advanced perfomance mgt revision kit

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Advanced Perform

ance Managem

ent Practice &

Revision K

itACCA P5

For exams up to June 20

15

ACCA approved content providerBPP Learning Media is dedicated to supporting aspiring business professionals with top-quality learning material as they study for demanding professional exams, often whilst working full time. BPP Learning Medias commitment to student success is shown by our record of quality, innovation and market leadership in paper-based and e-learning materials. BPP Learning Medias study materials are written by professionally qualified specialists who know from personal experience the importance of top-quality materials for exam success.

Paper P5

Advanced Performance Management

This Kit provides material specifically for the practice and revision stage of your studies for Paper P5 Advanced Performance Management that has been comprehensively reviewed by the ACCA examining team. This unique review ensures that the questions, solutions and guidance provide the best and most effective resource for practising and revising for the exam.

One of a suite of products supporting Paper P5 Advanced Performance Management, for use independently or as part of a package, this Kit is targeted at ACCAs exams up to June 2015 and contains:

Banks of questions on every syllabus area Answers with detailed guidance on approaching questions Three mock exams with full answers and guidance

Contact us

BPP House142-144 Uxbridge RoadLondon W12 8AAUnited KingdomT 0845 075 1100 (UK)T +44 (0)20 8740 2211 (Overseas)E [email protected]/learningmedia

June 201418.00

Paper P5Advanced Performance ManagementPractice & Revision Kit for exams up to June 2015

ACCA ApprovedPractice & Revision Kit

ACCA APPROVED CONTENT PROVIDER

Free access to our Exam Success site

Look inside

ACP5RK14.indd 1-3 30/05/2014 15:37



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File Attachment9781472711755.jpg

PR A C T I C E

&

R E V I S I O N

K I T

PAPER P5 ADVANCED PERFORMANCE MANAGEMENT

BPP Learning Media is an ACCA Approved Learning Partner content for ACCA qualifications. This means we work closely with ACCA to ensure our products fully prepare you for your ACCA exams.

In this Practice and Revision Kit, which has been reviewed by ACCAs examination team, we:

Discuss the best strategies for revising and taking your ACCA exams Ensure you are well prepared for your exam Provide you with lots of great guidance on tackling questions Provide you with three mock exams including the Pilot Paper Provide ACCAs exam answers as well as our own for selected questions Our Passcard and i-Pass products also support this paper.

FOR EXAMS UP TO JUNE 2015



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ii

First edition 2007 Eighth edition June 2014

ISBN 9781 4727 1111 3 (previous ISBN 9781 4453 6655 5) e-ISBN 9781 4727 1175 5

British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library

Published by

BPP Learning Media Ltd BPP House, Aldine Place London W12 8AA www.bpp.com/learningmedia

Printed in the United Kingdom by Polestar Wheatons Hennock Road Marsh Barton Exeter EX2 8RP

Your learning materials, published by BPP Learning Media Ltd, are printed on paper obtained from traceable, sustainable sources.

All our 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.

We are grateful to the Association of Chartered Certified Accountants for permission to reproduce past examination questions. The suggested solutions in the practice answer bank have been prepared by BPP Learning Media Ltd, except where otherwise stated.

BPP Learning Media Ltd 2014



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iii

Contents Page

Finding questions Question index ..................................................................................................................................................................v Topic index ...................................................................................................................................................................... ix

Helping you with your revision ................................................................................... xi

Revising P5 Topics to revise & Question practice ...............................................................................................................................xii Passing the P5 exam......................................................................................................................................................xiii Exam formulae ............................................................................................................................................................. xviii Exam information ............................................................................................................................................................ xx Analysis of past papers ................................................................................................................................................. xxi Useful websites ............................................................................................................................................................ xxiii

Questions and answers Questions ..........................................................................................................................................................................3 Answers ........................................................................................................................................................................131

Exam practice Mock exam 1 Questions ............................................................................................................................................................487 Plan of attack .......................................................................................................................................................497 Answers...............................................................................................................................................................499 Mock exam 2 (Pilot paper) Questions ............................................................................................................................................................519 Plan of attack .......................................................................................................................................................527 Answers...............................................................................................................................................................529 Mock exam 3 (December 2013) Questions ............................................................................................................................................................551 Plan of attack .......................................................................................................................................................559 Answers...............................................................................................................................................................561 ACCAs exam answers June 2013............................................................................................................................................................583 December 2013 ...................................................................................................................................................591

Review form



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iv Finding questions

A note about copyright

Dear Customer

What does the little mean and why does it matter?

Your market-leading BPP books, course materials and e-learning materials do not write and update themselves. People write them: on their own behalf or as employees of an organisation that invests in this activity. Copyright law protects their livelihoods. It does so by creating rights over the use of the content.

Breach of copyright is a form of theft as well as being a criminal offence in some jurisdictions, it is potentially a serious breach of professional ethics.

With current technology, things might seem a bit hazy but, basically, without the express permission of BPP Learning Media:

Photocopying our materials is a breach of copyright Scanning, rip-casting or conversion of our digital materials into different file formats, uploading them to

Facebook or emailing them to your friends is a breach of copyright

You can, of course, sell your books, in the form in which you have bought them once you have finished with them. (Is this fair to your fellow students? We update for a reason.) Please note the e-products are sold on a single user licence basis: we do not supply unlock codes to people who have bought them second-hand.

And what about outside the UK? BPP Learning Media strives to make our materials available at prices students can afford by local printing arrangements, pricing policies and partnerships which are clearly listed on our website. A tiny minority ignore this and indulge in criminal activity by illegally photocopying our material or supporting organisations that do. If they act illegally and unethically in one area, can you really trust them?



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Finding questions v

Question index The headings in this checklist/index indicate the main topics of questions, but questions often cover several different topics. Where necessary, questions have been amended to reflect the new format of the exam, from June 2013.

Questions set under the old syllabus Performance Management paper are included because their style and content are similar to those which appear in the P5 exam. They have 'PM' after the question name. These questions have been amended to reflect the current exam format. Questions taken from the P3 Business Analysis syllabus (when a re-alignment of syllabuses took place in 2010) are denoted by BA' after the question name.

Exam questions set under the current syllabus are designated 'APM' after the question name.

Time Page number

Marks

allocation (Mins)

Question

Answer

Part A: Strategic planning and control

1 Diverse holdings (PM 12/05, amended) 25 45 3 131

2 ST University 25 45 4 133

3 HEG (APM 12/07, amended) 25 45 5 137

4 AB Electronics 25 45 6 140

5 Megasnack 25 45 6 142

6 Ganymede (APM 6/12, amended) 25 45 7 145

7 Drinks Group (APM 12/12, amended) 25 45 8 150

8 Business process re-engineering 25 45 10 155

9 GMB Co (APM 12/07, amended) 25 45 11 157

10 Sports Shop 25 45 12 161

11 Scott 25 45 13 163

12 MKO Clothing 25 45 13 166

13 BV Entertainments 25 45 14 168

14 EEE Chemical company 25 45 15 170

15 GSC groceries 25 45 16 172

Part B: External influences on organisational performance

16 GTR panels 25 45 17 175

17 GHG (APM 6/08, amended) 25 45 18 177

18 F4U (APM 6/09) 25 45 18 179

19 CAP (APM 12/09, amended) 25 45 19 182

20 FGH Telecom (APM 12/10, amended) 25 45 21 186

21 SQR Sports racquets 25 45 22 189

22 Stokeness (APM 6/13) 25 45 23 192



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vi Finding questions

Time Page number

Marks

allocation (Mins)

