acca f5 performance management -...

Assignment - 1

F5 - Performance Management

Mr. Ghan

Name - ________________________

Student ID - ____________________

E-mail ID - _____________________

Date Submitted - ________________

Date Returned - _________________

MARK - %

MARKER COMMENTS (including areas for improvement)

ACCA F5 Performance Management

1. The following statements have been made about activity based costing.

(1) Unlike traditional absorption costing, ABC identifies variable overhead

costs for allocation to product costs.

(2) ABC can be used as an information source for budget planning based on

activity rather than incremental budgeting.

Which of the above statements is/are true?

a) 1 only

b) 2 only

c) Neither 1 nor 2

d) Both 1 and 2


(1) Implementation of ABC is unlikely to be cost-effective when variable

production costs are a low proportion of total production costs.

(2) In a system of ABC, for costs that vary with production levels, the most

suitable cost driver is likely to be direct labour hours or machine hours.


a) 1 only

b) 2 only

c) Neither 1 nor 2

d) Both 1 and 2


(1) Activity based costs are not the same as relevant costs for the purpose of

short-run decision-making.

(2) Activity based costing is a form of absorption costing.


a) 1 only

b) 2 only

c) Neither 1 nor 2

d) Both 1 and 2


4. Product X is made in a production process where machine time is a bottleneck

resource. One unit of Product X requires 0.1 machine hours. The costs and

selling price of Product X are as follows:

$

Materials 6

Labour (0.25 hours) 3

Other factory costs 5

----

14

Sales price 15

----

Profit 1

----

In a system of throughput accounting, what is the return per factory hour?

a) $90

b) $60

c) $10

d) $4

5. The following statements have been made about throughput accounting.

(1) When throughput accounting (TA) is used, the aim should be to have

sufficient inventories to overcome bottlenecks in production.

(2) Throughput accounting is based on the assumption that in the short run,

most factory costs, other than materials, are fixed.


a) 1 only

b) 2 only

c) Neither 1 nor 2

d) Both 1 and 2

6. The following statements have been made about life cycle costing.

(1) Life cycle costing can be applied to products with a short life cycle.

(2) Product life cycle costing is not well-suited for use within budgetary

control systems.


a) 1 only

b) 2 only

c) Neither 1 nor 2

d) Both 1 and 2


7. The following information relates to the expected cost of a new product over

its expected three-year life.

Year 0 Year 1 Year 2 Year 3

Units made and sold 25000 100000 75000

R&D costs $850000 $90000

Production costs

Variable per unit $30 $25 $20

Fixed costs $500000 $500000 $500000

Selling and distribution costs


Fixed costs $700000 $500000 $300000

Customer service costs


What is the expected average life cycle cost per unit?

a) $35.95

b) $46.25

c) $48.00

d) $50.95

8. The following statements have been made about target costing.

(1) Target costing makes the business look at what competitors are offering

at an early stage in the new product development process.

(2) Cost control is emphasized at the new product design stage so any

engineering changes must happen before production starts.


a) 1 only

b) 2 only

c) Neither 1 nor 2

d) Both 1 and 2

9. The following statements have been made about target costing.

(1) Target costing is inappropriate for a new product that has no existing

market.

(2) It may be acceptable for a target cost for a new product to be exceeded

during the growth stage of its life cycle.


a) 1 only

b) 2 only

c) Neither 1 nor 2

d) Both 1 and 2


10. Which one of the following environmental management accounting techniques

would include an assessment of clean-up costs and costs of decontamination

when a project comes to an end?

a) Environmental activity based costing

b) Flow cost accounting

c) Input-output analysis

d) Life cycle costing

11. Which of the following statements about relevant costing is/are correct?

(1) An opportunity cost is defined as the relevant cost of taking a business

opportunity.

(2) Business decisions should be taken on the basis of whether they improve

profit or reduce costs.

a) 1 only is correct

b) 2 only is correct

c) Neither 1 nor 2 is correct

d) Both 1 and 2 are correct

12. A company produces three components on the same machine. The

components are used in the manufacture of a finished product. The budget for

next year indicates a requirement for 3000 units of each component, but only

60000 of machine time will be available. Additional components and be

purchased from an external supplier to meet any production shortfall.

Component Machine hours

per unit

Variable

production cost

per unit

Purchase price

from external

supplier

$ per unit $ per unit

A 9 45 65

B 5 70 78

C 12 56 80

What is the minimum total variable cost at which the 3000 units of all three

components can be obtained?

a) $537000

b) $543000

c) $549000

d) $553000


13. The following budgeted data has been prepared for a company that

manufacturers four products.

