Mock Examination

: ACCA Paper F5

Performance Management
Session Prepared by : June 2013 : Mr Chow Kim Tai

Your Lecturer Mr Chow Kim Tai Mr Ian Lim Your Mailing Address : ______________________________________ ______________________________________ Your Contact Number : ______________________________________

I wish to have my script marked by my lecturer and collect the marked script at the SAA-GE Reception Counter have the marked script returned to me by mail

(Please submit your script latest by 13th May 2013 for marking)

SAA GLOBAL EDUCATION CENTRE PTE LTD

Company Registration No. 201001206N 20 Aljunied Road, #01-04, CPA House, Singapore 389805 Tel: (65) 6744 9700 Fax: (65) 6744 9796 Website: www.saage.edu.sg Email: acca@saage.edu.sg

ACCA PAPER F5 PERFORMANCE MANAGEMENT MOCK EXAM JUNE 2013

Fundamentals Paper F5

Performance Management
Mock Examination June 2013
Question Paper

Time allowed

3 hours 15 min.

Answer ALL five questions

ACCA PAPER F5 PERFORMANCE MANAGEMENT MOCK EXAM JUNE 2013 Answer ALL five questions Question 1 The following details have been extracted from the standard cost card for product X. $/unit Variable overhead 4 machine hours @ $8.00/hour 32.00 2 labour hours @ $4.00/hour 8.00 Fixed overhead 20.00

During October 20X7, 5,450 units of the product were made compared to a budgeted production target of 5,500 units. The actual overhead costs incurred were: Machine-related variable overhead Labour-related variable overhead Fixed overhead $176,000 $42,000 $109,000

The actual number of machine hours was 22,000 and the actual number of labour hours was 10,800. Required

(a) (a) Calculate the overhead cost variances in as much detail as possible from the data
provided. (12 Marks) (b) Explain the meaning of, and give possible causes for, the variable overhead variances which you have calculated. (8 Marks) (20 marks)

ACCA PAPER F5 PERFORMANCE MANAGEMENT MOCK EXAM JUNE 2013 Question 2 (a) BVX Ltd manufactures three garden furniture products - chairs, benches and tables. The budgeted unit cost and resource requirements of each of these items is detailed below. Chair Bench Table $ $ $ Timber cost 5.00 15.00 10.00 Direct labour cost 4.00 10.00 8.00 Variable overhead cost 3.00 7.50 6.00 Fixed overhead cost 4.50 11.25 9.00 16.50 43.75 33.00 Budgeted volume per annum 4000 2000 1500

(i) (ii)

These volumes are believed to equal the market demand for these products. The fixed overhead costs are attributed to the three products on the basis of direct labour hours. (iii) The labour rate is $4.00 per hour. (iv) The cost of the timber is $2.00 per square metre. The products are made from a specialist timber. A memo from the purchasing manager advises you that because of a problem with the supplier, it is to be assumed that this specialist timber is limited in supply to 20,000 square metres per annum. The sales director has already accepted an order for 500 chairs, 100 benches and 150 tables which, if not supplied, would incur a financial penalty of $2,000. These quantities are included in the market demand estimates above. The selling prices of the three products are as follows. Chair $20.00 Bench $50.00 Table $40.00 Required (i) Determine the optimum production plan and state the net profit that this should yield per annum. (10 Marks) (ii) Calculate and explain the maximum prices which should be paid per square metre in order to obtain extra supplies of timber. (4 marks) (b) Where production capacity is limiting factor, explain briefly ways in which management can increase it without having to acquire more plant and machinery. (6 marks) (20 marks)

ACCA PAPER F5 PERFORMANCE MANAGEMENT MOCK EXAM JUNE 2013 Question 3 A company is planning to launch a new product (Product Z) in an effort to recover lost sales. Without the new product, activity in each production department would be expected to continue at 60% of practical manufacturing capacity. Annual sales of 245,000 units of Product Z are estimated, at a price of $995 per unit. Estimated costs relating to the new product are to be established from the following information: Direct materials: 03 kilos (net) of a new raw material (Material A) will be required per unit of finished product. 10% of the weight of the material input to production is expected to be lost. Material A costs $630 per kilo before discount. A quantity discount of 5% is given on all purchases if the average monthly purchase quantity exceeds 4,500 kilos. Other materials are expected to cost $147 per unit of Product Z. Direct labour: Department X: 035 hours per unit of finished product at $460 per hour. Department Y: 014 hours per unit of finished product at $500 per hour. Production overheads: If Product Z is launched, total overheads in Department X will be absorbed at 130% of direct labour cost. Overhead absorption in Department Y will be established as a rate per direct labour hour based upon the expected utilisation of capacity, and the associated overhead costs, if Product Z is launched. The following figures for Department Y for a year are based upon practical capacity: Total overheads, $542,400 Direct labour hours, 220,000. Variable overheads in Department X are 40% of direct labour cost, and in Department Y are $198,000 for a year at practical manufacturing capacity. Non-production overheads: Non-production overheads are estimated at $070 per unit of Product Z for variable overheads, and will be charged at $135 per unit for fixed overheads. Required: (a) Calculate the estimated total unit cost of Product Z (i.e. on an absorption cost basis). (8 marks) (b) Discuss the viability of Product Z, at a selling price of $995 per unit. (5 marks) The company has also, with the aid of management consultants, developed another new product (Product Y) and, at the same time, researched its market potential. The fee, as yet unpaid, agreed with the management consultants for the work carried out is $70,000. Further research and development costs incurred to date by the company total $96,000. The sales potential of the new product, indicated by the market research, will depend upon the price charged. At a selling price of $20 per unit, the annual sales volume is expected to be in the range 150,000 to 200,000 units per annum. If the selling price is set at $18 per unit, sales of between 240,000 and 360,000 units would be expected. Both alternatives would be supported by advertising and promotional expenditure of $180,000 per annum. Variable production costs are forecast at $1250 per unit for production up to 200,000 units per annum, reducing to $1200 per unit on any additional production. Incremental fixed production costs, as a result of the launch of the new product, are expected to be $220,000 per annum.

