SOLVED: Strategic Management Accounting
Phase Test – April 2020
MAIN
| FACULTY: | Sheffield Business School |
| DEPARTMENT: | Finance, Accounting and Business Systems |
| MODULE TITLE: | Strategic Management Accounting for Performance Enhancement
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| MODULE LEADER: | Dr Gayathri Gunatilake |
| TIME ALLOWED: | 1 hour (plus 10 minutes reading time) |
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EXAM REGULATIONS:
- The normal examination regulations of the University are applied to this Phase Test.
- The University Regulations on academic conduct, including cheating and plagiarism, apply to all examinations.
INSTRUCTIONS TO CANDIDATES:
- Please do NOT start writing until told to do so by the Invigilator.
- Candidates must NOT use red ink on the script answer book.
- Candidates are allowed to use their own standard scientific calculators.
- This paper contains ONE compulsory question carrying 30 marks.
- This is a CLOSED BOOK NO material may be taken into the exam.
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STATIONERY REQUIREMENTS PER CANDIDATE:
- 1 x 16 Page Answer Booklet
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Question 1
The IT and systems support function within the UK Banking Group (UKBG) is carried out by the IT Department. The costs of providing services by the IT Department are recharged to the divisions it serves within UKBG on the basis of staff numbers. UKBG is structured into 3 large divisions – South, Midland and North.
In a few occasions, the Head of the South Division complained to the Finance Director that the head-count method of recharging the IT Department’s costs is unfair and does not reflect the individual divisions’ usage of the expensive IT support. The method does not encourage divisions to save resources. Consequently, UKBG’s senior management team decided to employ a consultancy firm to investigate the IT Department’s activities and costs and how different divisions use the IT support. The senior management hopes that the findings will help them to improve their management approach and the efficiency of the whole operations.
The consultants’ analysis of activities revealed the following breakdown of the IT Department’s 2019 annual budget of £10,325,000.
| Activity | IT and systems support costs |
| Design of divisional software | 860,000 |
| IT training for staff | 2,928,000 |
| Maintenance of computers | 1,178,000 |
| Maintenance of divisional software | 1,785,000 |
| Maintenance of IT security systems | 2,626,000 |
| Maintenance of tablets and smart phones | 507,000 |
| Telephone IT support | 441000 |
| Total: | 10,325,000 |
The consultants have also identified the three Divisions’ usage of the services provided by the IT Department throughout 2019 in relation to the above budget.
| Division | South | Midland | North |
| Number of Staff
| 1,200 | 700 | 600 |
| Average number of IT telephone queries made per staff member | 3 | 9 | 8 |
| Divisional software maintenance hours
| 300 | 1,700 | 1,500 |
| Number of computers
| 1,500 | 1,300 | 1,000 |
| Number of divisional software
| 30 | 95 | 75 |
| Number of tablets and smart phones
| 1,300 | 1,500 | 1,100 |
| Number of IT training hours run
| 1,600 | 1,400 | 1,800 |
| IT security systems maintenance hours
| 600 | 1,000 | 1,000 |
Required:
- Calculate the amount of IT Department’s costs that would be recharged to each of the three Divisions by using:
- (i) the current method of re-charging based on staff number;
(2 marks)
- (ii) an activity-based costing approach.
(15 marks)
You must clearly show all relevant workings, otherwise marks will be lost.
- critically evaluate the South Divisional Head’s comments on the current method of recharging costs of the IT Department based on staff member and the benefits to the Group of adopting an activity-based costing approach in managing and recharging the costs of the IT Department. You should use examples from your answers to (a) above to support your evaluation.
(6 marks)
(c) Evaluate how the concepts and system of benchmarking can help UKBG improve their competitiveness.
