Question

All the situations listed below needs the use of accounting information to execute one or more of the following managerial tasks: (1) planning, (2) control and evaluation, (3) continuous improvement, or (4) decision making.

1. MANAGER: At the previous executive board meeting, we built up a target of procuring an after-tax profit equivalent to 25 percent of sales. I would like know the total revenue that we have to make so as to meet this goal, given that we have RM350,000 to spend on the marketing and promotional events. Once I have estimated sales in units, we then need to outline a promotional campaign that conforms to our budget and that will take us where we want to be. However, to compute the targeted sales revenue, I have to determine the unit sales price, the unit variable cost, and the associated fixed production and support costs. Lastly, I also need to know the tax rate.

2. MANAGER: We have issues with our procurement procedure. The department of accounts payable is currently using almost 75 percent of its time settling differences between the purchase order, receiving order, and supplier's invoice. Incorrect part numbers on the purchase orders, incorrect quantities ordered, and wrong parts sent (or the incorrect quantity) are just a few examples of sources of discrepancies. A total reform of the process has been suggested, which will allow us to eliminate virtually all of the errors and, at the same time, significantly reduce the number of clerks needed in purchasing, receiving, and accounts payable. These reform assurances to substantially decrease costs, reduce lead time, and improve customer satisfaction.

3. MANAGER: This overhead cost report shows that we have spent considerably more on, purchasing, inspection and production than was planned. An examination has uncovered that the source of the issue is faulty components from suppliers. A supplier assessment has revealed that by choosing five suppliers with the best quality records (out of 12 presently used), the number of defective parts will be drastically decreased, as a result producing substantial overhead savings by decreasing the demand for inspections, reordering, and rework.

4. MANAGER: An establish large local company has met me and has offered to sell us one of the parts used in our small engines - a part that we are now producing internally. I need to know costs that we would avoid if this part is bought so that I can evaluate the economic benefits of this offer.

5. MANAGER: As of now, our lawn mower XP2000 is losing cash. Our goal is to increase the profits. I would like to know how much our profits would be if we decrease our variable costs by RM40 per mower keeping our present our current sales units. Also, marketing department assertions that if we increase advertising expenditures by RM1,500,000 and reduce prices by 14 percent, we might increase the quantity of mowers sold by 30 percent. I wish like to know which approaches offers contribute the most profit, or if a mix of the approaches might be best.

6. MANAGER: Our department are executing a significant quality enhancement program. We would like to increase the investment in deterrence and detection activities with the expectation of driving down both internal and external failure costs. We hope to see pattern reports for all classifications of quality costs. We wish to see if enhancing quality really does decrease costs and increase profitability.

7. MANAGER: Our engineering design department has offered a new design for our product. The new design assurances to lessen post-purchase costs and, as a result, improve market share. I would like to know the total cost of producing this new design because it uses some new parts and requires some different manufacturing processes. I would then like to have a forecasted income statement based on the new market share and new production costs. The planned selling price will be the same, or maybe even 10 percent lower. Forecasts based on the two price circumstances would be needed.

8. MANAGER: Our engineers have mentioned that by redesigning our two main production processes, we can decrease move time by 92 percent and wait time by 80 percent. This would reduce cycle time and nearly get rid of the need to carry finished goods inventories. On­time deliveries would also increase tremendously. This would contribute to cost savings of nearly RM25,000,000 per year. Market share and revenues would also increase respectively.

Required:

Identify the managerial activity or activities applicable for each scenario, and indicate the role of accounting information in the activity.

Answer 1

Managerial activity/ies involved	Role of Accounting information in the activity
Manager 1 scenario involves evaluating the past , with a view to improve on the very same past performance , to plan for the future , which needs decision-making on certain key parameters like sales & costs.So, it demands almost all the managerial activities listed.	Accounting information provides all the data about past transactions & events , in the form of finalised financial statements , from which profit %, unit costs , total costs --all can be gathered , for the manager to analyse & pick up the trend .
Manager 2 scenario involves mainly evaluation of the current procurement procedure, with a view to operate(improve) more efficiently , that will also reduce costs & unproductive waiting time for the right raw materials.	Here also, accounting information provides the data collected about the suppliers, requisitions/purchase orders placed with them---from which patterns in their adhering to quality, quantity & time etiquettes can be assessed , so as to reduce all or most of the inadequacies mentioned.That will also help to reduce manpower needed to man this function.
Manager-3--Again, this scenario also involves evaluation of vendor performance , as a result of consistently higher overhead costs. Decision needs to be taken on the choice of suppliers , with an eye on all relevant, additional costs & savings.	All the details required in this analysis, like supplier information, date of placing the purchase order, date of receipt of ordered goods, their conformity to standards, without requiring replacement, every time,quality of their product as assessed by our-own customers not returning our products--- ie. purchase returns & sales returns--as ,maintained by the accounting --serves as the basic data for this manager.
Manager-4-- this scenario involves decision making regarding some improved procedure, like make or buy--to evaluate an offer, that had come on its own.	Here, the accounting records/information maintained for manufacturing the part , like materials, labor & all associated costs ----at the shop floor --will form the basic data .
Manager-5-- this scenario also involves decision making regarding adoption of alternate ways to improve /increase profits--- activities involved-continuous improvement & decision making	All the inputs required for the analysis, are provided by the accounting information systems --- key inputs like, current selling price, variable cost, adverising expense, sales volume , etc. are all made possible by the same.
Manager-6-- activities involved-control& evaluation, continuous improvement & decision making--regarding reducing costs wasted towards unwanted & excessive procedures , in the shop floor , that may also lead to more defectives or output of inferior quality-- to control costs	The costing department collects all the costs incurred in the making of a finished product , including the cost card, time card --which makes it easy to identify costs with products & various activities involved.
Manager-7-- activities involved-Planning for a new design fro the existing product	The accounting department generates all figures like sales & costs based on their previous experiences & referring to people in similar manufacturing lines & help to prepare the forecast needed , for comparison.
Manager-8-- this scenario also involves decision making regarding adoption of alternate ways to improve /increase profits--- activities involved-continuous improvement & decision making	All the inputs required for the analysis, are provided by the cost accounting information systems --- key inputs like, current move time & wait time (with the help of labor time cards) & their costs involved --with which to compare costs & savings.