Question

Answer

Part C: Performance measurement systems and design

23 Handra 25 45 24 197

24 FDS irrigation systems 25 45 25 199

25 TREN engine components 25 45 26 201

26 KLP divisions 25 45 26 203

27 Racer deliveries 25 45 27 206

28 Auto Parts 25 45 28 208

29 CMA Supermarkets 25 45 29 210

30 Viga Drinks (Preparation question) 20 36 30 212

31 Beachy Co 25 45 30 214

32 Cobra Golf Club (Preparation question) 20 36 31 217

33 Bluefin School (APM 12/11, amended) 25 45 33 218

Part D: Strategic performance measurement

34 CFD (APM 12/09, amended) 25 45 35 221

35 ZTC Communications 25 45 35 224

36 Stayzee Hotels 25 45 36 227

37 CSG (PM 6/07, amended) 25 45 37 230

38 SEC 25 45 38 233

39 Landual Lamps (APM 6/13) 25 45 39 235

40 Alpha Division (APM 12/07) 25 45 40 240

41 Stillwater Services (APM 12/12, amended) 25 45 42 244

42 BAG (APM 12/08, Preparation question) 20 36 44 249

43 SSA (APM 12/09, amended) 25 45 45 251

44 Seatown 25 45 46 255

45 LGHD (APM 6/10, amended) 25 45 47 258

46 CFE coffee shops 25 45 47 260

47 JIT systems (Preparation question) 20 36 48 262

48 Tench (APM 12/11, amended) 25 45 49 265

49 Navier Aerials (APM 6/13) 25 45 50 268

50 TAW (APM 6/08, amended) 25 45 51 272

51 Thebe (APM 6/12, amended) 25 45 53 274

52 There 4 U (APM 6/09, amended) 25 45 54 278

53 SSH (APM 12/08) 25 45 55 280

54 Universal Pottery Company (BA 12/07) 25 45 56 283

55 CCT Computer Systems (Preparation question) 12 22 57 287

56 Astrodome (PM 12/05, amended) 25 45 58 289

57 TRG (APM 6/08, amended) 25 45 59 290

58 UU (APM 6/09, amended) 25 45 60 293



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Finding questions vii

Time Page number

Marks

allocation (Mins)

Question

Answer

59 Elegant Hotels (BA 6/09) 25 45 61 295

60 Connie Head 25 45 62 298

61 Equiguard (BA 12/08) 25 45 62 300

Part E: Performance evaluation and corporate failure

62 YCT yachts 25 45 64 303

63 Bettaserve (APM Pilot paper) 25 45 65 306

64 Cod (APM 12/11) 25 45 66 308

65 APX Accountancy (APM 6/11, amended) 25 45 68 312

66 Eatwell Restaurant (PM 6/02, amended) 25 45 69 315

67 Amal (APM 6/12, amended) 25 45 69 318

68 B2B Deliveries 25 45 70 322

69 Glitter Fashions 25 45 71 325

70 SFS (APM 6/10, amended) 25 45 72 327

71 LOL cards (APM 12/10, amended) 25 45 73 329

72 BEG (APM 6/10, amended) 25 45 74 331

73 XYZ Co 25 45 75 334

74 ENT Entertainments (APM 6/11, amended) 25 45 76 337

75 Vision (PM 12/06, amended) 25 45 77 340

76 TMC (APM 12/08, amended) 25 45 78 344

77 Joint venture 25 45 79 346

78 Callisto (APM 6/12, amended) 25 45 80 348

79 CHN Retail chain 25 45 81 352

80 Coal Creek (APM 12/12, amended) 25 45 82 354

81 BPC (APM 12/07, amended) 25 45 84 359

82 RM Batteries (APM 12/10, amended) 25 45 84 361

83 NW Clothes 25 45 86 364

84 Action Buttons 25 45 87 366



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viii Finding questions

Time Page number

Marks

allocation (Mins)

Question

Answer

Part F: Current developments and emerging issues in performance management

85 Environmental management accounting (Preparation question) 20 36 89 369

86 School League Tables 25 45 89 370

87 BPL Leisure 25 45 90 373

88 Mentons 25 45 91 375

89 Herman Swan & Co (APM 12/12, amended) 25 45 92 378

90 Great National Trains 25 45 93 384

Section A Questions

91 Armstrong Stores (APM, Sample question, amended) 50 90 95 389

92 Robust Laptops (APM 12/10, amended) 50 90 97 394

93 RRR (APM 12/09, amended) 50 90 99 399

94 BWY houses 50 90 101 403

95 Film Productions Co (APM 12/10, amended) 50 90 103 410

96 Metis (APM 6/12, amended) 50 90 105 414

97 GWCC (PM 6/06, amended) 50 90 107 422

98 JHK Coffee Machines (APM 6/11, amended) 50 90 108 428

99 TSC (APM 12/08, amended) 50 90 110 434

100 BEC (APM 12/09, amended) 50 90 112 439

101 HFG (APM 6/08, amended) 50 90 115 446

102 SBC (APM 6/10, amended) 50 90 117 453

103 Kolmog Hotels (APM 6/13) 50 90 119 458

104 Glasburgh (APM 6/09, amended) 50 90 121 465

105 AAA Management Consultancy 50 90 123 473

106 Zed Leisure 50 90 124 477

Mock exam 1

Mock exam 2 (Pilot Paper)

Mock exam 3 (December 2013)



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Finding questions ix

Topic index Listed below are the key Paper P5 syllabus topics and the numbers of the questions in this Kit covering those topics.

If you need to concentrate your practice and revision on certain topics or if you want to attempt all available questions that refer to a particular subject, you will find this index useful.

Syllabus topic Question numbers Accountability and responsibility accounting 26, 58, Mock 2 Qn 2 Activity-based costing 9, 49, 92 Activity-based management 70 Ansoff's growth vector matrix Appraisals and performance management

75, 76 60

Balanced scorecard 62, 69, 91, 102-105, Mock 2 Qn 3 Behavioural aspects of budgeting 57 Benchmarking 6, 91, 98 Beyond budgeting 92, 93 BCG matrix 74, 87, 94 Branding 46 Budgeting and types of budget 7, 92, 93 Building blocks model (Fitzgerald and Moon) 65, 66, 99 Business process re-engineering 8 Business structure (and performance measurement) 78

Controls and security over information 30, 31, 33 Corporate failure 80-83, 106 Costs of quality 42, 48-50, 97 Critical success factors 3, 34, 35, 92, 95, Mock 3 Qn 1 Cultural differences 17

Dimensions of performance (Fitzgerald and Moon) 66 Divisional performance measures 98, Mock 1 Qn 1, Mock 2 Qn 1

Environmental factors and impact on performance 17, 19, 20, 21, 35, 94, Mock 3 Qn 1 Environmental management accounting 85, Mock 2 Qn 4 Enterprise resource planning systems (ERPS) 3, 12 EVA (Economic value added) 40, 41, 71, 101 External environment 17, 21, 35, 94

Financial performance Five forces

35, 37, 38, 40, 53, 96-101, 106, Mock 1 Qn 1 21, 22, 35

Gap analysis 75, 76, 91, Mock 3 Qn 1 Goal congruence 5, 36, Mock 1 Qn 3 Governments, regulation and business performance 16, 41, 76

Information for decision making Information overload Information systems and IT systems Integrated Reporting

2, 4, 23, 24, Mock 1 Qn 1, Mock 1 Qn 4 32, 33, Mock 1 Qn 1 2, 11, 12, 13, 29, Mock 1 Qn 2, Mock 2 Qn 1 90

JIT Joint ventures

47, 48 77



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x Finding questions

Syllabus topic Question numbers

Kaizen costing Key performance indicators

League tables Lean information systems

48, 50, 70 34, 36, 64, 92, 95, Mock 3 Qn 1

6, 86, 99, Mock 3 Qn 4 25, 31, Mock 3 Qn 3

Management accounting and information systems 11, 13, 23, 24, Mock 1 Qn 2, Mock 2 Qn 1 Mission statements 34, 95

