ACC512 Accounting for Managerial Decisions Assignment Questions | Jan 2025

b. Provide at least two possible explanations for each of the unfavourable variances you calculate above and suggest where responsibility for the unfavourable result might be placed. (8 marks)

ASSIGNMENT 2

Question 1 – (20 marks) – Budgetary Planning – Learning outcome – C5, PLO 6

You have been hired as a management consultant to assist EcoTech Innovations, a company specializing in the design and manufacturing of sustainable products. The company is in the process of preparing its budget for the upcoming financial year and has provided the following data and projections for the new year.

Previous Year Financial Data (Actuals):

Projections for the Upcoming Year:

Additional Information:

I). The company plans to increase its marketing budget by 20% to support the anticipated revenue growth.
II). The company expects to improve operational efficiency, resulting in a 2% reduction in COGS as a percentage of revenue.
III). Inflation is projected to increase by 3%, which will influence operating expenses.

Required:

a. Discuss the key components and steps involved in preparing a budget for EcoTech Innovations, incorporating the given projections and additional information. (10 marks)

b. Identify and explain at least three potential challenges EcoTech Innovations might face during the budgetary planning process and propose strategies for overcoming them. (6 marks)

c. Analyse the role of budgetary planning in the strategic decision-making process for EcoTech Innovations and how it aligns with their long-term goals. (4 marks)

Question 2(A) (15 marks) – Real world focus – C4, PLO3

Sarah Jenkins is the Operations Manager at an electronics assembly plant. During a routine review of production processes, she learns about a new advanced assembly robot, the XYZ900, that promises to significantly improve efficiency and reduce production costs. The XYZ900 can perform multiple tasks faster and with higher precision than the current robot model in use at the plant, the ABC500. Sarah is eager to suggest the purchase of the XYZ900 to the plant’s Director, Richard Miller.

Sarah: “Richard, I’ve just come across this article about the XYZ900. It seems like the new robot could really help us cut down on our production costs. I think we should consider replacing the ABC500 with the XYZ900.”

Richard: “I’ve heard about the XYZ900, Sarah, but we just bought the ABC500 last year, and it cost us $3 million. It’s supposed to last for at least 10 years. If we replace it now, we will take a significant loss on the current machine. I don’t think the top management will approve another investment like that right now. Let’s continue using the ABC500 for the next few years and only consider the XYZ900 when we’re forced to.”

Required: Sarah has recently completed a course in managerial accounting and believes that Richard’s decision is flawed. She decides to write a memo to Richard explaining the error in his decision-making process.

QUESTION 2(B) (15 marks) – Real world focus – C4, PLO3

GreenTech Industries manufactures high-quality circuit boards used in the production of its solar panels. The company has been producing these circuit boards internally for years, but recent discussions have arisen about whether it should continue to produce them in-house or outsource the production to an external supplier. The management team is analysing the situation and gathering relevant information to make an informed decision.

Required:

In gathering relevant information to evaluate the alternatives of producing the circuit boards internally or purchasing them externally, identify and discuss the quantitative factors that should be considered.

Question 3-(50 marks) – Case analysis and interpretation – Learning outcome – C3, PLO 6

Background: SRC Corporation (SRC) is a mid-sized manufacturing firm that specializes in producing custom-made industrial equipment. Recently, SRC has been approached by Wang Corporation, a potential new customer, with a proposal for a large-scale manufacturing project. The project involves producing specialized machinery over a period of three years. The initial investment required for the project is $2,000,000. SRC estimates the following cash inflows from the project:

I). Year 1: $700,000
II). Year 2: $800,000
III). Year 3: $1,200,000

The company’s cost of capital is 10%, which will be used as the discount rate for evaluating the project. SRC also has a policy of requiring projects to pay back their initial investments within three years.

Required:

1.  Identifying the Relevant Cash Flows for the Project – What are the relevant cash flows for the project? Discuss how you identify these cash flows. (8 marks)
2.  Net Present Value (NPV)
   i. Calculate the project’s net present value (NPV). (12 marks)
   ii. Could the NPV of this project be different for SRC than for one of Wang’s other potential customers? Explain. (12 marks)
3.  Internal Rate of Return (IRR)
   i. Calculate the proposed project’s internal rate of return (IRR). (12 marks)
   ii. Explain the rationale for using the IRR to evaluate capital investment projects.
   iii. Could the IRR for this project be different for SRC than for another customer? Explain. (12 marks)
4.  Payback Period
   i. What is the project’s payback period? (8 marks)
   ii. What is the rationale behind the use of the payback period as a project evaluation tool?
   iii. What deficiencies does the payback period have as a capital budgeting decision method?
   iv. Does the payback period provide any useful information regarding capital budgeting decisions? Discuss. (8 marks)
5.  Based on your calculations of NPV, IRR, and Payback Period, what decision should SRC make regarding this project? Justify your recommendation. (10 marks)