Professional Documents
Culture Documents
com
ACCA
Paper F5
Performance Management
Revision Mock Examination
March 2016
Question Paper
DO NOT OPEN THIS PAPER UNTIL YOU ARE READY TO START UNDER
EXAMINATION CONDITIONS.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval
system, or transmitted, in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise, without the prior written permission of Interactive
World Wide Ltd.
2 w w w . s t ud yi nt e r a c t i ve . o r g
1. Sierra Limited has recorded the following data in the two most recent periods.
What is the best estimate of the companys fixed costs per period?
A. $135,000
B. $132,000
C. $51,000
D. $48,000
A. Direct materials
B. Direct labour
C. Fixed costs
D. Variable and fixed costs
3. Newells current level to breakeven is 6,000 units per annum. The selling price is $90
per unit and the variable cost is $40 per unit.
A. $120
B. $240,000
C. $300,000
D. $540,000
4. An office manager of Harris Plc wishes to minimise the cost of telephone calls made.
40% of calls in peak hours cost $1 each and the remainder of such calls cost $1.50
each. 30% of calls at other times cost $0.80 each, 50% of them cost $0.90 each, and
20% of them cost $1 each. This proportion cannot be varied, though the total number
of calls made in peak hours and of calls made at other times can be.
If X = the numbers of calls made each day in peak hours, and Y = the number
of calls made each day at other times, the official managers objective is to:
w w w . s t ud y i nt e r a c t i v e . o r g 3
5. Usman Co is considering its option with regard to a machine which cost $120,000 four
years ago.
The machine can generate scrap proceeds of $150,000 if the firm wants to sell. This
machine would generate net income of $180,000 if used on a project.
A. $120,000
B. $150,000
C. $180,000
D. $210,000
6. Bruno purchased some equipment several years ago for $50,000. Its net book value
is now $10,000. The equipment is no longer in normal use and it could be sold now for
$8,000.
Bruno has been offered a one-off contract which would make use of this piece of
equipment for six months. After this time the equipment would be sold for $5,000.
A. $8,000
B. $3,000
C. $5,000
D. $10,000
A. 14,000 units
B. 11,667 units
C. 28 units
D. 23 units
4 w w w . s t ud yi nt e r a c t i ve . o r g
9. Jack Lee is considering a project and has asked you for help. This project requires 400
kg of raw materials X. The Company has 150 kg of X in stock that were purchased six
months ago for $55 per kg. The company no longer has any use for X. The inventory
of X could be sold for $40 per kg. The current purchase price for X is $53 per kg.
What is the total relevant cost of raw material X for the project?
A. $17,950
B. $19,250
C. $21,200
D. $21,500
10.The Sales Director has prepared a manpower plan to ensure that sales quotas
for the forthcoming year are achieved. This is an example of:
A. Strategic planning
B. Tactical planning
C. Operational planning
D. Corporate planning
A company produces a product that requires two materials, Material A and Material B.
Details of the material quantities and costs for August are given in the table below.
Material A Material B
Budget Actual Budget Actual
Quantity (kg) 24,000 23,000 36,000 38,000
Cost per kg ($) 2.40 2.30 1.30 1.38
Budgeted and actual output of the product for August was 12,000 units.
A. $1,540 Favourable
B. $1,540 Adverse
C. $1,288 Favourable
D. $1,288 Adverse
A. $200 Adverse
B. $1,740 Adverse
C. $200 Favourable
D. $1,740 Favourable
w w w . s t ud y i nt e r a c t i v e . o r g 5
A B
Selling price per unit ($) 180 150
Direct material cost per unit ($) 120 100
Output per hour (units) 80 90
Factory costs are $46,000 per day. There are 10 hours available on the bottleneck
machine every day.
A. 1.04
B. 2.04
C. 3.04
D. 4.04
15.ABC Plc uses an activity based costing system. Three products are manufactured,
details of which are as follows:
What is the machine set-up cost per unit of product Z (to the nearest cent) if
the annual machine set-up costs are $250,000?
