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Question 1iv

Thyme Engine Products (Thyme) manufactures jet aircraft engines for the commercial aircraft market. This is a worldwide business although Thyme’s production and development are all based in the country of Beeland. Thyme is a listed company and its stated overall objective is to be ‘a world-class jet engine manufacturer trusted by our customers to deliver excellent products’. Its promise to its shareholders is that it will maximise their returns. The strategy to achieve this is to use world-class engineering to design engines and high quality production and customer service in order to drive profitable growth.

Thyme’s share price has recently suffered as a result of the failure of a new engine design which led to large cash losses and a difficulty in obtaining new financing. There has also been a bribery scandal involving a senior manager and one of its key customers. As a result, a new chief executive officer (CEO) has been employed and she has begun a major review of systems at Thyme.

The first area which the CEO wants to examine is the information given to the board for strategic decision-making in both the planning and controlling of the business. The government of Beeland has been encouraging information sharing between businesses and has recently sponsored awards for management accounting. The winner of the engineering sector has produced a sample dashboard template (with dummy figures) for an annual review and this is given in Appendix 1. The CEO realised that the winner had a very similar overall objective and strategies to Thyme and wants to know what it is about this dashboard that helped it win the award. She does not want a new dashboard for Thyme at this stage but there may be some useful, specific comments to make about the contents of the dashboard given Thyme’s recent problems.

The CEO has also recently been reading about integrated reporting and in the light of this review of the dashboard, the CEO has also asked for your views on how integrated reporting might impact on the type of information prepared by the company’s management accountants.

As high quality engineering products lie at the heart of Thyme’s competitive advantage, there has been a total quality management (TQM) approach to the management of all resources and relationships throughout the business. Thyme currently has a project under consideration to develop a new simple jet engine which would compete in the crowded market for small corporate jets. In order to compete in this market, it is believed that a target costing approach to this new engine would be beneficial. The CEO wants you to calculate the target cost gap for the new engine using the data in Appendix 2. Next, she wants to know how the use of target costing would fit within the existing TQM approach for this new engine.

The new engine project has further raised the profile of quality as a broad issue at Thyme and the CEO wants your advice on the costs associated with quality. She needs to know the cost of each of the four categories of quality costs. She has gathered data in Appendix 3 for this exercise. She is happy that she has identified that prevention costs are complete but is worried that some of the possible costs for the other three categories are missing and needs suggestions of cost areas to be examined to identify these missing items. Finally, she needs advice on the relative importance to Thyme of each of the four categories.

Required:

Write a report to the CEO of Thyme to:
(iv) Categorise and calculate the costs of quality at Thyme (given in Appendix 3). Suggest cost areas to be examined as required by the CEO, and evaluate the relative importance of each category to Thyme.
(13 marks)
Professional marks will be awarded for the format, style and structure of the discussion of your answer. (4 marks)

ACCA AMP P5 DEC 2017 past paper exam question Q1 Appendix 3