F5 Paper

Fundamentals Level Skills Module Performance Management

Monday 8 June 200

Time allowed !eading and planning" $riting"

#5 minutes % &ours

'LL F()* +uestions are compulsory and M,S- .e attempted/ Formulae Sheet is on page 10 Do NOT open this paper until instructed by the supervisor. During reading and planning time only the question paper may be annotated. ou must NOT write in your answer boo!let until instructed by the supervisor.
This question paper must not be removed "rom the e#amination hall.

The $ssociation o" %hartered %erti"ied $ccountants

This is a blan! page. The question paper begins on page &.

$'' F()* questions are compulsory and +,ST be attempted 1 1am 2o is involved in t&e processing of s&eet metal into products '3 4 and 2 using t&ree processes3 pressing3 stretc&ing and rolling/ Like many .usinesses 1am faces toug& price competition in 5&at is a mature 5orld market/ -&e factory &as 50 production lines eac& of 5&ic& contain t&e t&ree processes" !a5 material for t&e s&eet metal is first pressed t&en stretc&ed and finally rolled/ -&e processing capacity varies for eac& process and t&e factory manager &as provided t&e follo5ing data"
Processing time per metre in &ours Product ' Product 4 Product 2 0600 Pressing 0650 06 50 Stretc&ing 0625 06 0625 00 !olling 0600 06 0625 25 -&e factory operates for #8 &ours eac& day for five days per 5eek/ (t is closed for only t5o 5eeks of t&e year for &olidays 5&en maintenance is carried out/ 7n average one &our of la.our is needed for eac& of t&e 2253000 &ours of factory time/ La.our is paid 8#0 per &our/ -&e ra5 materials cost per metre is 8%600 for product '3 82650 for product 4 and 8#680 for product 2/ 7t&er factory costs 9e:cluding la.our and ra5 materials; are 8#830003000 per year/ Selling prices per metre are 8<0 for product '3 8=0 for product 4 and 82< for product 2/ 1am carries very little inventory/

-equired. /a0 (denti"y the bottlenec! process and brie"ly e#plain why this process is described as 9% marks; a 1bottlenec!2. /b0 %alculate the throughput accounting ratio /T3$-0 "or each product assuming that the bottlenec! process is "ully utilised. 98 marks; /c0 $ssuming that the T3$- o" product % is less than 1. /i0 *#plain how am could improve the T3$- o" product %. 90 marks; /ii0 4rie"ly discuss whether this supports the suggestion to cease the production o" product % and brie"ly outline three other "actors that am should consider be"ore a cessation decision is ta!en. 95 marks; /50 mar!s0

>P/-/7/

7liver is t&e o5ner and manager of 7liver?s Salon 5&ic& is a +uality &airdresser t&at e:periences &ig& levels of competition/ -&e salon traditionally provided a range of &air services to female clients only3 including cuts3 colouring and straig&tening ' year ago3 at t&e start of &is 200 financial year3 7liver decided to e:pand &is operations to include t&e &airdressing needs of male clients/ Male &airdressing prices are lo5er3 t&e 5ork simpler 9mainly &air cuts only; and so t&e time taken per male client is muc& less/ -&e prices for t&e female clients 5ere not increased during t&e 5&ole of 2008 and 200 and t&e mi: of services provided for female clients in t&e t5o years 5as t&e same/
-&e latest financial results are as follo5s"

8 Sales 2%83500 Less cost of sales" @airdressing staff costs @air products female

2008 200 8 8 2003000

=53000 2 3000
03000 #0=3000

#3000 2<3000
#2=30 ##235 00

Aross profit Less e:penses" !ent 'dministration salaries *lectricity 'dvertising -otal e:penses Profit

#03000 3000 <3000 230 00

#03000 3500 83000 530 00

2830 00 <83000

%235 00 8030 83000

@air products male

7liver is disappointed 5it& &is financial results/ @e t&inks t&e salon is muc& .usier t&an a year ago and 5as e:pecting more profit/ @e &as noted t&e follo5ing e:tra information" #/ Some female clients complained a.out t&e c&ange in atmosp&ere follo5ing t&e introduction of male services3 5&ic& created tension in t&e salon/ 2/ -5o ne5 staff 5ere recruited at t&e start of 200 / -&e first 5as a Bunior &airdresser to support t&e specialist &airdressers for t&e female clients/ S&e 5as appointed on a salary of 8 3000 per annum/ -&e second ne5 staff mem.er 5as a specialist &airdresser for t&e male clients/ -&ere

5ere no increases in pay for e:isting staff at t&e start of 200 after a .ig rise at t&e start of 2008 5&ic& 5as designed to cover t5o years? 5ort& of increases/ 7liver introduced some nonCfinancial measures of success t5o years ago/
Dum.er of complaints Dum.er of male client visits Dum.er of female client visits Dum.er of specialist &airdressers for female clients Dum.er of specialist &airdressers for male clients 2008 # 20 83000 0 0 20 0 0= %30 25 =38 005 #