Net present value 18 Non-financial performance indicators 34, 37, 51(a), 102

Objectives 36, 37 Operational planning Mock 1 Qn 2

Performance management in complex business structures

77, 78

Performance management information systems 23, 25, 26, 28, 98 Performance prism 67, 68, 69 Performance pyramid 63, 64, 72, 73, Mock 3 Qn 2 Problems of performance measurement 56, 57, 86, Mock 3 Qn 2 Public sector organisations 44, 45

Qualitative information Quality

27 42, 51, 54, 55

Residual income 40, 101, Mock 1 Qn 3 Responsibility and controllability 26, Mock 2 Qn 2 Reward and remuneration schemes RFID technology

59, 60, 61, 93, 100-103, Mock 1 Qn 1 29, Mock 3 Qn 3

Risk and uncertainty 4, 16, 18, 94, Mock 2 Qn 1 Role of management accountants 87-89, 99

Service organisations 13, 65, 66, 103 Short vs long-term decision making 5, 36, 96 Six Sigma Social obligations

51, 52, 54, 59 20, 46

Stakeholders 14, 15, 41, Mock 2 Qn 1 Strategic management accounting 4, 12, 17 Strategic planning Supply chain management

1, 2, Mock 1 Qn 4 79

Survival vs growth 37, 62, 91 SWOT analysis 1

Target costing 70, 97 Total quality management (TQM) 48 Transfer pricing 39, 42, 43, 98

Value based management Value chain Value for money Virtual organisations

71 10 45 78



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Revising P5 xi

Helping you with your revision

BPP Learning Media Approved Learning Partner - content

As ACCAs Approved Learning Partner content, BPP Learning Media gives you the opportunity to use revision materials reviewed by ACCAs exam team. By incorporating the exam teams comments and suggestions regarding syllabus coverage, the BPP Learning Media Practice and Revision Kit provides excellent, ACCA-approved support for your revision.

Tackling revision and the exam

You can significantly improve your chances of passing by tackling revision and the exam in the right ways. Using feedback obtained from the ACCA exam team.

We look at the dos and donts of revising for, and taking, ACCA exams We focus on Paper P5; we discuss revising the syllabus, what to do (and what not to do) in the exam, how

to approach different types of question and ways of obtaining easy marks

Selecting questions

We provide signposts to help you plan your revision.

A full question index A topic index listing all the questions that cover key topics, so that you can locate the questions that provide

practice on these topics, and see the different ways in which they might be examined

Making the most of question practice

At BPP Learning Media we realise that you need more than just questions and model answers to get the most from your question practice.

Our Top tips included for certain questions provide essential advice on tackling questions, presenting answers and the key points that answers need to include

We show you how you can pick up Easy marks on some questions, as we know that picking up all readily available marks often can make the difference between passing and failing

We include marking guides to show you what the examiner rewards We include comments from the examiner to show you where students struggled or performed well in the

actual exam

We refer to the 2014 BPP Study Text (for exams up to June 2015) for detailed coverage of the topics covered in questions

In a bank at the end of this Kit we include the official ACCA answers to the June and December 2013 papers. Used in conjunction with our answers, the examiners answers provide an indication of all possible points that could be made, issues that could be covered, and approaches to adopt.

Attempting mock exams

There are three mock exams that provide practice at coping with the pressures of the exam day. We strongly recommend that you attempt them under exam conditions. Mock exam 2 is the pilot paper for exams in the current format; Mock exam 3 is the December 2013 paper.



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xii Revising P5

Revising P5

Topics to revise

Any part of the syllabus could be tested in the compulsory Section A question. Therefore it is essential to learn the entire syllabus to maximise your changes of passing. There are no short cuts trying to spot topics is dangerous and will significantly reduce the likelihood of success. As this is an advanced paper it also assumes knowledge of topics covered in Paper F5 Performance Management.

That said, the main capabilities in the syllabus (which is shown on ACCAs website) take you through what the examiner expects from you when you have completed your studies. There are six key areas for you to concentrate on. These six areas are the syllabus areas covered in the BPP P5 Study Text.

However, whilst it is important that you work through your way through the Study Text and cover all the different syllabus areas, it is also important to try and think how the areas might relate to each other, and how they could be used to help managers in an organisation control and improve the performance of that organisation. Remember, this paper is about performance management, and not simply about performance measurement.

Remember to come out of the detail once you have finished a chapter and practised some questions. Take some time to reflect on how the chapter has covered the syllabus and how it feeds back into the capabilities which you will need to display in order to pass this paper.

Question practice

You should use the Passcards and any brief notes you have to revise the syllabus, but you mustn't spend all your revision time simply reading or making notes. Question practice is vital. Doing as many questions as you can, in full, will help develop your ability to analyse scenarios and produce relevant discussion and recommendations.

Make sure you leave enough time in your revision schedule to practise 50 mark Section A questions, as the Section A question is compulsory in the exam. The scenarios and requirements of Section A questions are more extensive than Section B questions, and are likely to integrate several parts of the syllabus. Therefore, practice is essential. Also ensure that you attempt all three mock exams, under exam conditions.



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Revising P5 xiii

Passing the P5 exam

Displaying the right qualities The examiner wrote an article in the technical articles section of ACCAs website in August 2010 which outlined the qualities students should demonstrate when answering P5 questions. The examiners advice focused on the six main syllabus areas (A to F) and what qualities students should demonstrate under each. We reproduce the main points here.

1. The application of strategic planning and control models in performance management. The models stress the need to take an all-encompassing view of the factors that affect a business and to consider them when giving strategic advice on performance. Good candidates at Paper P5 often distinguish themselves by being able to synthesise disparate detailed points into an overall, strategic approach for an organisation.

2. Factors external to the business. Here candidates need to move beyond the internal factors associated with traditional management accounting to consider the information needs of the strategic level of management as well as the operational and tactical levels.

3. The information that management require and the systems that are needed for its delivery. Candidates are expected to be aware of the effect of information technologies on performance management decision making rather than the detail of these technologies. They should be conversant with the broad hardware and software trends and issues and how these interact with the provision of performance information throughout the organization.

4 and 5. The fourth capability is the application of the techniques and assumed knowledge to specific scenarios. You shouldnt simply discuss theories and models in general terms; you need to apply them specifically to the scenario identified in the question. The fifth capability is being able to take this information and turn it into advice which is commercially valuable for strategic decision makers. This capability also requires the candidate to be able to recognise and advise on situations where the organisation is in danger of failing.

6. Finally, candidates are expected to be aware of new knowledge from the general technical press. The examiner stresses that recent technical articles on ACCAs website may be relevant to question topics included in the exam. Equally, however, older technical articles on ACCAs website may also be relevant.

There will be a small number of professional marks available in the compulsory 50 mark Section A question, and it should be possible for a well-prepared student to score most of these. For example, the effective use of appropriate introductions and conclusions, and helpfully breaking the document into properly headed sub-sections, will help to demonstrate a professional approach to writing a report. However, it should be stressed that the approach taken will vary from question to question and the exam tests the candidates ability to apply their knowledge of professional presentation. In order to score full professional marks, the answer will have to be tailored to the specifics of the scenario in the question recognising the needs of the readers of the document.

Presentation points. First: on rounding. At this final level, candidates should use their own judgment on how to round figures the basic rule is that there should be enough detail to make a useful conclusion without obscuring it with insignificant figures.

Second, short paragraphs are usually clear but single sentence paragraphs are often insufficient and unable to get to the depth required at Paper P5. Bullet points are useful for lists but not if commentary is required. Finally, reading model solutions is not a substitute for actually writing out your own answers.

