SAP, the global leader in enterprise resource planning (ERP) systems, offers several tools to help a business find an optimal solution to scheduling and planning problems. The advanced planner and optimizer (APO) offer solutions to help firms find the best and most cost-effective solution in areas like demand planning, production planning, transportation planning and supply network planning. The later module, supply network planning (SNP) allows planners to determine optimal production plans, distribution plans and purchasing plans. According to SAP’s documentation, the SNP module offer an optimizer that will obtain the most cost-effective solution based on the following criteria: ● production, procurement, storage and transportation costs; ● costs for increasing the production capacity, storage capacity, transportation capacity and handling capacity; ● costs for violating (falling below) the safety stock level; ● costs for late delivery; ● stock-out costs. The optimizer uses linear programming method to take account of all planning factors simultaneously. According to SAP’s documentation, as more constraints are activated, the optimization problem becomes more complex and takes more time to complete. The SNP module offers several variants on linear programming to allow maximum applicability to varying problem scenarios. Questions: 1. Can you think of factors that might affect production, procurement, storage or transportation costs as referred to above? 2. Given the apparently large number of factors taken into account by the optimizer in SNP, do you think the business and/or the system can run the optimizer programme frequently?
> According to an article in the Financial Times the UK tax authority (HMRC – HM Revenue & Customs) raised £1.1bn from challenging the pricing of multinational companies’ internal deals in 2013–14 – more than twice as much as in the previous year. The incr
> Medical devices are normally associated with use by hospitals and medical practices. Some devices are used by normal consumers and, according to an article on the Medical Device and Diagnostic Industry website (www.mddionline.com), are proliferating. The
> Teva Pharmaceutical Industries Ltd reorganized its pharmaceutical operations into decentralized cost and profit centres. Teva proposed a transfer pricing system based on marginal costs. But the proposed transfer pricing system generated a storm of contro
> The financial mission of a company should be to invest and create cash flows in excess of the cost of capital. If an investment is announced that is expected to earn in excess of the cost of capital, then the value of the firm will immediately rise by th
> From Real World View 19.1, you know that Siemens operates in many countries and has quite a diverse product offering. With such complex and broad operations, there are many factors that can affect the performance of a business sector or division. In its
> German global company Siemens AG had a turnover of almost €76 billion in 2015, recording a profit after taxes of €7.4 billion, according to its annual report. The company operates globally, with 351 000 employees globally. Siemens is a diverse organizati
> A distinguishing feature of today’s digital technology is that it is characterized by zero (or near-zero) marginal costs. Once you’ve made the investment needed to create a digital good, it costs next to nothing to roll out and distribute millions of cop
> In a BBC documentary called Power to the People, Michael Portillo visited a ‘You Decide’ session organized by the local council in Tower Hamlets, London. At this session, local people decide what is to be done with £250 000 of council money. They are giv
> Meditech South Africa (Pty) Ltd provides software solutions to meet the information needs of healthcare organizations in Africa and the Middle East. According to their website, the software can encompass all areas of healthcare from doctor’s offices to h
> Setting standards in an organization may be primarily to assist in the calculation of a standard cost for the product or service for management accounting purposes. Standards are also relevant for operational and customer service managers as they may aff
> Recipes are used in the manufacturing processes of many sectors. In the paper industry, a starch recipe consisting of borax, caustic soda, starch (from maize or potatoes) and hot water is used to glue corrugated board (cardboard) together. This process i
> Once standard costs have been established and used by a business, they should be updated on a regular basis. Actual costs are frequently used as a basis for any updates. SAP, a leading enterprise resource planning (ERP) system, provides tools and data wi
> The internet of things (IoT) refers to an ever-growing network of physical objects which are connected to the internet. This includes household devices and many business and industrial applications. The IoT has given way to a vast array of new products a
> Because of the previous lack of effective control of expenditure by the Han Dan Company, a system of responsibility accounting and standard costing was introduced. The basic principles underlying the responsibility cost control system included: (1). set
