Professional Documents
Culture Documents
Paper F5
Performance Management
Revision Mock Examination
March 2016
Answer Guide
Health Warning!
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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
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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
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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
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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
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Total cost per unit
In order to calculate set-ups, we have to calculate number of batches for each product,
and then total number of set-ups:
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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
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(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.
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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.
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Problems that can occur
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
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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
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(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.
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Answer 5
In parts (a) and (b) make sure you only calculate what is required, and do not
discuss it.
Marking scheme
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Return on Investment = Profit of each division
Investment in each division
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
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