LSBF - ACCA F5 Revision Mock June 2013 ANSWERS.pdf

7/24/2019 LSBF - ACCA F5 Revision Mock June 2013 ANSWERS.pdf

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ACCA

Paper F5

Performance Management

Revision Mock Examination

June 2013

Answer Guide

Health Warning!

How to pass Attempt the examination under exam conditions

BEFORE looking at these suggested answers.Then constructively compare your answer,identifying the points you made well andidentifying those not so well made.If you got basic definitions and rules wrong: re-revise by re-writing them out until you get themcorrect.

How to fail Simply read or audit the answers congratulatingyourself that you would have answered thequestions as per the suggested answers.


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Answer 1 Brunel Ltd

Tutorial help and key points

Throughput accounting and traditional contribution analysis comparison is a very

important exam area, examined a few times in the past.

In part (a) you should show calculations to get ranking order first, then the

number of units to be made on the basis of this ranking, and then a profit

calculation from these units.

In part (b) you have to do exactly the same as in part (a) but with a

throughput model. Ie just replace throughput (sales less variable cost) with

throughput (sales less material cost only) and keep other steps the same.

In parts (c)and (d)you must calculate TPAR using simple formula. Make sureyou calculate separately throughput the return per hour for each product first.

Then calculate factory cost (labour + overheads) per hour: remember to use

same factory cost for each product. Then briefly explain how TPAR can be

improved: this you can answer by carefully looking into TPAR formula.

Marking scheme

(a)

Calculation of contribution per unit 1 mark for each product/

max 2 marks

Calculation of contribution per limiting factor 0.5 mark each/max 1Ranking 0.5 mark each/max 1Production plan 1 mark each/max 2

(Total max 6 marks)

(b)

(i) Calculation of throughput per unit 1 mark for each product/max 2 marks

Calculation of throughput per limiting factor 0.5 mark each/max 1Ranking 0.5 mark each/max 1Production plan 1 mark each/max 2

(Total max 6 marks)

(ii) Throughput Accounting Ratio 2 marks/max 2

(c)

Three ways to relieve bottleneck process 2 marks for each valid suggestion/

max 6

(Total 8 marks)

TOTAL = 20 marks


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(a)

Using the figures from (a) the contribution per product unit (selling price - variable

cost) may be calculated as:

A = $60 (2 + 28) = $30

B = $70 (40 + 4) = $26

We have:

A BContribution per unit $30 $26Bottleneck hours per unit 0.02 0.015Contribution per bottleneck hour $1,500 $1,733

Ranking the products on the basis of contribution per bottleneck hour we should

produce and sell product B up to its maximum demand and then product A with the

remaining capacity.

Maximum demand of product B = 45,000 120% = 54,000 units

Bottleneck hours required for B = 54,000 0.015 = 810 hoursBottleneck hours available for A = 3,075 810 = 2,265 hours

Output of product A which is possible = 2,265/0.02 = 113,250 units

The maximum net profit may be calculated as:

$

Contribution product A 113,250 $30 3,397,500

Contribution product B 54,000 $26 1,404,000_________

Total contribution 4,801,500Less: Fixed overhead cost 1,470,000

_________

Net profit 3,331,500

_________

(b)

(i) Return per bottleneck hour= (selling price - material cost)/bottleneck hours per unit

Product A = (60- 2)/0.02 = $2,900Product B = (70- 40)/0.0l5 = $2,000

Flopro should sell product A up to its maximum demand and then product B

using the remaining capacity.

Maximum demand of product A = 120,000 120% = 144,000 units

Bottleneck hours required for A = 144,000 0.02 = 2,880 hours

Bottleneck hours available for B = 3,075 2,880 = 195 hours

Output of product B which is possible = 195/0.015 = 13,000 units


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The maximum net profit may be calculated as:

$

Throughput return product A 144,000 ($60 2) 8,352,000

Throughput return product B 13,000 ($70 40) 390,000_________

Total throughput return 8,742,000

Less: Overhead cost

Shown as variable in (a) (120,000 $28 + 45,000 $4) (3,540,000)

Fixed (1,470,000)_________

Net profit 3,732,000_________

(ii) Throughput return per bottleneck hour for product B (as calculated above)

= (70 40)/0.015 = $2,000

Cost per bottleneck hour = ($3,540,000 + $1,470,000)/3,075

= $1,629.27Throughput accounting ratio for product B = $2,000/$1,629.27 = 1.2275

(c)

The company can try to overcome the problem of scarcity by applying short/long

term strategies, as follows;

Outsourcing some of its products/operations

Train staff to be more efficient

Increase the length of the time the machine runs for

Divert labour from another area of production

Invest in new more efficient machinery.