Summarising the advice the examiner gives:

Candidates should:

Understand the objectives of the exam as explained in the Syllabus and prepare the detailed topics in the Study Guide

Be very comfortable with the areas tested in Paper F5 Performance Management and Paper P3 Business Analysis



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xiv Revising P5

Ensure that their preparation for the exam has been based on a programme of study set for the required syllabus and exam structure

Use an ACCA-approved textbook for Paper P5. They are structured around the syllabus and ACCAs examining team reviews them so that they give an effective coverage of what is examinable

Practise questions under exam conditions in order to improve speed and presentation skills, ensuring these test discursive, computational and analytic abilities

Study all the relevant technical articles that are published on ACCAs website Be able to clearly communicate understanding and application of knowledge in the context of a Professional

level exam

The questions tend to be wide-ranging, as the examiner wants to link topics and mix ideas up. So you are better knowing something about every part of the syllabus than a lot of detail about a few areas only.

Avoiding weaknesses Our experience of, and examiner feedback from, other higher level exams enables us to predict a number of weaknesses that are likely to occur in many students answers. You will enhance your chances significantly if you ensure you avoid these mistakes:

Failing to provide what the question verbs require (discussion, evaluation, recommendation) or to write about the topics specified in the question requirements

Repeating the same material in different parts of answers Stating theories and concepts rather than applying them Quoting chunks of detail from the question that don't add any value. Whilst it is important that you relate

your answer to this scenario, this means using issues highlighted in the scenario to help answer the question not simply re-writing the question.

Failing to make the most of the information given in the question. Remember, you need to apply your knowledge specifically to the scenario given in the question.

Failing to set out workings clearly and separately Not planning and preparing the answer properly, taking into account mark allocation. Students often leave

part-questions out.

Not refreshing brought-forward knowledge (for example, from Paper F5).

Using the reading time ACCA permits a 15-minute reading time in addition to the 3 hour time given to answer this paper.

We recommend that you spend the first part of the 15 minutes reading time choosing the Section B questions you will do, on the basis of your knowledge of the syllabus areas being tested and whether you can fulfil all the question requirements. Remember that Section B questions can cover different parts of the syllabus, and you should be happy with all the areas that the questions you choose cover. We suggest that you should note on the paper any ideas that come to you about these questions.

However don't spend all the reading time going through and analysing the Section B question requirements in detail; leave that until the three hours writing time. Instead you should be looking to spend as much of the reading time as possible looking at the Section A scenario, as this will be longer and more complex than the Section B scenarios and cover more of the syllabus. You should highlight and annotate the key points of the scenario on the question paper.



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Revising P5 xv

Choosing which questions to answer first Spending most of your reading time on the Section A scenario will mean that you can get underway with planning and writing your answer to the Section A question as soon as the three hours start. It will give you more actual writing time during the one and a half hours you should allocate to it, and it is writing time that you'll need. Comments from examiners of other syllabuses that have similar exam formats suggest that students appear less time-pressured if they do the big compulsory question first.

During the second half of the exam, you can put Section A aside and concentrate on the two Section B questions youve chosen.

However, our recommendations are not inflexible. If you really think the Section A question looks a lot harder than the Section B questions youve chosen, then do one of those first, but DON'T run over time on it. You must have an hour and a half to tackle the Section A question and you will feel under much more pressure on it if you leave it till last. If you do one of the Section B questions first, and then tackle the Section A question having had initial thoughts on it during the reading time, you should be able to generate more ideas and find the Section A question is not as bad as it looks.

Remember also that small overruns of time during the first half of the exam can add up to you being very short of time towards the end.

Tackling questions You'll improve your chances by following a step-by-step approach along the following lines.

Step 1 Read the background Usually the first couple of paragraphs will give some background on the company and what it is

aiming to achieve. By reading this carefully you will be better equipped to relate your answers to the company as much as possible.

Step 2 Read the requirements There is no point reading the detailed information in the question until you know what it is going to be used for. Dont panic if some of the requirements look challenging identify the elements you are able to do and look for links between requirements, as well as possible indications of the syllabus areas the question is covering.

Step 3 Identify the action verbs that are used in each requirement These convey the level of skill you need to exhibit and also the structure your answer should have. A lower level verb such as define will require a more descriptive answer; a higher level verb such as evaluate will require a more applied, critical answer.

ACCAs examination team has indicated that higher level requirements and verbs will be most significant in this paper, for example critically evaluating a statement and arguing for or against a given idea or position. Action verbs that are likely to be frequently used in this exam are listed below, together with their intellectual levels and guidance on their meaning.

Level

1 Define Give the meaning of

1 Explain Make clear

1 Identify Recognise or select

1 Describe Give the key features

2 Analyse Give reasons for the current situation or what has happened



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xvi Revising P5

Level

2 Compare and contrast

Explain the similarities and differences between two terms, viewpoints or concepts

3 Assess Determine the strengths/weaknesses/importance/ significance/ability to contribute

3 Discuss Examine in detail by using arguments for and against

3 Recommend Advise the appropriate actions to pursue in terms the recipient will understand

3 Evaluate Determine the value of, in the light of the arguments for and against

Step 4 Identify what each part of the question requires Think about what frameworks of theories you could choose to support your answer (if the question doesnt indicate a specific one you need to use).

Look at how the different parts of a question fit together, and make sure you dont end up repeating the same points in more than one part of the question.

Step 5 Check the mark allocation to each part This shows you the depth anticipated and helps allocate time.

Step 6 Read the whole scenario carefully, highlighting key data Put points under headings related to requirements (eg by noting in the margin to what part of the question the scenario detail relates).

Step 7 Consider the consequences of the points youve identified You will often have to provide recommendations based on the information you've been given. Be prepared to criticize the framework or model that youve been told to use, if required. You may have also to bring in wider issues or viewpoints, for example the views of different stakeholders.

Step 8 Write a brief plan You may be able to do this on the question paper as often there will be at least one blank page in the question booklet. However any plan you make should be reproduced in the answer booklet when writing time begins. Make sure you identify all the requirements of the question in your plan each requirement may have sub-requirements that must also be addressed. If there are professional marks available, highlight in your plan where these may be gained; for example, preparing a report.

Step 9 Write your answer Make every effort to present your answer clearly. The pilot paper and exam papers so far indicate that the examiner will be looking for you to make a number of clear points. The best way to demonstrate what youre doing is to put points into separate paragraphs with clear headers.



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Revising P5 xvii

Discussion questions

Do not be tempted to write all you know about a particular topic in a discussion question. Markers can easily spot when a student is waffling and you will receive little or no credit for this approach. Keep referring back to the question requirement to ensure you are not straying from the point.

To make it easier for the marker to determine the relevance of the points you are making, you could explain what you mean in one sentence and then why this point is relevant in another.

Remember that depth of discussion will be important. Always bear in mind how many marks are available for the discussion as this will give you an indication of the depth that is required. Ask yourself the following questions as you are tackling a discussion question:

Have I made a point in a coherent sentence? Have I explained the point? (to answer the so what or why queries; and to demonstrate which the point is

important)

Have I related the point to the company in the scenario? (with material or analysis from the scenario, or perhaps even an example from real life)

In this exam a number of requirement verbs will expect you to express a viewpoint or opinion, for example construct an argument, criticise, evaluate. When expressing an opinion, you need to provide:

What the question wants. For instance, if you are asked to criticise something, don't spend time discussing its advantages. In addition if a scenario provides a lot of information about a situation, and you are (say) asked to assess that situation in the light of good practice, your assessment is unlikely to be favourable.

Evidence from theory or the scenario again we stress that the majority of marks in most questions will be given for applying your knowledge to the scenario.



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xviii Revising P5

Exam formulae



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Revising P5 xix



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xx Revising P5

Exam information

The exam paper

Format of the paper

The current format of the P5 exam was introduced in June 2013. It is: Number of marks Section A: 1 compulsory case study 50 Section B: Choice of 2 from 3 questions (25 marks each) 50 100

Time: 3 hours plus 15 minutes reading time

Note. Although the format of the exams changed from June 2013, the underlying syllabus content and the way in which subjects are examined has not changed. The changes only relate to the number of questions in the exam, and the mark allocations for each question.

