IPA004 Strategic Management Accounting Exam, Deakin University, 2020

This document presents a comprehensive solution to the IPA004 Strategic Management Accounting examination from Deakin University, Trimester 3, 2020. The solution addresses five questions, starting with an analysis of Virgin Australia's financial woes and new strategic direction. It involves a PESTEL analysis of the Australian aviation industry, highlighting the impact of the COVID-19 pandemic and identifying key challenges for the new CEO. The response then uses the GE/McKinsey framework to position Virgin Australia and discusses how Value Chain Analysis and Benchmarking can improve profitability. The solution also briefly touches upon Lifecycle Costing, Target Costing, and Kaizen Costing as part of an Integrated Cost Management System. The assignment demonstrates a clear understanding of strategic management accounting principles and their application in a real-world business context. The solution is provided as an open-book exam, with the student required to answer all questions within the allocated time frame.

EXAMINATION PAPER
Faculty of Business and Law
Trimester 3 2020 Examination
Unit Code: IPA004
Unit Name: STRATEGIC MANAGEMENT ACCOUTING
Anticipated writing time: TWO (2) HOURS
Maximum exam time: You must submit your exam response within THREE (3) hours. The
additional hour includes 15 minutes reading time, and time to
download and save the exam paper and upload the completed paper
into CloudDeakin
Special instructions for candidates:
 This examination is OPEN BOOK.
 Calculators are ALLOWED.
 This examination constitutes 60% of your assessment in this unit.
 This examination comprises 5 questions. You are required to answer ALL 5 questions.
 Save this document on your computer using the file name: student ID, unit code and the
unit name, for example: 216123123_IPA004_SMA.
 Record all answers in the spaces provided below for each question.
 Upload your exam response to the Exam Submission Dropbox in the CloudDeakin unit site.
Check that you upload the correct file.
 Late submissions will not be marked.
 Remember to save your work regularly.
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for the purposes of detecting collusion and/or plagiarism.
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record your ticket number as evidence of technical issues during the examination period.
 In the unlikely event that you cannot upload your completed exam paper, email it as an
attachment to your unit chair [[e-mail]] within the submission time.
 The breakdown of marks in this exam is:
Question Marks Question Marks
1 20 4 14
2 5 5 12
3 9
Total Available Marks 6
0
 All candidates MUST complete this section.
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Type your student ID number here:
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IPA004 Strategic Management Accounting T3 2020 Examination
Question 1 [10 + 5 + 5 = 20 marks]
Background
In April 2020 Virgin Australia went into voluntary administration owing almost A$7billion. After a
lengthy process, the Administrator, Deloitte, sold the business to Bain Capital for around $A3.5
billion. As a result, the previous shareholders lost their entire investment.
Required:
Carefully read the following article which recently appeared in the financial press and answer
questions 1(a), 1(b) and 1(c) at the end of the article:
New Virgin CEO Jayne Hrdlicka unveils new plan for airline.
Virgin Australia’s new chief executive, Jayne Hrdlicka, has unveiled her plans to resurrect
the airline from its financial woes, sparked by the coronavirus lockdown.
In a statement on Wednesday morning, Ms Hrdlicka said the new Virgin would target the
mid-market of the aviation industry and would cater to price-conscious travellers wanting a
premium experience.
“Australia already has a low-cost carrier and a traditional full-service airline, and we won’t
be either,” she said, in reference to Jetstar and Qantas, respectively.
“Virgin Australia will be a mid-market carrier appealing to customers who are after a great
value airfare and better service”.
Ms Hrdlicka replaces Paul Scurrah as CEO who announced his resignation in October.
The former boss of rival airline Jetstar between 2012 and 2017 said the Adelaide COVID-19
cluster outbreaks highlighted the ongoing uncertainty plaguing the travel market, but
demand for flights was improving.
“As we have seen with the recent issues with South Australia, the travel market remains
uncertain. We are however seeing some positive signs of recovery,” she said.
“We expect continued volatility, but as demand recovers, we’ll achieve a market share
consistent with our pre-COVID position and continue to invest in, and grow, the fleet in line
with increases in demand”.
The airline will retain its regional flight business and expects to retain one-third of the
Australian aviation market, which it held before the health crisis.
