Question

C Many consultants have prescribed the following as some of the key responses to weather the crisis: (i) Develop a robust supply chain by performing vendor risk assessment. Ensure financing remains viable by focusing on working capital management. Contain costs by reducing variable costs and converting fixed to variable costs where possible. (iv) Consider non-traditional revenue streams. Give three (3) examples of management accounting information (two internal and one external) that could be used by a manager to make decisions in the above areas. (28 marks)

Answer 1

3 examples of management accounting information

i) Comparison of Avoidable cost with price offered by Supplier (Internal)

This helps in taking Make vs. buy decision. If the avoidable cost is lower than price offered by supplier the component should be made in-house else the component should be purchased externally.

ii) Current ratio (External)

Ensure the current ratio is maintained at 2:1. Current ratio is the ratio of current assets to current liabilities. Current ratio is a liquidity measure and it indicates the ability of the firm to meet its short term commitments.

iii) Variable costing Income statement (Internal)

Variable costing income statement helps in analysing cost behaviour and take decisions like reduce breakeven point by reducing fixed cost and converting as much as cost to variable cost. It helps in cost management through cost control and cost reduction