A. $1.20
B. $1.02
C. $66.22
D. $2.00
6 w w w . s t ud yi nt e r a c t i ve . o r g
16.Designs plc has just developed a new product, XL. It took 36 minutes to produce the
first batch of five XLs. Designs estimates that it can enjoy an 85% learning effect on
production of the product. In order to set a price for the product, a standard cost card
is being formulated.
How much time per unit should be included for the production of the 201st to
250th items?
A. 7.20 minutes
B. 2.88 minutes
C. 3.10 minutes
D. 2.26 minutes
Jones Ltd operates a standard absorption costing system. The following information has
been extracted from the standard cost card for one of its products:
Budgeted production 1,500 units
It has subsequently been noted that due to a change in economic conditions the best price
that the material could have been purchased for was $4.50 per kg during the period.
A. $4,200 Adverse
B. $4,800 Adverse
C. $4,480 Adverse
D. $4,520
A. $3,600 Adverse
B. $3,280 Adverse
C. $4,200 Adverse
D. $3,820 Adverse
w w w . s t ud y i nt e r a c t i v e . o r g 7
A. Control
B. Planning
C. Decision-making
D. All the above
8 w w w . s t ud yi nt e r a c t i ve . o r g
1. Uni-craft is a toy manufacturer producing more than 30 product lines for disabled
children. The products are specialised and in high demand all over Europe. Recently
they are facing stronger competition due to increased flux of products from the Chinese
market. Uni-craft is considering introducing an ABC system in an effort to build a fair
cost structure and a more competitive price for its products. Details of its three
products from the latest budget working papers are set out below:
Three cost pools have been identified. Their costs for the year are as follows:
$
Machine running costs: 1,400,000
Set up costs: 1,500,000
Purchase order costs: 600,000
Currently, Uni-craft operates an absorption costing system where all overheads are
absorbed based on machine hours.
Required:
Calculate the total cost per unit for each product using:
(15 marks)
w w w . s t ud y i nt e r a c t i v e . o r g 9
Lately, however, competition in the town's beautician market has become more intense
since a large hairdressing salon in the town centre has started offering make-up
services. In response to this, Veronica has decided to diversify into offering manicure
services as well as make-up services. She has asked for your help in deciding how to
price her manicure services.
Together you and Veronica have performed some market research into home manicure
services in the town. This research suggests that the estimated demand for manicure
services per quarter at two different price points are as follows:
Required:
Calculate the expected profit for the manicure services at a price point of:
Explain briefly maximax, maximin and expected value decision rules, with
reference to risk attitudes. (4 marks)
(10 marks)
10 w w w . s t ud yi nt e r a c t i ve . o r g
Required:
(15 marks)
w w w . s t ud y i nt e r a c t i v e . o r g 11
The above figures do not include the effect of a shortage of required skilled workers in
the industry and general average labour rate has gone up to $6 per hour.
In the quarter just ended the company produced and sold 900 units. The direct
materials used were 3,620 kg at total cost of $13,032. The actual direct labour cost
was $9,968.75 for 1,812.5 hours.
Required:
(a) Calculate for labour costs planning and operational variances in as much
detail as information allows. (6 marks)
(b) Explain how analysing variances into planning and operational elements
can help ME. (4 marks)
(10 marks)
12 w w w . s t ud yi nt e r a c t i ve . o r g
The following are the financial details of the divisions gathered by the company
accountants.
South North
Direct material cost per umbrella ($) 1.20 0.80
Direct labour ($) 1.00 1.00
Overheads ($) 0.50 0.40
Annual capacity (units) 1,500,000 1,250,000
Current capacity utilisation (units) 1,400,000 1,100,000
Investment ($) 1,500,000 1,000,000
Sales division is part of the head office of UC which is responsible for all sales. It mostly
shares the facilities of the head office; therefore the investment in sales division is only
minimal ($250,000). UC operates a just-in-time system.