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Answer 2 Soft Touch


A very likely exam question on Variance analysis examined almost in every

single F5 examination.

(a)

First of all you have to layout an operating statement, starting from

budgeted profit to reconcile that with actual. Then you need to work out

all the variances as per details. Make sure you present workings for mix

and yield variances as well.

(b)

Using formulae learnt, calculation of planning and yield variances is very

straightforward.

(c)

In a brief discussion, explain advantages of analysing variances into theirplanning and operational components with a view to controllability.

Marking scheme

(a)

Operating statement with calculation of budgeted profit 2 marks

Calculation of variances 10 marks

(b)

2 marks for each planning and operational variances 4 marks

Two advantages for each planning and operational 4 marks

(TOTAL = 20 marks)


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(a)

Operating statement

$

Budgeted profit 111,000.00Budgeted fixed overhead cost 200,000.00

__________

Budgeted contribution 10,000 litres x $31.10 311,000.00

Sales volume contribution variance 15,550.00A__________

W2

Standard contribution on actual sales 295,450.00

Sales price variance 38,000.00A__________

W2

257,450.00Cost variances Fav Adv

Liquid A price 8,062.50 W3

Liquid B price 212.50 W3Liquid mix 10,350 W4Liquid yield 22,050 W5Variable overhead expenditure 3,100 W6Variable overhead efficiency 700.00

______ ________W6

912.50 43,562.5 42,650.00A__________

Actual contribution 214,800.00 W7Actual fixed overheads (220,000)

__________

Actual profit/(loss) (5,200.00)__________

Workings:

W1 Budgeted contribution per litre

Selling price $50.00Liquid A ($12.00)

Liquid B ($2.70)Variable overheads ($4.20)

______

($18.90)_______

Contribution $31.10_______


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W2 Sales variances

Actual sales litres x Actual selling price9,500 x $46 $437,000

PRICE VARIANCE 38,000A

Actual sales litres x Standard selling price9,500 x $50 $475,000

Actual sales litres x Standard contribution9,500 x $31.10 $295,450

VOLUME VARIANCE $15,550A

Budgeted sales litres x Standard contribution

10,000 x $31.10 $311,000

W3 Material price variances

Liquid AAQ x AP

10,750 x $15.75 $169,312.50PRICE VARIANCE $8,062.50AAQ x SP

10,750 $15.00 $161,250

Liquid BAQ x AP

4,250 x $5.95 $25,287.50

PRICE VARIANCE $212.50FAQ x SP4,250 x $6.00 $25,500

W4 Mix variance

Liquid A Liquid B Total

AQAM 10,750 4,250 15,000AQSM 9,600 5,400 15,000

(0.8/1.25 x 15,000) (0.45/1.25 x 15,000)Difference 1,150A 1,150F Nil

__________________________________________

x Std cost per litre $15.00 $6.00Mix ($) $17,250A $6,900F $10,350A________________________________________

W5 Yield Variance

Actual output 10,500 litres

Expected output (given actual inputs) 12,000 litres (15,000 litres less 20% loss)___________

Difference 1,500A litres

X Standard cost per output litre x $14.70 ($12.00 + $2.70)Yield ($) $22,050A

___________


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W6 Variable overhead variances

AH x AR31,000 x $46,500

EXPENDITURE $3,100A

AH x SR

31,000 x $1.4 $43,400EFFICIENCY $700F

SH x SR

3hrs x 10,500 litres x $1.4 $44,100

W7 Actual contribution

Revenue $437,000.00Liquid A ($169,312.50)

Liquid B ($25,287.50)Variable overhead ($46,500.00)Stock adjustment $18,900.00 (10,500 9,500 litres) x $18.90Contribution $214,800.00

____________

(b)

