Question 1a

i.

Financial Perspective: financial objectives

Customer Perspective: achieving customer value or satisfaction
Internal business processes: product design , marketing, sales
Learning and growth: employee capabilities, infra-structure

ii.

Financial: cost control, sponsors, donations, grants

Customer: client satisfaction with services provided such as meals, shelter, funding

Internal business practices: health and safety, cost control, provision of services to
clients

Learning and growth: staff development and training, use of volunteers and training,
skills, absenteeism, employee satisfaction

Benefits are both internal as improve ability to identify potential future outcomes and
their impact and improve resource allocation and more focus on need for change and
identification of best practices. The introduction of the balanced scorecard is not easy
and requires a high level of commitment by the organisation and may create fear and
uncertainty.

b. Sustainability is of concern to society due to concern over the stability of the

environment and economic challenges faced by governmental, scientific and
corporate world leaders in devising strategies to support increasing population in a
finite planet.

Sustainability relates to organisational practices including cost reduction and

consideration of costs not necessarily accounted for under existing accounting
practice. Also this will impact on the choice of supplier, manufacturing practices,
consumers and disposal practices.

Question 2.

Prevention - operations: preventative maintenance and checking machinery to reduce

number of potentially faulty products and reduce guarantee claims

Appraisal: reduce costs of incoming inspections by building close links with suppliers
and getting them to guarantee quality

Internal failure: operations- reduce costs of reworks by training employees

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External failure: service- design quality into the product to prevent guarantee claims
and cost of servicing/repairing product
.

Question 3
Activity Individual customers Corporate customers
cost per unit No. of No. of
Activity of activity activities $ activities $
driver
Process invoice $100 150 $15,000 50 50 00
Receive cheque $25 200 $5,000 -- --
Handle dispute $150 40 $6,000 10 1500
Customer $80 130 $10,400 20 1600
complaint
Total Customer $36,400 $8,100
costs

Calculation of sales revenue and direct cost by customer group

Individual Corporate Total
customers customers
Sales revenue
- Rural 54 000 126 000 $180,000
- Regional 108 000 432 000 $540,000
- National 138 000 322 000 $460,000
Total sales revenue $300 000 $880 000 $1 180 000
Direct costs
- Rural 30 000 70 000 100 000
- Regional 76000 304 000 380 000
- National 96 000 224 000 320 000
Total direct costs $202 000 $598 000 $800 000
Customer profitability:
Individual Corporate
customers customers
Sales revenue $300 000 $880 000
Direct costs 202 000 598 000
Product contribution $98 000 $282 000
margin
CM/sale revenue 32.67% 32.05%
Customer costs 36,400 8,100

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 60,000
Profit $1,600 $273,900

b. The contribution margin for both customer groups is much the same but the
firm is experiencing more difficulties with the individual customers and perhaps
need to investigate why this is the case. Perhaps focus on corporate customers as
less difficult.

Question 4
a.

1 ONLY Algo (is required) Bego

Unit-related costs: $84 $80

Materials 140 104

$224 $44,800,000a $184 $18,400,000b

Batch-related costs:
$400 100 000c $380 190 000d
Product-related costs:
Advertising 60 000 100 000

Total product, batch and unit

related costs $63,650,000
$44 960, 000 $18, 690,000
Facility costs e 720 000
$16 385 000
a
- $224 x 200 000 units
b
- $184 x 100 000 units
c
- $400 x 250 batches
d
- $380 x 500 batches

e–
Facility level costs are not
allocated to products as
they have no identifiable cost
driver.

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b The sales mix for Algo is 2/3 (=200 000 units / 300,000) units),
and for Bego is 1/3 (=100,000 units/300,000 units),
and so the weighted average contribution margin is
2/3 x ($276 - $224) + 1/3 x ($200 - $184)
= $40

total batch, product and facility costs

Break - even points (Algo & Bego) 
weighted average contribution on margin
($290 000  $160 000  $720 000) / $40


 $1170 000 / 40
 29 250 units

Made up of 19 500 Algo and 9 750 Bego

Question 5

a Incremental cost if purchased:

 Purchase price ($4000 x10)..................................................................... $40, 000
 Material handling ................................................................................... 4,000
Equipment lease penalty 7,500
 Total ........................................................................................................ $51,500
Incremental cost if manufactured:
 Direct material ($24,000* 1.08).............................................................. $25,920
 Material handling ($10% of $24, 840) 2,592
 Direct labour (25,000*1.05).................................................................... 26,250
 Variable manufacturing overhead ($42 000  20%) .............................. 8 400
Equipment leasing cost 15,000
 Total ........................................................................................................ $78,162
Decrease in cost if 10 units are purchased ($78,162 – $51,500) ............ $26,662

b Decrease in annual cost of acquiring part K9 if purchased

( as calculated above) ................................................................................. $26,662
Add: rental revenue from idle space ........................................................... 120,000
An overall decrease in annual cost if purchased .................................... $146,662

c. Qualitative factors: Local jobs, quality control issues, on-time delivery issues.

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Question 6

a. The company will be worse off by $240,000 if the Computer division buys
externally.

b. The company will be worse off by $90,000 if the Computers division buys the
component externally.

c. The company will be worse off by $10,000 if Computers division buys the
component externally.

d. The first thing you should establish is which of the three conditions in parts a,
b, and c is most likely to occur. To do so would be an issue as divisions are
autonomous and decisions will affect divisional performance.

Cost-plus pricing formula

Question 7

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 NPV analysis:
(a) (b) (c) (d) (e) (f)
Inco
me
tax $ Discount
$ imp After tax factor Present $ value
Yr Amount act cash flow (14%) of cash flows
Equipment purchase 0 ($450 1.000 ($450 000)
000)
Working capital 0 (30,000) (30,000) 1.000 (30,000)
increase
Investment
allowance 1 45 000 0.4 18,000 0.877 15,786
$450 000  0.10 = $45
000
One-off repair 5 (20,000) 0.6 (12,000) 0.519 (6,228)
Depreciation: 20% 1-5 90,000 0.4 36,000 3.433 123,588
straight line

Annual operating 1-8 125,000 0.6 75,000 4.639 347,925

cost savings
Release of working 8 30,000 30,000 0.351 10,530
capital
Net present value $11,601

At 14% NPV is positive, therefore the IRR is likely to be greater than 14%.

b. Briefly describe payback period, ARR, and profitability index.

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