Strategic Management and Accounting Information in Saudi Companies: A Comprehensive Guide

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Instructions – PLEASE READ THEM CAREFULLY
The Assignment must be submitted on Blackboard (WORD format only) via allocated folder.
Assignments submitted through email will not be accepted.
Students are advised to make their work clear and well presented, marks may be reduced for poor presentation. This includes filling your information on the cover page.
Students must mention question number clearly in their answer.
Late submission will NOT be accepted.
Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions.
All answers must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism.
Submissions without this cover page will NOT be accepted.
Assignment Question(s): (Marks 15)
Q1. Explain the role of accounting information in strategic management. How does accounting information assist in the formulation and implementation of organizational strategies? Support your answer by providing an example of one Saudi Company in this regard. (2 Marks)
Note: Your answer must include a suitable example showing the role of accounting information in strategic management of an organization. (Chapter 1, Week 1) Answer:
Q2. What do you mean by cost function and for what purpose does it serve for? What are the various methods used to estimate cost functions? Explain each method with suitable numerical examples. (3 Marks) (Chapter 2, Week 2) Answer:
Q3. TTL Corporation is in the manufacturer of several plastic products. TTL sells its one of the plastic product for SAR 500. The variable costs per unit are SAR 200, and the total fixed costs are SAR 510,000. Based on cost-volume profit analysis, calculate: (4 Marks) a)Contribution margin per unit and contribution margin ratio.
b)Break-even point in units and sales SAR.
c)Pretax profit if the company sells 2,200 units.
d)Profit/loss if the company sells 1,500 units.
e)Units needed to reach target pretax profit of SAR 180,000.
f)Sales SAR needed to reach the target pretax profit of SAR 180,000. (Chapter 3, Week 3) Answer:
Q4. “Job costing is a method of cost accounting used by companies to find out the cost of specific jobs or projects.” Comment on this statement and examine how actual allocation rates and estimated allocation rates are analyzed by the companies? Support your answer with an example of one Saudi company that use job costing. (2 Marks) (Chapter 5, week 4 )
Answer:
Q5. A company uses a process costing system for its sole processing department. There were 4,000 units in beginning WIP inventory for June and 36,000 units were started in June. The beginning WIP units were 60% complete and the 3,250 units in ending WIP were 40% complete. All materials are added at the start of processing. (4 Marks) (Chapter 6 Part 1, Week 5)
Required:
a) Compute the no. of units started & completed.
b) Compute the EUP for DM and CC using FIFO and WA methods. Answer:

Struggling with where to start this assignment? Follow this guide to tackle your assignment easily!

Step 1: Review Assignment Instructions
Carefully read through all instructions to understand the requirements. This assignment needs to be submitted in Word format, and it’s important to adhere to formatting guidelines (Times New Roman, size 12, double-spaced). Ensure your work is clear, well-presented, and free of plagiarism.

Step 2: Break Down Each Question

Q1: Role of Accounting Information in Strategic Management

What is required?
- Explain how accounting information plays a role in strategic management.
- Describe how accounting information helps in the formulation and implementation of strategies.
- Provide a real-world example of a Saudi company.

Key Concepts:

Strategic Management: The process of defining strategies, setting objectives, and utilizing resources to achieve organizational goals.
Accounting Information: Helps managers understand financial health and make informed decisions.
Example: A Saudi company like Aramco might use accounting data to decide where to invest or how to optimize production costs.

Q2: Cost Function and Methods of Estimating Cost Functions

What is required?
- Define cost function and explain its purpose.
- Discuss the methods used to estimate cost functions.
- Provide numerical examples for each method.

Key Concepts:

Cost Function: A mathematical relationship that describes how total costs change with changes in production or activity level.
Methods to estimate cost functions include:
1. High-Low Method: Uses the highest and lowest activity levels to estimate variable and fixed costs.
2. Scattergraph Method: Plots data points on a graph to visually determine cost behavior.
3. Least Squares Method: A statistical method to minimize the difference between observed and estimated values.