-equired. /a0 %alculate the average price "or hair services per male and "emale client "or each o" the years 5006 and 5007. 9% marks; /b0 $ssess the financial per"ormance o" the Salon using the data above. 9## marks;

/c0 $nalyse and comment on the non8"inancial per"ormance o" Oliver2s business9 under the headings o" quality and resource utilisation. 9= marks; /50 mar!s0

&

2rum.ly 2akes make cakes3 5&ic& are sold directly to t&e pu.lic/ -&e ne5 production manager 9a cele.rity c&ef; &as argued t&at t&e .usiness s&ould use only organic ingredients in its cake production/ 7rganic ingredients are more e:pensive .ut s&ould produce a product 5it& an improved flavour and give &ealt& .enefits for t&e customers/ (t 5as &oped t&at t&is 5ould stimulate demand and ena.le an immediate price increase for t&e cakes/ 2rum.ly 2akes operates a responsi.ility .ased standard costing system 5&ic& allocates variances to specific individuals/ -&e individual managers are paid a .onus only 5&en net favoura.le variances are allocated to t&em/ -&e ne5 organic cake production approac& 5as adopted at t&e start of Marc& 200 3 follo5ing a decision .y t&e ne5 production manager/ Do c&ange 5as made at t&at time to t&e standard costs card/ -&e variance reports for Fe.ruary and Marc& are s&o5n .elo5 9Fav E Favoura.le and 'dv E 'dverse;

Manager responsi.le

Marc& )ariance 8 Production manager Material price 9total for all ingredients; 25 Fav 23#00 'dv Material mi: 0 =00 'dv Material yield 20 Fav 000 Fav Sales manager Sales price 00 'dv <3000 Fav Sales contri.ution volume %5 'dv %3000 Fav -&e production manager is upset t&at &e seems to &ave lost all &ope of a .onus under t&e ne5 system/ -&e sales manager t&inks t&e ne5 organic cakes are e:cellent and is very pleased 5it& t&e progress made/ 2rum.ly 2akes operate a J(- stock system and &olds virtually no inventory/ -equired. /a0 $ssess the per"ormance o" the production manager and the sales manager and indicate whether the current bonus scheme is "air to those concerned. 9< marks; (n 'pril 200 t&e follo5ing data applied" Standard cost card for one cake 9not adBusted for t&e organic ingredient c&ange; (ngredients Flour *ggs 4utter Sugar -otal input Dormal loss 9#0G; Standard 5eig&t of a cake Standard sales price of a cake Standard contri.ution per cake after all varia.le costs F g 06#0 06#0 06#0 06#0 0600 90600; 06%= 06#2 kg 06<0 kg #6<0 kg 0650 kg 8 per per per per

'llocated variances

Fe.ruary )ariance 8

0685 06%5

-&e .udget for production and sales in 'pril 5as 503000 cakes/ 'ctual production and sales 5as =03000 cakes in t&e mont&3 during 5&ic& t&e follo5ing occurred" (ngredients used Flour *ggs 4utter Sugar -otal input 'ctual loss 'ctual output of cake mi:ture 'ctual sales price of a cake Fg 53<00 =3=00 =3=00 035<8 2%30<8 9#38<8; 2#3=00 8 8< 0# 853= #0 8##38 80 823< 0< 8203 <8 806

'll cakes produced must 5eig& 06%= kg as t&is is 5&at is advertised/ -equired. /b0 %alculate the material price9 mi# and yield variances and the sales price and sales contribution volume variances "or $pril. ou are not required to ma!e any comment on the per"ormance o" the managers. 9#% marks; /50 mar!s0

