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1 / 3


Section A- This ONE question is compulsory and MUST be attempted




Maxis is a restaurant business in the city of Pixinton. Maxis was started three years ago by three friends who met at university while doing courses in business and catering management. Initially, their aim was simply to ‘make money’ although they had talked about building a chain of restaurants if the first site was successful.

The three friends pooled their own capital and took out a loan from the Ariana Bank in order to fit out a rented site in the city. They designed the restaurant to be light and open with a menu that reflected the most popular dishes in Pixinton regardless of any particular culinary style. The dishes were designed to be priced in the middle of the range that was common for restaurants in the city. The choice of food and drinks to offer to customers is still a group decision amongst the owners.

Other elements of the business were allocated according to each owner’s qualifications and preferences. Ben Stalk takes charge of all aspects of the kitchen operations while another, Sam Rose, manages the activities in the public area such as taking reservations, serving tables and maintaining the appearance of the restaurant. The third founder, Jim Sin, deals with the overall business issues such as procurement, accounting and legal matters.

Competition in the restaurant business is fierce as it is easy to open a restaurant in Pixinton and there are many competitors in the city both small, single-site operations and large national chains. The current national economic environment is one of steady but unspectacular growth. The restaurant has been running for three years and the founders have reached the point where the business seems to be profitable and self-sustaining.

The restaurant is now in need of refurbishment in order to maintain its atmosphere and this has prompted the founders to consider the future of their business. Jim Sin has come to you as their accountant looking for advice on aspects of performance management in the business. He has supplied you with figures outlining the recent performance of the business and the forecasts for the next year (see the performance report below). This table represents the quantitative data that is available to the founders when they meet each quarter to plan any short-term projects or initiatives and also, to consider the longer-term future. Ben and Sam have often indicated to Jim that they find the information daunting and difficult to understand fully.

Jim Sin has come to you to advise him on the performance reporting at Maxis and how it could be improved. He feels that the current report is, in some ways, too complex and, in other ways, too simple. He wants to look at different methods of measuring and presenting performance to the ownership group. As a starting point, he has suggested to you that you consider measures such as NPV, EVA™, MIRR as well as the more common profit measures. Jim is naive and wants the NPV and MIRR to be appraised as if the business was a threeyear project up to 2012 so he knows the performance of the business to date. He has requested that other calculations in your performance review should be annual based on the 2012 figures although he is aware that this may be omitting in his words ‘some important detail’.

At recent meetings, Sam has been complaining that her waiters and waitresses are not responding well to her attempts to encourage them to smile at customers although her recent drive to save electricity by getting staff to turn off unnecessary lights seems to be working. Ben stated that he was not convinced by either of Sam’s initiatives and he wants her to make sure that food is collected from the kitchen swiftly and so delivered at the right temperature to the customer’s table. Also, Ben has said that he feels that too much food is becoming rotten and having to be thrown out. However, he is not sure what to do about it except make the kitchen staff go through lengthy inventory checks where they review the food held in store. Jim is worried about these complaints as there is now an air of tension in the owners’ meetings. He has been reading various books about performance management and has come across the quote, ‘What gets measured, gets done.’ He believes this is true but wants to know how it might apply in the case of his business.


Maxis Performance Report

Maxis Restaurant

  Year to 31 March












Latest quarter to 31 March 2012

(Q4 2012)


Previous quarter

 (Q3 2012)


Food 617,198 878,220 974,610 1,062,180 185,176 321,621
Wine 127,358 181,220 201,110 219,180 38,211 66,366
Spirits 83,273 118,490 131,495 143,310 24,984 43,394
Beer 117,562 167,280 185,640 202,320 35,272 61,261
Other beverages 24,492 34,850 38,675 42,150 7,348 12,763
Outside catering 9,797 13,940 15,470 16,860 2,939 5,105
Total 979,680 1,394,000 1,547,000 1,686,000 293,930 510,510
Cost of sales  
Food 200,589 285,422 316,748 345,209 60,182 104,527
Wine 58,585 83,361 92,511 100,821 17,577 30,528
Spirits 21,651 30,807 34,189 37,261 6,496 11,283
Beer 44,673 63,566 70,543 76,882 13,403 23,279
Other beverages 3,674 5,228 5,801 6,323 1,102 1,914
Outside catering 3,135 4,461 4,950 5,395 941 1,634
Total 332,307 99,701 173,165 472,845 524,742 571,891
Gross profit 647,373 921,155 1,022,258 1,114,109 194,229 337,345
Staff costs 220,428 313,650 348,075 379,350 66,134 114,865
Other operating costs            
Marketing 25,000 10,000 12,000 20,000 3,000 3,000
Rent/mortgage 150,800 175,800 175,800 193,400 43,950 43,950
Local property tax 37,500 37,500 37,500 37,500 9,375 9,375
Insurance 5,345 5,585 5,837 6,100 1,459 1,459
Utilities 12,600 12,978 13,043 13,173 3,261 3,261
Waste removal 6,000 6,180 6,365 6,556 1,591 1,591
Equipment repairs 3,500 3,658 3,822 3,994 956 956
Depreciation 120,000 120,000 120,000 120,000 30,000 30,000
Building upgrades       150,000    
Total 360,745 371,701 374,367 550,723 93,592 93,592
Manager salary 35,000 36,225 37,494 38,806 9,373 9,373
Net profit/loss before interest and corporate taxes 31,200 199,579 262,322 145,230 25,130 119,515
Net margin 3.2% 14.3% 17.0% 8.6% 8.5% 23.4%


