acca f5 revesion kit

8/8/2019 ACCA F5 Revesion Kit

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ACCA PAPER F5 PERFORMANCE MANAGEMENTMOCK EXAM DECEMBER 2010

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Fundamentals Paper F5

Performance Management

Mock Examination December 2010

Question Paper

Time allowed 3 hours 15 min.

Answer ALL five questions


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Answer ALL five questions

Question 1

The following details have been extracted from the standard cost card for product X.$/unit

Variable overhead4 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 budgetedproduction target of 5,500 units. The actual overhead costs incurred were:

Machine-related variable overhead $176,000

Labour-related variable overhead $42,000Fixed overhead $109,000

The actual number of machine hours was 22,000 and the actual number of labour hours was

10,800.

Required

(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)


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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 detailedbelow.

Chair Bench Table$ $ $

Timber cost 5.00 15.00 10.00Direct labour cost 4.00 10.00 8.00Variable overhead cost 3.00 7.50 6.00Fixed overhead cost 4.50 11.25 9.00

16.50 43.75 33.00Budgeted volume per annum 4000 2000 1500

(i) These volumes are believed to equal the market demand for these products.(ii) The fixed overhead costs are attributed to the three products on the basis of directlabour 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 advisesyou that because of a problem with the supplier, it is to be assumed that this specialisttimber 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 150tables which, if not supplied, would incur a financial penalty of $2,000. Thesequantities are included in the market demand estimates above.

The selling prices of the three products are as follows.Chair $20.00Bench $50.00Table $40.00

Required(i) Determine the optimum production plan andstate the net profit that this shouldyield per annum. (10 Marks)

(ii) Calculate and explain the maximum prices which should be paid per square metrein order to obtain extra supplies of timber. (4 marks)

(b) Where production capacity is limiting factor, explain briefly ways in whichmanagement can increase it without having to acquire more plant and machinery.

(6 marks)

(20 marks)


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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 at60% of practical manufacturing capacity. Annual sales of 245,000 units of Product Z areestimated, 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 perkilo before discount. A quantity discount of 5% is given on all purchases if the average monthlypurchase quantity exceeds 4,500 kilos. Other materials are expected to cost $147 per unit ofProduct 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 directlabour cost. Overhead absorption in Department Y will be established as a rate per direct labourhour based upon the expected utilisation of capacity, and the associated overhead costs, ifProduct Z is launched. The following figures for Department Y for a year are based upon practicalcapacity:Total overheads, $542,400Direct 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 theprice charged. At a selling price of $20 per unit, the annual sales volume is expected to be in therange 150,000 to 200,000 units per annum. If the selling price is set at $18 per unit, sales ofbetween 240,000 and 360,000 units would be expected. Both alternatives would be supported byadvertising and promotional expenditure of $180,000 per annum.

Variable production costs are forecast at $1250 per unit for production up to 200,000 units perannum, reducing to $1200 per unit on any additional production. Incremental fixed productioncosts, as a result of the launch of the new product, are expected to be $220,000 per annum.


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There is insufficient production capacity available to satisfy the complete range of demandestimates for Product Y. Production in excess of 240,000 units per annum would result in a lossof 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% ofsales revenue to recover the companys general fixed costs incurred across all functions of thebusiness.

Required:

(c) Assess the profit potential from the launch of Product Y using the full range ofdemand estimates in your analysis. (7 marks)

(20 marks)


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(c) Suggest THREE non-financial indicators that could be useful in measuring theperformance of a passenger railway company and explain why your chosen indicatorsare important. (6 marks)

(20 marks)


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Question 5

AME has three product lines P1, P2 and P3. Since its creation the company has been using asingle direct labour cost percentage to assign overhead costs to products.

Despite P3, a relatively new line, attracting additional business, increasing overheads costs and aloss of market share, particularly for P2, a major product, have convinced management that thecosting system is in need of some development. A team spent several weeks collecting data (seetable below) for the different activities and products. For accounting period in question, given inthe tables below is data on AME's three products lines and overhead costs:

P1 P2 P3Production volume 7500 units 12,500 units 4,000 unitsDirect labour cost per unit $4 $8 $6.4Material cost per unit $18 $25 $16Selling price per unit $47 $80 $68Materials movements (in total) 4 25 50Machine hour per unit 0.5 0.5 0.2Set ups (in total) 1 5 10Proportion of engineering work 30% 20% 50%

Orders packed (in total) 1 7 22

Activities Overhead costMaterial handling and receiving $150,000Machine maintenance and depreciation 390,000Set up labour 18,688Engineering 100,000Packing 60,000Total 718,688

Required

(a) Calculate the overhead rate and the product unit costs under existing costing

system. (4 marks)

(b) Identify for each overhead activity, an appropriate cost driver from the informationsupplied and then calculate the product unit costs using a system that assignsoverheads on the basis of the use of activities. (9 marks)

(c) Comment on the results of the two costing systems in (a) and (b).(7 marks)

(20 marks)

END OF QUESTION PAPER

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