ACF5PM13(D) EFM Questions The examination has been prepared for the December 2013 sitting

ACCA Paper F5 Performance Management

Final Mock Examination

Question Paper

Time allowed

Reading and planning:

Writing:

15 minutes

3 hours

Instructions: Take a few moments to review the notes on the inside of this page titled, 'Get into good exam habits now!' before attempting this exam.

DO NOT OPEN THIS PAPER UNTIL YOU ARE READY TO START UNDER EXAMINATION CONDITIONS

2 ACF5PM13(D) EFM Questions The examination has been prepared for the December 2013 sitting

Get into good exam habits now! Take a moment to focus on the right approach for this exam.

Effective time management • Watch the clock, allow 1.8 minutes per mark. Work out how long you can spend on each question

and do not exceed that time.

• Take a few moments to think what the requirements are asking for and how you are going to answer them.

Effective planning • This paper is in exactly the same format as the real exam. You should read through the paper and

plan the order in which you will tackle the questions. Always start with the one you feel most confident about and take time to choose the questions you will answer in sections with choice.

• Read the requirements carefully: focus on mark allocation, question words (see below) and potential overlap between requirements.

• Identify and make sure you pick up the easy marks available in each question.

Effective layout • Present your numerical solutions using the standard layouts you have seen. Show and reference

your workings clearly.

• With written elements try and make a number of distinct points using headings and short paragraphs. You should aim to make a separate point for each mark.

• Ensure that you explain the points you are making ie. why is the point a strength, criticism or opportunity?

• Give yourself plenty of space to add extra lines as necessary, it will also make it easier for the examiner to mark.

Common terminology Identify List relevant points Discuss Explain the opposing arguments Describe Present the characteristics of Summarise State briefly the essential points Recommend Present information to enable the recipient to take action Analyse Determine and explain the constituent parts of Explain Set out in detail the meaning of Illustrate Use an example to explain something Appraise/assess/ evaluate Judge the importance or value of

ACF5PM13(D) EFM Questions 3 The examination has been prepared for the December 2013 sitting

ALL FIVE questions are compulsory

1 Larsson Larsson is a manufacturer of children’s toys. Larsson is considering launching a new product which is a wooden train set. The company has carried out some market research and has estimated that the demand curve for its new product is P1 = 100 – 0.5X1, where P1 is the price of the new product and X1 is the annual demand for the new product in thousands.

Larsson has estimated manufacturing costs of $33.23 per unit and non-manufacturing costs of $1.56 per unit. The new product will require an investment of $15.6 million and the company has a required return on new investment of 11%.

Required

(a) Explain the main steps in implementing target costing, describe full cost-plus pricing and discuss the differences between the two methods. (8 marks)

(b) Calculate the target cost of the new product and the target cost gap if Larsson wishes to sell 100,000 units a year. (5 marks)

(c) List the ways in which Larsson might close the cost gap between estimated cost and the target cost. (4 marks)

(d) What are the possible adverse effects of target costing on Larsson? (3 marks)

(Total = 20 marks)

4 ACF5PM13(D) EFM Questions The examination has been prepared for the December 2013 sitting

2 Francis Francis is a family business that produces bakery products and sells them at farmers’ markets throughout the country in which it operates. The business has had a rather unsuccessful year so far. Francis is planning for its busiest period over Christmas and New Year.

The following information relating to Francis is available:

Francis only produces two products – a savoury product, the pasty and a cake product. Francis bakes both products in hired kitchens. They have a maximum time that the kitchen is available during the season of 1,000 hours. It takes 15 minutes to bake a batch of pasties or 30 minutes to bake a batch of cakes.

Batch of pasties Batch of cakes

Selling price $45 $75

Variable costs per tonne $15 $15

Suet needed per batch of output 35g 100g

Space required per batch 0.3m2 0.4m2

Francis is proud of its traditional ingredients and uses beef suet in both products. Poor planning has meant that the amount of suet available for production is limited to 140 kgs and no more can be bought.

Francis has limited space at the markets. The total space available over the whole season is 960 m2.

Francis believes that it should sell both products, pasties and cakes, as customers who buy one product will, on impulse, buy the other. For this reason, Francis wants to produce a minimum of 500 batches of each product.

Required

(a) Determine the optimal production plan for Francis, assuming that it is seeking to maximise contribution earned. You should use a linear programming graph, identify the feasible region, the optimal point and accurately calculate the maximum contribution that could be earned using whichever equations you need. (14 marks)

(b) What are the practical problems to Francis of using linear programming for making its decision on what to bake? (6 marks)

(Total = 20 marks)

ACF5PM13(D) EFM Questions 5 The examination has been prepared for the December 2013 sitting

3 Forssell Forssell is a manufacturing company and it has developed an innovative new product, the Mikael, that it will manufacture. The product is unique and is protected by patents. The estimated time to make the first unit of production is 10 hours. It is estimated that an 80% learning curve will apply.

Required

(a) Calculate the time needed to make the 8th Mikael. (You may assume that the learning curve would continue to apply for 8 units and that the learning index value for 80% is -0.3219). (4 marks)

(b) Explain the reasons why the learning effect will eventually cease for the Mikael. (3 marks)

Forssell plans to sell the Mikael in two separate markets and to charge different prices, if applicable, in each market.