ACCA PAPER F5 PERFORMANCE MANAGEMENT MOCK EXAM JUNE 2013 There is insufficient production capacity available to satisfy the complete range of demand estimates for Product Y. Production in excess of 240,000 units per annum would result in a loss of contribution on Product A at a rate of $500 per unit of Product Y. Variable selling costs are 10% of sales revenue and all products are charged a further 15% of sales revenue to recover the companys general fixed costs incurred across all functions of the business. Required: (c) Assess the profit potential from the launch of Product Y using the full range of demand estimates in your analysis. (7 marks)

(20 marks)

ACCA PAPER F5 PERFORMANCE MANAGEMENT MOCK EXAM JUNE 2013 Question 4 Heighway Co is a railway company. Heighway Co operates a passenger railway service and is responsible for the operation of services and the maintenance of track signalling equipment and other facilities such as stations. In recent years it has been criticised for providing a poor service to the travelling public in terms of punctuality, safety and the standard of facilities offered to passengers. In the last year Heighway Co has invested over $20 million in new carriages, station facilities and track maintenance programmes in an attempt to counter these criticisms. Summarised financial results for Heighway Co for the last two years are given below. Summarised income statement for the year ended 31 December 20X3 $ million 180.0 18.0 (3.2) (4.4) 10.4 20X4 $ million 185.0 16.5 (4.7) (3.5) 8.3

Sales revenue Earnings before interest and tax Interest Tax Earnings available to ordinary shareholders Summarised balance sheet as at 31 December $m Non-current assets (net) Current assets Inventory Receivables Cash

20X3 $m 100.4

$m

20X4 $m 120.5

5.3 2.1 6.2 13.6 114.0

5.9 2.4 3.6 11.9 132.4 25.0 48.2 15.0 35.0 9.2 132.4

Ordinary share capital ($1 shares) Reserves Amounts payable after more than one year 8% Debenture 20X9 Bankloan Payables due within one year

25.0 45.6 15.0 20.0 8.4 114.0

Required (a) Calculate the following ratios for Heighway Co for 20X3 and 20X4, clearly showing your workings. (i) Return on capital employed (also known as return on investment) based upon closing capital employed) (ii) Net profit margin (iii) Asset turnover (iv) Current ratio, and (v) Gearing ratio (8 marks) (b) Briefly comment on the financial performance of Heighway Cc in 20X3 and 20X4 as revealed by the above ratios and suggest causes for any changes. (You are not required to calculate any other ratios.) (6 marks)

ACCA PAPER F5 PERFORMANCE MANAGEMENT MOCK EXAM JUNE 2013 (c) Suggest THREE non-financial indicators that could be useful in measuring the performance of a passenger railway company and explain why your chosen indicators are important. (6 marks)

(20 marks)

ACCA PAPER F5 PERFORMANCE MANAGEMENT MOCK EXAM JUNE 2013 Question 5 AME has three product lines P1, P2 and P3. Since its creation the company has been using a single direct labour cost percentage to assign overhead costs to products. Despite P3, a relatively new line, attracting additional business, increasing overheads costs and a loss of market share, particularly for P2, a major product, have convinced management that the costing system is in need of some development. A team spent several weeks collecting data (see table below) for the different activities and products. For accounting period in question, given in the tables below is data on AME's three products lines and overhead costs: P1 7500 units $4 $18 $47 4 0.5 1 30% 1 P2 12,500 units $8 $25 $80 25 0.5 5 20% 7 P3 4,000 units $6.4 $16 $68 50 0.2 10 50% 22

Production volume Direct labour cost per unit Material cost per unit Selling price per unit Materials movements (in total) Machine hour per unit Set ups (in total) Proportion of engineering work Orders packed (in total) Activities Material handling and receiving Machine maintenance and depreciation Set up labour Engineering Packing Total Required (a)

Overhead cost $150,000 390,000 18,688 100,000 60,000 718,688

Calculate the overhead rate and the product unit costs under existing costing system. (4 marks) Identify for each overhead activity, an appropriate cost driver from the information supplied and then calculate the product unit costs using a system that assigns overheads on the basis of the use of activities. (9 marks) Comment on the results of the two costing systems in (a) and (b). (7 marks)

(b)

(c)

(20 marks)

END OF QUESTION PAPER