Professional Documents
Culture Documents
TRIMESTER 1
ACCY 302
ADVANCED
MANAGEMENT ACCOUNTING
Present value and annuity tables are attached to this exam paper.
“The new compound for the tigers will cost $750,000 and it will cost a further $200,000 to buy
the tigers and transport them to Wellington. There is a possibility that a local film director who
is keen on white tigers will give a substantial donation if we buy them, but this is by no means
certain and a decision has to be made before this possibility can be pursued.”
“It is also going to be really expensive to keep the tigers. The table below shows the estimated
annual expenditures required to look after the tigers.
$
Food costs 55,000
Zoo keepers 120,000
Heating costs 20,000
Animal health costs 30,000
225,000
The trustees of the zoo will only authorise the purchase of the tigers if I can assure them that
the rest of the zoo will benefit from the purchase. The rest of the zoo cannot subsidise the
tigers. Visitors currently pay $20 to enter the zoo and then, on average, spend $15 in total on
gifts and food that have cost us $10 to buy. Last year there were 250,000 visitors to the zoo.”
You further ascertain that it is zoo policy to use a cost of capital of 15% when assessing capital
projects and to only forecast five years ahead. The zoo’s commercial manager believes that the
new tigers will considerably increase interest in the zoo but they will have to be regularly
publicised to convert ‘interest’ into actual “visitors”. He estimates that, with additional
advertising expenditure of $100,000 per year, visitor numbers will rise by 10% on current
levels as soon as the tiger compound opens, and will remain at this new level for the next 5
years at least. Entry prices and the other income and costs related to each customer will remain
unchanged. The zoo does not pay tax and you should ignore inflation.
Present value and annuity tables are attached to this exam paper.
[TOTAL OF 20 MARKS]
Because of your management accounting expertise, you have been asked to join the team of
consultants advising Hazel Clarke and have been asked to concentrate on the area of performance
measurement and improvement. Your first task is to produce a draft report for the next
consultants’ team meeting on the issues outlined below.
Required:
a) From the information available provide your assessment of the business performance of The
Black Swan Hotel last year. Highlight any key weaknesses and point out the main areas
where you think management effort should be concentrated to improve performance.
(5 marks)
b) Provide a critique of the form and content of Manuel's accounts, THEN redraft the
Operating Statement (for the months of November to April only) in a format that you
believe is more useful and fully explain the reasoning for the changes made.
(7 marks)
c) Outline the advantages and disadvantages of the financial performance measures presently
used by Hazel and Manuel to manage the performance of The Black Swan Hotel.
(4 marks)
d) Explain the key characteristics of an effective balanced performance measurement system
and outline ONE modern performance measurement model that could be utilised at The
Black Swan Hotel. (Diagrams may be used but need to be supplemented with appropriate
explanations)
(5 marks)
e) Suggest FOUR key performance measures and explain how they should be used within the
model described in the answer to (d) above to improve the effectiveness of performance
management and to drive performance improvement at The Black Swan Hotel.
(5 marks)
f) Advise Hazel how she could encourage key staff, e.g. the Chef and Bar Steward, to accept
the suggested performance management system and become committed to business
performance improvement at The Black Swan Hotel.
(4 marks)
[TOTAL OF 30 MARKS]
ACCY 302 CONTINUED
4
QUESTION THREE
Basil owns and operates The Blue Duck Bar and Restaurant, located on Oriental Bay. His main
competitor is The Black Swan Hotel bar and bistro, which is 100 metres down the road. Four
years ago, Basil was having problems attracting and retaining customers so he implemented an
ISO9000-based quality management system and gained ISO9001 certification.
Building on the success of that certification process, Basil has recently completed the
implementation of a Total Quality Management (TQM) programme. This programme appears
to have already been successful, as Basil has noticed that the number of customers (both new
and repeat) has increased and that his operating costs have reduced. However, Basil is
concerned that as his competition is also focusing on quality improvement he may not be able
to sustain his improving financial performance.
Further, due to recent concerns over wine quality and security of supply, Basil has decided to
purchase the Granite Peak Winery, which is based in Marlborough. This winery, although
producing a good wine, has a poor ecological record and reputation. In an effort to address this,
the winery has recently obtained ISO14001 certification.
Basil is considering the implementation of a TQM programme into the winery. However, he
first needs to know the financial impact of Granite Peak’s current ecological problems. The
wine maker and accountant for the Granite Peak Winery has prepared the following
environmental revenue and cost analysis for the previous financial year. Total annual costs for
the plant were $3,274,175.
[TOTAL OF 30 MARKS]
Robert’s Tyre Services (RTS) sells tyres for many types of vehicles, including those used at the
Wellington Zoo. RTS is a nationwide business and the Wellington area manager, Sarah Smith,
has operating and investment autonomy for operating the Wellington Division.
Sarah’s employment contract is up for renewal and the CEO, Robert Cowie, who is based in
Nelson, is considering how he should compensate Sarah and provide incentives for her to
manage the Wellington Division in line with the company’s objectives and strategies.
