ACCA Paper F5 Performance Management Mock Exam Question Paper Time allowed 3 hours 15 minutes This paper is divided into three sections Section A Section B Section C ALL FIFTEEN questions are compulsory and MUST be attempted ALL THREE questions are compulsory and MUST be attempted BOTH questions are compulsory and MUST be attempted Instructions: Take a few moments to review the notes on the inside of this page titled, 'Get into good exam habits now!' before attempting this exam. DO NOT OPEN THIS PAPER UNTIL YOU ARE READY TO START UNDER EXAMINATION CONDITIONS
Get into good exam habits now! Take a moment to focus on the right approach for this exam. Effective time management Watch the clock, allow 1.95 minutes per mark. Work out how long you can spend on each question and do not exceed that time. Take a few moments to think what the requirements are asking for and how you are going to answer them. Effective planning This paper is in exactly the same format as the real exam. You should read through the paper and plan the order in which you will tackle the questions. Always start with the one you feel most confident about. Read the requirements carefully: focus on mark allocation, question words (see below) and potential overlap between requirements. Identify and make sure you pick up the easy marks available in each question. Effective layout Present your numerical solutions using the standard layouts you have seen. Show and reference your workings clearly. With written elements try and make a number of distinct points using headings and short paragraphs. You should aim to make a separate point for each mark. Ensure that you explain the points you are making ie. why is the point a strength, criticism or opportunity? Give yourself plenty of space to add extra lines as necessary, it will also make it easier for the examiner to mark. Common terminology Identify Discuss Describe Summarise Recommend Analyse Explain Illustrate Appraise/assess/ evaluate List relevant points Explain the opposing arguments Present the characteristics of State briefly the essential points Present information to enable the recipient to take action Determine and explain the constituent parts of Set out in detail the meaning of Use an example to explain something Judge the importance or value of 2
Section A ALL FIFTEEN questions are compulsory and MUST be attempted 1 The following statements have been made about ABC: (1) Activity based costing is not suitable for use in service businesses (2) Activity based costing is a form of absorption costing Which of the following statements is/are true? A (1) only B (2) only C Neither (1) or (2) D Both (1) and (2) (2 marks) 2 The selling price of Product B is set at $120 for each unit and sales for the coming year are expected to be 500 units. A return of 25% on the investment of $200,000 in product B will be required in the coming year. What is the target cost for each unit of Product B? A $20 B $30 C $90 D $100 (2 marks) 3 The following measures may be used for the purpose of setting targets in life cycle costing. (1) Time to market (2) Breakeven time (3) Return on investment (4) Commercial life of product Which of the above should management seek to maximise? A (1), (2), (3) and (4) B (1), (2) and (3) only C (2) and (3) only D (3) and (4) only (2 marks) 4 The following statements have been made about environmental management accounting: (1) Effective management of environmental costs can be a source of competitive advantage. (2) Environmental costs should be treated as production overheads. Which of the following statements is/are true? A (1) only B (2) only C Neither (1) or (2) D Both (1) and (2) (2 marks) 3
5 A contract requires 300 kg of material D and 100 kg of material E. The following data is available: In inventory Historic cost Current purchase cost Scrap value D 200 kg $3 per kg $3.25 per kg $3.10 per kg E 500 kg $0.5 per kg $1 per kg $0.9 per kg D is in regularly used for other products and purposes within the business, whilst E is no longer used by the company. What is the relevant cost of materials D and E to be included in the contact cost? D $ E $ A 975 100 B 930 50 C 975 90 D 900 90 (2 marks) 6 A company makes a single product which it sells for $20 per unit. Fixed costs are $100,000 per month. The sales contribution ratio is 25%. Sales revenue is $525,000. What is the margin of safety (in units)? A 6,250 units B 20,000 units C 400,000 units D 125,000 units (2 marks) 7 A company manufactures two products, X and Y, using the same machines and the same work teams for both products. There is a restricted supply of both machine time and labour time in the budget period. The following budgeted data is available. Product X Product Y Maximum available Hours per unit Hours per unit Hours Machine hours 0.5 1.0 2,000 Labour hours 2.0 1.5 4,000 Contribution per unit $5 $6 It has been calculated using linear programming that contribution will be maximised at $13,600 by making and selling 800 units of Product X and 1,600 units of Product Y, using the available machine time and labour time fully What is the shadow price per machine hour? A $1.60 B $3.60 C $9.60 D $10.00 (2 marks) 8 Sunny Co manufactures and sells suitcases. Currently sales are 1,000 units at a selling price $73.50. Market research has established that for every $15 increase in price, sales will fall by 200 units. What is the demand function for Sunny? A p= 73.50 0.075 Q B p= 148.50 0.075Q C p= 148.50 0.015Q D p= 73.50 0.015Q (2 marks) 4