Product W X Y Z

$ per

unit

$ per

unit

$ per

unit

$ per

unit

Sales price 9.0 6.0 4.0 8.0

Variable cost 5.5 4.0 2.2 4.0

Budgeted sales units 20000 25000 50000 125000

Direct labour hours per unit 0.5 0.25 0.3 0.8

If the total available direct labour hours in the period is 24000 hours and the

company plans to maximise profit, which products should it make and sell in

the period?

a) W, X and Y

b) W, X and Z

c) W, Y and Z

d) Y and Z only

14. A company is budgeting to sell 200000 units of its product next year at a

price of $15 per unit. Fixed costs will be $1232000 and the variable cost/sales

ratio is 44%.

What is the breakeven sales revenue figure and what is the margin of safety

in the budget?

a) Breakeven $2200000, margin of safety 26.7%

b) Breakeven $2200000, margin of safety 36.4%

c) Breakeven $2800000, margin of safety 6.7%

d) Breakeven $2800000, margin of safety 7.1%

15. The following statements have been made about multi-product profit-volume

charts.

(1) A multi-product profit-volume chart can be drawn only if a constant sales

mix is assumed.

(2) A multi-product profit-volume chart can be drawn that shows the

contribution of each product to the breakeven sales volume.


a) 1 only

b) 2 only

c) Neither 1 nor 2

d) Both 1 and 2


16. Linacre Co

Linacre Co operates an activity based costing system and has forecast the

following information for next year.

Cost pool Cost Cost driver Number of drivers

Production set-ups $105000 Set-ups 300

Product testing $300000 Tests 1500

Component supply and storage $25000 Component orders 500

Customer orders and delivery $112500 Customer orders 1000

General fixed overheads such as lighting and heating, which cannot be linked

to any specific activity, are expected to be $900000 and these overheads are

absorbed on a direct labour hour basis. Total direct labour hours for next year

are expected to be 300000 hours.

Linacre Co expects orders for Product ZT3 next year to be 100 orders of 60

units per order and 60 orders of 50 units per order. The company holds no

inventories of Product ZT3 and will need to produce the order requirement in

production runs of 900 units. One order for components is placed prior to

each production run. Four tests are made during each production run to

ensure that quality standards are maintained. The following additional cost

and profit information relates to product ZT3:

Component cost: $1.00 per unit

Direct labour: 10 minutes per unit at $7.80 per hour

Profit mark up: 40% of total unit cost

Required:

(a) Calculate the activity based recovery rates for each cost pool.

(2 marks)

(b) Calculate the total unit cost and selling price of Product ZT3.

(8 marks)

(10 marks)


17. Fit Co

Fit Co specialises in the manufacture of a small range of hi-tech products for

the fitness market. They are currently considering the development of a new

type of fitness monitor, which would be the first of its kind in the market. It

would take one year to develop, with sales then commencing at the beginning

of the second year. The product is expected to have a life cycle of two years,

before it is replaced with a technologically superior product. The following cost

estimates have been made.

Year 1 Year 2 Year 3

Units manufactured and sold 100000 200000

Research and development costs $160000

Product design costs $800000

Marketing costs $1200000 $1000000 $1750000

Manufacturing costs:

Variable cost per unit $40 $42

Fixed production costs $650000 $1290000

Distribution costs:

Variable cost per unit $4 $4.50

Fixed distribution costs $120000 $120000

Selling costs:

Variable cost per unit $3 $3.20

Fixed selling costs $180000 $180000

Administration costs $200000 $900000 $1500000

Note: you should ignore the time value of money.

Required:

(a) Calculate the life cycle cost per unit.

(6 marks)

(b) Briefly discuss the benefits of life cycle costing for pricing,

performance management and decision-making.

(4 marks)

(10 marks)


18. Yam Co

Yam Co is involved in the processing of sheet metal into products A, B and C

using three processes, pressing, stretching and rolling. Like many businesses

Yam tough price competition in what is a mature world market.

The factory has 50 production lines each of which contain the three

processes: Raw material for the sheet metal is first pressed then stretched

and finally rolled. The processing capacity varies for each process and the

factory manager has provided the following data:

Processing time per metre in hours

Product A Product B Product C

Pressing 0.50 0.50 0.40

Stretching 0.25 0.40 0.25

Rolling 0.40 0.25 0.25

The factory operates for 18 hours each day for five days per week. It is closed

for only two weeks of the year for holidays when maintenance is carried out.

On average one hour of labour is needed for each of the 225000 hours of

factory time. Labour is paid $10 per hour.

The raw materials cost per metre is $3.00 for product A, $2.50 for product B

and $1.80 for product C. Other factory costs (excluding labour and raw

materials) are $18000000 per year. Selling prices per metre are $70 for

product A, $60 for product B and $27 for product C.

Yam carries very little inventory.

Required:

(a) Calculate the throughput accounting ratio (TPAR) for each product

assuming that the bottleneck process is fully utilised.

(7 marks)

(b) Assuming that the TPAR of product C is less than 1, suggest how

Yam could improve the TPAR of product C.

(3 marks)

(10 marks)

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