Required:
(10 marks)
w w w . s t ud y i nt e r a c t i v e . o r g 13
Formulae Sheet
Learning curve
Y axb
Where:
Demand curve
P a bQ
changein price
b
changein quantity
a price when Q 0
MR = a 2bQ
14 w w w . s t ud yi nt e r a c t i ve . o r g
ACCA
Paper F5
Performance Management
Revision Mock Examination
March 2016
Answer Guide
Health Warning!
2 w w w . s t ud yi nt e r a c t i ve . o r g
Section A
C
First calculate variable cost per unit as difference in costs divided by
difference in units
Then either using highest level or lowest level, substitute variable cost into
the equation (Fixed costs = Total cost (variable cost number of units)
D
C
Apply breakeven units formula = total fixed costs / contribution per unit,
substitute information provided and balancing figure will be fixed costs
C
For X = 40% 100 cents + 60% $150cents
For Y apply similar method
B
$120,000 is sunk cost as spent in the past.
Replacement cost is irrelevant as machine is already owned.
Therefore opportunity cost of $150,000 is relevant
A
$50,000 is sunk as spent in the past.
$10,000 is also sunk.
$8,000 being a greater option will be opportunity cost or relevant cost to use
on the project.
C
First calculate the break even sales volume, and then apply the formula
budgeted sales minus break even sales units
B
B
$55 per kg is sunk as spent in the past.
150 kg $40 as opportunity cost + 350 kg $53
w w w . s t ud y i nt e r a c t i v e . o r g 3
B
A
Apply the following proforma for both Q11 and Q12.
SQ(SM) SP
Yield variance Q12
AQ(SM) SP
Mix variance Q11
AQ(AM) SP
SQ is the total input quantity which the company should have used to produce
actual output of 12,000 units
SM is the standard mix as 24:36 for A and B respectively
SP is the standard price per kg for each material.
B
A
Throughput return per hour = (Selling price less direct material cost) x 80
units
Factory costs per hour = $46,000 / 10 hours per day
Now apply TPAR = Throughput return per hour / factory costs per hour
D
B
First calculate cost driver rate = annual machine set up costs / total number
of set ups
Total set ups will be based on number of sets per batch times by total batches
for each product
Now multiply cost driver rate to number of set ups for product Z and divide
by batch size to get costs per unit
4 w w w . s t ud yi nt e r a c t i ve . o r g
D
First calculate b value as Log LR / Log 2
Now apply formula Y=ax2 twice (first x = 250 and then x=249)
Now calculate cumulative time for 250 units and then 249 units
Difference between cumulative hours of 250 units and 249 units will give you
time of the 250th unit
C
1,600 units x SQ x SP
Alternatively this can also be calculated by taking actual usage x (SP RSP)
Both answers are acceptable to ACCA.
A
Standard usage 1,600 units x SQ x RSP
Actual usage AQ x RSP
A
A
w w w . s t ud y i nt e r a c t i v e . o r g 5
Section B
Answer 1
Parts (i) and (ii) are standard questions on absorption and ABC. Simply lay out
cost per unit including three resources and then pick up each resource one by one
showing workings clearly, especially cost driver rates.
Marking scheme
= $3,500,000/10,000,000 hours
= $0.35 per hour
6 w w w . s t ud yi nt e r a c t i ve . o r g
In order to calculate set-ups, we have to calculate number of batches for each product,
and then total number of set-ups:
w w w . s t ud y i nt e r a c t i v e . o r g 7
Answer 2
Part (b), brief explanation of each decision criterion required to get maximum
marks.
(i)
$/unit
Sales price 30
Variable cost:
Material 12
Labour/Travel 7
11
8 w w w . s t ud yi nt e r a c t i ve . o r g
(ii)
$/unit
Sales price 40
Variable cost:
Material 12
Labour/Travel 7
21
Maximax refers to maximising the maximum returns. Risk seeking decision maker
chooses maximax criterion to go for the highest risk option in the hope of making
maximum returns. 1 mark
Maximin refers to maximising minimum returns, whereby risk averse decision maker
chooses the best option among the worst available. 1 mark
Expected value refers to the weighted average value of all outcomes. Risk neutral
decision maker chooses to use expected value criterion.