OPERATIONAL VARIANCES

Liquid AAQ x AP10,750 x $15.75 $169,312.50

OPERATIONAL PRICE VARIANCE $26,875AAQ x RSP10,750 x $15.50 $166,625.00

Liquid BAQ x AP4,250 x $5.95 $25,287.50

OPERATIONAL PRICE VARIANCE $2,337.50FAQ x RSP4,250 x $6.50 $27,625.00

PLANNING VARIANCES

Liquid AOSQ x OSP0.8 litres x 10,500 litres x $15.00 $126,000PLANNING PRICE VARIANCE $4,200AOSQ x RSP0.8 litres x 10,500 litres x $15.50 $130,200

Liquid BOSQ x OSP0.45 litres x 10,500 litres $6.00 $28,350

PLANNING PRICE VARIANCE $2,362.50AOSQ x RSP0.45 litres x 10,500 litres x $6.50 $30,712.50


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(c)

Planning and operating variances help management to evaluate performance in

greater detail.

Planning variances quantify and focus attention on the accuracy of the original

standards. Large planning variances suggest that the planning team are not taking

account of potential movements in the business environment, and should therefore

undertake more detailed analysis in the future.

In calculating a planning variance, a clear indication is obtained of how much of the

total variance can be attributed to the original standard being inappropriate.

Operational variances will then provide an accurate assessment of how a business

is performing, by comparing actual outputs against an up-to-date and appropriate

standard. In this way management will see a clear indication of how much of the

total variance can be attributed to the day-to-day performance of the workforce,

without any distortions creeping in due to out of date original standards.

By clearly focussing management attention on the root causes of overall variances,

the appropriate control action can be implemented.


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Answer 3 Igloo Ice Lolly


Decision making under uncertainty comes in exams on a variable basis and is

mostly a straightforward question considering the applications of risk criteria.

(a) Brief definitions of each criterion along with the attitudes of the decision

makers using such criteria.

(b) Start you pay off table with decisions on the right hand side and outcomes

on the left, now see how many possible decisions followed by the possible

outcomes, multiply both into each other, you will get an idea of how many

profit calculations are required by the examiner.

(c) Copy the payoff table from (b) above and reach to decisions under eachcriterion mentioned in (a) above. For minimax regret you have to create a

table of regrets.

Marking scheme

(a)

1 mark for Maximax and minimax regret and 2 marks for expected values

(b)

mark for each correctly calculated profit figure

(c)

For each risk attitude 2 marks for the calculation and 1 mark for stating which

amount the company should choose to produce (with the exception of maximax

where only 1 mark for calculation.)

(TOTAL = 20 marks)

(a)

Maximax stands for maximising the maximum return an investor might expect. Aninvestor that subscribes to the maximax philosophy would generally select the

strategy that could give him the best possible return. He will ignore all other

possible returns and only focus on the biggest, hence this type of investor is often

accused of being an optimist or a risk-taker.

Minimax regret focuses on the opportunity risk approach attitude to risk. This

approach seeks to compare the return achieved against the best possible outcome.

For each outcome the regret of not choosing the best possible action is calculated.

The aim of the approach is to minimise the maximum opportunity cost. People who

are towards a risk averse attitude use the minimax regret approach.

Expected value averages all possible returns in a weighted average calculation. It

involves multiplying the possible outcomes by their associated probabilities.

Expected values do not reflect the degree of risk but show the average outcome if


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the event were repeated many times. The accuracy of the expected value result

will depend on the accuracy of probabilities and therefore accurate market research

is very important for expected values. The user of expected values would have a

risk neutral attitude.

[1 mark for Maximax and minimax regret and 2 marks for expected values]

(b)

Action

Outcome P 8,000 3,000 1,000 250

8,000 0.2 10,550 3,800 1,100 87.5

3,000 0.5 1,550 3,800 1,100 87.5

1,000 0.2 (2,050) 200 1,100 87.5

250 0.1 (3,400) (1,150) (250) 87.5

[ mark for each correctly calculated profit figure]

Example workings: $

Produce 8,000 and Demand 8,000Sales (8,000 x $2.10) 16,800Cost (8,000 x $0.75) (6,000)Creation Cost (250)

Profit/Loss 10,550

Produce 3,000 and Demand 8,000

Sales (3,000 x $2.10) 6,300Cost (3,000 x $0.75) (2,250)Creation Cost (250)Profit/Loss 3,800

Produce 8,000 and Demand 3,000Sales (3,000 x $2.10) 6,300Cost (8,000 x $0.75) (6,000)

Creation Cost (250)Unsold Lollies (5,000 x 0.30) 1,500Profit/Loss 1,550


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(c)

For each risk attitude 2 marks for the calculation and 1 mark for stating which

amount the company should choose to produce (with the exception of maximax

where only 1 mark for calculation.)