Section A will be a compulsory case study question, typically with four or five sub-requirements relating to the same scenario information. The question will usually assess and link a range of subject areas from across the syllabus. It will require students to demonstrate high-level capabilities to understand the complexities of the case, and evaluate, relate and apply the information in the case study to the requirements.

Professional marks will be available in Section A for presentation, logical flow of argument and quality of argument.

Section B questions are more likely to assess a range of discrete subject areas from the main syllabus section headings; they may require evaluation and synthesis of information contained within short scenarios and application of this information to the question requirements.

Although one subject area is likely to be emphasised in each Section B question, students should not assume that questions will be solely about content from that area. Each question will be based on a short case scenario to contextualise the question.

The pass mark for Paper P5 is 50%.

Additional information The Study Guide provides more detailed guidance on the syllabus.

Exams prior to 2013 Questions and answers for exams prior to 2013 are available on ACCAs website:

http://www.accaglobal.com/gb/en/student/acca-qual-student-journey/qual-resource/acca-qualification/p5/past-exam-papers.html

Please note, these questions reflect of the format of the exam prior to 2013. In the main body of this Kit, where we have used past exam questions, we have adapted them to fit the format of the exam from June 2013.



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Revising P5 xxi

Analysis of past papers The table below provides details of when each element of the syllabus has been examined and whether it was examined as part of a compulsory question (C) or an optional one (O). Please note that up to, and including, December 2012 the exam contained two compulsory questions, whereas exams from 2013 only contain one compulsory question.

Covered in Text chapter

Dec 2013

June 2013

Dec 2012

June 2012

Dec 2011

June 2011

Dec 2010

June 2010

STRATEGIC PLANNING AND CONTROL

1 Introduction to strategic management accounting

O C

2 Performance management and control of the organisation

C C

3 Business structure, IT developments and other environmental and ethical issues

C C, C

EXTERNAL INFLUENCES ON ORGANISATIONAL PERFORMANCE

4 Changing business environment and external factors

C O C O C

5, 6 PERFORMANCE MEASUREMENT SYSTEMS AND DESIGN

0 C O, O C

STRATEGIC PERFORMANCE MEASUREMENT

7 Performance hierarchy C C

8 Scope of strategic performance measures in the private sector

C, O C C O

9 Divisional performance and transfer pricing issues

0 C O,O

10a Scope of strategic performance measures in not-for-profit organisations

C,O

10b Non-financial performance indicators O C

11 The role of quality in management information and performance measurement systems

0 O O

12 Performance measurement: strategy, reward and behaviour

0 C O O,O

PERFORMANCE EVALUATION AND CORPORATE FAILURE

13 Alternative views of performance measurement and management

0 C, 0 C C C, O C,O O,O

14 Strategic performance issues in complex business structures

O O

15 Predicting and preventing corporate failure O O

CURRENT DEVELOPMENTS AND EMERGING ISSUES IN PERFORMANCE MANAGEMENT

16 Current developments, issues and trends 0 O O



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xxii Revising P5

IMPORTANT!

The table on the previous page gives a broad idea of how frequently major topics in the syllabus are examined. It should not be used to question spot and predict for example that a certain topic will not be examined because it has been examined in the last two sittings. Examiners are well aware that some students try to question spot, and so they try to avoid predictable patterns. Consequently, a topic could well be examined in a number of consecutive sittings. Equally, just because a topic has not been examined for a long time, does not necessarily mean it will be examined in the next exam!



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Revising P5 xxiii

Useful websites The websites below provide additional sources of information of relevance to your studies for Advanced Performance Management.

www.accaglobal.com ACCA's website. The students' section of the website is invaluable for detailed information about the qualification, technical articles, and a free downloadable Student Planner App.

www.bpp.com Our website provides information about BPP products and services, with a link to the ACCA website.

www.ft.com This website provides information about current international business. You can search for information and articles on specific industry groups as well as individual companies.

www.economist.com Here you can search for business information on a week-by-week basis, search articles by business subject and use the resources of the Economist Intelligence Unit to research sectors, companies or countries.

www.cfo.com This site provides useful news and insights for financial executives.

http://www.investmentweek.co.uk This site carries business news and articles on markets from Investment Week and International Investment.



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xxiv Revising P5



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1

Questions



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2



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Questions 3

STRATEGIC PLANNING AND CONTROL

Questions 1 to 15 cover strategic planning and control, the subject of Part A of the BPP Study Text for Paper P5.

1 Diverse holdings (PM 12/05, amended) 45 mins Diverse Holdings plc has five wholly-owned subsidiary companies. These are:

(i) Organic Foods Ltd (OFL) which is involved in the production and sale of organically grown fruit and vegetables. OFL has built up a very good reputation as a supplier of quality produce.

(ii) Haul-Trans Ltd (HTL) which was acquired on 1 December 20X5 and is involved in transporting a range of products on behalf of third parties.

(iii) Kitchen Appliances Ltd (KAL) which is involved in the manufacture and sale of small, manually-operated kitchen appliances. KAL has recently suffered from squeezed margins as a consequence of competition from low cost imports.

(iv) Paper Supplies Ltd (PSL) which manufactures and sells a narrow range of stationery products to two distributors.

(v) Office Products Ltd (OPL) which manufactures and sells computer workstations with unique design features which are highly regarded by health and safety experts.

The management accountant of Diverse Holdings plc has gathered the following actual and forecast information relating to the five subsidiaries:

Year ending 30 November 20X3 20X4 20X5 20X6 20X7 Actual Actual Actual Forecast Forecast

(OFL) Market size ($m) 100.0 120.0 150.0 180.0 225.0 Revenue ($m) 5.0 8.0 10.0 13.5 18.0 Operating profit ($m) 1.0 1.8 2.5 3.0 3.6

(HTL) Market size ($m) Unknown Unknown Unknown Unknown Unknown Revenue ($m) 40.0 40.0 41.0 42.0 42.0 Operating profit ($m) 4.0 4.0 4.0 5.0 5.6

(KAL) Market size ($m) 252.0 250.0 245.0 242.0 240.0 Revenue ($m) 37.5 37.5 35.5 32.0 29.0 Operating profit/(loss) ($m) 1.5 1.1 0.7 0.3 (0.2)

(PSL) Market size ($m) 60.0 65.0 70.0 77.0 84.0 Revenue ($m) 2.0 2.0 2.0 2.0 2.1 Operating profit ($m) 0.6 0.6 0.6 0.5 0.5

(OPL) Market size ($m) 200.0 220.0 240.0 260.0 280.0 Revenue ($m) 15.0 16.0 16.5 17.0 17.5 Operating profit ($m) 1.50 1.60 1.65 1.70 1.75

The management accountant has also collated the following information relating to the market share held at 30 November 20X5 by the market leader in those markets in which each subsidiary operates:

Subsidiary Market Market share held by market leader % Organic Foods Ltd Food production 6.66 Haul-Trans Ltd Transport Unknown Kitchen Appliances Ltd Kitchen appliances 16.00 Paper Supplies Ltd Stationery 35.00 Office Products Ltd Workstations 25.00



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4 Questions

The management has decided not to undertake any further acquisitions during the next two years due to a shortage of funds.

Required

(a) Identify and comment on FIVE advantages that may be gained as a result of the adoption of a formal system of strategic planning. (5 marks)

(b) Explain how SWOT analysis could be used to assist the performance management process at Diverse Holdings plc. (7 marks)

(c) (i) Using ONLY the information provided in the scenario, assess the competitive position of Diverse Holdings plc. (7 marks) (ii) Explain THREE strategies that might be adopted in order to improve the future prospects of Diverse Holdings plc. (6 marks)

(Total = 25 marks)

2 ST University 45 mins ST University (STU) is university in a European country, with approximately 8,500 full time students. It employs 360 academic staff and 450 other staff.

