GREAT ZIMBABWE UNIVERSITY

FACULTY OF COMMERCE

DEPARTMENT OF ACCOUNTING AND INFORMATION SYSTEMS

EXAMINATION
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BACHELOR OF COMMERCE DEGREE PART 1 SEMESTER 1

APPLIED MANAGEMENT ACCOUNTING MAAC504

DATE DECEMBER 2015

DURATION 3.5 HOURS

INSTRUCTIONS TO CANDIDATES

1. ANSWER ALL QUESTIONS

2. START EACH ANSWER ON A FRESH PAGE

3. SHOW ALL WORKINGS, WHERE APPLICABLE

Page 1 of 6
QUESTION 1

Booxe is a furniture manufacturing company based in the large, developed country of Teeland.
Booxe is the largest furniture manufacturer in Teeland supplying many of the major retail chains
with their own-brand furniture and also, making furniture under its own brand (Meson). In a
highly competitive market such as Teeland, Booxe has chosen a strategy of cost leadership.

Booxe has been in business for more than 70 years and there is a strong sense of tradition and
appreciation of craft skills in the workforce. The average time which an employee has worked
for the firm is 18 years. This has led to a bureaucratic culture; for example, the company’s
information systems are heavily paper based. In addition and in line with this traditional culture,
the organisation is divided into a set of functional departments, such as production, warehousing,
human resources and finance.

In order to drive down costs, the chief executive officer (CEO) decided to re-engineer the
processes at Booxe. She decided that there should be a small pilot project to demonstrate the
potential of business process re-engineering (BPR) to benefit Booxe and she selected the goods
receiving activity in the company’s warehousing operations for this.

The CEO has asked you as a performance management expert to complete the post-
implementation review of the pilot project by assessing what it has delivered in financial terms.
The project identified that 10 of the warehouse staff spend about half of their time matching
goods delivered documents to purchase orders and dealing with subsequent problems. It was
noted that 25% of all such matches failed and the staff then had to identify the issue and liaise
with the purchasing department in order to get the goods returned to the supplier and a suitable
credit note issued. The project introduced a new information system to replace the existing
paper-based system. The new system allowed purchase orders to be entered by the purchasing
department and then checked online to the goods delivered as they arrived at the warehouse. This
allowed warehouse staff to reject incorrect deliveries immediately.

The following are further details provided in relation to the project:

Notes relating to old system:

1 Average staff wage in warehouse $25,000 p.a.

2 Purchasing staff time in handling delivery queries 8·5 days per week
3 Average staff wage in purchasing is $32,000 p.a. for working a 5-day week

Notes relating to new system:

New IT system costs:
$

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4 Hardware for warehouse and purchasing depts 220,000
5 Software total cost 275,000
6 On-going servicing cost (p.a.) 22,500
7 It is expected that the new system will last for eight years.

The CEO now plans to apply BPR across Booxe and as well as completing the post-
implementation review, she also needs to know how BPR will change the accounting
information systems and the culture at Booxe. Booxe’s current accounting system is a traditional
one of overhead absorption based on labour hours with variances to budget used as control
indicators. She has heard that an activity-based approach using enterprise resource planning
(ERP) systems is fairly common and wants to know how these ideas might link to BPR at Booxe.

The CEO is concerned that middle management unrest may be a problem at Booxe. For example,
the warehouse manager was uncomfortable with the cultural change required in the BPR project
and decided to take early retirement before the project began. As a result, a temporary manager
was put in place to run the warehouse during the project.

The CEO has also begun to reconsider the human resources system at Booxe and she wants your
advice on how the staff appraisal process can improve performance in the company. The existing
system of manager appraisal is for the staff member to have an annual meeting with their line
superior to review the previous year’s work and discuss generally how to improve their efforts.
Over the years, it has become common for these meetings to be informal and held over lunch at
the company’s expense. The CEO wants to understand the purpose of a staff appraisal system
and how the process can improve the performance of the company. She also wants comments on
the appropriate balance between control and staff development as this impacts on staff appraisal
at Booxe.