Risk Seeker Attitude

A risk seeker attitude would use a maximax approach to determine how many ice

lollies to produce and this involves should choosing the highest of all the best

possible outcomes.

Best Outcome

Produce 8,000 10,550Produce 3,000 3,800Produce 1,000 1,100Produce 250 87.50

If the managers of Igloo Ice Lolly had a risk seeker attitude they would choose to

produce 8,000 ice lollies as this gives the best possible outcome of $10,550.

Risk Neutral Attitude

A risk neutral attitude would use the expected values (EV) approach to determine

how many ice lollies to produce.

EV of produce 8,000

= (10,550 x 0.2) + (3,800 x 0.5) + (-2,050 x 0.2) + (-3,400 x 0.1)= $2,135

EV of produce 3,000

= (3,800 x 0.2) + (3,800 x 0.5) + (200 x 0.2) + (-150 x 0.1)= $2,585

EV of produce 1,000= (1,100 x 0.2) + (1,100 x 0.5) + (1,100 x 0.2) + (-250 x 0.1)= $940

EV of produce 250= (87.50 x 0.2) + (87.50 x 0.5) + (87.50 x 0.2) + (87.50 x 0.1)= $87.50

If the managers of Igloo ice lolly had a risk neutral attitude they would choose to

produce 3,000 ice lollies as this gives them the highest expected value of $2,585.


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Risk Averse Attitude

A risk averse attitude would use a minimax regret approach to determine how

many ice lollies to produce. This involves creating an opportunity cost (regret)

table.

Action

Outcome Best outcome 8,000 3,000 1,000 250

8,000 10,550 0 6,750 9,450 10,4633,000 3,800 2,250 0 2,700 3,7131,000 1,100 3,150 900 0 1,013

250 87.5 3,488 1,238 338 0

Maximum Regret

Produce 8,000 3,488

Produce 3,000 6,750Produce 1,000 9,450

Produce 250 10,463

If the managers of Igloo ice lolly have a risk averse attitude then they would

choose to produce 8,000 ice lollies as this minimises the maximum regret as the

opportunity cost is $3,488.


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Answer 4 Exelcier Co


A very likely exam question in decision making under uncertainty as it has not

been examined yet under revised syllabus.

(a) First of all you have to draw up a decision tree, clearly showing up decision

point, and all possible courses of actions and outcomes.

(b) Then you have to calculate the expected values of each outcome under all

courses of actions, using joint probabilities.

Then you will select the highest expected value to go with as recommendation

to the management.

Marking scheme

(a)

Drawing of decision tree with complete possibilitiesand proper labelling 10 marks

(b)

Calculation of expected values of all possible outcomes 10 marks

(TOTAL = 20 marks)


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(a)

(b)

Point Tickets Profit (x) p px$000 $000

A 7,000 20 0.42 8.4B 5,000 (35) 0.28 (9.8)C 13,000 135 0.075 10.125

D 10,000 75 0.225 16.875

EV of Advertise px = 25.6

E 5,000 (20) 0.7 (14)F 10,000 90 0.3 27

EV of Dont Advertise px = 13

Therefore the company should advertise as it generates the highest expected value.

F

E

D

C

B

A

No More Demand 75%

No More Demand 40%

Further Demand 60%

Advertise

Further Demand 25%

Good 30%

Poor 70%

Good 30%

Poor 70%

Dont Advertise


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Answer 5 Seagull


The title of the ACCA F5 paper is 'Performance Management', and you can

expect to get at least one question explicitly set around performance

management on every F5 paper that is set. The key to understanding

performance management systems is to understand behavioural aspects of

those systems, in other words, how performance management influences the

actions of managers and other people within organisations.

Parts (a) and (b) of this question are textbook-knowledge testers, and you

should have no problem explaining the importance of controllability and

authorising budget changes for the F5 exam. Part (c)of the question involves

calculation and comment regarding planning and operational variances, and thisis also a topic that is likely to come up on a frequent basis in the F5 exam.

