Management Accounting

Management Accounting

Project description

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Added on 22.11.2014 17:51
Here is the full question about the essay, please find and check it.
BE111 Management Accounting 1
2014/2015
Coursework Assignment
(
Weighting
25%
of Assessment total: Total word limit 1500 words
)
This assignment
has
two components
.
Each component is
weighted equally
and each
has a word
limit of
750 words
. In each case carefully read the question set, and
ensure that
your answer
does
not exceed
this word limit.
I.
For
Alfred
Chandler (1977) ‘
a
dministrative coordination’ is key to
the development of
the

visible hand

of management
, beginning in the US from
around 1850. It leads
to
the
emergence and
global domination of
the

mutli

unit ‘
modern business enterprise

.
The
new

line

and

staff structure, combined with the new
constant
process of producing and
analysing accounting and statistical information, enables information to flow up and down
the enterprise
on a continuous basis. This enables top management to develop strategic
plans and so both to manage the entity as a whole and
to set specific objectives for line
managers. These line managers can then coordinate activity in their own department to
deliver high performance in line with the strategic plans
.
[We recommend that you read

carefully Chandler’s observations on pp 1

3 and

6

7 of the Introduction to
The Visible
Hand
.]
Question I
Required:
i.
Briefly
explain
the structure and processes involved in
‘administrative
coordination’
as described by Chandler
.
ii.
De
fine

direct

and

indirect

cost
s
, and explain the difference
between them
.
iii.
Select
one
example of a
n ‘indirect cost’ category and explain
how
work
which
can be classified as indirect can contribute
to
management
’s coordination of
activities in a
production
department
.
(750 words)
II.
Read the case study
below
:

Quality Meal Feast

.
This
UK based
company produces
high quality
‘ready
meals

for
supermarkets and gourmet specialist food shops.
It is
concerned to control internal costs for Food Inspection and Hygiene without
compromising its reputation for quality, s
ince this is essential for continued profitability.
Full details are provided below.
The

Quality
Meal
Feast’
Company (QMF)
(
NB: The case is fictional but the information provided is based on actual
industr
y practice
)
‘The food and drinks industry
is the single largest manufacturing sector in the UK. Its
turnover in 2003 was about £67.6 billion representing 15 per cent of total manufacturing.
The industry employs some 500,000 people or 13.1 per cent of the whole UK
manufacturing
workforce. A total c
ontribution of £20 billion GVA (Gross Value Added) is
made to the UK

economy.’ (Abdel

Khader
&
Luther, 2006
352
)
The food
retail
industry is highly competitive
,
not only
at the lower end where the focus is on offering
low prices and ‘value’,
but also
at the high end where the focus is on high quality and premium prices.
At the high quality end, there is a consistent demand for gourmet ready meals
. One successful

company in this ‘high

end’ segment of the market is
Quality
Meal
Feast
(QMF)
.
2
QMF was f
ounded in 1995

as a small start

up company, set up by its current Managing
Director,
Sarah Wei
.
Her vision was that
QMF
should supply
high quality
premium price
gourmet ready meal
s
to retail outlets, including both
supermarkets
and specialist
gourmet food
shops
. At the same time she
wanted
the company
to
aim to be a ‘green company’ in all aspects of its activities.
The company has remained true to this vision and been highly successful. Today it has become a
major producer of these meals
, and sells over
90% of its products to supermarkets, with the rest to
specialist gourmet shops and delicatessens
. It has 10,100 employees, working in 30 manufacturing
facilities across the UK
. Most are
located in
or near
big

or medium

sized
cities
such as
London,
Manchest
er, Birmingham, Edinburgh, Glasgow
and
Belfast
to be close to the major retail markets and
so reduce the distance their products have to travel
to reach consumers
(
i.e. their
‘food miles’).
The company has also developed its ‘green’ approach across all activities. They have
a
manufacturing process with as little
waste

as possible, and using green or carbon

neutral energy
sources
, and their delivery vehicles also use green fuel sources. They
have
‘green’ waste
management
,
including recycling and using renewable
packaging
. They also further reduce their ‘food
miles’
by using local suppliers
for their ingredients
wherever possible. Preferred suppliers
must also
adopt
an environmentally friendly
approach
to producing their meat, vegetables, fruit and dairy
products.
Finally to ensure
that high standards are maintained at all times, QMF has its own
Food Inspection
team
(who check regularly on standards at their suppliers and also
on the quality o
f finished products
before despatch and delivery). It also has a
Hygiene
team who ensure
that
the production process is
carried out
in all production facilities
to the highest specifications of hygiene and skill
. In this way the
company’s products seek
to
match ‘
restaurant quality

.
Sarah Wei feels that the company is in a relatively strong position
, both
regarding current profitability
and possible further expansion.
For the year ending 31 March 2013 Operati
ng R
evenues
were
£
1,495.8 million, Operati
ng E
xpenses
were £
1,248.1 million, and Fixed
A
ssets (Plant, Machinery,
F
ixtures and
E
quipment)
were £
1,162,737,000
.
However she is concerned th
at there are two major threats to the business’s future profitability, one
concerning the level of revenues they ca
n get from their customers, the other concerning their cost
base.
1.
Concerning revenues, these are under threat since the supermarkets (who as noted take over
90% of their production) are always seeking to lower the prices they pay to their suppliers.
[Som
e even ask for extra payments from a supplier after a contract has been agreed if the
supplier’s product lines sell well. This practice has become widely known in recent
discussions of possible reasons why Tesco, in September 2014, had to announce that its
profit forecast was overstated by more than £230 million.]
2.
Concerning their cost base, she is concerned about the cost pressures in the areas of Food
Inspection and Hygiene.
Concerning Food Inspection,
there is a danger of ‘food scandals’.
There was a m
ajor ‘food scandal’ in the UK in 2013, where cheap horse meat was used in
place of expensive beef in ready meals. All ingredient suppliers have their own cost
pressures,
so it is important that QMF ensures that none of its suppliers ‘cuts corners’ in ways
that could lead to a ‘food scandal’ affecting the company directly. S
o
QMF’s inspection activity
cannot be reduced. The situation is the same concerning Hygiene. Any case of food
poisoning as a result of eating a QMF product would again have huge reputatio
nal risk.
So
b
oth these activities are high cost, but essential.
Sarah feels that the
second problem,
concerning the
internal
cost base
, is the one the company
can ‘do something about’ in the short term
. She also feels that controlling
Hygiene costs
should
perhaps
be the first priority as these are all internal to the Food Production process.
She
therefore
called a meeting with
her top management team
to evaluate options
.

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