ACC5213 Management Accounting with a Strategic Perspective
Assignment (weighting 30%)
S2 2017 Due date: 2 October 2017
This Assignment is designed to give you an opportunity to:
1. integrate traditional, contemporary and advanced theoretical and technical management accounting knowledge for planning, control and evaluation, as well as decisions making;
2.critically apply traditional, contemporary and advanced theoretical and technical accounting knowledge and skills to solve emerging and/or advanced management accounting problems that require planning, control and evaluation, as well as decisions making from a strategic perspective; and
3.demonstrate information literacy and numeracy skills required by accountants to access relevant data from research and business literature sources and use contemporary and advanced analytical techniques.
You are a management accountant working at Helpful Legal, a law firm specialising in personal injury claims, with offices around Australia. Each of the offices has submitted its budget for 2018.
In completing their budgets, the offices were given the following guidance from head office:
• Inflation is expected to be 3% for 2018.
• Salaries and wages will increase by the rate of inflation.
• The personal injury claims market has been growing in recent years, with clients becoming more willing to take legal action. However, changes in legislation will mean fewer injured parties will be able to seek compensation through the legal system. Therefore, attracting potentially successful claimants via advertising campaigns is considered key to Helpful Legal’s financial performance. Offices have been told to ensure that their budgets reflect this.
• The majority of work undertaken is charged on an hourly basis. There is a small proportion of work undertaken on a success fee basis (i.e. Helpful Legal is only paid if it wins the case). The mix of work is not expected to change.
• The interest rate on borrowings is variable, but is budgeted at 6.5% per annum.
You have compiled the individual office submissions to produce the following consolidated budget for Helpful Legal, including key operational metrics:
Consolidated Budget for 2018
2017 2018 2018 vs 2017
Forecast $’000 Budget $’000 Variance
$’000 Variance %
Fee Revenue 106,906 146,348 39,442 36.89
Salaries and employee benefits expense (55,056) (72,566) (17,510) (31.80)
Rental Expenses (5,884) (7,048) (1,164) (19.78)
Advertising and promotion expenses (6,173) (11,888) (5,715) (92.58)
Administration expense (9,647) (12,509) (2,862) (29.67)
Interest expense (3,424) (3,827) (403) (11.77)
Bad debt expense (4,086) (2,256) 1,830 44.79
Depreciation (1,842) (2,287) (445) (24.16)
Other expenses (2,879) (3,902) (1,023) (35.53)
Net profit before tax 17,915 30,065 12,150 67.82
Net profit percentage 16.76% 20.54%
Average number of employees- full-time equivalents (FTE) 378 484
Part A: 22 marks
“A flexible budget is one that is allowed to adjust based on a change in the assumptions used to create the budget during management's planning process. A static budget, on the other hand, remains the same even if there are significant changes from the assumptions made during planning.”
(a) Briefly describe the purpose of Helpful Legal using a flexible budget approach to its budgeting. (11 marks)
(b) Briefly describe the advantages to Helpful Legal of using a flexible budget approach to its budgeting as opposed to using a static budgeting approach. (11 marks)
(300 works; include citations and referencing) 22 marks
Part B (30 marks)
Analyse Helpful Legal’s budgeted performance for 2018 compared to the forecast for 2017 by outlining five (5) key observations. Your analysis should consider Helpful Legal’s operational plans for 2018 and the key drivers of its financial performance.
Part C (8 marks)
Excluding inaccurately budgeting for the underlying assumptions:
) (a) Identify two (2) key financial risks that Helpful Legal faces. (4 marks)
) (b) For each risk identified in (a) above, explain why it is a risk for Helpful (4 marks) Legal.
Part D (40 marks)
It is now July 2017. Helpful Legal’s Brisbane office has had an interesting year. The market for its most basic services has been buoyant, but there has been a slowdown in the more complex work. Competition from newly established law firms has seen demand for junior legal staff increase and Helpful Legal’s Brisbane office has had to offer above-average salary increases in order to retain its high performers.
Helpful Legal’s Brisbane office’s results for the year were as follows:
Helpful Legal – Brisbane Office
Results for the year ended 30 June 2017
Notes Budget Actual Flexible Budget
Annual working hours per employee 220 available days per year at 7.5 hours per day 1,650 1,650 1,650
Average staff numbers for the year (FTE) 148 152 148
Utilisation rate Based on working hours 75.00% 80.00% 82.16%
Total billed hours 183,150 200,640 200,640
Total unbilled hours Annual working hours lesss billed hours 61,050 50,160 43,560
Total working hours 244,200 250,800 244,200
Average hourly billing rate $160 $157 $160
Average annual salary package $132,000 $138,000 $132,000
Revenue $29,304,000 $31,500,480 $32,102,400
Less: Cost of Sales
Direct labour recoveries Cost based on 220 available days per year $14,652,000 $16,780,800 $16,051,200
Labour not recovered Direct labour not charged $4,884,000 $4,195,200 $3,484,800
Employee entitlements Labour based $1,758,240 $1,780,000 $1,758240
Total cost of sales $21,294,240 $22,756,000 $21,294,240
Gross Margin $8,009,760 $8,774,480 $10,808,160
Gross Margin percentage 27.33% 27.76% 33.67%
Fixed overheads $550,000 $530,000 $550,000
Net Profit $7,459,760 $8,214,480 $10,258,160
Net Profit percentage 25.46% 26.08% 31.59%
• The budget has been flexed around the billing basis and does not allow for any change in staff numbers
• Aside from employee-related costs, all other costs are treated as fixed costs of the business The Brisbane office managing partner is delighted with the results; however, Helpful Legal’s finance director believes that the results should have been significantly better Required:
In order to explain the actual results versus budget for the year to the Brisbane office managing partner and the finance director:
) (a) Calculate five (5) key variances that are relevant to understanding the (21 marks) Brisbane office’s results for the year. Show all workings.
) (b) Based on your analysis in (a) above, outline three (3) key reasons for the (9 marks) Brisbane office’s performance in 2017 compared to budget.
(Adapted from CA Program, Management Accounting and Applied Finance 2014)
1. Where relevant, be as concise and efficient in your writing for as possible. You may be able to answer sufficiently in a lot less than for example 300 words for Part A. Questions involving numbers and calculations should show your workings. The format of how you present your answer to these questions will mainly determine your pages required. Please try to present this in a neat and easy to follow format.
2. Place references for all questions at the end of the assignment not at the end of each question.
3. You may use dot points or tables to help present your answer if you wish.
4. Assignment extensions will be granted if needed due to medical or personal reasons only. Generally extensions will be granted for one week. If an extension of more than two weeks is required then a different assignment will be given. This is because I cannot release marked assignments until all assignments have been received. It is unfair on other students to delay the return of their marked assignments unduly.
5. You should note that the assignment is based on Module 8.
6. Assignments can be submitted through Assignment Submission link which located on Course Home Page. File types allowed include doc and docx only. Only one file will be accepted. If more than one file is uploaded, only first file listed will be marked.