Refer to Table 3. Calculate the accounting rate of return (ARR) for the investment in enterprise resource planning (ERP).

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2022). The mark or mark type is shown in brackets.

1. [3] (a) Correct answer (units not required). 19% OR 19.
2. [2] (a) Annual profit = $1.9m.
3. [1] (a) Profit = $9.5m.
4. [1] (a) (Formula) ARR = Annual profit / capital cost X 100 OR ARR = Annual profit / Average investment cost X 100.
5. [1] (a) (Formula) Annual profit = Profit / number of years.
6. [2] (a) (Alternative calculation using average investment) 38%.
7. [2] (a) (Alternative calculation if capital cost is not subtracted) 39%.
8. [0] (a) OFR (Own Figure Rule)
9. [3] (b)(i) 5.43 times.
10. [1] (b)(i) (Formula) Inventory turnover ratio = Cost of sales / value of inventories.
11. [2] (b)(i) 140.2 / 25.8.
12. [3] (b)(i) Allow 67.2 days or 68 days.
13. [3] (b)(i) (Alternative using average inventory) 6.36 times.
14. [3] (b)(i) (Alternative using average inventory) OR 57.4 days or 58 days.
15. [2] (b)(i) (Alternative using 2021 data) 6.22 OR 58.7 days.
16. [0] (b)(i) OFR (Own Figure Rule)
17. [3] (b)(ii) 58.26 days OR 58.3 OR 59 days.
18. [1] (b)(ii) (Formula) Days' sales in receivables ratio = trade receivable / revenue X 365 OR Trade receivables / credit sales X 365.
19. [2] (b)(ii) 40.8 / 255.6 X 365.
20. [2] (b)(ii) 1.9 months.
21. [2] (b)(ii) (Alternative using 2021 data) 45.2 days.
22. [0] (b)(ii) OFR (Own Figure Rule)
23. [1] (c) (Knowledge) ERP is using dedicated software to integrate orders, materials, labour and distribution to minimise cost, reduce inventory levels and waste.
24. [1] (c) (Knowledge) ERP enables customer orders to match raw material supplies to enable JIT.
25. [1] (c) (Knowledge) Enables APF's orders to be delivered quickly.
26. [1] (c) (Knowledge) Reduces cost of ordering and holding inventory.
27. [1] (c) (Knowledge) All departments can access same information so no communication issues.
28. [1] (c) (Knowledge) Reduces waste due to deterioration in overlong storage.
29. [1] (c) (Knowledge) Increases competitive advantage.
30. [1] (c) (Knowledge) Cost of staff training.
31. [1] (c) (Knowledge) Time and disruption during integration of ERP system.
32. [1] (c) (Knowledge) Understanding of ARR / inventory turnover / days' sales in receivables.
33. [1] (c) (Application) May facilitate meeting increasing demand for juice orders.
34. [1] (c) (Application) Link to sustainability and shareholder value.
35. [1] (c) (Application) Complex supply chain management.
36. [1] (c) (Application) Use of ARR figure of 19%.
37. [1] (c) (Application) Payback 2 years 8.7 months.
38. [1] (c) (Application) Change in ratios since 2021: Inventory turnover reduced from 6.36 times to 5.43 times or from 59 to 68 days.
39. [1] (c) (Application) Change in ratios since 2021: Days' sales in receivables increased from 45.2 days to 58.26 days.
40. [1] (c) (Analysis) JIT production will reduce inventory holding costs and increase profit.
41. [1] (c) (Analysis) May enable increase to maximum capacity as less inventory will be held. This will facilitate meeting increasing demand for juice orders.
42. [1] (c) (Analysis) ERP enables customer orders to match raw material supplies to enable JIT. This will reduce APF costs of storage and reduction in value of fruit due to ageing.
43. [1] (c) (Analysis) Enables APF's orders to be delivered quickly, providing better customer service and meeting customer expectations of fast delivery. This will help retain customers.
44. [1] (c) (Analysis) All departments can access same information so no communication issues.
45. [1] (c) (Analysis) Reduces waste due to deterioration in overlong storage thus improving efficiency. Link to sustainability and reputation of APF.
46. [1] (c) (Analysis) Enables rapid response to change and customised pricing.
47. [1] (c) (Analysis) Can be adapted to enable/facilitate expansion or new products.
48. [1] (c) (Analysis) Increases competitive advantage helping APF to increase market share.
49. [1] (c) (Evaluation) Cost savings are estimates made by APF. Can these figures be trusted? Have training costs of introducing ERP been factored into the net cost savings.
50. [1] (c) (Evaluation) If ERP is used to reduce inventory holding costs, then success depends in part on the reliability of suppliers of fertilisers etc to deliver on time.
51. [1] (c) (Evaluation) ERP will help with the vertical integration of the business by connecting more effectively the different stages of production.
52. [1] (c) (Evaluation) Data is the lifeblood of every modern company, ERP makes it easier to collect, organize, analyse, and distribute this information to every individual and system that needs it to best fulfil their role and responsibility.
53. [1] (c) (Evaluation) How long will it take to implement - given the complexity of the supply chain?
54. [1] (c) (Evaluation) Danger of obsolescence as newer systems developed.
55. [1] (c) (Evaluation) NPV as this considers time, value of money.
56. [1] (c) (Evaluation) Depends on ability to recruit suitable employees to manage the system.
57. [1] (c) (Evaluation) Depends on availability of finance.