Additional notes:

  1. The business was founded with $600,000 which comprised $250,000 of equity from the founders and the remainder in a loan from Ariana Bank. Under the terms of the loan, all principal is repayable in 10 years’ time and interest is charged at a fixed rate of 8.4% per year.
  2. Jim has estimated the overall cost of capital to be 12.5%.
  3. The company earns 4.5% on any returns in its deposit account.
  4. Jim wishes you to use the $600,000 original investment as the capital employed figure for analysis purposes as no new capital has been input and the owners have taken out all residual earnings so far as dividends.
  5. The corporation tax rate for Maxis is 30%, paid in the same year as profits are generated. Accounting depreciation is a tax allowable cost.
  6. Marketing spending is for the short-term promotion of offers only.



Prepare a report to Mr Jim Sin addressing the following issues:


a. Critically assess the existing performance report and suggest improvements to its content and presentation

(15 marks)


b. Comment on the performance of Maxis using the data presented in the current performance report

(6 marks)


c. Calculate and briefly evaluate

i. the use of Jim’s suggested performance measures and

ii. other profit-based measures, using the most recent year’s actual figures where appropriate as examples

(15 marks)


d. Assess how the quote ‘What gets measured, gets done’ could apply to Maxis.

(10 marks)

Professional marks will be awarded in question 1 for format, style, structure and clarity of the discussion.

(4 marks)

(Total: 50 marks)

2 / 3

Section B – BOTH questions are compulsory and MUST be attempted




Company background and objectives

Alice Airline (Alice) is the national airline of Doryland. The airline's objective is to be the best premium global airline.


Recent events

Alice provides long- and short-haul services all over the world and is based at its hub at Dorycity airport. Alice has been hit by a worldwide reduction in air travel due to poor economic conditions. The most recent financial results show a loss and this has caused the board to reconsider its position and take action to address the changed environment.

Alice has cut its dividend in order to conserve cash and it is trying to rebuild profitability by reducing costs by 14%. The airline is capital intensive as it needs to maintain a large fleet of modern aircraft. The two major costs for the airline are staff and fuel. In trying to renegotiate working conditions and pay, the management have angered the unionised workforce. There has already been some strike action by the unions representing the aircraft crew and ground staff and more is threatened.

Additionally, the board is pushing forward a large project to improve the design of the company website in order to increase the number of passengers who check in online and so would not require as much assistance at the airport. The new design is also aiming to increase the number of passengers who book their tickets through the company's website rather than other resellers' websites or at booking agents.

The board has also been considering taking advantage of new technology in aircraft engines by making a large investment ($450m) in new low-noise, fuel-efficient aircraft in an effort to reduce the environmental complaints surrounding air travel and also cut costs.


Performance analysis

The Chief Executive Officer (CEO) has provided the data for Alice and two of its main competitors (shown in Appendix 1). Kevinland Air is a government-owned and run airline in the neighbouring country of Kevinland. It has a similar mix of business to Alice and targets a similar market. Chico Air is currently one of the most successful of the new privately owned airlines that have gained significant market share over the last 15 years by offering a cheap but basic short-haul service to customers in and around Doryland. Chico Air subcontracts many of its activities in order to remain flexible. The CEO wants you to calculate some suitable performance measures and explain the results.


Big Data

The CEO believes that Alice could be making more use of Big Data. He has recently returned from a conference about 'Big Data in the Airline Industry' where one of the speakers talked about the benefits of Big Data in relation to four key areas:

Identifying trends in passenger demand and using this to set prices

Understanding and influencing the customer's selection process (in particular reducing the number of potential customers who start booking a flight online but do not go on to complete the transaction)

Boosting revenue from in-flight sales by optimising the on-board store for individual flights

Understanding customer sentiment and improving customer satisfaction Alice currently offers the same selection of in-flight products on all its flights. The CEO has asked you to explain how using Big Data in these four areas could help Alice improve its performance. However, he also wants to understand the potential implications that using Big Data could have for Alice's management information systems, given that a number of Alice's IT staff are already working on the website upgrade project.




a. Using the data provided, analyse the three airlines using appropriate performance indicators and comment on your results.