Q3: Cost-Volume-Profit Analysis for TTL Corporation

What is required?
- Use cost-volume-profit (CVP) analysis to calculate:
  - Contribution margin per unit and ratio.
  - Break-even point in units and sales SAR.
  - Pretax profit if 2,200 units are sold.
  - Profit/loss for 1,500 units sold.
  - Units needed to reach a target pretax profit.
  - Sales SAR needed to reach the target pretax profit.

Key Concepts:

Contribution Margin: Sales minus variable costs.
Break-even point: The point where total revenue equals total costs.
CVP Analysis: A tool to understand the relationship between costs, volume, and profit.

Q4: Job Costing and Allocation Rates

What is required?
- Explain job costing as a method of cost accounting.
- Discuss how actual and estimated allocation rates are used in job costing.
- Provide an example of a Saudi company using job costing (e.g., Saudi Aramco or Saudi Cement).

Key Concepts:

Job Costing: Accumulating costs for each specific job or project.
Allocation Rates: Used to assign overhead costs to individual jobs.
Example: Saudi Aramco might use job costing for special engineering projects or unique drilling operations.

Q5: Process Costing for Sole Processing Department

What is required?
- Compute:
  - Units started and completed.
  - Equivalent Units of Production (EUP) for Direct Materials (DM) and Conversion Costs (CC) using FIFO and Weighted Average (WA) methods.

Key Concepts:

Process Costing: A costing system used when a company produces a large number of identical products.
FIFO: First-in, first-out method of calculating EUP.
WA: Weighted average method for calculating EUP.

Step 3: Write the Answers

Answer for Q1:
Accounting information is crucial in strategic management as it provides insight into an organization’s financial health and performance. It assists managers in formulating strategies by evaluating costs, revenues, and profitability. For example, Saudi Aramco uses accounting data to optimize oil production, manage costs, and decide on capital investments in new projects.
Answer for Q2:
A cost function represents the relationship between total costs and production or activity levels. The most common methods to estimate cost functions are the High-Low Method, which estimates costs based on the highest and lowest production levels, the Scattergraph Method, where data points are plotted to visually analyze costs, and the Least Squares Method, a statistical technique used to minimize errors between predicted and actual costs.
Answer for Q3:
a) Contribution margin per unit: SAR 500 – SAR 200 = SAR 300.
Contribution margin ratio: SAR 300 ÷ SAR 500 = 60%.
b) Break-even point in units: Fixed costs ÷ Contribution margin per unit = SAR 510,000 ÷ SAR 300 = 1,700 units.
Break-even point in sales: 1,700 units × SAR 500 = SAR 850,000.
c) Pretax profit for 2,200 units: (2,200 × SAR 300) – SAR 510,000 = SAR 330,000.
d) Profit/loss for 1,500 units: (1,500 × SAR 300) – SAR 510,000 = -SAR 60,000 loss.
e) Units to reach SAR 180,000 profit: (SAR 180,000 + SAR 510,000) ÷ SAR 300 = 2,300 units.
f) Sales SAR to reach SAR 180,000 profit: 2,300 units × SAR 500 = SAR 1,150,000.
Answer for Q4:
Job costing helps companies determine the exact cost of specific jobs. Companies analyze both actual and estimated allocation rates to allocate overhead costs accurately. Saudi Cement might use job costing for large construction projects, tracking labor, materials, and overhead costs to determine project profitability.
Answer for Q5:
a) Units started and completed: 36,000 started – 3,250 ending WIP = 32,750 completed.
b) FIFO Method:
EUP for DM: 32,750 (completed units) + 3,250 (ending WIP, 100% DM) = 36,000.
EUP for CC: 32,750 (completed units) + (3,250 × 40%) = 34,550.
WA Method:
EUP for DM: 40,000 (total units started and completed).
EUP for CC: 36,000 (total units).

Step 4: Cite Your Sources
Ensure that you cite your sources properly in APA format. For example:

Author, A. A. (Year). Title of book. Publisher.
Author, B. B. (Year). Title of article. Journal Name, Volume(Issue), page range.

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