Managerial Accounting Assignment Question

Widget Airlines is a leading business in travelling industry and has experienced turbulent times during the past 10 years due to stiff competition and as a result of global slowdown in the world economy.  

It has now emerged from the recession to earn revenue of $15.121 million for the year 20X6 through many initiatives such as better managing costs while ensuring customers benefits with more choice.  

A new scheme of pricing strategy was implemented with a view to maintain market share and to position the airlines for future growth within the next seven years.

2016        2015    Change in % Route Revenue ($ Million)  

Homecounty

1,906.7          2,015.2         (5)  

Asian

2,001.3          1,576.2      30  

Europeand Middle East

2,286.6          1,962.8      17  

Australia and New Zealand  

1,514.5           1,517.3     (0.2)  

Africa and South America

Nil                18.1     (100)  

Orient and North America 

1,690.3          1,635.0        3  

The assignment requires knowledge and the application of capital investment decisions (capital budgeting), gearing, contribution, financial ratios and budgetary controls.  

Required:  

You are asked to prepare a report to address the following matters that have been raised by the non-executive director of the company.

(a) As a going concern, he wishes to evaluate the six revenue earning routes starting from the homecountry and the five others in light of stiff competition posed by the emerging in the Asia Pacific region. He has asked you to identify and assess:  

• the  routes  that  are  producing  of  low  level of  profit and  incurring  huge  working  capital investment, and 

• the implications of low profit yielding routes for adequate financial returns and profitability.

(b) He wishes to make a strategic decision about the long term viability of the three revenue losing routes of  home  country,  Australia  &  New  Zealand  and  South  American  divisions  that  face  stiff competition   from   Hong   Kong   and   Australian   low   cost   carriers.   As   these   divisions   require considerable  amount  of  capital expenditure  and  management  cost  information  to  improve efficiency  and  to  make  more  competitive,  he  plans  to  dispose  of  the  services  of  these  three divisions.

 Critically  evaluate  the  decisions  to  discontinue  operations  in  these  divisions,  even  though  there venue from them still runs into many million dollars.  

(c) Delays related to the Air Traffic Control let to heavy congestion in the skies over its own airports and this has been a major cause for concern. The CEO wants a close cooperation among its own team to improve various operational issues of the airport operations. The airline is required to identify the key areas for allocating finance resources to   achieve a high return for the shareholders.  

(i) Identify  and  analyse  the  factors  which  influence  capital  budgeting  decisions  that  required efficient investment decisions over competing concerns  

(ii) Critically analyse the relative importance of the management intention to reduce too much of borrowing through long term bank loan and other external lenders to continue with modernization programmes  

(d) The Chairman advises on decentralization programme in which the decision making would be handed over to a new CEO to be appointed soon. It involves in online communication improvement and decision making techniques that would eventually cuts off staff up to 6 000 of them gradually over a three period.  Effective use of regular reporting system using financial ratios and actual performance monitoring against budget is expected to spear headed. 

 (i) Advise the managing director on the reliance of using financial ratio analysis and budgetary controls for co-ordination and control of the group and the possible risks that the company may face.

(ii) Critically analyse how you would expect the management accounting function and ethical issues to be re-organized if the company expands its operations to number of different countries that affected by the 'Brexit' decision of UK  

(All relevant assumptions, fictitious statistics and calculations should be included in the report (or as an appendix to it)  

 Instructions for Report   - 4000 words

1. Executive summary (200-300 words, not to be included in the word count)  

2. Table of contents  

3. Introduction  

4. Main body  

5. Conclusion  

6. References  

a, b, c, d and overall presentation    

(a)  Service  routes  producing  low  returns  in  terms  of  revenue  and  requiring  huge  working  capital investments. Implications of low revenue routes to overall financial returns and profitability.  

(b) Critical evaluation of the decision to dispose of the three routes  

(c) Identification and analysis of factors that influence capital budgeting decision and for ranking of projects that competing for scarce financial resources.

Critical analysis for reducing dependent on too much of borrowing of external funds for modernization programmes  

(d) Advice on the reliance of financial ratios analysis and budgetary controls for co-ordination and control of the group performance.  

Critical analysis of the company's management accounting function and ethical issues in the face of "Brexit" decisions by UK.

Attachment:- Accounting Assignment.rar