4its and Pieces 94HP; operates a retail store selling spares and accessories for t&e car market/ -&e store &as previously only opened for si: days per 5eek for t&e 50 5orking 5eeks in t&e year3 .ut 4HP is no5 considering also opening on Sundays/ -&e sales of t&e .usiness on Monday t&roug& to Saturday averages at 8#03000 per day 5it& average gross profit of <0G earned/ 4HP e:pects t&at t&e gross profit G earned on a Sunday 5ill .e 20 percentage points lo5er t&an t&e average earned on t&e ot&er days in t&e 5eek/ -&is is .ecause t&ey plan to offer su.stantial discounts and promotions on a Sunday to attract customers/ Aiven t&e price reduction3 Sunday sales revenues are e:pected to .e =0G more than t&e average daily sales revenues for t&e ot&er days/ -&ese Sunday sales estimates are for ne5 customers only3 5it& no allo5ance .eing made for t&ose customers t&at may transfer from ot&er days/ 4HP .uys all its goods from one supplier/ -&is supplier gives a 5G discount on all purc&ases if annual spend e:ceeds 8#30003000/ (t &as .een agreed to pay time and a &alf to sales assistants t&at 5ork on Sundays/ -&e normal &ourly rate is 820 per &our/ (n total five sales assistants 5ill .e needed for t&e si: &ours t&at t&e store 5ill .e open on a Sunday/ -&ey 5ill also .e a.le to take a &alfCday off 9four &ours; during t&e 5eek/ Staffing levels 5ill .e allo5ed to reduce slig&tly during t&e 5eek to avoid e:tra costs .eing incurred/ -&e staff 5ill &ave to .e supervised .y a manager3 currently employed .y t&e company and paid an annual salary of 8803000/ (f &e 5orks on a Sunday &e 5ill take t&e e+uivalent time off during t&e 5eek 5&en t&e assistant manager is availa.le to cover for &im at no e:tra cost to 4HP/ @e 5ill also .e paid a .onus of #G of t&e e:tra sales generated on t&e Sunday proBect/ -&e store 5ill &ave to .e lit at a cost of 8%0 per &our and &eated at a cost of 805 per &our/ -&e &eating 5ill come on t5o &ours .efore t&e store opens in t&e 25 I5inter? 5eeks to make sure it is 5arm enoug& for customers to come in at opening time/ -&e store is not &eated in t&e ot&er 5eeks -&e rent of t&e store amounts to 80203000 per annum/ -equired. /a0 %alculate whether the Sunday opening incremental revenue e#ceeds the incremental costs over a year /ignore inventory movements0 and on this basis reach a conclusion as to whether Sunday opening is "inancially ;usti"iable. 9#2 marks; /b0 Discuss whether the manager2s pay deal /time o"" and bonus0 is li!ely to motivate him. 90 marks;

/c0 4rie"ly discuss whether o""ering substantial price discounts and promotions on Sunday is a good suggestion. 90 marks; /50 mar!s0

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Dort&land?s maBor to5ns and cities are maintained .y local government organisations 9LA7;3 5&ic& are funded .y central government/ -&e LA7s su.mit a .udget eac& year 5&ic& forms t&e .asis of t&e funds received/ 1ou are provided 5it& t&e follo5ing information as part of t&e 20#0 .udget preparation/ 7ver&eads 7ver&ead costs are .udgeted on an incremental .asis3 taking t&e previous year?s actual e:penditure and adding a set

G to allo5 for inflation/ 'dBustments are also made for kno5n c&anges/ -&e details for t&ese are" 7ver&ead cost category 200 cost 98; Fno5n c&anges (nflation adBustment .et5een 200 and 20#0 Property cost #203000 Done J5 G 2entral 5ages #503000 Dote # .elo5 J% G Stationery 253000 Dote 2 .elo5 0 G Dote #" 7ne ne5 staff mem.er 5ill .e added to t&e over&ead teamK t&is 5ill cost 8#23000 in 20#0 Dote 2" ' move to5ards t&e paperless office is e:pected to reduce stationery costs .y 00G on t&e 200 spend !oad repairs (n 20#0 it is e:pected t&at 23000 metres of road 5ill need repairing .ut a contingency of an e:tra #0G &as .een agreed/ (n 200 t&e average cost of a road repair 5as 8#53000 per metre repaired3 .ut t&is e:cluded any cost effects of e:treme 5eat&er conditions/ -&e follo5ing pro.a.ility estimates &ave .een made in respect of 20#0" $eat&er type predicted Aood Poor 4ad Pro.a.ility (ncrease in repair cost 0 0 6 0 J#0G 6 0 J25G 6 (nflation on road repairing costs is e:pected to .e 5G .et5een 200 and 20#0/ De5 roads De5 roads are .udgeted on a Lero .ase .asis and 5ill &ave to compete for funds along 5it& ot&er capital proBects suc& as &ospitals and sc&ools/ -equired. /a0 %alculate the overheads budget "or 5010. /b0 %alculate the budgets "or road repairs "or 5010. 9% marks; 9= marks;

/c0 *#plain the problems associated with using e#pected values in budgeting by an '=O and e#plain why a contingency "or road repairs might be needed. 98 marks; /d0 *#plain the process involved "or >ero based budgeting. 9% marks; /50 mar!s0

Formulae Sheet

'earning curve 1 E a:.

$&ere y E average cost per .atc& a E cost of first .atc& : E total num.er of .atc&es produced . E learning factor 9log L!Mlog 2; L! E t&e learning rate as a decimal

-egression analysis

yEaJ.:
Q[\ [y .E Q[2 :;2 \ E: aE n C n Q[\ [y rE

Q[2 :;2 ;9n\2 y;2 ;

Demand curve P E a .N .E c&ange in price c&ange in +uantity

a E price 5&en N E 0

*nd o" ?uestion 3aper