Expected value = px
Where; p refers to probability of an outcome, and
X refers to the value of an outcome (generally in terms of sales revenue, cost or
expenditure, or profit or loss) 2 marks
w w w . s t ud y i nt e r a c t i v e . o r g 9
Answer 3
Parts (a) and (b) should both be straightforward theory questions on what the
different types of budgets are and the disadvantages of each.
For part (c) think to yourself what is involved in ZBB and how this would be more
motivating to employees than more traditional approaches.
This method is very quick and easy to use and therefore a cheap way to prepare
budgets.
Incremental budgeting assumes that nothing has changed, other than perhaps the
sales figure or a few price changes. This is unrealistic in an environment where several
factors would result in things changing. It is likely there are parts of the operation that
have ceased/started/changed over the last year. These changes must be incorporated
to make the budgets relevant.
If the current budget has any inefficiencies in it, for example, waste from the
manufacturing process, the new budgets will simply accept this and build it into the
budget. This is inappropriate as the company should be aiming to cut those costs.
If the company uses the budgets to set the targets for its employees it is likely that
the figures are either very easy or very hard to achieve as they will not have been
appraised for reasonableness year to year.
With incremental budgeting it is easier for managers to build slack into their figures
as they do not have to justify each individual figure.
As so much detail is included in the zero-based budget it is very time consuming and
therefore expensive.
10 w w w . s t ud yi nt e r a c t i ve . o r g
As it is very detailed it is unlikely that staff will have the correct level of expertise and
so training will need to be given to staff, costing more time and money.
The process will also mean that management will need to commit more time to the
budgeting process.
Often the system used by companies is not capable of producing the detailed
information required by this approach. It is possible that new systems will have to be
installed/developed, again at a cost to the company.
(ii) No slack will be built in and so targets will be realistic. This should help motivate
individuals.
(iv) Individuals will no longer be able to get away with building inefficiencies into
their budgets. This should remove any animosity between departments/budget
w w w . s t ud y i nt e r a c t i v e . o r g 11
Answer 4
(a)
SH SR
900 x 2.5 x $5 = $11,250
RSH RSR
900 x 2.5 x $6 = $13,500
AH RSR
1,812.5 x $6 = $10,875
AH AR
$9.968.75
12 w w w . s t ud yi nt e r a c t i ve . o r g
(b)
Planning variances reflect the difference between original budgeted and revised budgeted
results (flexed), and such variances are caused by external / uncontrollable factors.
Performance is not assessed on the basis of planning variances.
Operational variances reflect difference between revised budgeted and actual results and
such variances are caused by internal / controllable factors. Performance of various
managers is assessed on the basis of operational variances.
Basic rate variance in the question is $906.25 adverse showing that the manager has paid
above the standard rate and has caused overspending, whereas operational rate variance
has shown that rate variance is infect $906.25 favourable reflecting that manager has paid
less than average labour rate. This proves good performance. Without analysing it into
planning and operational components, original analysis could be demotivating and unfair
for the manager concerned.
w w w . s t ud y i nt e r a c t i v e . o r g 13
Answer 5
In parts (a) and (b) make sure you only calculate what is required, and do not
discuss it.
Marking scheme
14 w w w . s t ud yi nt e r a c t i ve . o r g
Workings
Cost calculation
South North
$ $
Direct materials 1.20 0.80
Direct labour 1.00 1.00
Overheads 0.50 0.40
Full cost per unit 2.70 2.20
Profit mark-up (10%) 0.27 0.22
Selling price 2.97 2.42
Bonus calculation
Criterion: $500 for every 1% in excess to 20% target ROI
w w w . s t ud y i nt e r a c t i v e . o r g 15