The CEO has four compensation proposals for Sarah to consider. These are:
1. Paying Sarah a fixed annual salary of $67,500.
2. Paying Sarah no salary but compensating her based on the Wellington Division’s Return
on Investment (ROI), with the calculation being based on operating income before any
bonus payments.
3. Paying Sarah a fixed salary ($45,000) plus a potential bonus based on ROI achieved.
4. Paying Sarah a fixed salary ($45,000) plus a potential bonus based on a combination of
ROI and the achievement of key non-financial performance targets relating to
environmental responsibility, employee training and development, and customer
satisfaction.
Evaluate Sarah’s proposal from both RTS’s and the sales staff point of view.
(5 marks)
[TOTAL OF 20 MARKS]
***************
ACCY 302
8
Present Value Tables
Value of $1 to be received in n years time at discount rate r
n 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 25% 30% 35%
1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.800 0.769 0.741
2 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 0.842 0.826 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.718 0.706 0.694 0.640 0.592 0.549
3 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.731 0.712 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579 0.512 0.455 0.406
4 0.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 0.708 0.683 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516 0.499 0.482 0.410 0.350 0.301
5 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.621 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402 0.328 0.269 0.223
6 0.942 0.888 0.837 0.790 0.746 0.705 0.666 0.630 0.596 0.565 0.535 0.507 0.480 0.456 0.432 0.410 0.390 0.370 0.352 0.335 0.262 0.207 0.165
7 0.933 0.871 0.813 0.760 0.711 0.665 0.623 0.583 0.547 0.513 0.482 0.452 0.425 0.400 0.376 0.354 0.333 0.314 0.296 0.279 0.210 0.159 0.122
8 0.923 0.853 0.789 0.731 0.677 0.627 0.582 0.540 0.502 0.467 0.434 0.404 0.376 0.351 0.327 0.305 0.285 0.266 0.249 0.233 0.168 0.123 0.091
9 0.914 0.837 0.766 0.703 0.645 0.592 0.544 0.500 0.460 0.424 0.391 0.361 0.333 0.308 0.284 0.263 0.243 0.225 0.209 0.194 0.134 0.094 0.067
10 0.905 0.820 0.744 0.676 0.614 0.558 0.508 0.463 0.422 0.386 0.352 0.322 0.295 0.270 0.247 0.227 0.208 0.191 0.176 0.162 0.107 0.073 0.050
Annuity tables
Present value of $1 per year for n years at discount rate starting one year hence.
n 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 25% 30% 35%
1 0.99 0.98 0.97 0.96 0.95 0.94 0.93 0.93 0.92 0.91 0.90 0.89 0.88 0.88 0.87 0.86 0.85 0.85 0.84 0.83 0.80 0.77 0.74
2 1.97 1.94 1.91 1.89 1.86 1.83 1.81 1.78 1.76 1.74 1.71 1.69 1.67 1.65 1.63 1.61 1.59 1.57 1.55 1.53 1.44 1.36 1.29
3 2.94 2.88 2.83 2.78 2.72 2.67 2.62 2.58 2.53 2.49 2.44 2.40 2.36 2.32 2.28 2.25 2.21 2.17 2.14 2.11 1.95 1.82 1.70
4 3.90 3.81 3.72 3.63 3.55 3.47 3.39 3.31 3.24 3.17 3.10 3.04 2.97 2.91 2.85 2.80 2.74 2.69 2.64 2.59 2.36 2.17 2.00
5 4.85 4.71 4.58 4.45 4.33 4.21 4.10 3.99 3.89 3.79 3.70 3.60 3.52 3.43 3.35 3.27 3.20 3.13 3.06 2.99 2.69 2.44 2.22
6 5.80 5.60 5.42 5.24 5.08 4.92 4.77 4.62 4.49 4.36 4.23 4.11 4.00 3.89 3.78 3.68 3.59 3.50 3.41 3.33 2.95 2.64 2.39
7 6.73 6.47 6.23 6.00 5.79 5.58 5.39 5.21 5.03 4.87 4.71 4.56 4.42 4.29 4.16 4.04 3.92 3.81 3.71 3.60 3.16 2.80 2.51
8 7.65 7.33 7.02 6.73 6.46 6.21 5.97 5.75 5.53 5.33 5.15 4.97 4.80 4.64 4.49 4.34 4.21 4.08 3.95 3.84 3.33 2.92 2.60
9 8.57 8.16 7.79 7.44 7.11 6.80 6.52 6.25 6.00 5.76 5.54 5.33 5.13 4.95 4.77 4.61 4.45 4.30 4.16 4.03 3.46 3.02 2.67
10 9.47 8.98 8.53 8.11 7.72 7.36 7.02 6.71 6.42 6.14 5.89 5.65 5.43 5.22 5.02 4.83 4.66 4.49 4.34 4.19 3.57 3.09 2.72
ACCY 302
9