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ESSEX BUSINESS SCHOOL BE113

BE113 MANAGEMENT ACCOUNTING II

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University of Essex

BE113 MANAGEMENT ACCOUNTING II

Spring 2019

Individual Coursework (25%) / Due date: Monday, 18 March 2019 09:00am via FASER

There are two distinct parts to this assignment: an essay and a case study involving the use of numbers for discussions & recommendations. Please answer both parts and submit the work as a single document (Part A and Part B)

Viking Cricket company (VC) operates a chain of 24 shops specialising in selling items associated with the game of cricket: helmet, batting gloves, leg guards, and batting boots among others. Three years ago, the company was the subject of a venture capital buyout from a larger group. A new senior management team was put in place after the buyout. They have the aim of running the business in order to maximise profits.

The Chief Financial Officer (CFO), along with the other members of senior management, set the annual budget and uses a standard costing approach with a variance analysis in order to control individual shop performance. The head office handles all capital purchases and brand marketing. All inventory purchasing is done centrally and the shop opening times are set as standard across the company. As an illustration of the senior management’s adherence to the priority of controlling costs and maximising profits, the CFO had set the budget for staff costs at £7 per hour for part-time staff and this has been rigorously observed in the period.

Each shop is run by a manager who reports their financial results to the head office. The shop managers recruit and manage the staffing requirements of their shop. In addition, they have some autonomy in setting product prices locally and have been given authority to vary prices by up to ten per cent from a master list produced by the CFO. There is also a local marketing budget agreed each year by the shop manager and the marketing director as part of the annual appraisal process.

The shop managers at VC are paid a basic salary of £27,000 with bonuses of up to 30% of basic salary dependent on two factors: performance above budget and the operational director’s performance assessment. The budget for the next year is prepared by the CFO and presented at the shop manager's annual appraisal.

The shop managers have approached the chairman of VC to complain about the way they are managed and remunerated. They feel that their efforts are not recognised by senior management. One manager at the Spintex shop commented, “I have had a successful year despite difficult economic circumstances. I have run a number of promotions in the shop that have been well received by the customers. However, the budgets that are set are impossible to achieve and as a result I have not been paid any bonus although I feel that I have done everything in my power to bring in good profits”.

VC’s chairman has approached you to ask if you could consider the system of performance assessment for shop managers and provide an independent perspective on the reward systems at VC. The chairman has provided the following illustrative information from the previous year for one of the shops:

Viking Cricket Company

Tesano Shop Budget for the Year to September 2016

Budget Actual Variance

£ £ £

Sales 532000 474200 -57800

Cost of sales 212800 189680 23120

Gross Profit 319200 284520 -34680

Marketing 24000 23000 1000

Staff costs

Manager 54000 54000 0

Part-time staff 76000 68000 8000

Property costs 53200 53200 0

Shop Profit 112000 86320 -25680

Notes:

Property costs include heating, lightening and rental.

The manager of the Tesano shop commented at the appraisal meeting that she felt that the assessment was unfair since her failure to meet the budget was due to general economic conditions. The industry as a whole saw a 12% fall in revenues during the year and the budget for the period has been set to be the same as in the previous period. She was not paid a bonus for the period.

Required:

Part A (Report: maximum 750 words, 50% of the coursework marks)

With reference to the comments by the Tesano shop manager, prepare a report to evaluate the suitability of the branch information given as a means of assessing the shop manager’s performance for this store. In particular, you should provide relevant additional calculations to demonstrate to what extent the current figures are appropriate or not to evaluate the shop manager’s performance.

Part B (Essay: maximum 750 words, 50% of the coursework marks)

Part of the Spintex shop manager’s comments attest to evidence of little to no involvement in VC’s budgetary practices. Critically evaluate the effects of a lack of participatory budgeting in in a company or in an organisation. You should seek to support your discussion with relevant academic literature, and where appropriate, real-life cases or examples.

Some Recommended readings:

Schiff and Lewin (1970) The Impact of People on Budgets, The Accounting Review, Vol. 45, No. 2 (Apr., 1970), pp. 259-268.

Ekholm and Wallin (2000) In the annual budget really dead? The European Accounting Review 2000, 9:4, 519–539

Friis and Hansen (2015) Line-item budgeting and film-production: Exploring some benefits of budget constraints on creativity, Qualitative Research in Accounting & Management, Vol. 12 Iss 4 pp. 321 - 345

Stable URL: http://www.jstor.org/stable/244377

Note: You are required to also search and read other related academic papers, books and relevant web sources as part of doing this coursework.

Indicative Marking scheme for the coursework is as follows:

The coursework will be marked on the following criteria.

Part A

Executive summary (this is a short text that summaries all the key points and

recommendation(s).

Introduction

Purpose

Discussion

Conclusion/Recommendations

[10 marks for data evaluation (correct calculation); 10marks for executive summary, introduction and purpose, 20 marks for discussion; and 6 marks for conclusion and recommendations; and 4 marks for correct citation and referencing]

Part B

[5 marks for introduction; 6marks for each of the effects (3 strengths and 3 weaknesses) critically evaluated; 5 marks for conclusion and 4 marks for correct citation and referencing] Important notes and instructions

1. The report (Part A) and essay (Part B) should not exceed 750 words for each part or 1,500 words in total (excluding title page, references, bibliography and appendices) and must be typed using 12pt font, double spaced. State your word count on the cover sheet.

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