9 Which of the following statements is correct about the use of spreadsheets for budgeting in a large company? A B C D Spreadsheet budget models can take account of qualitative factors in the budget. Errors in spreadsheet formulae are easy to trace and correct. There may be audit problems when many different draft versions of a budget are produced. Several individuals can work on a spreadsheet simultaneously, from different locations. (2 marks) 10 The following statements have been made about budgeting and budgetary control. (1) Feed forward control is control based on comparisons between expected and targeted results. (2) Incremental budgeting is effective at eliminating slack and wasteful spending. Which of the above statements is/are true? A (1) only B (2) only C Neither (1) nor (2) D Both (1) and (2) (2 marks) 11 Which of the following is a frequent consequence of using a participative style of budgeting rather than an authoritarian top-down management style? A Senior management lose control over budget decisions. B Participative budgeting encourages a blame culture when actual results turn out worse than the budget. C More time is needed to agree budgets than with top-down budgeting. D There is a loss of management responsibility for budgets. (2 marks) 12 A manufacturer of multiple products has just introduced target costing for new product development. It is developing a new product, Product Z. There is currently a target cost gap for Product Z and the company wishes to close this gap. The product development team have discussed the following options. (1) Raising the selling price above the current target price (2) Reducing the time allowed for testing the new product (3) Using non-standard components where possible (4) Removing non-value-added features from the product specification Which of the above may be used to close the target cost gap for product Z? A B C D (1) and (2) only (1) and (3) only (3) and (4) only (4) only (2 marks) 13 A company uses standard costing for its product. The budgeted standard cost per unit for direct materials was 4 kilograms at $3 per kilogram. Actual production in the period was 1,800 units of the product: this required 8,300 kg of direct material which cost $19,920. In was recognised in retrospect that the standard cost per unit for direct materials should have been 4.5 kg at $2.50 per kilogram. The direct materials usage planning variance has been calculated as $2,700 (A). What is the direct materials usage operational variance? A $600 Adverse B $500 Adverse C $480 Adverse D $1,350 Favourable (2 marks) 5
14 A company has a divisional structure; Division Y in the period just ended achieved Return on Investment (ROI) of 20%. Its capital employed was $4 million, of which 25% was working capital and the remainder consisted of non-current assets at net book value. The depreciation charge for the year was $300,000. The company s cost of capital is 9%. What was the residual income earned by Division Y in the period? A $140,000 B $230,000 C $440,000 D $530,000 (2 marks) 15 The following statements have been made about use of the balanced scorecard for setting performance targets and measuring performance. (1) There should be more than one target for each of the four performance perspectives, but not too many. (2) Targets that are set for the four performance perspectives must not be inconsistent with each other. Which of the above statements is/are true? A (1) only B (2) only C Neither (1) nor (2) D Both (1) and (2) (2 marks) (Total = 30 marks) 6
Section B ALL THREE questions are compulsory and MUST be attempted The following scenario relates to questions 16 20. XYZ Co is a manufacturing company that uses throughput accounting. Financial data in the first period of 20X9 for XYZ, a manufacturing company was as follows: Division X Division Y Division Z Sales 85,000 63,000 77,000 Opening inventory of materials 5,000 2,000 5,000 Direct materials purchases 23,000 18,750 21,000 Closing inventory of materials 2,000 8,000 3,000 Direct labour 18,000 22,500 20,000 Fixed overheads 15,000 20,000 20,000 Capacity (hrs) 5,000 5,000 5,000 For the second period, the factory cost per hour was calculated as $9.50 for Division Y. Sales, materials and capacity remained the same as period 1. In the third period, Division Z's throughput accounting ratio (TPAR) is less than 1. XYZ Co is thinking of purchasing Zed Co. Zed Co makes two products, Z1 and Z2. Its machines can only work on one product at a time. The two products are worked on by two different grades of labour. The labour requirements for the two products are as follows: Minutes per unit of product Z1 Z2 Labour grade - skilled 12 16 Labour grade - unskilled 20 15 Other information is as follows: Z1 Z2 $ per unit $ per unit Sales price 50.00 65.00 Direct materials 10.00 15.00 Direct labour 10.40 6.20 Variable costs 6.40 9.20 Fixed overheads 12.80 18.40 Profit per unit 10.40 16.20 16 What is the factory cost per hour for Division X for period 1? A $3.17 B $6.60 C $9.50 D $14.10 (2 marks) 17 What is the throughput accounting ratio (TPAR) for Division Y for period 2? A 0.53 B 0.93 C 1.08 D 1.88 (2 marks) 7