No changes will be made to its Velocity frequent flyer program and will be the only domestic
airline to offer three different seating classes.
Question 1(a) [10 marks]
Using the PESTEL model, prepare a brief analysis of the external issues currently
impacting the domestic aviation industry in Australia. You should pay particular attention as
to how the Covid-19 pandemic has impacted the sector and identify 2 specific issues that
the new CEO will have to deal with.
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IPA004 Strategic Management Accounting T3 2020 Examination
ANSWER HERE
External analysis:
Through technological factor, it has been analyzed that digital transformation
considered one of the major factor because it helps to increase the performance of
operation along with its profit., but there is no specific guidelines defined pertaining to digital
transformation and this in turn affect the profitability. On the other side, through economic
factor, it is examined that Australian economy is keep fluctuating after pandemic and this in
turn decrease the demand of travelers. Therefore, it affect the performance of aviation
industry in opposite manner. Moreover, as per the legal factors, it is examined that laws and
regulations are also changing that might affect the operations of Airline industry. Also, after
Covid-19, Australian government amend the rules regarding safety of people that affect he
business performance.
COVID-19 has had a significant impact upon the aviation industry due to travel
restrictions. As a result, there is a significant reductions in the number of passengers that
directly affect the performance of a company in opposite manner. Majority of the flights
become canceled and some of them attempted to avoid refunding canceled trips in order to
diminish their losses (Abu-Rayash and Dincer, 2020). Also, in 2020 entire Australia is lock
down and this in turn affect the performance of a company in opposite manner. Further due
to health issues. Social distancing measures could force a reduction in passengers load
factor that directly affect the sales of flights. This reflect that entire traveling system has
affected in adversely that also lead to impact upon the changes in consumer behavior too.
By analyzing the current situation, new CEO have to deal with two different situations
which are as mentioned below:
 CEO has to identify the strategy that helps to enhance the sales. As per the current
situation, company faces issue pertaining to decreases in number of passengers due
to covid-19.
 Further, the risk of government intervention also negatively affect business dynamics
and productivity. For that, CEO has to deal with a situation in order to identify ways
that might affect the performance positively.
Question 1(b) [5 marks]
Using the GE/McKinsey framework, explain whereabouts in that model you would position
Virgin at this point in time. Provide reasons for your response.
ANSWER HERE
Virgin is position at middle because there are many competitors who uses the resources
more efficiently as compared to quoted firm. Though CEO of Virgin Australia uses different
strategy in order to deal with current pandemic situation which helps customers to get better
service at low cost prices. Formal CEO of a company do not put extra efforts to reach
company at further level of success and that is why, firm invest in order to increase the
demand (Gechkova and Kaleeva, 2020). Also, as per the shared values of cited firm
reflects that company revolutionise air travel again and this time across all market
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IPA004 Strategic Management Accounting T3 2020 Examination
segments so that they provide seamless experience to their customers with excellent
service. This is how an organisation defines its reason for existing. So, it reflect that
company is struggling to offer best services after pandemic in order to attract customers
and enhanced its sales.
Question 1(c) [5 marks]
Discuss how Ms. Hrdlicka could use Value Chain Analysis and Benchmarking to identify
ways in which profitability could be increased to create value. Your response should
demonstrate a clear understanding of the components of the Value Chain framework and
the various alternative types of Benchmarking that Ms. Hrdlicka might choose to utilize.
ANSWER HERE
Through the way of effectively analysing the value chain, it can help the organization in increasing
its profitability along with generating value. This will help in increasing profits and revenue and
maintaining long term relationship. It is divided into two primary and secondary which has been
described below.
Primary Activities
The primary value chain involves directly involved in the manufacturing the selling of the
product to the specific customer group. It involves the following:
Inbound Logistics: The goods received from the suppliers is called inbound logistics and the
company can take competitive advantage by establishing good relationship with its suppliers
along with providing better training to its professionals (De Villiers, Hsiao and Maroun, 2020).
Operations: The company has a high range of competitive advantage which can availed through the
way of offering its customers improved and better security for things like luggage, online
service etc.
