraft in that year and the model will then be discontinued. All aircraft are built only
when the customer places the order.

It is estimated that two aircraft each year will require warranty repairs costing £120,000 per
aircraft and that these repairs will be done in the year following sale.

To manufacture the aircraft the company will buy a special machine called a ‘aero-groover’ at
the start of 2025 at a cost of £35 million. This machine can only make the ‘Starling’ model
and will be depreciated on the basis of the number of units produced across its productive
life. In the year following the production of the last plane Sparrowhawk Ltd. will dispose of
the machine and clean up the site at a total cost of £1,110,000. The ‘aero-groover’ will have
no residual value.

The variable costs of production for each aircraft are estimated to be £212,000 in 2025 rising
by 15% per year. Fixed costs associated with the production and marketing of the ‘Starling’
model will be £4,309,000 in 2025 rising by 8% each year. Marketing costs form around 2/3rds
of these fixed costs and will cease after 2026, with the remaining fixed costs ending in 2028
when the final aircraft are produced and sold. None of these fixed costs includes an element
for depreciation.
REQUIRED:

a. Produce a product lifecycle budget, split into annual intervals, for the ‘Starling’ aircraft,
rounding your answers to the nearest £’000.

[17 marks]
b. How might Sparrowhawk Ltd. maximise the return on the ‘Starling’ model over the
product life cycle? You should identify four principles for maximising return and suggest
in practice how Sparrowhawk Ltd. might implement these principles. You should also
identify any problems or conflicts between the solutions you suggest.

[16 marks]

TOTAL 33 MARKS

QUESTION 4

ANSWER ALL PARTS OF THIS QUESTION

a. What are the functions of the management accountant in a service-based

organisation? You should identify four separate functions that management
accountants perform and provide appropriate examples (real or theoretical) from a
service-based organisation.

[12 marks]

b. The chief executive officer of your company is unhappy with the firm’s attempts to
adopt environmental management accounting in the organisation. “I don’t
understand how we can measure environmental impact,” he complains. “We should
just concentrate on what our customers want instead of worrying about intangible
concepts like sustainability.”

REQUIRED:

Prepare a response to this criticism. You should explain what environmental management
accounting is designed to achieve and describe two approaches that have been used, citing
relevant literature and examples where appropriate.

[21 marks]

TOTAL 33 MARKS

END OF EXAM