18 Which of the following statements are true for period 3? (1) Division Z's costs are greater than its return (2) Stricter cost control would help improve Division Z's TPAR (3) Decreasing Division Z's selling price would increase its TPAR (4) Increasing Division Z's inventory would improve its TPAR A (1), (2) and (4) B (1) and (2) only C (3) and (4) D (1) and (3) (2 marks) 19 In period 4, there is a shortage of skilled labour at Zed Co and the maximum time available is 480 minutes for the limiting factor of skilled labour. What is the throughput maximising output in period 4? Units of Z1 Units of Z2 A 40 0 B 0 34 C 0 50 D 23 0 (2 marks) 20 Which of the following statements about throughput accounting is true? A Throughput assumes that all costs except direct materials are fixed in the short run. B Businesses using throughput accounting should avoid just-in-time production systems C Throughput accounting values inventory at total production cost D Efficiency in throughput accounting is based on labour and machines working to full capacity (2 marks) The following scenario relates to questions 21 25. Frozen Yoghurt Co (FY) produces and sells frozen yoghurt in small tubs. The company has found that demand for frozen yoghurt is weather dependent. Last summer the weather was poor and they ended up throwing lots of frozen yoghurt away at the end of the summer. Using estimates about the probable weather conditions and corresponding demand levels for weekends next summer, the following pay off table has been produced to show all the possible contribution outcomes. Weather Probability 10,000 $ No of tubs of frozen yoghurt produced 8,000 $ 4,000 $ Good 20% 3,000 2,400 1,200 Average 50% 1,900 2,400 1,200 Poor 30% (300) 200 1,200 FY has decided to sign an advance contract at one of the three levels to match forecast demand. It now has to decide which level to select. The expected value of contribution if 10,000 tubs are produced is $1,460. The expected value of contribution if 8,000 tubs are produced is $1,740. 8
21 How many tubs should the company produce based on the maximin and maximax decision rules? Maximin Maximax A 10,000 4,000 B 8,000 10,000 C 4,000 8,000 D 4,000 10,000 (2 marks) 22 If FY applies the minimax regret rule, what kind of decision making is this? A Risk averse B Risk seeking C Risk neutral D Risk spreading (2 marks) 23 What is the expected contribution if 4,000 tubs are produced and how many tubs should the company produce based on the expected value decision rules? Expected contribution from 4,000 tubs Tubs to be produced using expected value rules A $1,460 10,000 B $1,200 8,000 C $1,460 8,000 D $1,200 4,000 (2 marks) 24 What is the expected value of contribution with perfect information? A $7,200 B $1,740 C $2,160 D $1,200 (2 marks) 25 The following statements have been made about perfect information by a trainee at FY. (1) Perfect information is guaranteed to predict the future with 100% accuracy. (2) Perfect information means that the correct decision would always been made, but as this is in hindsight it is not useful for calculations. Which of the above statements is/are true? A 1 only B 2 only C Neither 1 nor 2 D Both 1 and 2 (2 marks) 9
The following scenario relates to questions 26 30. Alpha Co uses rolling budgeting, updating its budgets on a quarterly basis. After carrying out the last quarter's update to the cash budget, it projected a large forecast cash deficit at the end of the year. Consequently, the planned purchase of new capital equipment for Project A has been postponed. Alpha Co has been working on a second project, Project B, and has developed a new product. The first batch of 20 units will take 600 labour hours to produce. There will be an 80% learning curve that will continue until 500 units have been produced. Batches after this level will each take the same amount of time as the 25th batch. The batch size will always be 20 units. Note: The learning index for an 80% learning curve is -0.3219 26 What is the cumulative average time per batch for the first 25 batches? A 0.35 hours B 8.52 hours C 212.89 hours D 5,322.25 hours (2 marks) 27 After checking the calculations, Alpha Co decided that the learning curve should be revised to 90% (learning index of -0.1520). The cumulative average time per batch for the first 25 batches was recalculated as 367.85 hours. What is the time taken for the 25th batch? A 2.29 hours B 57.25 hours C 312.89 hours D 4,019.32 hours (2 marks) 28 With regards to the capital expenditure postponement, which of the following types of control is the manager's actions an example of? A Feedforward control B Negative feedback control C Positive feedback control D Double loop feedback control (2 marks) 29 The manager of an Alpha Co is aware of the several problems with its information systems. Which of the following creates a cost, from the inefficient use of information? A Too much staff time is spent on input of data when the process could be automated. B Information produced by the office is disseminated more widely than necessary. C The same information is collected by more than one method. D A large amount of time is spent correcting errors in expenses claims. (2 marks) 30 Which of the following statements are true? (1) If there is a learning curve of 70%, the learning index = log 0.7 / log 2 (2) An 80% learning curve means labour are learning more quickly than a 90% learning curve (3) The learning curve phenomenon is always present A (1) and (2) B (1) and (3) C (2) and (3) D (1), (2) and (3) (2 marks) (Total = 30 marks) 10