(12 marks)


b. Explain how Big Data could be used to help Alice's performance, in relation to the four key areas identified at the conference.

(8 marks)


c. Discuss the potential implications of Big Data for Alice's management information systems.

(5 marks)

 (Total = 25 marks)


Appendix 1

Data provided by the CEO:

Data for the most recent calendar year


  Alice Kevinland Air Chico Air
Passengers ('000) 23,649 38,272 35,624
Passenger kilometres (millions) 79,618 82,554 40,973
Revenue ($m) 5,430 7,350 2,170
Costs Fuel ($m) 1,480 1,823 535
Staff ($m) 1,560 2,998 238
Staff numbers 32,501 56,065 5,372
Operating profit ($m) 630 54 127
Number of aircraft 182 361 143
Average aircraft size (seats) 195 163 125
Seat kilometres (millions) 100,654 105,974 46,934


Note. A seat kilometre is generated for every one kilometre flown by an available seat on the company's aircraft.

3 / 3



Company background and objectives

Scarlett- Yasiland Logistics (Scarlett) is a logistics support business, which operates a fleet of lorries to deliver packages of goods on behalf of its customers within the country of Yasiland. Scarlett collects packages from its customers' manufacturing sites or from the customers' port of importation and delivers to the final user of the goods. The lorries are run and maintained from a set of depots spread throughout Yasiland.

The overall objective of Scarlett is to maximise shareholder wealth. The delivery business in Yasiland is dominated by two international companies and one other domestic business and profit margins are extremely tight. The market is saturated by these large operators and a number of smaller operators. The cost base of Scarlett is dominated by staff and fuel, with fuel prices being highly volatile in the last few years.


Balanced scorecard

In order to improve performance measurement and management at Scarlett, the Chief Financial Officer (CFO) plans to use the balanced scorecard (BSC). However, she has been pulled away from this project in order to deal with an issue with refinancing the business's principal lending facility.

The CFO has already identified some suitable metrics but needs you, as her assistant, to complete her work and address any potential questions which might arise when she makes her presentation on the BSC to the board. The CFO has completed the identification of metrics for three of the perspectives (Appendix 1) but has yet to complete the work on the metrics for the customer perspective. This should be done using the data given in Appendix 2.


Reward management issues

Additionally, two issues have arisen in the reward management system at Scarlett, one in relation to senior management and the other for operational managers. Currently, senior management gets a fixed salary supplemented by an annual bonus awarded by the board. Shareholders have been complaining that these bonuses are not suitable. The operational managers also get bonuses based on their performance as assessed by their management superiors. The operational managers are unhappy with the system. In order to address this, it has been suggested that they should be involved in bonus target setting as otherwise there is a sense of demotivation from such a system. The CFO wants an evaluation of this system of rewards in light of the introduction of the BSC and best practice.




a. Discuss how Scarlett’s success in the customer perspective may impact on the metrics given in the financial perspective.

(5 marks)


b. Recommend, with justification, and calculate a suitable performance metric for each customer perspective success factor. Comment on the problems of using customer complaints to measure whether packages are delivered safely and on time.

(11 marks)


c. Advise Scarlett on the reward management issues outlined by the CFO.

(9 marks)

 (Total = 25 marks)


Appendix 1


Financial perspective

(How do we appear to our shareholders?)

Return on capital employed Profit margin

Revenue growth


Customer perspective

(How do we appear to our customers?) Success factors:

Ability to meet customers' transport needs

Ability to deliver packages quickly

Ability to deliver packages on time

Ability to deliver packages safely


Internal process perspective

(What business processes must excel?)

Time taken to load and unload

Lorry capacity utilisation


Learning and growth perspective

(How do we sustain and improve our ability to grow?)

Leadership competence (qualitative judgement)

Training days per employee


Appendix 2

The process: A customer makes a transport request for a package to be collected and delivered to a given destination. The customer is supplied with a time window in which the delivery will occur. Packages are then loaded onto lorries and delivered according to a route specified by the depot's routing manager.


Total number of customer transport requests 610,000
Total number of packages transported 548,000
Total number of lorry journeys 73,000
Total package kilometres 65,760,000
Total package minutes 131,520,000
Number of delivery complaints from customers:  
from damaged packages 8,220
from late delivery (outside agreed time window) 21,920



  1. All figures are for the last financial year.
  2. A package kilometre is defined as a kilometre travelled by one package.
  3. A package minute is defined as a minute spent in transit by one package.

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