Tag (SQ): Non-financial performance
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- 20 Marks
Evaluate if Ashanti Pharmaceuticals Ltd is on track for growth, analyzing sales, profit, and employee productivity from Year 1 to Year 2.
Question
Ashanti Pharmaceuticals Ltd has an objective in its long-term business plan of achieving significant growth in its business in the period Year 1 to Year 5. It is now the end of Year 2.
Its results for the years to 31st December Year 1 and Year 2 are summarised below.
Statement of profit or loss for the year ended 31 December
| Year 2 (GH₵) | Year 1 (GH₵) | |
|---|---|---|
| Sales | 31,200,000 | 26,000,000 |
| Cost of sales | 18,720,000 | 15,600,000 |
| Gross profit | 12,480,000 | 10,400,000 |
| Operating costs | 6,780,000 | 5,200,000 |
| Interest charges | 500,000 | – |
| Taxation | 3,000,000 | 3,000,000 |
| Net profit | 2,200,000 | 2,200,000 |
Statement of financial position as at 31st December
| Year 2 (GH₵) | Year 1 (GH₵) | |
|---|---|---|
| Non-current assets | 27,300,000 | 26,000,000 |
| Net current assets | 15,600,000 | 7,800,000 |
| Total assets | 42,900,000 | 33,800,000 |
| Borrowings | 9,000,000 | – |
| Net assets | 33,900,000 | 33,800,000 |
| Share capital and reserves | 19,500,000 | 19,500,000 |
| Retained earnings | 14,400,000 | 14,300,000 |
| Total equity | 33,900,000 | 33,800,000 |
Sales are seasonal, and are much higher in the first six months of the year than in the second six months. The half-yearly sales figures in the past two years have been as follows:
Sales
| Year 2 (GH₵) | Year 1 (GH₵) | |
|---|---|---|
| First six months | 21,645,000 | 16,900,000 |
| Second six months | 9,555,000 | 9,100,000 |
| Total | 31,200,000 | 26,000,000 |
The company employs part-time workers during the first six months of each year. Part-time workers operate for a full working week during the weeks that they are employed. Employee numbers have been as follows:
Employee numbers
| Year 2 | Year 1 | |
|---|---|---|
| Full-time | 318 | 260 |
| Part-time (first six months) | 494 | 310 |
The company introduced four new products to the market in Year 1 and another five new products in Year 2.
Required:
Explain with reasons whether the company appears to be on course for achievement and production.
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- 15 Marks
Discuss methods and qualities of good performance measurement in management accounting.
Question
PERFORMANCE MANAGEMENT
Methods used in measuring performance
Financial Performance: analyse profitability, liquidity and risk. Financial Indicators include Profit, Revenue, Costs, Share Price and cash flow.
Non-Financial Performance: This can usefully be applied to employees and product/service quality. Non-Financial Indicators may include Quality of Service, Measures of customer satisfaction, Lateness.
Qualities of Good Performance Measurement
| A GOOD MEASURE: | DESCRIPTION: |
|---|---|
| Is quantitative | The measure can be expressed as an objective value |
| Is easy to understand | The measure conveys at a glance what it is measuring, and how it is derived |
| Encourages appropriate behaviour | The measure is balanced to reward productive behaviour and discourage “game playing” |
| Is visible | The effects of the measure are readily apparent to all involved in the process being measured |
| Is defined and mutually understood | The measure has been defined by and/or agreed to by all key process participants (internally and externally) |
| Encompasses both outputs and inputs | The measure integrates factors from all aspects of the process measured |
| Measures only what is important | The measure focuses on a key performance indicator that is of real value to managing the process |
| Is multidimensional | The measure is properly balanced between utilisation, productivity, and performance, and shows the trade-offs |
| Uses economies of effort | The benefits of the measure outweigh the costs of collection and analysis |
| Facilitates trust | The measure validates the participation among the various parties |
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