University of the South Pacific

Faculty of Business and Economics

School of Accounting and Finance
AF201 - Managerial Accounting

Group Assignment
Weighting: The total mark for this assignment is 60 and is worth 6% of your total
assessment.

Due date: Sunday 5th May at 11:55pm. ALL ASSIGNMENTS HANDED IN AFTER THIS
TIME WILL BE REGARDED AS LATE ASSIGNMENTS.

Introduction This assignment will assess your critical thinking, creativity and written
communication. As a future management accountant it is essential to
think critically, creatively and communicate effectively to avoid losing
any valuable opportunities to create value for shareholders and
customers.

Furthermore, this assignment addresses learning outcomes (1) and (2)

of the course as depicted on the course outline.

Instructions:

1. Your assignment MUST be word processed. Hand written assignment

will NOT be accepted.
2. This is a Group assignment. Each group must consist of 4 members.
Once the group is formed, the group leader must email me the
details of the group members.
3. The assignment must be submitted online in the appropriate drop
box. ONLY the group leader will upload the assignment after all the
group members agreed to the final manuscript.
4. Chapter Reference: Chapters 12, 13 & 14 of the textbook
5. Ensure that the names and ID Numbers of all group members are
stated clearly on the cover page.
6. All references used must be properly referenced using the APA style.
7. A penalty of 10% will be deducted each day or part thereof that
the assignment is late.
8. Plagiarized assignment will be awarded a Zero (0) mark.
9. The assignment will be marked according to the attached rubric –
see Appendix 1. DO NOT attach the rubric to your assignment when
uploading it for marking.

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Case Study

Harwood Medical Instruments PLC

Harwood Medical Instruments PLC (HMI), based just outside of Birmingham, England,
manufactured specialty medical instruments and sold them in market niches that were
becoming increasingly competitive and price sensitive because of pressures to reduce
health care costs. HMI was organized into nine decisions each run by a general
manager. Over the years, HMI had grown both organically and by acquisition. Six of the
divisions had been acquired by HMI within the past decade.

All of HMI’s divisions sold medical products to hospitals, laboratories, and/or

doctors, so the need for product quality and reliability was high. The divisions varied
significantly, however, in terms of the degree to which their success depended on, for
example, development of new products, efficiency of production, and/or customer
service.

Bonuses for division general managers were paid semi-annually. Up to the year
2009, these bonuses were calculated as 1% of division operating profits.

HMI’s managing director, Andy Guthrie, had concerns though that the operating
profit measure was too narrowly focused. He had been reading articles about
performance measurement and decided to a “more balanced” scorecard. In
November 2009, just before introducing a new bonus plan, Mr. Guthrie explained to his
chief financial officer that he was willing to pay out higher bonuses than had been paid
historically if improved performance warranted doing so.

The new plan provided a base bonus for division general managers of 1% of
division operating profits for the half-year period. This base bonus was adjusted as
follows:

 Increased by £5,000 if over 99% of deliveries were on time; by £2,000 if 95-99% of

deliveries were on time; or by zero is less than 95% of deliveries were on time.

 Increased by £5,000 if sales returns were less than or equal to1% of sales, or
decreased by 50% of the excess of sales returns over 1% of sales.

 Increased by £1,000 for every patent application filed with the UK Intellectual
Property Office.

 Reduced by the excess of scrap and rework costs over 1% of operating profit.

 Reduced by £5,000 if average customer satisfaction ratings were below 90%.

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 If the bonus calculation resulted in a negative amount for a particular period, the
manager received no bonus. Negative amounts were not carried forward to the next
period.

Exhibit 1 shows results for two representative HMI divisions for the year 2010, the
first year under the new bonus plan. The Surgical Instruments Division (SID), one of HMI’s
original businesses, sold a variety of surgical instruments, including scissors, scapels,
retractors, and clamps. The markets for these products were mature, so growth was
relatively slow. Not much innovation was needed, but controlling costs was critical. The
Ultrasound Diagnostic Equipment Division (Ultrasound), which was acquired in 2007, sold
and serviced ultrasound probes, transducers, and diagnostic imaging systems. The
ultrasound market promised excellent growth and profits if the division could keep its
sophisticated products on the cutting edge technologically and control both product
development and product costs effectively.

In 2009, the total annual bonuses for the year earned by the managers of SID
and Ultrasound were approximately £85,000 and £74,000, respectively.

Exhibit 1 Harwood Medical Instruments PLC

Operating results for the surgical Instruments and Ultrasound Diagnostic Equipment Divisions, 2010 (£ in 000s)
Surgical Instruments Division Ultrasound Diagnostic Equipment Division

1st half of 2010 2nd half of 2010 1st half of 2010 2nd half of 2010
Sales £42,000 £44,000 £28,600 £29,000
Operating profit £4,620 £4,400 £3,420 £4,060
On-time deliveries 95.4% 97.3% 98.2% 94.6%
Sales returns £450 £420 £291 £289
Patent applications filed 0 1 4 8
Scrap and rework costs £51.1 £45.0 £39.7 £28.2
Customer satisfaction (average) 78% 89% 81% 91%

Assignment Questions

1. What was the purpose of the change?

2. Calculate the bonus earned by each manager for each 6-month period and for the
year 2010.

3. Evaluate the new plan. Is there any evidence that it produced the desired effects?
What changes to the new plan would you suggest, if any?

4. Analyze the recommendation for a “more balanced” scorecard in performance

measurement. What system would you recommend and what are its potential benefits
and challenges in measuring performance?

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Marking Rubric

Element of Marking Highly Satisfactory Pass Satisfactory Pass Below

Complete, accurate, Complete but not fully Standard/Unsatisfactory
comprehensive and accurate, comprehensive Incomplete or inaccurate
insightful/innovative or insightful

A+ A B+ B C+ C D E
85-100% 78-84% 71-77% 64-70% 57-63% 50-56% 40-49% <40%
Proposed Change Detailed analysis of the proposed The proposed change was The analysis does not relate to the
change, clearly depicting the analyzed but without specific issue depicted in the case study.
(10 marks) shortcomings of the current reward details.
system.

Bonus Calculation The bonus calculation was correct for
(20 marks) each division with detailed workings.
New Plan Evaluation Detailed analysis of the new plan was
(20 marks) provided as well as suggestions for
improvement to the new plan. The
suggestions clearly address the
problem that the firm is facing with its
reward system.
Recommendation A more balanced performance
(10 marks) measurement system was
recommended with clear outline of its
benefits and challenges in measuring
performance.
Some parts of the calculation
was correct and only part of
the workings were provided
Some evaluation of the new
plan was carried out but there
is lack of connectivity to the
issue the firm is facing with its
reward system
A more balanced performance
measurement system was
recommended but lacks
outlining the benefits and
challenges in measuring
performance.
Most of the calculation was
incorrect and there was no workings
provided.
Poor evaluations were carried out
and there was lack of analysis how
the new plan addresses the current
situation with the reward system.
Did not recommend a balanced
performance measurement tool
and also did not outline the
benefits and challenges in
measuring performance.

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