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Question: Drawing on relevant academic literature, critically discuss in your own words the meaning of the term ‘corporate governance’ and its importance to investors. Also, discuss the measures a company can take to minimise the risk of poor corporate governance.

22 Oct 2022,11:17 PM

 

Question 1

 

Hakeem plc is an international pharmaceutical company that operates three divisions. An extract from the 2019 management accounts is summarized below:

 

  Scotland Division England Division Northern Ireland Division
  £ £ £
Revenues 77,000 85,000 55,000
Variable costs (55,000) (62,000) (47,000)
Contribution margin 22,000 23,000 8,000
Fixed costs (12,000) (12,000) (12,000)
Operating income 10,000 11,000 (4,000)

 

Requirement:

 

  1. Senior management are considering a proposal to close the Northern Ireland division because it has been reporting losses for the last 3 years. Advise the management on whether such a decision is profitable for Hakeem plc. Clearly show any workings to support your advice.                                                                                                                                                                                                                        (2 Marks)

 

  1. Senior management has recently conducted a review into the fixed costs of the Northern Ireland division and discovered that it includes £10,000 for the annual salaries of staff which could be saved by laying them off in the event of closure. Advise the management on whether the closure is profitable or not. Clearly show any workings to support your advice.                                                                                                                                                                                                                         (2 Marks)

 

  1. As part of the review in (b) above, senior management has analysed the operations of the Northern Ireland division and discovered that it has an idle capacity of 8000 units per annum. Healthy Styles Ltd has recently submitted a request for a special product supply to the Northern Ireland division; a deal that can be repeated and sustained for the coming years. The total quantity demanded is 6000 units for a special price of £50 each, which is less than the regular selling price of £55 per unit. The variable manufacturing costs are £47 per unit; no additional fixed costs are expected and no marketing and selling expenses will be required. Advise the management on whether to accept the deal with Healthy Styles Ltd at the specified special price. Clearly show all workings and state all assumptions.                                                                                                                                                             (3 Marks)

 

  1. The England Division sells three different products with the details shown below. Machine time is limited to 175 hours per week.

 

  Product name
  CH101 CH102 CH103
  £ £ £
Selling price per unit 30 24 25
Variable cost per unit (15) (12) (15)
Weekly demand (units) 25 20 30
Machine hours required/ unit 5 3 4

 

Determine the best business prioritization of resource allocation to maximise profit?

 (8 Marks)

     Total 15 Marks

 

 

Question 2

 

Drawing on relevant academic literature, critically discuss in your own words the meaning of the term ‘corporate governance’ and its importance to investors. Also, discuss the measures a company can take to minimise the risk of poor corporate governance.

    Total 20 Marks

 

 

Question 3

 

Quality Tobaccos plc, a British tobacco producer manufactures two classes of tobacco qualities: Standard and Branded. Product costs are estimated using a business wide overhead absorption rate. Products absorb overheads on a labour hour basis. Selling prices are set based on cost plus a 25 per cent mark-up. The following information is provided:

 

  Standard Branded
Direct materials (£ per unit) 12 24
Direct labour (£ per labour hour) 12 12
Direct labour hours (total) 100 150
Budget production/sales (units) 2000 1000
Total production overheads £400,000

 

Quality Tobaccos plc reported the following breakdown of the £400,000 annual manufacturing overheads:

 

  Costs Activity of cost driver Standard Branded
Designing   60,000 60 designing hours 18 hours 42 hours
Machining 240,000 20,000 machining hours 8,000 hours 12,000 hours
Packaging 100,000 70,000 packaging hours 25,000 hours 45,000 hours
Total Overheads £400,000      

 

Requirement:

 

  1. Calculate the full cost to produce both the Standard and Branded tobaccos using an Activity Based Costing (ABC) approach.                                                                                                       (14 Marks)

 

  1. Based on the ABC cost per unit, calculate the selling price per unit for the standard and branded tobaccos.                                                               (6 Marks)

 

 

  1. Comment on the advantages of using ABC rates compared to using a single rate system uniquely for Quality Tobaccos plc.         (5 Marks)

    Total 25 Marks

 

Expert answer

 

The term ‘corporate governance’ encompasses the rules, procedures and processes by which a company is governed. It includes the structures and mechanisms through which decisions are made and accountability is ensured. Corporate governance is important to investors because it helps to ensure that a company is run in an orderly and efficient manner, with due regard for the interests of all stakeholders.

 

There are a number of measures a company can take to minimise the risk of poor corporate governance. These include establishing clear lines of responsibility and accountability, ensuring transparency in decision-making, and maintaining effective communication with all stakeholders. In addition, companies should have in place robust systems and controls to safeguard against risks such as fraud and corruption. By taking these measures, companies can help to create a strong foundation for good corporate governance.

 

When it comes to corporate governance, there is no one-size-fits-all approach. What is important is that companies tailor their governance arrangements to their specific needs and objectives. By doing so, they can help to ensure that their governance practices are aligned with their overall business strategy.

 

In conclusion, corporate governance is a vital element of any company’s operations. It helps to ensure that a company is run in a fair and efficient manner, with due regard for the interests of all stakeholders. There are a number of measures a company can take to minimise the risk of poor corporate governance, such as establishing clear lines of responsibility and accountability, ensuring transparency in decision-making, and maintaining effective communication with all stakeholders. By taking these measures, companies can help to create a strong foundation for good corporate governance.

The term ‘corporate governance’ encompasses the rules, procedures and processes by which a company is governed. It includes the structures and mechanisms through which decisions are made and accountability is ensured. Corporate governance is important to investors because it helps to ensure that a company is run in an orderly and efficient manner, with due regard for the interests of all stakeholders.

 

There are a number of measures a company can take to minimise the risk of poor corporate governance. These include establishing clear lines of responsibility and accountability, ensuring transparency in decision-making, and maintaining effective communication with all stakeholders. In addition, companies should have in place robust systems and controls to safeguard against risks such as fraud and corruption. By taking these measures, companies can help to create a strong foundation for good corporate governance.

 

When it comes to corporate governance, there is no one-size-fits-all approach. What is important is that companies tailor their governance arrangements to their specific needs and objectives. By doing so, they can help to ensure that their governance practices are aligned with their overall business strategy.

The term ‘corporate governance’ encompasses the rules, procedures and processes by which a company is governed. It includes the structures and mechanisms through which decisions are made and accountability is ensured. Corporate governance is important to investors because it helps to ensure that a company is run in an orderly and efficient manner, with due regard for the interests of all stakeholders.

 

There are a number of measures a company can take to minimise the risk of poor corporate governance. These include establishing clear lines of responsibility and accountability, ensuring transparency in decision-making, and maintaining effective communication with all stakeholders. In addition, companies should have in place robust systems and controls to safeguard against risks such as fraud and corruption. By taking these measures, companies can help to create a strong foundation for good corporate governance.

 

When it comes to corporate governance, there is no one-size-fits-all approach. What is important is that companies tailor their governance arrangements to their specific needs and objectives. By doing so, they can help to ensure that their governance practices are aligned with their overall business strategy.

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