cmga may 2010 answers typeset

8/8/2019 CMGA May 2010 Answers Typeset

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May 2010 Examiner's Answers CMGA1

The Examiners Answers for CIMA MastersGateway Assessment

SECTION A

Answer to Question One

Requirement (a)Customer value statement report

Item DIY - A DIY - B Small gardencentre shops

Sales (units) 1000 500 400$ $ $

Sales ($) 200,000 100,000 80,000

Standard variable production costs 60,000 30,000 24,000Contribution 140,000 70,000 56,000Delivery costs ($5 per Km) 5,000 2,500 4,250Emergency deliveries ($600 each) 1,200 0 0Order costs ($100 per order) 500 400 1,000Discounts (% of sales) 40,000 15,000 8,000Sales commissions (% of sales) 20,000 10,000 4,000Publicity costs (given in $) 25,000 20,000 15.000Total other overheads 91,700 47,900 32,250Profit per customer* 48,300 22,100 23,750Profit per customer margin* 24% 22% 30%(* pre fixed production overhead)

Order 3 2 1

The traditional contribution margin is 70%; when the other overhead costs per customer areincluded in the analysis then the order is as above, and the small garden centre shops are themost profitable customers.

Requirement (b)

When considering the individual profitability of customers and whether to stop trading with one,then the following issues are important:

The analysis of customer profitability you are using must incorporate productivity improvements.The decision must be informed by a production and costing system that is as accurate as

possible. A system providing accurate customer profitability is essential.


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Examiner's Answers CMGA 2 May 2010

Account engineering should be used to look at critical issues around how the account ismanaged and how aware the customers are of the cost of particular behaviours and activitiese.g. stock outs and emergency delivery, to allow them the option to alter their behaviour andbecome more profitable.

There should also be an appreciation of the customers commercial strategy and dialogue as tohow it affects the cost and service relationship e.g. marketing and sales arrangements.

There may also be a good reason to retain a less profitable order because of a lack of otheropportunities or that it satisfies another strategic objective e.g. lower prices to support poorerparts of the world in the pharmaceutical industry.

The lifecycle of the customer relationship must also be carefully considered.

Requirement (c)

A Just-in-Time system aims to produce or procure components and /or products as required bythe customer or for use rather than placed in stock. It is a pull system and responds to demandand has a product line emphasis. It requires a flexible labour force and excellent information / communication lines.

Just-in-Time systems should result in a move towards the following ideal situation: Elimination of non-added value activity whereby both value-adding and non-value added

activities must be investigated and managed accordingly.

Zero inventory levels, or as near as, is the target to minimise the costs of stock holdingand release cash tied up in stock.

Zero defects resulting from the efficiency and refinement of the processes.

Achieve optimal batch sizes of one with minimum set-up activity and costs. Zero breakdowns in the process to optimise productivity levels A 100% on-time delivery service to ensure the satisfaction of customers.

The disadvantages are: It requires a reorganisation and orientation of the system and structure plus training

which is costly in terms of time and money.

It may require the retraining of staff and involve a learning curve period and reducedproductivity in the short term e.g. store keeping staff relocated and trained elsewhere.

Redundancies may be an unfortunate outcome.

Requirement (d)

Target costing looks to the market for direction in terms of the selling price for products.A predetermined selling price is obtained from market analysis and from this is deducted

a target profit, to determine target cost.Target costing is an activity aimed at reducing the life cycle costs of new products,

whilst upholding quality, reliability, and other consumer requirements.

It looks for all possible ways to reduce costs at the product planning, research and developmentand prototyping phases of production. It does not just aim to minimise cost but is part of astrategic system to manage profits.

Techniques like value engineering, and value analysis are used to align the expected costs withthe target cost.

Life cycle costing views products, services and customers over their total life span rather thanassessing them for a single period (generally the accounting year).


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governments requirement to reform pay and rewards means that the hospital managementhave no choice but to go ahead with the project.

PlanningPlanning involves defining the resources required to undertake and complete the project. It isabout determining how the project team will achieve its objectives within the constraints of time,budget and resources. At this stage a schedule of the different activities that will need to beundertaken to design and implement the new pay and reward system will be devised and abudget developed.

During the planning phase the team may use techniques such as work breakdown structure,Gantt charts and networks analysis techniques to help in the scheduling of the different activitiesthat will need to be undertaken and milestones identified.

Executing/ImplementationThis stage involves the actual performance of the project, resulting in the accomplishment ofproject objectives. It requires the skill of the project manager to keep team members focused onthe project tasks, coordinating project team members that will result in achieving projectdeliverables. As work is carried out progress meetings will be held. It will be important duringthis phase to involve the various stakeholders so that any objections can be taken on board andconsidered as the development of the new scheme emerges.