Outbound logistics: It is related to manufacturing companies or the service firms in which
competitive edge can be attained through the way of delivering quality services to the
customers (Jueseah and et.al., 2020). The airlines can gain competitive advantage by offering
excellent services to its customers around the globe.
Marketing and sales: This is the main ground of gaining competitiveness and benefits. The
airlines involve the marketing activities not only to its customers but also to its
stakeholders.
Post sales service: The organization can recognize the post sale service as a crucial base
for achieving advantages and attaining customer loyalty through the way of maintaining
effective communication.
Secondary activities:
 Firm infrastructure: It explain the activities related to quality management, legal
matter handling, accounting and financing. Therefore, quoted firm has enough
control over the infrastructure activities in order to strengthen the competitive
positioning.
 Human resource management: HR department of quoted firm evaluate different
HR aspects which includes recruiting, selecting, training, rewarding and performance
management. With the help of effective HRM practices company is able to motivate
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IPA004 Strategic Management Accounting T3 2020 Examination
employees and increase the performance as well. Also, it attain is cost minimization
objectives by analyzing hiring and training cost with its relevant return as well.
 Technology development: In order to stay ahead in competition, company also
complied with different techniques . This includes automation software, technology
supported customer service and data analytic. Also, for advance booking, it develop
its own website that assist to enhance customer services.
 Procurement: It is the process which involved purchasing input and convert the raw
material to finished products. So, having a brand image at global level, company
should carefully considered its procurement activities in order to optimise the
inbound, operation value chain.
Various types of benchmarking:
To grow in this competitive era, company uses benchmarking and compare the sales
with its rivalries. So, there are many types of benchmarking which can be used by the firm
in order to measure key business metrics.
Internal benchmarking: It is all about compare metric from different units, product
lines and departments within Virgin Australia. In this tool, company has to use at least two
area who shared metrics and practices in order to understand the standards of business
performance (Tapkı, 2020).
External benchmarking: In this company compare its practices with other
company. With the help of this tool, company is able to understand the organization's
current state that further allows to set baselines and goals for improvement(Types of
benchmarking, 2021).
Practice benchmarking: Another tool in which company collect information about
how a firm is actually conduct an activity through people, process and technology. This in
turn identify the performance gaps which might be occur within a business that an
organization can apply to other areas.
Question 2 [ 5 marks]
Lifecycle costing, Target Costing and Kaizen Costing are frequently viewed as collectively
constituting an Integrated Cost Management System.
Required:
Using a suitable industry of your choice to support your answer, briefly explain why target
costing has become more widely used in recent years, the steps involved in implementing
this approach to product costing and two practical challenges that organisations competing
in the industry you have chosen might encounter in using this approach. Your answer
should also explain the reasons for your choice of industry.
ANSWER HERE
The company chosen is Fonterra Co-op Group which which is food manufacturing company. It has
been providing packaged food in Australia from number of years and has good financial
performance over the years. The company along with other costing method has now adopted for
target costing.
Target Costing
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IPA004 Strategic Management Accounting T3 2020 Examination
Companies are making shift from existing costing methods and techniques that are related to
traditional costing methods. Target costing is costing method and management technique where the
prices of products are determined by the market conditions, by considering several factors associated
with the products, like homogeneous products, competition level, switching cost for end consumer.
Management analysing these factors control the costs as today it is critical to have control on the
selling price and. It is being used as competition in food manufacturing had become very intense and
its prices are derived on basis of demand and supply in market (Cunha Callado, Cunha Callado and
Truta do Bomfim, 2020). Management to an extent could control the costs rather than selling price
therefore management focuses over components such as services, products and the operational
costs. ]
Implementation steps
 Conducting market research about the needs and requirements of customers
 Identifying target consumer market of company
 Company has to identify the special features of products as per requirements of customers
 The products should be designed analysing market conditions, market forces, designs of
rivals, technologies
 Determining the target cost
 Balancing the Target costs with the product requirements
 Setting target costing process to support target costing requirements
 Establishing coherent organisational structure
Challenges of using this approach
 Process of product development is long process as designing team that makes many
alterations meeting target costs
 Cost cutting could lead to discouragement of employees and this leads to decrease in
productivity (Binte and et.al., 2020).
