Maximum Time Allowed for the Full Case Study: 3 hours

Welcome,

This examination is structured as follows:

Number of sub- Time for section

Section number % spend on of sub-
tasks (minutes)
tasks

(a) = 22%
1 3 (b) = 38% 45
(c) = 40%

(a) = 50%
2 2 45
(b) = 50%

(a) = 42%
3 3 (b) = 28% 45
(c) = 30%

(a) = 50%
4 2 45
(b) = 50%
The time available for each section is for reading, planning and writing
your answer(s).

This information will be available to you to access during the

examination by clicking the pre-seen button
SECTION 1
You receive an email from Akida Agu, Finance Manager:
From: Akida Agu, Finance Manager
To: FO
Subject: Absorption Costing, Marginal Costing and Credit limits
As you know, we launched our latest product, PXBAR, in September 2023. This is an
initiative of Ben Morales. PXBAR is a quality product; protein bars made of recognisable
ingredients. They have very straightforward packaging, and the QR code states that
each bar contains dates, nuts, egg whites, and flavours. This makes the product
transparent, as customers prefer to buy products which have clear details of the
ingredients. Each bar contains 12 grams of protein, and they are becoming popular.
Ben was very keen to know our costing methods for the new product. I sent him a copy
of our product performance report for the two weeks ending 23rd September 2023 and
30th September 2023. Refer to Table 1. The table states profits for two weeks, firstly
using the absorption costing method which we currently use and another set of figures
showing marginal costing profits. He was very confused by the two statements. In the
first week, absorption costing profits were higher, and in the second week marginal
costing figure was slightly higher. He asked me why we could not use the marginal
costing method for all our products.
Explain the difference between the profit statements and the reasons for the
differences. Also, please explain the benefits to our business of using the absorption
costing approach.
(Subtask (a)=40%)
With the launch of the new product, PXBAR, Penny Sanchez, Sales & Marketing
Director, has proposed that the retail outlets be expanded, especially in city areas. 60%
of 2024 sales is expected to be achieved through retail outlets. After preliminary
evaluations, Penny Sanchez has decided to appoint two leading supermarket chains to
boost our sales through retail outlets. SPAR supermarket and GLOW supermarket
chains are to be appointed as retailers. Both supermarkets are mostly based in city
areas of Ceeland. We need to set credit limits for both of these customers.
In your briefing paper, provide an explanation of factors to be considered in setting
credit limits for SPAR and GLOW using the information in Table 2.
(Subtask (b)=38%)
Gemma Fields, Head of Website Sales, is targeting to sell C$ 9,744,000 through the
website in 2024. We have not evaluated our website performance in a formal way thus
far. With almost 45% of budgeted revenue coming from website sales, SMT decided to
have more formal key performance indicators (KPI), which can be used to assess the
success of the website in generating sales.
Please include in your briefing paper suggestions for two KPIs that are appropriate to
monitor the performance of the website. Please explain how each KPI would be
measured and why it would be appropriate.
(Subtask (c) = 22%)
Write email to Akida below:
To: Akida Agu, Finance Manager
From: Finance Officer
Subject: Absorption Costing, Marginal Costing and Credit limits
SECTION 2
You receive an email from Akida Agu, Finance Manager:

From: Akida Agu, Finance Manager

To: FO

Subject: Time Series and ZBB Budgets

After years of research Guy Chou, Head of Protein powder production,

is proposing that SMT produce Casein protein powder. Casein forms a
gel when it interacts with stomach acid, slowing down stomach
emptying and delaying the bloodstream’s absorption of amino acids.
This will result in a gradual, steadier exposure of muscles to amino
acids, reducing the rate of muscle protein breakdown.

Research indicates that casein may be slightly more effective at

increasing MPS and strength than soy and wheat protein — but less
than whey protein. It may also be a better protein supplement choice
when taken before bed.

SMT will meet soon to discuss whether to launch Casein protein

powder. To get an idea of the size of the market I gathered some
information on our protein powder sales from our data base. Using the
information, I have prepared a time series analysis (refer table 1).

 Please prepare a briefing paper for the SMT which explains what
the time series information given in table 1 means and how we
can use it to determine future sales. Also, what are the
limitations of this approach to forecasting income?