> Government crime-fighting targets are a shambles and should be scrapped, claims Chief Superintendent, Ian Johnston. Mr Johnston was speaking ahead of the Police Superintendents’ Association’s annual conference, when he asked the police minister to scrap
> The British government has pledged to spend 0.7 per cent of national aid resulting in £12 billion being allocated to the Department for International Development’s (DfID’s) aid budget despite the fact that the Independent Commission on Aid Impact publish
> The globe is facing an increase in water demand resulting in the need for additional agricultural land and irrigation water. Elyamany and El-Nashar (2013) provided an illustration of a financial appraisal of four alternative methods of water irrigation i
> Although the apex of ZBB’s popularity in the late 1970s is long past, there has been renewed interest in ZBB in today’s environment of fiscal constraint, says Shayne Kavanagh in an article published in Public Finance. He cites a recent Government Finance
> Big data is a term that describes the large volume of raw data, both structured and unstructured, that inundates a business on a daily basis. It includes information such as email messages, social media postings, phone calls, purchase transactions, websi
> Revisions to China’s budget law, passed on 31 August 2014, represent a significant reform, providing a framework for significantly greater transparency and accountability for local government says Fitch Ratings. Fitch expects that these changes will even
> According to Industrial Info Resources, a leading provider of industrial intelligence data, the sustained high prices for oil and natural gas that existed at the time prompted an increasing interest in drilling in locations that were previously not consi
> An article published in The Irish Times by Olive Keogh cites the following comments by Patrick Gibbons, professor of strategic management at the UCD Michael Smurfit Graduate Business School: The one thing we know about most forecasts is that they are wro
> Writing in The Australian Financial Review Jack Mintz states that for investment decisions, taxes matter, and Australia’s company tax rate (30 per cent) is too high in international terms to be competitive for capital. Australia now imposes a higher tax
> For many companies their focus on cost reduction has been limited to the costs of their internal activities. This internal focus has resulted in companies adopting JIT practices and outsourcing in order to reduce costs. The implementing of JIT practices
> Increasingly, householders and small businesses are considering renewable power generation systems to decrease their costs. Most of the UK, Ireland and Scandinavia are suited to generating energy from wind, whereas more central European countries tend to
> The Africa Research Bulletin reported the results of a prefeasibility study by Ironveld plc stating that the grades for pig iron and ferro vanadium were better than expected at its project on the Northern Limb of the Bushveld Complex in South Africa. The
> All businesses have to continually engage in capital investment to improve and maintain processes, equipment and facilities. Governments also invest in infrastructure projects like roads, rail and utilities provision. Whether a private or public organiza
> Public sector organizations increasingly must account for their performance and provide quality services at lower costs. To accomplish this many local authorities and public sector organizations have used ABC systems but many have tried ABC and abandoned
> A 2011 guidance paper commissioned by the Institute of Risk Management gives some useful detail on what risk appetite is and how to manage it – either in a corporate governance sense or to inform how the organization is run. The report notes the term ris
> According to Gillian Lees, a blogger on www.cimaglobal .com, the typical risk assessment model for a management accountant reads like this: identify risks, assess their impact and probability, and develop risk responses. This seems a reasonable approach,
> The CGMA website offers management accountants a collection of tools and resources which are useful to identify, assess and respond to (or manage) various types of risk faced by an organization. For example, it identifies risks in four categories – exten
> The remuneration system that is applied in healthcare organizations in several countries (e.g. Australia, the USA, Switzerland, Spain and Italy) enables ABC profitability analysis to be applied in hospitals. These countries apply the Diagnosis Related Gr
> Raab, Shoemaker and Mayer (2007) developed a workable ABC model for a restaurant operation in the USA that enabled previously undistributed indirect operating expenses to be traced to individual menu items. Menu prices were previously determined on a cos
> Until recently, Xu Ji Electric Co Ltd was a typical state-owned Chinese enterprise manufacturing electrical product such as relays. From an accounting point of view, this implied a manual book-keeping system which was primarily designed to meet external
> In recent years, two global companies have had to deal with some quite large costs as a result of quality control failures. First, take the example of Toyota cars in the USA. In late 2009 and early 2010, Toyota recalled several of its US models, the Camr