 It is difficult for the company to met the target cost maintaining the quality standards
when market prices are rising.
Question 3 [9 Marks]
It has been argued that the business world today faces a crisis in strategy – not because
management are unable to formulate a good strategy – most can. The core of the crisis lies
with implementation or, more, accurately, the lack of effective execution. Evaluate this
statement, making sure that you identify 3 possible reasons for failure in implementation,
and 3 ways that managers can act to improve the chances of successfully implementing
their chosen strategy.
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IPA004 Strategic Management Accounting T3 2020 Examination
ANSWER HERE
It is true that industries are very good at planning different strategies for the business.
Management are professionals are not known for the strategies they frame but for those which are
successfully implemented in the organisation. Though positive attempts many of companies fail to
implement these strategies successfully.
The reasons behind failure of implementation of strategies
Poor Goal Setting
Goal setting is an important task for the business. Strategic goals are complex and large
objectives which cannot be accomplished within a month. The goals framed by the management are
either unrealistic or difficult to achieve in the given time period. The fulfilment of goal require
different resources which are scattered across organisation (Ateş and et.al., 2020). When strategic
goals are not clear they will be never implemented in required manner.
Lack of alignment
Even after proper team and goal setting management will face challenges if there is lack of
alignment which causes prioritisation problems and the collaboration conflicts. It leads to doing of
work without any proper alignment.
Inability of tracking the progress
Different organisations focus only at the initial stages of implementation of strategies and
become lose afterwards. They do not measure the progress of the strategies implemented by the
management. When progress is not measured they fail to identify whether it is leading towards target
direction or not and often results in failure of strategies (Nwachukwu, Zufan and Chladkova, 2020).
Ways through which strategies could be implemented successfully
 Management could ensure that there is clear goal setting and all the employees have been
communicated the goals clearly. Goals framed should be achievable and realistic so that it
could be accomplished.
 Management should have proper alignment of the goals and the process to employees who
are working on the strategies. There should be effective communication channel between
employees and managers. There should be proper hierarchical structure for completion of the
project.
 Manager should have proper internal control for measuring the execution of strategies.
Managers should measure the progress through establishment of KPI, benchmark so that it
could identify whether it is required results or not. It allows the management to take
corrective actions.
Question 4 [4 + 5 + 5 = 14 marks]
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IPA004 Strategic Management Accounting T3 2020 Examination
Provide brief answers to each of the following questions.
Question 4 (a) [4 marks]
Using an industry of your choice as an example, discuss how Customer Profitability
Analysis (CPA) differs from the traditional approach to management accounting.
ANSWER HERE
Customer profitability analysis (CPA) is a tool of management accounting which
allows business to determine profitability of every consumer segment. Under this method
major focus is given over individual customer profitability rather than product line
profitability. For retail industry it is helpful to use CPA for managing its business and taking
decision. This is particularly because of the reason that this method will assist companies in
retail sector to analyse that whether consumer is liking the product or not. On the other side
in traditional approach to management accounting cost is majorly undertaken in order to
take decision. For instance, allocation of indirect cost to every item being manufactured on
basis of volume and machine hour produced. But if retail companies will employ use of CPA
then it will be assistive in better and effective decision making. This is pertaining to the fact
that CPA will companies in looking at expenses and activities which are incurred at time of
serving product or service to a particular consumer.
Question 4 (b) [5 marks]
The development of Integrated Reporting (IR) is designed to enhance and consolidate
existing reporting practices and facilitate a move toward a new reporting framework
designed to provide more information and greater transparency to all stakeholders.
Required:
Describe the advantages and disadvantages of Integrated Reporting.
ANSWER HERE
Integrated reporting is defined as communication of strategies and performance of company which
it shares with all the stakeholders of company.
Advantages of IR
Main advantage of using IR is that this provides more clarity on issues and performance of business.
this is particularly because of the reason that when the company has to report all performance of
business then this will involve critical analysis of business and its performance. this outlines all the
issues and problems present in company.
Along with this another advantage of IR is that it improves relation with stakeholders and corporate
reputation. The reason underlying this fact is that when company critically analyses it performance
and communicate with all stakeholder then this increase interest of stakeholder in company. along
with this when business outlines all good and bad point relating to company then this increases
goodwill of company.