Make sure you are able to confidently answer questions like this one.

Marking scheme

(a)

2 marks per well-explained point, 4 marks maximum

(b)

2 marks per well-explained point, 4 marks maximum

(c)

(i) 2 marks for each, 4 marks maximum

(ii) 2 marks for each 4 marks maximum

(iii) 4 marks maximum for (c) (iii) overall

(TOTAL = 20 marks)

(a)

The controllability principle:

This is the performance management principle that individual managers

should only be held accountable for events causing costs and revenues over

which they have some degree of influence.

It is demoralising for a person to be held accountable for events that they

cannot control, since it is unfair and pointless to reward or criticise managers

for events outside of their control.

An important element of performance measurement systems is that they can

motivate managers to act in ways that are in alignment with the objectives of

the organisation, if rewards are linked to achievement of those objectives.


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An additional point is that the information generated by the organisation in

regard to performance measurement should be given to managers that are

able to act upon this information, in other words, managers that can take

control over performance.

[2 marks per well-explained point, 4 marks maximum]

(b)

The purpose of a budget in the context of performance management:

Budgets are set in advance of a period in order to allow control performance

this means to compare actual operational performance against budgeted

performance, and calculate variances to budget.

It is possible to allow retrospective changes to an original budget, but such

changes must be carefully controlled and authorised by senior managers if

abuse is to be prevented. It is clear from the CEO's comments that the

number and scale of budget revisions in Seagull is preventing Seagull from

effectively controlling performance within her organisation.Budget revisions:

The key question to address in allowing or rejecting budget revisions is the

controllability of the events that lead to the request for a budget revision by

management.

Budget revisions should only be allowed in light of events that are fully

outside of the control of managers within the organisation, if such events

make the original budget unusable for performance management and

effective control. If a revision is to be made, care should be taken to ensure

that it is fully authorised by senior managers.

Budget revisions should be rejected where the cause of the event leading to

the request for a budget revision is operational ie partly or fully within the

control of managers within the organisation. Although it can sometimes be

easier said than done to properly identify the controllability of an event, the

onus should be on the manager in question to prove that they could not

control the event.

[2 marks per well-explained point, 4 marks maximum]


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(c)

(i) Sales variances

Sales volume contribution variance: books

Actual books sold 14,000Budgeted books sold 15,000

_______

1,000 A [1]

Standard contribution per book $5_______

$5,000 A [1]_______

Sales price variance: $

Actual selling price per book 12Standard selling price per book 13

_______

$1 A [1]Actual books sold 14,000

_______

$14,000 A [1]_______

(ii) Market size and market share variances

Market size variance books

Revised budgeted sales volume

((2.4/3) 15,000 books) 12,000 [1]

Original budgeted books sold 15,000_______

3,000 A []Standard contribution per book $5

_______

$15,000 A []_______

Market share variance: books

Revised budgeted sales volume((2.4/3) 15,000 books) 12,000Actual books sold 14,000

_______

2,000 F [1]

Standard contribution per book $5_______

$10,000 F [1]_______

(iii) The sales performance of Seagull during June 2010

Sales price variance:

The sales price variance for the month was $14,000A is controllable by

Seagull. It was probably caused as a result of an attempt made by Seagull to

try to preserve sales volumes in a declining market through cutting the price

charged for a book down from $13 to $12 per unit.

[1 mark per point, 2 marks maximum]


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Sales volume variance:

Initially it would appear that the attempt to shore up sales volumes by cutting

selling prices by one dollar did not work, since the overall sales volume

contribution variance for Seagull is $5000A. However, this only tells part of

the story.

The fall in market size from 3m to 2.4m books is uncontrollable by Seagull,

and it is not fair to blame Seagull's managers for this fall. Taking this drop

into account would give a revised budgeted sales volume of 12,000 books,

down from 15,000 books.

The $10,000F market share variance is controllable by Seagull, and shows

that they did very well to sell as many books as they did in a quickly declining

market.

[1 mark per point, 3 marks maximum]

[4 marks maximum for (c) (iii) overall]

LSBF - ACCA F5 Revision Mock June 2013 ANSWERS.pdf

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