Section C BOTH questions are compulsory and MUST be attempted 31 Greenloch City Council The mayor of Greenloch City Council recently attended an international summit on public finances, where she learned about the success that some city councils have had with zero based budgeting (ZBB), and she is now keen to implement it. Currently, each of the seven departments in Greenloch City Council use an incremental budgeting approach, whereby the budget is prepared by taking the current period's actual performance as a base, with incremental amounts then being added for the new budget period. These incremental amounts include adjustments for things such as inflation, or planned increases in sales prices and costs. With zero-based budgeting, the budgeting process starts from a base of zero, with no reference being made to the prior period's budget or actual performance. All of the budget headings, therefore, literally start with a balance of zero. Required (a) What are the stages involved in implementing zero based budgeting? (5 marks) (b) Explain some of the advantages and disadvantages of: (i) Incremental budgeting (5 marks) (ii) Zero based budgeting (5 marks) (c) Advise the mayor on whether or not you think that zero based budgeting should be implemented in each of the departments of Greenloch City Council. (5 marks) (Total = 20 marks) 11
32 The Machinery Group The Machinery Group comprises of two companies, X Co, which manufactures components from raw materials, and Y Co, which assembles machinery which it sells to a number of industry sectors. Many of the components used in these machines are purchased from X Co. The current policy of the group is to allow the managers of each company to negotiate with each other concerning the transfer prices. The manager of X Co charges the same price internally for its components that it charges for its external customers. The manager of X Co argues that this is fair because if the internal sales were not made he could increase his external sales. X Co annual external sales amounts to $400,000 which is estimated to be 80% of the external demand for its components. X Co annual sales to Y Co amounts to $350,000. The manager of Y Co believes that the price being charged by X Co for the components is too high and is restricting Y Co's ability to win orders. Recently Y Co failed to win a potentially profitable order which it priced using its normal gross profit mark-up. The competitor who won the order set a price that was just under Y Co's price. An analysis of the cost structure of X Co indicates that 40% of the cost of sales is fixed costs and the remaining costs vary with the value of sales. X Co's cost of sales is $250,000. Required (a) (i) Discuss how the present transfer pricing policy is affecting the overall performance of the group. (5 marks) (ii) Explain, including appropriate calculations, the transfer price or prices at which the components should be supplied by Y Co to X Co. (11 marks) (b) Explain two factors that the group should consider when setting the transfer pricing policy. (4 marks) (Total = 20 marks) 12
13
14
Student self-assessment Having completed this paper take a few minutes to consider what you did well and what you found difficult. Use this as a basis to focus your future study on effectively improving your performance. Common problems Future emphasis if you answer Yes Timing and planning for all sections Did you miss out any questions? Y/N Attempt all questions. For multiple choice questions in Sections A and B, it is worth making a guess at the correct answer. Did you finish too early? Y/N Make sure you deal with all the information given in the questions. Use the extra time to go back over your answers. Did you overrun? Y/N Focus on allocating your time better. Practise questions under strict timed conditions. If you get behind leave space and move on. Content in all sections Did you struggle with: Interpreting the questions? Y/N Learn the meaning of question words (inside front cover). Learn subject jargon (study text glossary). Read questions carefully noting all the parts. Practise as many questions as possible. Understanding the subject? Y/N Review your notes/text. Work through easier examples first. Contact a tutor for help. Remembering the notes/text? Y/N Quiz yourself constantly as you study. You need to develop your memory as well as your understanding of a subject. Layout in Section C Was your answer difficult to follow? Y/N Use headings and subheadings. Use numbering sequences when identifying points. Leave space between each point. Did you fail to explain each point? Y/N Show why the point identified answers the question set. Did you include irrelevant information? Y/N Were some of your workings unclear? Y/N Focus on developing a logical structure to your answer. Give yourself time and space to make the marker's job easy. 15
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 BPP Learning Media Ltd. The contents of this book are intended as a guide and not professional advice. Although every effort has been made to ensure that the contents of this book are correct at the time of going to press, BPP Learning Media makes no warranty that the information in this book is accurate or complete and accept no liability for any loss or damage suffered by any person acting or refraining from acting as a result of the material in this book. BPP House, Aldine Place, London W12 8AA Tel: 0845 0751 100 (for orders within the UK) Tel: +44 (0)20 8740 2211 Fax: +44 (0)20 8740 1184 www.bpp.com/learningmedia 16