STU currently receives a significant amount of government funding, which covers its capital budget (for buildings and equipment), teaching, and research.

However, a recent visit from government appointed auditors has been critical of STUs performance in a number of areas:

For the last two financial years, STU has operated at a deficit, with its expenditure being greater than its income.

The percentage of students dropping-out of courses is greatly in excess of the national average, as is the failure rate.

The number of student complaints was very high, and has been increasing over the past 5 years It has had an abnormally high level of staff turnover STUs internal control of cash receipts is weak, and in several areas there were discrepancies between the

cash actually held and the expected amount It also had a large number of debtors (receivables), mainly ex-students, but was not taking any action to

collect outstanding debts. STU could not accurately produce a head-count of the number of students enrolled on its courses Overall, the quality of education provided by STU has been graded as Poor, which is the lowest possible

rating.

Following the visit, the government has instructed STU to prepare a new strategic plan for the next five years, which addresses the criticisms identified by the audit.

Although STUs senior management team were disappointed at the level of the auditors criticism overall, they were particularly surprised at the comments about its computing facilities. Over the past two years, STU has made a major capital investment in upgrading all the computing facilities across the university.

The auditors report made reference to this investment, but pointed out that some department faculties are making much better use of them to promote learning than others.



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Questions 5

Required

(a) Discuss the extent to which the criticisms made about the University are strategic or operational. (6 marks)

(b) Advise STU how control measures could assist in the successful implementation of the new strategic plan, and recommend controls the university could use to assist in the improvement of any TWO of the areas which were criticised in the recent audit. (10 marks)

(c) Advise STU how it could use information systems to support the successful implementation of the strategic plan. (9 marks)

(Total = 25 marks)

3 HEG (APM 12/07, amended) 45 mins The directors of The Healthy Eating Group (HEG), a successful restaurant chain, which commenced trading in 1998, have decided to enter the sandwich market in Homeland, its country of operation. It has set up a separate operation under the name of Healthy Sandwiches Co (HSC). A management team for HSC has been recruited via a recruitment consultancy which specialises in food sector appointments. Homeland has very high unemployment and the vast majority of its workforce has no experience in a food manufacturing environment. HSC will commence trading on 1 January 20X8.

The following information is available:

(1) HSC has agreed to make and supply sandwiches to agreed recipes for the Superior Food Group (SFG) which owns a chain of supermarkets in all towns and cities within Homeland. SFG insists that it selects the suppliers of the ingredients that are used in making the sandwiches it sells and therefore HSC would be unable to reduce the costs of the ingredients used in the sandwiches. HSC will be the sole supplier for SFG.

(2) The number of sandwiches sold per year in Homeland is 625 million. SFG has a market share of 4%.

(3) The average selling price of all sandwiches sold by SFG is $240. SFG wishes to make a mark-up of 331/3% on all sandwiches sold. 90% of all sandwiches sold by SFG are sold before 2 pm each day. The majority of the remaining 10% are sold after 8 pm. It is the intention that all sandwiches are sold on the day that they are delivered into SFG's supermarkets.

(4) The finance director of HSC has estimated that the average cost of ingredients per sandwich is $070. All sandwiches are made by hand.

(5) Packaging and labelling costs amount to $015 per sandwich.

(6) Fixed overheads have been estimated to amount to $5,401,000 per annum. Note that fixed overheads include all wages and salaries costs as all employees are subject to fixed term employment contracts.

(7) Distribution costs are expected to amount to 8% of HSC's revenue.

(8) The finance director of HSC has stated that he believes the target sales margin of 32% can be achieved, although he is concerned about the effect that an increase in the cost of all ingredients would have on the forecast profits (assuming that all other revenue/cost data remains unchanged).

(9) The existing management information system of HEG was purchased at the time that HEG commenced trading. The directors are now considering investing in an enterprise resource planning system (ERPS).

Required

(a) Using only the above information, show how the finance director of HSC reached his conclusion regarding the expected sales margin and also state whether he was correct to be concerned about an increase in the price of ingredients. (6 marks)

(b) Explain the concept of critical success factors, and explain FIVE critical success factors to the performance of HSC on which the directors must focus if HSC is to achieve success in its marketplace. (13 marks)

(c) Explain how the introduction of an ERPS could impact on the role of management accountants. (6 marks)

(Total = 25 marks)



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6 Questions

4 AB Electronics 45 mins AB Co manufactures, markets and distributes a large range of electronic components, and it is has established a significant market share across Europe and the United States of America.

AB has three different divisions: the Domestic Electronic Components division (DEC), the Industrial Electronic Components division (IEC), and the Specialist Components (SC) division. The DEC division and the IEC division supply standard electronic components for domestic and industrial use, while the SC division supplies specialist components which are often unique and made to specific customer requirements. Each division has its own factory, with DEC and IECs factories based in the same Eastern European country and SCs factory based in a Western European country.

All three divisions have been profitable over the past five years, although the Board has traditionally taken a relatively cautious approach to providing strategic direction for the company. However, ABs institutional shareholders are now looking for increased growth and profitability. In the past, the institutional shareholders have been critical of ABs board for being overly cautious in their attitude to risk.

In ABs most recent annual report, published in March 20Y0, the Board stated that ABs overall strategic aim is to: Achieve growth and increase shareholder returns by continuing to produce and distribute high quality electronic components, and develop our international presence through expansion into new overseas markets.

Two years earlier, in 20X8, AB established a separate trading company with a local partner in Asia to sell the IEC divisions products. The ownership of the company is shared: 50% by AB and 50% with a local entrepreneur. AB chose this structure because of local legal requirements. A further legal requirement is that, in the case of the company ceasing to trade, AB will be required to reimburse the local entrepreneur the full amount of his original investment (which was $500,000).

This expansion was initially very successful, with good levels of demand being experienced for IECs products. Recently, however, a number of environmental factors have rapidly changed. These include a forecast of declining demand for IECs products in Asia due to adverse world economic factors (which have slowed the growth in demand for electronic components in total) and a move towards protectionism in some Asian countries. The trading company had originally been forecast to make a profit of $2 million in 20Y1, but this figure has now been re-forecast to $1.6 million.

IEC has also been unfortunate in that its direct labour costs in Asia have increased by more than the planned level. Economic intelligence suggests that this inflation will continue increasing for the next two years.

However, analysis by ABs management accountant shows that the trading companys costs (and in particular its wage costs) are proportionally much higher than its competitors.

Required

(a) Advise the Board of AB how strategic management accounting could help it manage the performance of the trading company in Asia. (8 marks)

(b) Discuss the factors which AB should consider before withdrawing from the trading company it has established with its partner in Asia. (12 marks)

(c) Briefly discuss how the Boards attitude to risk means it may respond to potential new opportunities in a different way than the institutional shareholders would like. (5 marks)

(Total = 25 marks)

5 Megasnack 45 mins Megasnack Co operates an extensive chain of fast-food outlets in a number of countries. Most outlets are owned and managed by the company but some are operated under a franchising agreement. The companys strategy is based on conformity providing a range of standard products at a standard price, in similarly-designed stores, using the same service procedures. This means that customers visiting a Megasnack outlet in any country will know what service, what eating environment and what products to expect, and (depending on currency rates) how much they will pay for their food.

The financial strategy of the company has been to achieve targets for gross contribution and net operating profit at all outlets, and to achieve sales growth by meeting customer needs and expectations better than rival fast-food



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Questions 7

companies, with support from extensive advertising. Two key performance indicators which Megasnack uses to measure the performance of its outlets are: revenue per outlet; and staff costs as a percentage of revenue.

