Business Case study
read the case study and answer following question: Why has Wolfgang Keller been so successful in the past and what steps should he take to optimize his career in the future? Please consider any challenges Keller may face as he is promoted to more senior management and leadership positions and provide recommendations for how he can best respond to these challenges.
Use the case study as your only source.
Masters in Management BMAN 73071 Introduction to Accounting
Second Assessment – Management Accounting
Please attempt all Three questions.
Alfa Manufacturing makes parts for the automobile industry. The company
currently uses traditional allocation of fixed overhead cost based on budgeted
direct labour hours. For next year 20,000 direct labour hours are budgeted.
The plant manager has heard of a new way of overhead costs allocation that
uses cost pools and cost drivers. Having investigated this new system further,
the plant manager together with a management accountant identified three
main activities and the cost drivers for each activity. They assigned the fixed
overhead cost to each activity and identified expected level of each cost driver
Cost of Activity
Number of setups
Number of quality inspections
A new customer approached Alfa Manufacturing and asked to submit a bid for
a proposed job. The plant manager feels that obtaining this job is a special
opportunity that would result in new business in future years.
Estimates for the proposed job are as follows:
The job requires 3,000 kg of material K which is used regularly by the
company in its production. The company has 2,000 kg of material K currently
in stock which was purchased last month for a total cost of £1,960. Since then
the price per kilogram for material K has increased by 10%.
The job also requires 4,000 kg of material L. There are 4,500 kg of material L
in stock which are not required for normal production. This material originally
cost a total of £3,150. If not used for the job, the stock of material L would be
sold for £0.50 per Kg.
100 semi-skilled labour hours are required for this job. These hours will be
worked by existing employees who currently have sufficient spare capacity to
complete the proposed job. They are permanently employed by the business
on a salary equivalent to £20 per hour.
For the purpose of this job, the business will have to employ a highly skilled
worker who will be contracted for 50 hours and paid £40 per hour.
Fixed manufacturing overheads:
The management accountant estimates that the total amount of fixed
overheads will not change if Alfa Manufacturing decides to undertake this
special job. However this job will consume the following level of three main
Number of machine hours
Number of setups
Number of quality inspections
a) Calculate the full cost of the proposed job using the traditional
overhead cost allocation, considering budgeted direct labour hours
as the basis of cost allocation.
b) Calculate the full cost for the proposed job using Activity-based
c) Prepare a memo for the management comparing and outlining the
main features of the traditional full (absorption) costing and activitybased costing, and explaining which one produces the more accurate
d) Show with supporting explanations the minimum price Alfa
Manufacturing can offer to the new customer for the special job such
that it would be neither better nor worse off as a result of undertaking it.
(e) Explain which of the two methods (full absorption method versus
relevant costing method) you would recommend Alfa Manufacturing
adopts in costing this special Job.
Total 25 Marks
Mark plc makes 3 products, K, L, and M. Estimates for the next year
include the following:
Selling price (per unit)
Materials cost (per unit)
Other variable costs (per
Allocated fixed costs
Sales demand (in units)
To manufacture these products, the business uses a special machine
which has a limited capacity of 5000 hours per year. Products K, L, and M
require 2, 3 and 2 machine hours respectively for the production of one
(a) State, with supporting workings, which products and in which
quantities the business should plan to produce next year in order to
maximise its profits.
(b) CVP is both simple and simplistic. If you want realistic analysis to
underpin your decisions, look beyond CVP. Do you agree? Explain
Total 15 Marks
A large textile business is considering a capital investment in a new
piece of equipment in its Eastern European division to diversify its
product range and increase its market share.
It is said that when a business is evaluating a capital investment only
relevant costs and benefits are to be considered. Give two examples of
relevant and two examples of irrelevant costs or benefits in the
context of capital investment appraisal, and explain why you
consider them to be so. Discuss three non-financial factors that the
large textile business should consider when making capital investment
Total 10 marks