> In an article in Strategic Finance, Garry Cokins states that many companies’ managerial accounting systems are not able to report customer profitability information to support analysis for how to rationalize which types of customers to retain, grow or wi
> In the first quarter of the year 2015/2016, City Steel’s total revenues (THB 135.44 million) decreased by 35 per cent compared with the previous year. Adverse economic conditions caused the Group’s products to decrease substantially and made price compet
> Apple Inc. is well known for developing innovative products like the iPhone, iPad and iPod. Such devices are manufactured with complex electronic components and incur substantial design and development costs. The actual cost of manufacture of these produ
> Cloud computing is a term used to describe the delivery of information systems without, for example, the purchase of physical hardware or even software in some instances. What this means for an average business is that they can purchase processing capabi
> Asda is staging a major push south opening 11 new stores in the greater London region over the next few months with plans for a further 150 by 2018. Two of the new stores will be a trial of a new smaller format. These will be Asda’s first ‘High Street’ s
> The economic recession has resulted in original equipment manufacturers (OEMs) seeking to drive down costs by re-examining their manufacturing strategy, with many companies increasing their level of outsourcing, writes Ronnie Darroch, Plexus regional pre
> According to an article authored by Yayla-Küllü et al., multi-product firms account for 91 per cent of the output in US manufacturing and they often make short- to medium-term adjustments in their product-lines. For many of these product-line decisions,
> Most developed economies have well-developed road and highway networks. From time to time new highways are built to relieve congested cities, but by and large most developed countries are not embarking on major road-building projects. Reducing government
> Operating leverage can tell investors a lot about a company’s risk profile, and although high operating leverage can often benefit companies, firms with high operating leverage are also vulnerable to sharp economic and business cycle swings. In good time
> According to the International Air and Transport Association (IATA) conference airlines were expected to make around £3.18 profit from each passenger in 2014. Although carriers were expecting net profits of £11 billion, margins were so thin the air indus
> Every time Apple releases a new device it cannot satisfy immediate demand. This is a result of Apple’s precise JIT manufacturing system. Apple does not wish to take the risk of producing more devices than it will sell, so it adjusts manufacturing to matc
> The break-even price of crude oil includes production costs, exploring or finding costs, oil well development costs, transportation costs, and selling and general administration expenses. A survey published in 2015 showed some interesting insights into t
> The Airbus A380 was the world’s first double decker aircraft. It can accommodate from 555 to 853 passengers depending on the class configuration. Long haul airlines such as Singapore Airlines were early adopters of the aircraft back in 2007. The 2016 lis
> Bubble tea cafés are becoming increasingly popular across Malaysia and in recent years, many new chains have been formed, opening cafés in mainly urban locations. Leading bubble tea firms provide some interesting information on the rapid growth of the p
> In the March 2016 edition of CIMA’s Financial Management journal, Lawrie Homes interviewed Noel Togoe, CIMA’S director of Education. Togoe stated that value measurement has been an area of dramatic change affecting the financial management landscape. The
> Goode, Billings and Prosper plc manufactures two products, Razzle and Dazzle. Unit selling prices and variable costs, and daily fixed costs are: Production of the two products is restricted by limited supplies of three essential inputs: Raz, Ma and Taz
> A company makes two products, X and Y. Product X has a contribution of £124 per unit and product Y £80 per unit. Both products pass through two departments for processing and the times in minutes per unit are: Currently there
> G Limited, manufacturers of superior garden ornaments, is preparing its production budget for the coming period. The company makes four types of ornament, the data for which are as follows: Fixed overhead amounts to £15 000 per period. Ea
> The Ruddle Co. Ltd had planned to install and, with effect from next April, commence operating sophisticated machinery for the production of a new product – product Zed. However, the supplier of the machinery has just announced that del
> Warren Ltd is to produce a new product in a short-term venture which will utilize some obsolete materials and expected spare capacity. The new product will be advertised in quarter I with production and sales taking place in quarter II. No further produc
> Z Ltd is considering various product pricing and material purchasing options with regard to a new product it has in development. Estimates of demand and costs are as follows: Each unit requires 3kg of material and because of storage problems any unused
> Crabbe, the owner of the Ocean Hotel, is concerned about the hotel’s finances and has asked your advice. Crabbe gives you the following information: ‘We have rooms for 80 guests. When the hotel is open, whatever the le