ControllingControls should be put in place in order to measure the projects progress and assess ifmilestones are being achieved. It there are deviations from the plans it will be necessary todetermine whether corrective action is needed. This could lead to re-planning, which may in turnlead to goal definition change. For PT Hospital the deliverable is clear and non negotiable sinceit is being imposed by government, however, there may be some flexibility in how the outcomesare achieved.

Completing and ClosureThis is the final stage, and involves ensuring that the project is completed and conforms to thelatest definitions of what needs to be achieved and meets the customer specification.

In this last stage of the project there are various activities that should be carried out in additionto confirmation that the project deliverables have been met. For PT Hospital the key deliverableis that all staff are on the new pay system by May 2010.

The closure phase will involve the handover of the project to the hospitals management andmore specifically to the HR department for its administration. It also will involve the disbanding ofthe project team, including an audit of the learning from the project that could assist in themanagement of future projects.


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Answer to Question Three

$000 $000 Ref. to working Cash flows from operating activitiesProfit before taxation 19,450Adjustments for:

Profit on disposal of property (1,250)Depreciation 7,950Finance cost 1,400

27,550Decrease in receivables 470 1(Increase) in inventories (3,100) 1(Decrease in trade payables (1,420 ) 1

Cash generated from operations 23,500

Interest paid (1,480) 2Income taxes paid (5,850 ) 2Net cash from operating activities 16,170

Cash flows from investing activitiesAcquisition of subsidiary (net of cash) (1,950) 3Purchase of property, plant and equipment (11,300) 4Proceeds from sale of property 2,250Net cash used in investing activities (11,000)

Cash flows from financing activitiesRepayment of interest-bearing borrowings (1,000)Dividends paid by BX (6,000)Dividends paid to non-controlling interest (200) 5Net cash used in financing activities (7,200 )

Net decrease in cash (2,030)

Cash at beginning of period 3,900Cash at end of period 1,870

Working 1 Working capital changes

Receivables Inventories Trade payables $000 $000 $000

Closing balance (27,100) (33,500) (33,500)Less: Acquired with CM 1,300 1,650 1,950

(25,830) (31,850) (31,390)Opening balance 26,300 28,750 32,810

Decrease/increase/decrease 470 (3,100) 1,420

Working 2 Interest and income taxes

Interest Income taxes $000 $000

Liability brought forward 1,440 5,450Liability acquired with CM - 250Charge to income statement 1,400 6,250Liability carried forward (1,360) (6,100)Balance: Amount paid 1,480 5,850


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Working 3 Acquisition of subsidiary

$000 Cash element of consideration 2,000Less: Cash acquired with CM (50)

1,950

Working 4 Purchase of property, plant and equipment

$000 Balance brought forward 44,050Acquired with CM 4,200Disposal at net book value (1,000)Depreciation for year (7,950)Less: Balance carried forward (50,600)Balance: Purchased (11,300)

Working 5 Dividend paid to non-controlling interest

$000 Balance brought forward 1,920Profit attributable to non-controlling interest 655Acquired with CM ($5,000 x 25%) 1,250Less: Balance carried forward (3,625)Balance: Dividends paid 200


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SECTION B

Answer to Question Four

4.1 The answer is D

4.2 (90,000 - 85,000) x standard profit per unit = 5,000 x $2

The answer is B

4.3 Marginal cost values the inventory at the variable production cost of 54,000.1/8 of production cost was in inventory1/8 of 54,000 = 6,750

The answer is A

4.4 800kg x resale price of $3.50 = $2,800200kg x purchase price of $4.50 = $900Total = $3,700

The answer is A

4.5 The answer is D

4.6 The answer is C

4.7 The answer is Vertical conflict

4.8 The answer is:

(i) Completer/Finisher(ii) Team worker(iii) Plant


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4.9

Pension plan assets $000 FV of plan assets at 1 June 2008 3,100Contributions made 300Expected return on assets 190Benefits paid (225)Actuarial loss (balancing figure) (25)FV of plan assets at 31 May 2009 3,340

The answer is B

4.10

The answer is B

4.11 The answer is D

4.12 The answer is C

Post tax earningsWeighted average number of shares in issue:

$440,000

1 may 30 September 5 million shares x 5/12 months 2,0831 October 30 April 7 million shares x 7/12 months 4,083

6,166Earnings per share $440,000/6,166,000 7.1 cents per share

cmga may 2010 answers typeset

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