acca f5 revision mock - questions j12

Pape

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ACCA REVISION MOCK

Performance Management

June 2012

Time allowed Reading and planning: 15 minutes Writing: 3 hours Answer ALL questions. Do not open this paper until instructed by the supervisor. This question paper must not be removed from the examination hall.

Kaplan Publishing/Kaplan Financial

ACCA F5: PERFORMANCE MANAGEMENT

2 KAPLAN PUBLISHING

© Kaplan Financial Limited, 2012

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All rights reserved. No part of this examination may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without prior permission from Kaplan Publishing.

REVISION MOCK QUESTIONS

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FORMULAE

Learning curve

Y = axb

Where y = average cost per batch

a = cost of first batch

x = total number of batches produced

b = learning factor (log LR/log 2)

LR = the learning rate as a decimal

Regression analysis

y = a + bx

b = 22 x)(–xnyx–xyn

∑∑∑∑∑

a = n

xbny ∑

–∑

r = )y)(–y(n )x)(–xn

yx–xyn2222 ∑∑∑∑

∑∑∑

Demand curve

P = a − bQ

b = quantityinChange

priceinChange

a = price when Q = 0


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Answer ALL questions

QUESTION 1

BSE Veterinary Services is a specialist laboratory carrying out tests on cattle to ascertain whether the cattle have any infection. BSE has prepared a budget for the next 12 months when it intends to make and sell four tests to farms, details of which are shown below:

Product / Test Sales in units (thousands)

Selling price per unit

$

Variable cost per unit

$

J 10 20 14.00

K 10 40 8.00

L 50 4 4.20

M 20 10 7.00

Budgeted fixed costs are $240,000 per annum and total assets employed are $570,000.

Required:

(a) Calculate the total contribution earned by each test, and their combined total contributions; (4 marks)

(b) Plot the data of your answer to (a) above in the form of a profit-volume graph; (8 marks)

(c) Explain your graph to BSE’s management, comment on the results shown and state the break-even point; (5 marks)

(d) Describe briefly three ways in which the overall contribution to sales ratio could be improved. (3 marks)

(Total: 20 marks)

QUESTION 2

Fine Liners is a specialist manufacturer of luxury speed boats. It has designed a new boat called the ‘Diamond’ and expects to produce this boat in a continuous operation over an 18 month period. During this period, it is expected that a total of sixteen Diamonds will be produced and sold. The production of the Diamond is a labour intensive operation and units are produced one after another.

The costs of producing the first Diamond are as follows:

Skilled labour – 1,200 hours at a rate of $20 per hour

Unskilled labour – 1,800 hours at a rate of $15 per hour

Materials – $20,000

Overheads – $10 per labour hour worked (total of skilled and unskilled)

It is known that in producing any product, skilled labour usage experiences an 80% learning curve effect and unskilled labour usage experiences a 90% learning curve effect.


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Fine Liners has decided to set the selling price per unit of the Diamond as the average production cost per unit (for the full sixteen unit production run) plus a 25% addition thereon for profit.

Note: The learning curve formula is given in the formula sheet. At the learning rate of 0.8 (80%), the learning factor (b) is equal to –0.3219. At the learning rate of 0.9 (90%), the learning factor (b) is equal to –0.1520.

Required:

(a) Calculate the selling price per unit of the Diamond. (9 marks)

(b) Calculate the forecast total production cost of the third and fourth Diamond produced (that is, the cost of the third and fourth units together). Calculate the profit or loss arising from the sale of the third and fourth units using the unit selling price you have calculated in your answer to (a). (7 marks)

(c) Explain the logic, uses and limitations of the learning curve model. (4 marks)

(Total: 20 marks)

QUESTION 3

AV is a charitable organisation, the primary objective of which is to meet the accommodation needs of persons within its locality.

BW is a profit-seeking organisation which provides rented accommodation to the public.

Income and Expenditure accounts for the year ended 31 May 2009 were as follows:

AV BW $ $

Rents received 2,386,852 2,500,160 Less: Staff and management costs 450,000 620,000 Major repairs and planned maintenance 682,400 202,200 Day-to-day repairs 478,320 127,600 Sundry operating costs 305,500 235,000 Net interest payable and other similar charges 526,222

_______749,840 _______

Total costs 2,442,442 1,934,640 Operating (deficit)/ surplus (55,590) 565,520

Operating information in respect of the year ended 31 May 2009 was as follows:

(1) Property and rental information:

Size of property

AV – number of properties

AV – rent payable per

week ($)

BW – number of properties

BW – rent payable per

week ($)

1 bedroom 80 40 40 90

2 bedrooms 160 45 80 101

3 bedrooms 500 50 280 130

4 bedrooms 160 70 Nil 170


6 KAPLAN PUBLISHING

(2) Staff salaries for the different grades of staff were payable as follows:

AV BW

Number of staff at

particular grade

Salary ($) per staff member

per annum

Number of staff at

particular grade

Salary ($) per staff member

per annum

2 35,000 3 50,000

2 25,000 2 35,000

3 20,000 20 20,000

18 15,000 – –

(3) Major repairs and planned maintenance undertaken:

AV BW

Number of

properties

Cost per property

Number of properties

Cost per property

Nature of work $ $

Miscellaneous construction work 20 1,250 – –

Fitted kitchen replacements (all are the same size)

90 2,610 10 5,220

Heating upgrades/replacements 15 1,500 – –

Replacement sets of windows and doors for 3-bedroomed properties

100 4,000 25 6,000

All expenditure on planned maintenance and major repairs may be regarded as revenue expenditure.

