Gateway Assessment
SECTION A
Order 3 2 1
The traditional contribution margin is 70%; when the other overhead costs per customer are
included in the analysis then the order is as above, and the small garden centre shops are the
most profitable customers.
Requirement (b)
When considering the individual profitability of customers and whether to stop trading with one,
then the following issues are important:
The analysis of customer profitability you are using must incorporate productivity improvements.
The decision must be informed by a production and costing system that is as accurate as
possible. A system providing accurate customer profitability is essential.
Requirement (c)
A Just-in-Time system aims to produce or procure components and /or products as required by
the customer or for use rather than placed in stock. It is a ‘pull’ system and responds to demand
and has a product line emphasis. It requires a flexible labour force and excellent information /
communication lines.
Just-in-Time systems should result in a move towards the following ‘ideal’ situation:
• Elimination of non-added value activity whereby both value-adding and non-value added
activities must be investigated and managed accordingly.
• Zero inventory levels, or as near as, is the target to minimise the costs of stock holding
and release cash tied up in stock.
• Zero defects resulting from the efficiency and refinement of the processes.
• Achieve optimal batch sizes of one with minimum set-up activity and costs.
• Zero breakdowns in the process to optimise productivity levels
• A 100% on-time delivery service to ensure the satisfaction of customers.
The disadvantages are:
• It requires a reorganisation and orientation of the system and structure plus training
which is costly in terms of time and money.
• It may require the retraining of staff and involve a learning curve period and reduced
productivity in the short term e.g. store keeping staff relocated and trained elsewhere.
• Redundancies may be an unfortunate outcome.
Requirement (d)
Target costing looks to the market for direction in terms of the selling price for products.
A predetermined selling price is obtained from market analysis and from this is deducted
a target profit, to determine target cost.
Target costing is an activity aimed at reducing the life cycle costs of new products,
whilst upholding quality, reliability, and other consumer requirements.
It looks for all possible ways to reduce costs at the product planning, research and development
and prototyping phases of production. It does not just aim to minimise cost but is part of a
strategic system to manage profits.
Techniques like value engineering, and value analysis are used to align the expected costs with
the target cost.
Life cycle costing views products, services and customers over their total life span rather than
assessing them for a single period (generally the accounting year).
Requirement (b)
The project management process for the design and implementation of a new pay and reward
system will involve the following stages:
Initiation and identification of need
The initial phase of the project is the identification of a need or problem that must be resolved. In
the case of PT Hospital, the need is driven by the requirement to respond to government
demands to modernise the pay and reward system.
At this first stage the development of the primary purpose of the project and the establishment of
its goals and objectives must be determined. It is at this stage that the key individuals who will
form the project team will be brought together. For the PT Hospital’s pay and reward project, this
may include members of the HR team, IT team and Finance team, along with representatives of
the different employee groups and union/staff association representatives.
The scope of the project will need to be determined, along with the objectives and expectations
and project deliverables.
There will be some parameters and constraints that the project will have to work within, for
example resource availability, budget, and time-frame, in PT Hospital’s case this will be May
2010. It is at this stage that feasibility analysis should be undertaken to consider the potential
benefits and costs of proceeding with the project. However, in this particular case, the
The answer is B
4.3 Marginal cost values the inventory at the variable production cost of £54,000.
1/8 of production cost was in inventory
1/8 of £54,000 = £6,750
The answer is A
The answer is A
The answer is B
4.10
Post tax earnings $440,000
Weighted average number of shares in issue:
1 may – 30 September 5 million shares x 5/12 months 2,083
1 October – 30 April 7 million shares x 7/12 months 4,083
6,166
Earnings per share $440,000/6,166,000 7.1 cents per share
The answer is B