(subtask (a) = 50%)

Another matter that will be discussed at the SMT will be the proposed
launch of a new protein biscuit range in April 2024. Ben reported that
employee morale is low in the production facility. He believes unless
we motivate our staff, it will not be possible to launch the biscuit
range as planned. With the staff cadre at 159, Ben proposed that PB
set up an HR department to address employee issues. In the interim,
he proposes to set up an on-site café to provide refreshments to all
employees at subsidised rates. This on-site café could be either
inhouse operated or outsourced. I discussed this matter with Julia
Mathews, Finance Director and she suggested that a zero-based
budgeting (ZBB) approach be used to create a budget for this activity.

 Please prepare a briefing paper on how a ZBB approach can be

applied to create a budget for the proposed new on-site café.
Also, discuss two benefits and two challenges that we might
face when using a ZBB approach to create this budget.

(Subtask(b)=50%)

Write the briefing paper to Akida below:

To: Akida Agu, Finance Manager

From: Finance Officer
Subject: Time Series and ZBB Budgets
SECTION 3

You receive an email from Akida Agu, Finance Manager:

From: Akida Agu, Finance Manager

To: FO

Subject: Variance analysis and tax implications

As you know, we are currently selling our products through a range of

dealers and through our website. Since Penny Sanchez, Sales and
Marketing Director, assumed full-time work for PB, she has
successfully launched many social media programmes to increase
sales. The board is focused on sustainability issues and has made a
name for itself as a producer selling sustainable products in an ethical
manner. During the first quarter of the current financial year, she set
up two sales teams. One team focuses on Gyms, and the other team
focuses on Petrol Sheds. The Board has asked for a report on the
performance of both teams for the quarter that ended 30th September
2023.

As part of this, I have attached extracts from a variance report for the
two teams for the quarter July 2023 to September 2023, and would like
you to prepare notes explaining what the variances tell us about the
sales performance and giving possible reasons why the variances
occurred.

Subtask(a)= 42%

Julia Mathews asked me about the potential benefits of separating

sales variances into planning and operational variances. Can you
briefly explain this to me?

Subtask(b)=28%

After many deliberations, the board decided to invest in new

machinery for the peanut department, and the cost details of the
machine are given in Table 2 under Reference material. The machine
will be purchased in the 1st week of April 2024. PB depreciates
machines on a time apportioned basis at 20% per annum. The machine
will attract 100% first-year tax depreciation allowance.

How will the purchase of the new machine impact the calculation of
our tax payable for the year ending 30th June 2024 and in future
years?

(Subtask (c))= 30%)

Write the briefing paper for Akida below:

To: Akida Agu, Finance Manager

From: Finance Officer
Subject: Variance analysis and tax implications
SECTION 4

You receive an email from Akida Agu, Finance Manager:

From: Akida Agu, Finance Manager

To: FO

Subject: Flexible budgeting and events after reporting date

After going through the variances of two sales team performances,

SMT was concerned as to how we could be better equipped to identify,
understand, and manage them.

I put forward a suggestion that we move towards using a flexible

budgeting approach and have subsequently been asked to put together
some more information as to why this would be a good option.

In the briefing note, could you also provide an outline of flexible

budgeting and the benefits to PB of using it? Also, explain how a
flexible budget can be prepared for PB.

[Subtask (a) = 50%]

Another matter that was discussed was the fire that took place in our
warehouse on 31st August 2023. It is now 12 October 2023, and PB is
still recovering from the effects of a fire that occurred six weeks ago.

We have just finished assessing the damages caused by the fire and
we have lost a sizeable amount of inventory. Hema Bhatt would like to
know any impacts of the fire that will affect the financial statements
and on profits already stated in the financial statements for the year
ended 30th June 2023.

I have gathered information on the costs relating to the reconstruction

and refurbishment of the warehouse. I have attached the information
for you, and I need you to use it to:

Provide an explanation whether the fire damage that took place after
30 June 2023 will have an impact on our financial statements already
prepared for the year ended 30th June 2023.

Explain the treatment of the expenses incurred in reconstructing and

refurbishing the warehouse in our financial statements for the next
year -30th June 2024.

Subtask (b)= 50%

Please draft the briefing note for your manager below:

To Akida Agu, Finance Manager

From: Finance Officer
Subject: Flexible budgeting and events after reporting date