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ACCAPaperP5:AdvancedPerformanceManagement–MockExam

ames Kwan @ Singapore Accountancy Academy

May2009

Section A –BOTH questions are compulsory and MUST be attempted

1.DurhamLtd provides advisory services to home computer customers. Three types ofadvisor areemployed offering advice by telephone, written/e-mail replies and homevisits respectively.Appendix 1.1 shows sundry statistics for the past 12 month periodfor DurhamLtd and also for twocompetitor companies A and B.Additional information relating to DurhamLtd for the past 12 month period is asfollows:(i)Home visit travel and remedial work hours are not charged directly tocustomers.(ii)All service workers incur some “idle time” which is not charged directly tocustomers.(iii)A number of customers pay a fixed annual fee of ‚100 for the advisory service.This entitlesthemto 24 hour priority access to the service and a maximum offive hours of advice withoutfurther charge.Appendix 1.1 shows the total hours of advice (both budget and actual) takenup by customers. Assumethat no customer requires more than the five hoursallowable.(iv)All other time for the advisory service and home visits is billed to customersat ‚20 per hour.(v)The budgeted wage rate per hour for advisory service staff is ‚8. This wasalso the actual ratepaid.(vi)Sundry operating expenses (other than advisor wages) were budgeted at‚950,000. Actualoperating expenses incurred were ‚1,000,000.Actual information for the period under review for competitor companies A and B isas follows:(i)Similar policies to those used by DurhamLtd areoperated with regard to idletime, homevisit travel and remedial hours.(ii)Fixed annual fee advisory service schemes, similar to that of DurhamLtd, areoperated. Theannual fee charged per customer by company A and company Bis ‚75 and ‚100 respectively.

ACCAPaperP5:AdvancedPerformanceManagement–MockExam

ames Kwan @ Singapore Accountancy Academy

May2009

(iii)Other revenue and cost information is as follows:

CompanyACompanyB

‚ ‚Total revenue (excluding annual fee income):Enquiry advice 756,180 1,266,000Home visits 87,500 810,000Total wage costs 720,000 1,099,000Sundry operating expenses 650,000 1,250,000

Required:

(a)(i)Prepare budgeted and actual profit and loss accounts for the 12 month periodunder review for DurhamLtd and also actual profit and loss accounts forcompanies A and B. (8 marks)(ii)Discuss the financial performance of DurhamLtd, incorporating details ofrelative customer billing rates, company service wage rates and annualagreement advice “level of uptake” in your answer. (12 marks)(b)Comment on the performance of DurhamLtd, incorporating relevantpercentage andratio statistics in the context of each of the following:(i)Competitiveness;(ii)Quality;(iii) Resource utilisation. (15 marks)(c)Outline the main concepts of open and closed systems and how they relate tolarge companies.(5 marks)(Total: 40marks)