> The term TetraPak® is one which is familiar to most consumers – it is the name you will see on the card cartons in which milk, juice and other liquid products are frequently packaged. The Tetra group offers a broader range of food processing solutions be
> A ticket agent has an arrangement with a concert hall that holds pop concerts on 60 nights a year whereby he receives discounts as follows per concert: For purchase of: ……………………………………………. He receives a discount of: 200 tickets ………………………………………………………………………
> The accountant of Laburnum Ltd is preparing documents for a forthcoming meeting of the budget committee. Currently, variable cost is 40 per cent of selling price and total fixed costs are £40 000 per year. The company uses an historical cost
> Seeprint Limited is negotiating an initial one-year contract with an important customer for the supply of a specialized printed colour catalogue at a fixed contract price of £16 per catalogue. Seeprint’s normal capacity for
> A company sells and services photocopying machines. Its sales department sells the machines and consumables, including ink and paper, and its service department provides an after-sales service to its customers. The after-sales service includes planned ma
> Excel Ltd make and sell two products, VG4U and VG2. Both products are manufactured through two consecutive processes – making and packing. Raw material is input at the commencement of the making process. The following estimated informat
> ABC plc, a group operating retail stores, is compiling its budget statements for the next year. In this exercise, revenues and costs at each store A, B and C are predicted. Additionally, all central costs of warehousing and a head office are allocated ac
> Duo plc produces two products, A and B. Each has two components specified as sequentially numbered parts, i.e. product A (parts 1 and 2) and product B (parts 3 and 4). Two production departments (machinery and fitting) are supported by five service activ
> Trimake Limited makes three main products, using broadly the same production methods and equipment for each. A conventional product costing system is used at present, although an activity-based costing (ABC) system is being considered. Details of the thr
> A product is manufactured by passing through three processes: A, B and C. In process C a by-product is also produced which is then transferred to process D where it is completed. For the first week in October, actual data included: Budgeted production
> It has been stated that companies do not have profitable products, only profitable customers. Many companies have placed emphasis on the concept of customer account profitability (CAP) analysis in order to increase their earnings and returns to sharehold
> Finnish paper company M-real produced paper and packaging products, the demand for which is highly influenced by the demand for end consumer products. Global demand decreased due to the global economic recession and during this same time energy and fuel
> The traditional methods of cost allocation, cost apportionment and absorption into products are being challenged by some writers who claim that much information given to management is misleading when these methods of dealing with fixed overheads are used
> Nuts plc produces alpha and beta in two stages. The separation process produces crude alpha and beta from a raw material costing £170 per tonne. The cost of the separation process is £100 per tonne of raw material. Each tonne of
> AB plc makes two products, Alpha and Beta. The company made a £500 000 profit last year and proposes an identical plan for the coming year. The relevant data for last year are summarized in Table 1. Table 1: Actuals for last year Fixed cos
> French Ltd is about to commence operations utilizing a simple production process to produce two products X and Y. It is the policy of French to operate the new factory at its maximum output in the first year of operations. Cost and production details est
> Sniwe plc intend to launch a commemorative product on 1 August 2017 for a sports event commencing in 2019. The product will have variable costs of £16 per unit. Production capacity available for the product is sufficient for 2000 units per annum. Sniwe p
> Josun plc manufactures cereal-based foods, including various breakfast cereals under private brand labels. In March the company had been approached by Cohin plc, a large national supermarket chain, to tender for the manufacture and supply of a crunchy-st
> A producer of high-quality executive motor cars has developed a new model that it knows to be very advanced both technically and in style by comparison with the competition in its market segment. The company’s reputation for high quality is well establi
> A company supplying capital equipment to the engineering industry is part of a large group of diverse companies. It determines its tender prices by adding a standard profit margin as a percentage of its prime cost. Although it is working at full capacity
> Johnson trades as a chandler at the Savoy Marina. His profit in this business during the year to 30 June was £12 000. Johnson also undertakes occasional contracts to build pleasure cruisers, and is considering the price at which to bid for t
