Accounting for Managers: Interpreting accounting information for decision-making

SOLUTIONS TO QUESTIONS 439

The information needed to support these strategies isthe expected contribution from each

strategy, drawing from past experience. Questions to be asked include:

žWhat is the cost of TV advertising and what additional sales and margins does

it contribute?

žWhat is the cost of catalogues and direct mailing and what sales and margins does

it contribute?

žWhat is the cost of store openings and what is the impact on capital investment (and

therefore on cash flow) and the effect on running costs (especially salaries and property

costs, including non-cash depreciation)?

The cost effectiveness of operations may improve by investing in warehousing and dis-

tribution facilities and IT systems, but the cost/benefit of this needs to be demonstrated.

Questions include:

žWhat is the current stockholding and delivery lead time and how much is this expected

to improve through new warehousing and systems?

žHow does this saving compare with the additional capital investment?

žWhat is the impact of additional capital investment on operating costs?

This information needs to be modelled to determine whether the strategies will in fact lead

to the desired profit target. The impact on capital investment, cash flow and financing also

have to be determined.

Non-financial issues include whether the existing staff in stores, distribution and head

office will be able to cope with the extra volume of business that is expected while

retaining at least current standards of customer satisfaction, delivery lead time and prod-

uct quality.

Solutions for Chapter 15

15.1

Budget Flex Actual

Units 2,000 1,800 1,800

@£3£3£3. 20

Cost £6, 000 £5, 400 £5, 760

Variance £360 – adverse

15.2
(Standard price−actual price)×quantity purchased
( 3. 10 − 3. 05 )× 5200
=260 favourable
15.3
(a) See Table A2.30.
(b) See Table A2.31.
(c) See Table A2.32.