The senior operations management team at head office have become concerned recently by a number of reported incidents in which some local outlets have been deviating from company strategy in order to meet targets for sales growth or profit margins. Several incidents are itemised below:

(1) Some outlets have been offering special discount prices or special deals (two-for-the-price-of-one) in order to increase sales, and, for the same reason, some outlets have offered a home delivery service, which is against company policy.

(2) Some outlets have cut training costs for staff in order to save costs, and head office managers are concerned that this could affect the quality and speed of service given to customers. Other outlets have taken on temporary staff without training them, in order to meet the demand from customers.

(3) There have been reports that in one country, outlets have been offering extra products on their menu, in addition to the standard Megasnack product range.

(4) There has been adverse publicity in the media about one outlet that was disposing of food waste in a way that was contrary to health and safety laws, and in breach of the companys health and environmental policies.

(5) Another adverse media story has been the decision by the manager of one outlet to dismiss all the staff after they took unofficial strike action. The manager took this action without consulting head office or referring to the companys industrial relations policy.

Another source of concern has been a problem with the quality of the pre-preparation of food products. Megasnacks products are pre-prepared at a number of large processing centres, and they are then transported to the outlets each day from these processing centres. Each outlet then finishes the preparation of the products for serving to customers in their own kitchen. Recently, during a period of high demand for products from the Megasnack outlets, the managers of some processing centres had resisted demands to produce more pre-prepared output, on the grounds that this would stretch their resources and damage the quality of the food items produced.

Senior management have recognised that a problem exists with the processing centres and are considering what action to take.

Required

(a) Briefly evaluate the choice of revenue per outlet, and staff costs as a percentage of revenue as key performance indicators for Megasnacks outlets. (5 marks)

(b) With reference to the experiences at Megasnack, discuss the reasons for conflict between the strategic business plans of a large organisation and short-term decision making at local level. (10 marks)

(c) Recommend the measures that senior management at Megasnack should take to reduce the scope for such conflict and the risk that this conflict might occur. (10 marks)

(Total = 25 marks)

6 Ganymede (APM 6/12, amended) 45 mins Ganymede University (GU) is one of the three largest universities in Teeland, which has eight universities in total. All of the universities are in the public sector. GU obtains the vast majority of its revenue through government contracts for academic research and payments per head for teaching students. The economy of Teeland has been in recession in the last year and this has caused the government to cut funding for all the universities in the country.

In order to try to improve efficiency, the chancellor of the university, who leads its executive board, has asked the head administrator to undertake an exercise to benchmark GUs administration departments against the other two large universities in the country, AU and BU. The government education ministry has supported this initiative and has required all three universities to cooperate by supplying information.



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8 Questions

The following information has been collected regarding administrative costs for the most recent academic year:

GU AU BU $000 $000 $000 Research Contract management 14,430 14,574 4,719 Laboratory management 41,810 42,897 42,646 Teaching facilities management 26,993 27,263 26,723 Student support services 2,002 2,022 2,132 Teachers support services 4,005 4,100 4,441 Accounting 1,614 1,571 1,611 Human resources 1,236 1,203 1,559 IT management 6,471 6,187 6,013 General services 17,049 16,095 8,644 Total 115,610 115,912 118,488 Drivers: Student numbers 28,394 22,783 29,061 Staff numbers 7,920 7,709 8,157 Research contract value ($m) 185 167 152

The key drivers of costs and revenues have been assumed to be research contract values supported, student numbers and total staff numbers. The head administrator wants you to complete the benchmarking and make some preliminary comment on your results.

The education ministry in Teeland is also keen that potential students should have as much information as possible to help them choose which University to apply to.

To this end, the ministry has proposed that summary league tables are published showing:

The value of research funding secured by each university The proportion of students gaining first class and upper second (2:1) class degrees The proportion of students completing their courses The proportion of graduates who have secured full time employment within one year of graduating. However, the chancellors of a number of universities in Teeland have written to the minister for education expressing their concern at the proposal to introduce the league tables.

Required

(a) Assess the progress of the benchmarking exercise to date, explaining the actions that have been undertaken, and those that are still required. (7 marks)

(b) Evaluate, as far as possible, Ganymede Universitys benchmarked position. (10 marks)

(c) Evaluate the usefulness of the proposed league tables for students choosing where to study in Teeland. (8 marks)

(Total = 25 marks)

7 Drinks Group (APM 12/12, amended) 45 mins The Drinks Group (DG) has been created over the last three years by merging three medium-sized family businesses. These businesses are all involved in making fruit drinks. Fizzy (F) makes and bottles healthy, fruit-based sparkling drinks. Still (S) makes and bottles fruit-flavoured non-sparkling drinks and Healthy (H) buys fruit and squeezes it to make basic fruit juices. The three companies have been divisionalised within the group structure. A fourth division called Marketing (M) exists to market the products of the other divisions to various large retail chains. Marketing has only recently been set up in order to help the business expand. All of the operations and sales of DG occur in Nordland, which is an economically well-developed country with a strong market for healthy non-alcoholic drinks.



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Questions 9

The group has recruited a new finance director (FD), who was asked by the board to perform a review of the efficiency and effectiveness of the finance department as her first task on taking office. The finance director has just presented her report to the board regarding some problems at DG.

Extract from finance directors Report to the Board:

The main area for improvement, which was discussed at the last board meeting, is the need to improve profit margins throughout the business. There is no strong evidence that new products or markets are required but that the most promising area for improvement lies in better internal control practices.

Control

As DG was formed from an integration of the original businesses (F, S, H), there was little immediate effort put into optimising the control systems of these businesses. They have each evolved over time in their own way. Currently, the main method of central control that can be used to drive profit margin improvement is the budget system in each business. The budgeting method used is to take the previous years figures and simply increment them by estimates of growth in the market that will occur over the next year. These growth estimates are obtained through a discussion between the financial managers at group level and the relevant divisional managers. The management at each division are then given these budgets by head office and their personal targets are set around achieving the relevant budget numbers.

Divisions

H and S divisions are in stable markets where the levels of demand and competition mean that sales growth is unlikely, unless by acquisition of another brand. The main engine for prospective profit growth in these divisions is through margin improvements. The managers at these divisions have been successful in previous years and generally keep to the agreed budgets. As a result, they are usually not comfortable with changing existing practices.

F is faster growing and seen as the star of the Group. However, the Group has been receiving complaints from customers about late deliveries and poor quality control of the F products. The F managers have explained that they are working hard within the budget and capital constraints imposed by the board and have expressed a desire to be less controlled.

The marketing division has only recently been set up and the intention is to run each marketing campaign as an individual project which would be charged to the division whose products are benefiting from the campaign. The managers of the manufacturing divisions are very doubtful of the value of M, as each believes that they have an existing strong reputation with their customers that does not require much additional spending on marketing. However, the board decided at the last meeting that there was scope to create and use a marketing budget effectively at DG, if its costs were carefully controlled. Similar to the other divisions, the marketing division budgets are set by taking the previous years actual spend and adding a percentage increase. For M, the increase corresponds to the previous years growth in group turnover.

End of extract

At present, the finance director is harassed by the introduction of a new information system within the finance department which is straining the resources of the department. However, she needs to respond to the issues raised above at the board meeting and so is considering using different budgeting methods at DG. She has asked you, the management accountant at the Group, to do some preliminary work to help her decide whether and how to change the budget methods. The first task that she believes would be useful is to consider the use of rolling budgets. She thinks that fast-growing F may prove the easiest division in which to introduce new ideas.

Fs incremental budget for the current year is given below. You can assume that cost of sales and distribution costs are variable and administrative costs are fixed.