> A South American farmer has 960 hectares of land on which he grows squash, kale, lettuce and beans. Of the total, 680 hectares are suitable for all four vegetables, but the remaining 280 hectares are suitable only for kale and lettuce. Labour for all kin
> According to a recent survey undertaken by CIMA, variable (or marginal) costing is used by almost 40 per cent of firms. Management accountants from a wide range of sectors, including manufacturing and service firms, were queried on how they use tradition
> B Ltd manufactures a range of products which are sold to a limited number of wholesale outlets. Four of these products are manufactured in a particular department on common equipment. No other facilities are available for the manufacture of these product
> PQR Limited is an engineering company engaged in the manufacture of components and finished products. The company is highly mechanized and each of the components and finished products requires the use of one or more types of machine in its machining depa
> PDR plc manufactures four products using the same machinery. The following details relate to its products: There is a maximum of 2000 machine hours available per week. Requirement: (a). Determine the production plan which will maximize the weekly pr
> A company is currently manufacturing at only 60 per cent of full practical capacity, in each of its two production departments, due to a reduction in market share. The company is seeking to launch a new product which, it is hoped, will recover some lost
> (a). ‘While the ascertainment of product costs could be said to be one of the objectives of cost accounting, where joint products are produced and joint costs incurred, the total cost computed for the product may depend on the method se
> JB Limited is a small specialist manufacturer of electronic components and much of its output is used by the makers of aircraft for both civil and military purposes. One of the few aircraft manufacturers has offered a contract to JB Limited for the suppl
> Shown below is a typical cost–volume– profit chart: Required: (a). Explain to a colleague who is not an accountant the reasons for the change in result on this cost–volume–profit
> York plc was formed three years ago by a group of research scientists to market a new medicine that they had developed. The technology involved in the medicine’s manufacture is both complex and expensive. Because of this, the company is
> Video Technology Plc was established in 1987 to assemble video cassette recorders (VCRs). There is now increased competition in its markets and the company expects to find it difficult to make an acceptable profit next year. You have been appointed as an
> (a). ‘The analysis of total cost into its behavioural elements is essential for effective cost and management accounting.’ Required: Comment on the statement above, illustrating your answer with examples of cost behaviour patterns. (b). The total costs i
> Each year, the paper and pulp industry produce millions of tonnes of sludge in the production of paper. This sludge is typically disposed of in landfill sites or incinerated. Both disposal methods are costly and environmentally undesirable. However, some
> (a). Identify and discuss briefly five assumptions underlying cost–volume–profit analysis. (b). A local authority, whose area includes a holiday resort situated on the east coast, operates, for 30 weeks each year, a holiday home which is let to visiting
> JK Limited has prepared a budget for the next 12 months when it intends to make and sell four products, details of which are shown below: Budgeted fixed costs are £240 000 per annum and total assets employed are £570 000. You
> A manufacturer of glass bottles has been affected by competition from plastic bottles and is currently operating at between 65 and 70 per cent of maximum capacity. The company at present reports profits on an absorption costing basis but with the high f
> ‘A break-even chart must be interpreted in the light of the limitations of its underlying assumptions …’ (From Cost Accounting: A Managerial Emphasis, by C.T. Horngren.) Required: (a). Discuss the extent to which the above statement is valid and both d
> The graphs shown below show cost– volume–profit relationships as they are typically represented in (i) management accounting and (ii) economic theory. In each graph, T = total revenue, TC = total cost, and P = profit.
> A local government authority owns and operates a leisure centre with numerous sporting facilities, residential accommodation, a cafeteria and a sports shop. The summer season lasts for 20 weeks including a peak period of six weeks corresponding to the sc
> A company has two products with the following unit costs for a period: Production and sales of the two products for the period were: Production was at normal levels. Unit costs in opening stock were the same as those for the period listed above. Req
> A chemical company produces among its product range two industrial cleaning fluids, A and B. These products are manufactured jointly. Total sales are expected to be restricted because home trade outlets for fluid B are limited to 54 000 gallons for the y
> A chemical company has a contract to supply annually 3600 tonnes of product A at £24 a tonne and 4000 tonnes of product B at £14.50 a tonne. The basic components for these products are obtained from a joint initial distillation