Disadvantages of IR
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IPA004 Strategic Management Accounting T3 2020 Examination
Greater time consumption is the major drawback of IR as analysing the whole business
performance involves a lot of time. It might be possible that the when business analyses all
operations and profitability of company then it will take a longer time.
Another drawback is that sometimes it is difficult that which information need to be reported.
This is particularly because of the reason that there are many different aspect of business
and it is not necessary that managers and decision makers are able to include all facts and
figures in proper and effective manner.
Question 4 (c) [5 marks]
Despite data driven strategies becoming increasingly popular in today’s global and fast-
moving business environments, some commentators have expressed concerns over the
risks and challenges of over reliance on a data driven approach.
Required:
Using at least two examples, discuss the risks and challenges that organisations may face
in using Big Data.
ANSWER HERE
Data driven approach is the one which assist company to take decision of business on basis of the
data relating to company. there are many different types of risk and challenges which are being
faced by company while using data driven approach. these are as follows-
For instance, in current times competition has increased and because of this it is essential for
company to save all data relating to business. his involves large number of data and because of this
sometimes it may be possible that there is challenge of synchronization of information. It is also
because of the reason that there is too much of data and it may be possible that manager gets
confused which data to use for decision making.
Another example is of duplicate data. This is also a major challenge because of the reason
that when there is large number of data then there are chances that some data may be
duplicated again. This poses problem in taking decision and managing work as when same
data will be repeated then there will not be clear and actual situation being presented with
help of data.
Question 5 [12 marks]
Wing Lee operates a chain of 10 takeaway Chinese restaurants in Melbourne, specialising
in ‘Dim Sims’. The company operates in a very competitive market in which it is difficult to
gain and maintain market share which Mr. Wong, the owner, considers essential to
maintain a sustainable competitive advantage. To achieve this Mr Wong believes that it is
important to monitor competitors’ actions closely, and to continually offer new products and
special promotions to create high visibility among customers. The company mission is:
To be a caring and environmentally responsible company providing fresh and
nutritious meals at an affordable price.
Required:
For each of the perspectives of the Balanced Scorecard that you develop, identify and
explain one key objective, one Lag indicator, and one Lead indicator, making sure that your
objectives and measures are aligned with and supportive of, Wing Lee’s mission.
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IPA004 Strategic Management Accounting T3 2020 Examination
ANSWER HERE
Perspective Objective Lag indicator Lead indicator
Financial perspective To increase profitability of
company by 20 % till
March 2021.
Currently company is
working with chain
of10 takeaway
restaurant and earns
profit from it.
The leas indicator for this
perspective is to increase
number of outlet out of
Melbourne as well. This will
assist in increasing profit
and to attain financial
perspective of mission.
Customer perspective To attract and increase
number of consumer by
25 % by April 2021.
In current parlance,
there are less
number of consumer
as there is only 10
restaurants which are
operating in
Melbourne only.
The lead indicator in this
will include a major focus
on marketing of business
as this will assist them to
attract more of consumer
and try to increase its
number (Rodríguez
Montequín and et.al.,
2020).
Business process
perspective
To satisfy the
shareholders of company
and keep them engaged
within the business and
its growth by 25% till May
2021.
The lag indicator of
this perspective is
that currently the
interest of
shareholder is not
much within the
company as it
operates only in
Melbourne and no
other strategies of
business (Kapuria,
Balani and Kaur,
2020).
But expansion of business
can be a lead indicator
which will assist them in
attracting attention of
stakeholders. This is
particularly because of the
reason that as operation
will increase then it will
result in more opportunities
and will grab attention of
stakeholder.
Learning and growth
perspective
To train employees with
technical skills and
knowledge for designing
of products
Company is adopting
new machines for
process of food faster
which will reduce
lead time and also
reduce labour cost.
It includes the focus over
operating of different
machines and techniques
for processing of food faster
(The balanced scorecard-
measures that drive
performance. 2020).
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IPA004 Strategic Management Accounting T3 2020 Examination
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<https://hbr.org/1992/01/the-balanced-scorecard-measures-that-drive-performance-2>
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