(4) Day-to-day repairs information:

AV BW

Classification Number of repairs undertaken

Total cost of repairs ($)

Number of repairs undertaken

Emergency 960 134,400 320

Urgent 1,880 225,600 752

Non-urgent 1,020 118,320 204

Each repair undertaken by BW costs the same irrespective of the classification of repair.

Required:

(a) Explain the term ‘value for money’. Discuss how the management of AV could measure the ‘value for money’ of its service provision during the year ended 31 May 2009. NO calculations are required. (7 marks)

(b) (i) Identify TWO performance measures in relation to EACH of the following dimensions of performance measurement that could be used by the management of AV when comparing its operating performance for the year ended 31 May 2009 with that of the previous year:

• Timeliness • Service quality. (2 marks)


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(ii) Calculate and comment on THREE performance measures relating to ‘economy or efficiency’ that could be utilised by the management of AV when comparing its operating performance against that achieved by BW. (6 marks)

(c) Explain why differing objectives make it difficult for the management of AV to compare its operating and financial performance with that of BW, and comment briefly on additional information that would assist in the appraisal of the operating and financial performance of BW for the year ended 31 May 2009. (5 marks)

(Total: 20 marks)

QUESTION 4

The ZZ Group has two divisions, X and Y. Each division produces only one type of product: X produces a component (C) and Y produces a finished product (FP). Each FP needs one C. It is the current policy of the group for C to be transferred to Division Y at the marginal cost of $10 per component and that Y must buy all the components it needs from X.

The markets for the component and the finished product are competitive and price sensitive. Component C is produced by many other companies but it is thought that the external demand for the next year could increase to 1,000 units more than the sales volume shown in the current budget for Division X.

Budgeted data, taken from the ZZ Group Internal Information System, for the divisions for the next year is as follows:

Division X

Income statement

Sales $70,000

Cost of sales

Variable costs $50,000 Contribution $20,000 Fixed costs (controllable) $15,000 Profit $5,000 Production/sales (units) 5,000 (3,000 are transferred to Division Y) External demand (units) 3,000 (Only 2,000 can be currently satisfied) Capacity (units) 5,000 External market price per unit $20

Balance sheet extract

Capital employed $60,000

Other information

Cost of capital charge 10%


8 KAPLAN PUBLISHING

Division Y

Income statement

Sales $270,000

Cost of sales

Variable costs $114,000 Contribution $156,000 Fixed costs (controllable) $100,000 Profit $56,000 Production/sales (units) 3,000 Capacity (units) 7,000 Market price per unit $90

Balance sheet extract

Capital employed $110,000

Other information

Cost of capital charge 10%

Four measures are used to evaluate the performance of the Divisional Managers. Based on the data above, the budgeted performance measures for the two divisions are as follows:

Division X Division Y Residual income ($1,000) $45,000 Return on capital employed 8.33% 50.91% Operating profit margin 7.14% 20.74% Asset turnover 1.17 2.46

Current policy

It is the current policy of the group for C to be transferred to Division Y at the marginal cost of $10 per component and that Y must buy all the components that it needs from X.

Proposed policy

ZZ Group is thinking of giving the Divisional Managers the freedom to set their own transfer price and to buy the components from external suppliers but there are concerns about problems that could arise by granting such autonomy.

Required:

(a) If the transfer price of the component is set by the Manager of Division X at the current market price ($20 per component), recalculate the budgeted performance measures for each division. (8 marks)

(b) Discuss the changes to the performance measures of the divisions that would arise as a result of altering the transfer price to $20 per component. (6 marks)

(c) (i) Explain the problems that could arise for each of the Divisional Managers and for ZZ Group as a whole as a result of giving full autonomy to the Divisional Managers.

(ii) Discuss how the problems you have explained could be resolved without resorting to a policy of imposed transfer prices. (6 marks)

(Total: 20 marks)


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QUESTION 5

FB makes and sells a single product. The standard cost and revenue per unit are as follows:

$ Selling price 400 Direct material A 5 kg at $25 per kg 125 Direct material B 3 kg at $22 per kg 66 Direct labour 3 hours at $10 per hour 30 Variable overheads 3 hours at $7 per hour 21 –––– Standard contribution 158 ––––

The budgeted production and sales for the period in question were 10,000 units.

The mix of materials can be varied and therefore the material usage variance can be sub-divided into mix and yield variances.

For the period under review, the actual results were as follows:

Production and sales 9,000 units $ Sales revenue 4,455,000 Material cost A – 35,000 kg 910,000 B – 50,000 kg 1,050,000 Labour cost 30,000 hours 385,000 Variable overhead 230,000

The general market prices at the time of purchase for material A and material B were $21 per kg and $19 per kg respectively.

There were no opening or closing inventories during the period.

Required:

Prepare a statement detailing the variances (including planning and operational, and mix and yield variances) which reconciles the budgeted contribution and the actual contribution.

(20 marks)


10 KAPLAN PUBLISHING

acca f5 revision mock - questions j12

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