Intermediate Management Accounting past paper Essay

Intermediate Management Accounting past paper - Essay Example Nevertheless, the target profit margin is seen to rise substantially from a low of -0.004% in year one to 10.25% in year three. (b) Issues facing firms like KZ in making decisions on the costs to cut in order to meet the specified target income level. Costs relevance: It could be difficult for firms like KZ to associate all the costs involved to products. This makes the firm continue incurring costs that do not directly involve production hence eating on the margins. Cost classification: The firm has not classified its costs appropriately. For instance, marketing costs are classified as fixed costs and such costs are required to be consistent with sales made in a given year. In this regard, during year 2 and year 3, KZ sales were the same despite difference in marketing campaign undertaken. The marketing campaign should therefore be consistent with the amounts allocated in a given year. ... 27,000,000 Years Cash inflows in ?’000’ Discounting rates 17% N.P.V Year 0 (27,000) 1 (27,000) Year 1 1,454 0.855 1,243 Year 2 4,009 0.731 2,931 Year 3 3,904 0.624 2,436 Year 4 3,799 0.534 2,029 Total (18,361) Recoveries at the end of year 4: Technology estimated re-sale value – ? 8,000,000 Reimbursement by customers - ? 2,000,000 Total – ? 10,000,000 Net present value of recoveries = 10,000,000 x 0.534 = ? 5,340,000 Total Net Present Value (N.P.V) in ? ‘000’ = (18,361) +5,340 = (13,021) (b) Comment: Investment in the product should not be undertaken since it has a negative NPV. The net present value does not represent a proper assessment of the value of the new product since the objective of calculating NPV is to establish whether the project is viable. Question 11 Roles and limitation of transfer pricing in managing divisional firms Roles Transfer pricing refers to the price at which services or goods are transferred between different units of the same organization. However, the degree in which transfer pricing contributes to firms profitability or covers costs is a matter of policy. The main role of transfer pricing includes optimization of group’s profitability by supporting goal congruence, motivate divisional managers of both buying and selling divisions to engage in business with one another, facilitate realistic performance appraisal of different divisions, preservation of autonomy of divisional managers and also plays a significant role in facilitating decision making. Transfer pricing leads to operation of different division whose profits are assessed separately. The management of a division becomes simpler and coordination of sales, production and pricing decisions are also eased. The principal types of transfer pricing includes: Cost-based

The Federal Reserve Bank Essay Example | Topics and Well Written Essays - 1250 words

The Federal Reserve Bank - Essay Example It was established in the year 1791 with its charter signed by George Washington. The bank used to perform all the major banking functions. After the expiry of the charter 20 years hence, country was without a central bank for few years resulting into inflation. Again a second bank came into existence in 1816 with a charter signed by James Madison. In 1833 again the charter expired and United States went without a central bank for 40 years. In 1873, gold was standardized into bimetallic standard. Then a private set up by the name of JPMorgan came into existence who was the lender of the last resort for the banks who are facing crisis. Federal Reserve Act of December 23, 1913 created the Federal Reserve System. A new central bank was established which would act as the lender of the last resort to banks facing crisis, assured the investors not to disinvest their money. Federal Reserve Bank was opened in 1914. Federal Reserve notes were provided by the Congress so that the currency supp ly in the economy remains flexible. The Federal Reserve System is the independent agency, that exists outside the Cabinet of the executive and its powers are derived from congress. Fed has acquired power over the past century and has played a strict role in supervising the banks in US and the legal status of the Federal Reserve Bank is that they are independent and controlled corporation. Purpose of Federal Reserve Bank Federal Reserve Bank is the central banking system in USA. Major purpose of the bank is to support the favorable economic conditions which will help to stabilize the monetary policy of USA. This factor includes price stabilization, money supply, acquisition of credit and increase in overall growth and employment. As a central bank it also needs to monitor and supervise the operations of other commercial banks to make sure the safety and security and to protect the interest of the customers. It also maintains the strength of financial system to mitigate the risk of fi nancial markets. The most important purpose of Federal Reserve is controlling inflation and employment opportunities in United States. It also helps the US govt. and other financial institutions in US in their operations. Other important purposes of Federal Reserve are to solve the problem of other banks in order to balance the interest of banks and responsibilities of the govt. Maintaining money supply in the nation to prevent unemployment and to maximize the utilization of resources which will help to control inflation or deflation. Financial stability is also a look out of Federal Reserve Bank and as a central bank it has to meet the liquidity needs among regions. The structure of Federal Reserve Bank Federal Reserve System is divided into two parts:- a centralized authority which is known as board of governors in Washington and the second part is decentralization of 12 Fed banks which is located in 12 districts in the country. Monetary policy of USA is set by the Federal Open Ma rket Committee and it includes the board of governors and presidents of the bank. The structure includes:- Board of governors:- it is an independent lawmaking agency which governs and look out the whole federal reserve system. Board of governors is the central main structure of Federal Reserve in Washington, D.C. It includes seven board members and other staffs and