The demand functions in the markets are:

Market 1: P1 = 165 – 0.15X1

Market 2 P2 = 600 – 0.6X2

where,

X1 = annual sales in market 1

X2 = annual sales in market 2

Marginal revenue functions:

Market 1: MR1 = 165 – 0.3X1

Market 2 MR2 = 600 – 1.2X2

A steady state will have been reached, and variable costs will be $120 per unit.

Required

(c) Calculate the profit maximising quantity and price to produce and sell in each market. What conditions must hold for this price discrimination to be successful? (8 marks)

(d) The management accountant has suggested that Forssell should consider different pricing strategies in the introductory stage of the product. Briefly explain how the company would adopt the following strategies for the new product:

(i) penetration pricing (ii) market skimming (5 marks)

(Total = 20 marks)

6 ACF5PM13(D) EFM Questions The examination has been prepared for the December 2013 sitting

4 Bowyer Bowyer is a chemical manufacturer of pesticides. Information about one of its products Lo-Cane is given below.

Standard Cost Card for one litre of Lo-Cane

Chemical Volume Standard cost / litre

ml $

W 250 25.00

X 350 12.50

Y 200 35.00

Z 300 10.00

These inputs are processed into the final product. Processing is complex and takes 6 minutes per litre of output. Each hour of processing time has a standard cost of $100 per hour.

Last year, Bowyer produced 62,000 litres of Lo-Cane using the following inputs:

Chemical Volume Actual cost/litre

litres $

W 19,000 27.00

X 22,000 12.50

Y 13,000 30.00

Z 21,500 10.25

(Note there are 1000 ml in a litre)

The actual time spent processing the actual output was 6000 hours at a cost of $650,000.

Required

(a) Calculate the individual input price and mix variances, and the total input yield variance for Lo-Cane last year. (13 marks)

It has now been realised that Bowyer had employed more experienced staff last year in the processing function, and as such the standard time for processing should have been 5 minutes per litre.

(b) Calculate the planning variable processing cost efficiency variance for last year. (3 marks)

(c) Calculate the operating variable processing cost expenditure and efficiency variances for last year. (4 marks)

(Total = 20 marks)

ACF5PM13(D) EFM Questions 7 The examination has been prepared for the December 2013 sitting

5 Big Heath School Big Heath School (BHS) is a publicly funded secondary school located in the suburbs of a large industrial city in a developed country. The School does not charge any fees to its pupils, who are drawn from the local community.

The school has a small management team that reports to the Board of Governors. The management team is made up of the School’s head teacher, two deputy head teachers, a finance manager and a facilities manager. The makeup of the Board of Governors is determined by central government and consists of representatives of the teaching staff, the teaching unions, parents, and local businesses, as well as a political appointment.

Required

(a) Discuss the problems with performance measurement of not-for-profit organisations such as BHS. (8 marks)

The School is considering introducing a Value For Money audit to examine the economy, efficiency and effectiveness of the School.

(b) Explain the concept of a VFM audit. Give two examples for each of the three areas of economy, efficiency and effectiveness for BHS. (6 marks)

(c) Discuss how achievement of measures of VFM may conflict with each other for BHS. (2 marks)

(d) In the ‘for profit’ sector, rather than using just financial performance measures, some companies have introduced a Balanced Scorecard. Briefly state and explain the four perspectives of the Balanced Scorecard. (4 marks)

(Total = 20 marks)

8 ACF5PM13(D) EFM Questions The examination has been prepared for the December 2013 sitting

Exam formulae

Demand curve

P = a – bQ

b = quantity in change

price in change

a = price when Q = 0

MR = a – 2bQ

Learning curve Y = axb

Where Y = cumulative average time per unit to produce x units a = the time taken for the first unit of output x = the cumulative number of units b = the index of learning (log LR/log 2) LR = the learning rate as a decimal

ACF5PM13(D) EFM Questions 9 The examination has been prepared for the December 2013 sitting

Student self assessment Having completed this paper take a few minutes to consider what you did well and what you found difficult. Use this as a basis to focus your future study on effectively improving your performance.

Common problems Future emphasis if you answer Yes

Timing and planning Did you finish too early? Y/N Focus your planning time on generating more ideas.

Use models to help develop width to your thinking.

Did you overrun? Y/N Focus on allocating your time better. Practise questions under strict timed conditions. If you get behind leave space and move on.

Did you waffle? Y/N Focus your planning time on developing a logical structure to your answer.

Layout Was your answer difficult to follow? Y/N Use headings and subheadings.

Use numbering sequences when identifying points. Leave space between each point.

Did you fail to explain each point? Y/N Show why the point identified answers the question set.

Were some of your workings unclear? Y/N Give yourself time and space to make the marker's job easy.

Content Did you struggle with:

Interpreting the questions? Y/N Learn the meaning of question words (inside front cover). Learn subject jargon (study text glossary). Read questions carefully noting all the parts. Practise as many questions as possible.

Understanding the subject? Y/N Review your notes/text. Work through easier examples first. Contact a tutor for help.

Remembering the notes/text? Y/N Quiz yourself constantly as you study. You need to develop your memory as well as your understanding of a subject..

10 ACF5PM13(D) EFM Questions The examination has been prepared for the December 2013 sitting

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