REQUIRED:
(a) Assess the financial impact of the pilot business process re-engineering (BPR) project in the
warehousing operations. (6 marks)
(b) Assess the impact of BPR on the culture and management information systems at Booxe.
(11 marks)
(c) Advise on the appraisal process at Booxe as instructed by the CEO. (8 marks)
(25 marks)

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QUESTION 2

The table below shows data on two variables for the Zimbabwe from the Central Statistical
Office for the period 2003 to 2014.

Table 1 NEW REGISTRATION OF CARS AND PER CAPITA

INCOME, ZIMBABWE

YEAR CARS PCI

2003 92 4000
2004 120 4200
2005 140 4500
2006 110 4100
2007 88 3100
2008 210 2000
2009 340 2880
2010 180 5000
2011 160 4600
2012 148 4600
2013 240 5600
2014 300 4800

Cars - New registrations of second cars imported from Japan shown in thousands.
PCI - Personal disposable income shown per capita in $ at 2014 prices.

REQUIRED:

(a) Draw a scatter diagram for this data and comment on any relationship observed?
(4 marks)
(b) Using the scatter diagram drawn above for the period 2003-2014 estimate a regression
equation or model for this data. (3 marks)
(c) Estimate the regression model or equation mathematical using the least-squares method.
(4 marks)
(d) Evaluate the regression equation in terms of its likely reliability for forecasting by
calculating:
i. The Coefficient of Determination, (8 marks)
ii. The Standard Error of the Estimate, and (3 marks)
iii. The Standard Error of the Coefficient. (3 marks)
(TOTAL MARKS: 25)

Page 4 of 6
QUESTION 3

Budgeting may be viewed as a relevant technique in facilitating the assessment of business

performance from initial planning to actual results. It will be necessary, however, to consider
how to overcome factors that may limit its effectiveness.

REQUIRED:

Critically discuss the arguments for the use of budgeting in the implementation of FOUR aspects
of the performance cycle. (9 marks)
Highlight THREE advantages that may be claimed for the use of activity based budgeting rather
than a traditional incremental budgeting system. (6 marks)
Suggest reasons why advocates of a ‘Beyond Budgeting’ philosophy may not regard a major
annual budget preparation exercise as an effective use of resources. (10 marks)
(25 marks)

QUESTION 4

Yam Co is involved in the processing of sheet metal into products A, B and C using three
processes, pressing, stretching and rolling. Like many businesses Yam faces tough price
competition in what is a mature world market.

The factory has 50 production lines each of which contain the three processes: Raw material for
the sheet metal is first pressed then stretched and finally rolled. The processing capacity varies
for each process and the factory manager has provided the following data:

Processing time per metre in hours

Product A Product B Product C

Pressing 0·50 0·50 0·40
Stretching 0·25 0·40 0·25
Rolling 0·40 0·25 0·25

The factory operates for 18 hours each day for five days per week. It is closed for only two
weeks of the year for holidays when maintenance is carried out. On average one hour of labour is
needed for each of the 225,000 hours of factory time. Labour is paid $10 per hour.

The raw materials cost per metre is $3·00 for product A, $2·50 for product B and $1·80 for
product C. Other factory costs (excluding labour and raw materials) are $18,000,000 per year.
Selling prices per metre are $70 for product A, $60 for product B and $27 for product C.

Yam carries very little inventory.

Page 5 of 6
REQUIRED:
(a) Identify the bottleneck process and briefly explain why this process is described as a
‘bottleneck’. (3 marks)
(b) Calculate the throughput accounting ratio (TPAR) for each product assuming that the
bottleneck process is fully utilised. (13 marks)
(c) Assuming that the TPAR of product C is less than 1:
(i) Explain how Yam could improve the TPAR of product C. (4 marks)
(ii) Briefly discuss whether this supports the suggestion to cease the production of
product C and briefly outline three other factors that Yam should consider before a cessation
decision is taken. (5 marks)
(25 marks)

END OF EXAM

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