Q1 Q2 Q3 Q4 Total $000 $000 $000 $000 $000 Revenue 17,520 17,958 18,407 18,867 72,752 Cost of sales 9,636 9,877 10,124 10,377 40,014 Gross profit 7,884 8,081 8,283 8,490 32,738 Distribution costs 1,577 1,616 1,657 1,698 6,548 Administration costs 4,214 4,214 4,214 4,214 16,856 Operating profit 2,093 2,251 2,412 2,578 9,334



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10 Questions

The actual figures for quarter 1 (which has just completed) are:

$000 Revenue 17,932 Cost of sales 9,863 Gross profit 8,069 Distribution costs 1,614 Administration costs 4,214 Operating profit 2,241

On the basis of the Q1 results, sales volume growth of 3% per quarter is now expected.

The finance director has also heard you talking about bottom-up budgeting and wants you to evaluate its use at DG.

Required

(a) Evaluate the suitability of incremental budgeting at each division. (8 marks)

(b) Recalculate the budget for Fizzy division (F) using rolling budgeting and assess the use of rolling budgeting at F. (8 marks)

(c) Recommend, with reasons, a suitable budgeting method which could be used at the marketing division (M). (3 marks)

(d) Analyse and recommend the appropriate level of participation in budgeting at Drinks Group (DG). (6 marks)

(Total = 25 marks)

8 Business process re-engineering 45 mins FCI is one of several insurance companies which offer insurance policies covering general risks relating to individuals and families. Cost efficiency is a major factor in the success of the companies in this industry, because competition within the industry is fierce.

Over the past three years FCI has seen the volume of business increase, but profits have remained static due to declining margins.

Although some of the processes within FCI are computerised, most of the processes which involve communication with customers are still paper-based. Responses to telephone enquiries from customers involve paper-based communications, both with the enquirers and internally within FCI. Additionally, sales staff visit potential customers in their homes to try to sell them insurance policies for their homes and their possessions. These transactions are again paper-based. This process is often slow and has led to complaints from both customers and the companys sales staff.

FCI has also been receiving a regular, and increasing, number of complaints from current and potential customers about errors in the paperwork that they receive.

The Board of Directors of FCI has announced that there is a need for a business process re-engineering programme to be conducted, with the intention of modernising the business, and has asked the management accountant to help with the planning and implementation of the programme.

The intention is to streamline the business model as much as possible, and to increase the profitability of the company. FCI intends to computerise almost all of the work done within the company. However, while some of the staff are enthusiastic about the BPR programme, a number have expressed concern about business process re-engineering and its implications for them.



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Questions 11

Required

(a) Briefly explain the principles of business process re-engineering (BPR). (7 marks)

(b) (i) Discuss the improvements that the Board of Directors might expect from introducing BPR to FCIs business model. (10 marks)

(ii) Recommend, with reasons, TWO performance targets which FCI could introduce to help ensure that the re-engineered processes enable it to achieve its business objectives. (5 marks)

(c) Explain why FCIs staff might be concerned about BPR and its implications for them. (3 marks)

(Total = 25 marks)

9 GMB Co (APM 12/07, amended) 45 mins GMB Co designs, produces and sells a number of products. Functions are recognised from design through to the distribution of products. Within each function, a number of activities may be distinguished and a principal driver identified for each activity.

Each sales order will normally comprise a number of batches of any one of a range of products. The company is active in promoting, where possible, a product focus for design, dedicated production lines and product marketing. It also recognises that a considerable level of expenditure will relate to supporting the overall business operation.

It is known that many costs may initially be recognised at the unit, batch, product sustaining (order) or business/facility sustaining (overall) levels. A list of expense items relating to Order Number 377 of product Zeta is shown below.

The methods of calculating the values for Order Number 377 shown below are given in brackets alongside each expense item. These methods also indicate whether the expense items should be regarded as product unit, batch, product sustaining (order) or business/facility sustaining (overall) level costs. The expense items are not listed in any particular sequence. Each expense item should be adjusted to reflect its total cost for Order Number 377.

Order Number 377 comprises 5,000 units of product Zeta. The order will be provided in batches of 1,000 product units.

Order Number 377 $ Production scheduling (rate per hour hours per batch) 60,000 Direct material cost (per unit material specification) 180 Selling batch expediting (at rate per batch) 60,000 Engineering design & support (rate per hour hours per order) 350,000 Direct labour cost (rate per hour hours per unit) 150 Machine set-up (rate per set-up number of set-ups per batch) 34,000 Production line maintenance (rate per hour hours per order) 1,100,000 Business/facility sustaining cost (at 30% of all other costs) 1,500,000 Marketing (rate per visit to client number of visits per order) 200,000 Distribution (tonne miles rate per tonne mile per batch) 12,000 Power cost (rate per Kilowatt hour Kilowatts per unit) 120 Design work (rate per hour hours per batch) 30,000 Administration invoicing and accounting (at rate per batch) 24,000



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12 Questions

Required

(a) Prepare a statement of total cost for Order Number 377, which analyses the expense items into sections for each of four levels, with sub-totals for each level where appropriate. The four levels are:

(i) Unit-based costs (ii) Batch-related costs (iii) Product sustaining (order level) costs (iv) Business/facility sustaining (overall level) costs (6 marks)

(b) Identify and discuss the appropriateness of the cost drivers of any TWO expense values in EACH of levels (i) to (iii) above and ONE value that relates to level (iv).

In addition, suggest a likely cause of the cost driver for any ONE value in EACH of levels (i) to (iii), and comment on possible benefits from the identification of the cause of each cost driver. (12 marks)

(c) Discuss the practical problems that may be encountered in the implementation of an activity-based system of product cost management. (7 marks)

(Total = 25 marks)

10 Sports Shop 45 mins SPS is a medium-sized retailer of sports equipment and leisure clothing. SPS was established in 1991, and currently operates from three retail shops in town centre locations.

The management team at SPS is very careful about how it recruits staff. In addition to the specific skills required to do the job, any applicant must also have a 'passion' for sport. This has resulted in SPS gaining a reputation for excellent customer service and enthusiastic staff.

A large proportion of staff time is also devoted to training, both on the product range and customer service techniques. According to a recent survey conducted by the store managers, the customers believe that SPS employees are 'helpful and knowledgeable'. The customers also praised the SPS shops for being 'well designed' and said that it was 'very easy' to find what they were looking for.

Another feature of SPS that is appreciated by the customers is the range of goods stocked. By developing close relationships with the major manufacturers of sports goods and clothing, SPS is able to stock a far wider range of items than its rivals. Control of this stock was made easier, last year, by the development of a sophisticated computerised stock control system. Using the system, any member of staff can locate any item of stock in any of the shops or the warehouse. If the required item is not 'in stock' at SPS, it is also possible to automatically check the availability of stock with the manufacturer.

At a recent management meeting, one of the store managers suggested that SPS consider developing its very basic website into one capable of e-retailing. At present, the website only gives the location of stores and some very basic details of the range of stock carried. Although the development of the website would be expensive, the managers have decided to give the suggestion serious consideration.

Required

(a) Using the value chain model, analyse the activities that add value in the SPS organisation, BEFORE the e-retail investment. (10 marks)

(b) Identify those activities in the value chain of SPS that may be affected by the e-retail investment, explaining whether the value added by each of them may increase or decrease as a result of the e-retail investment. (15 marks)

(Total = 25 marks)



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Questions 13

11 Scott 45 mins Scott is a well-established, global publishing conglomerate. The corporation is structured to allow each country of operation to function as an autonomous business unit, that reports back to head office. The data from each business unit is entered onto the mainframe computer at head office. Each business unit can make use of any service offered by other business units and can also offer services to the other units. The services include translation into different languages, typesetting, printing, storage and so forth. In each country of operation there is at least one, and usually several, retail outlets.

The core business was traditionally based upon the provision of fictional stories for the mass market. For the past decade Scott has diversified into publishing textbooks and technical literature. The organisation currently enjoys a goo

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