F5 – Performance Management

Prepared by Jessy Chong

Exam FormatSection Total Marks

A 20 MCQ x 2 marks (All areas) 40

B 3 Qs x 10 marks (DM, Budgeting & Ctrl, PM) 30

2 Qs x 15 marks 30

100

Formula Sheet is provided during exam. Don’t worry

Major TopicsA

Specialist cost and management accounting techniques

B Decision-making techniques

1. Activity-based costing2. Target costing3. Life-cycle costing4. Throughput accounting5. Environmental accounting

1. Relevant cost analysis2. Cost volume analysis3. Limiting factors4. Pricing decisions5. Make-or-buy and other short-term

decisions6. Dealing with risk and uncertainty in

decision making

Major Topics (Con’)C

Budgeting and controlD

Performance measurement and control1. Budgetary system2. Types of budget3. Quantitative analysis in budgeting4. Standard costing5. Material mix and yield variances6. Sales mix and quantity variances7. Planning and operational variances8. Performance analysis and Behavioural

aspects

1. Performance management information systems

2. Sources of management information3. Management reports4. Performance analysis in private sector

organisations5. Divisional performance and transfer

pricing6. Performance analysis in not-for-profit

organisations and the public sector7. External considerations and

behavioural aspects

Management AccountingIdentifying, presenting and interpreting information

Formulating strategyPlanning and controllingDecision making Optimise the use of resources

It can be Qualitative or QuantitativeTypically include financial & cost accounting information

Characteristics of Good MA InformationAccurateCompleteCost-beneficialUser-targetedRelevantAuthoritative (reputable and reliable)TimelyEasy to access (channels)

Responsibility CentreIs a segment of an organisation whose manager is

accountable for a specific set of activities and the performance of the segment assigned to him/her.

Cost centresProfit centresInvestment centres

Direct CostsThese are the costs which are incurred for, and can be

allocated accurately with a particular cost unit.Direct Material CostDirect Labour CostDirect Expenses Cost

Aggregation of DMC, DLC & DEC is also known as PRIME COST

Indirect CostA cost that cannot be allocated with accuracy.

Production Overheads Non-Production Overheads

Indirect Material CostsIndirect Labour CostsIndirect Expenses Costs

Administration OHSelling OHDistribution OHResearch OH

Cost BehaviourThe effect upon costs of changes in the level of activity.

Fixed CostsVariable CostsMixed CostsStepped Fixed Costs

Think from two different angles: Total Costs & Cost/u

Marginal CostingA principle whereby variable costs are charged to cost

units, and the fixed costs attributable to the relevant periods is written off in FULL against the contribution for that period.

Suitable for Performance Evaluation & S/T decision making.

Absorption Costing

Based on full production cost of prime cost and production overhead absorbed (both fixed and variable OH).

Would yield a higher valuation than MC valuation.Suitable for external reporting and L/T decision making.

Profit StatementMarginal Costing Absorption CostingSales @ SP X

Less: Op. stock @MC x

Production @ MC X

Cl. Stock @ MC (x)

Variable Production COS X

Add: VNPC X

Variable COS (x)

Contribution X

Less: Fixed costs

Production X

NPC X (x)

Net Profit X

Sales @ SP X

Less: Op. stock @AC x

Production @ AC X

Cl. Stock @ AC (x)

Production COS (x)

Gross Profit X

Less: (Over)/under absorption X

FNPC X

VNPC X (X)

Net Profit X

Overheads

Primary

Distributio

n

•Allocation

•Apportionment (basis of apportionment)

Secondar

y Distributio

n

•Re-apportionment•Witho

ut inter-service

•With inter-service (repeated distribution or simultaneous equation method)

Final Distributio

n

•OAR = Budgeted OHs/Budgeted base

•OH absorbed/u = OAR x Actual base/u

Over/Under absorbedOH absorbed > OH incurred = over-absorbed OH absorbed < OH incurred = under-absorbedWrite off to Profit or Loss account

OARBlanket Rate Departmental RateSingle OAR is being used for all

departments of a companyOnly suitable if all departments

have the same nature and use similar labour and types of OH

Different OAR is being used by different department

If departments have different nature