Final AssessmentKAPLAN PUBLISHING Page 1 of 10

ACCA FINAL ASSESSMENT

PerformanceManagement

QUESTION PAPER

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15 minutes

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3 hoursAnswer all questionsDo not open this paper until instructed by the supervisor This question paper must not be removed from the examinationhallDECEMBER 2009

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ACCA F5 Performance ManagementPage 2 of 10 KAPLAN PUBLISHING© Kaplan Financial Limited, 2009All rights reserved. No part of this examination may be reproduced or transmitted in any formor by any means, electronic or mechanical, including photocopying, recording, or by anyinformation storage and retrieval system, without prior permission from Kaplan Publishing.

Final AssessmentKAPLAN PUBLISHING Page 3 of 10

Answer all questions

QUESTION 1

F company supplies pharmaceutical drugs to drug stores. Although the company makes asatisfactory return, the directors are concerned that some orders are profitable and others arenot. The management has decided to investigate a new budgeting system using activity-based costing principles to ensure that all orders they accept are making a profit.Each customer order is charged as follows. Customers are charged the list price of the drugsordered plus an additional charge for overheads. A profit margin is also added, but that doesnot form part of this analysis and can therefore be ignored.Currently F company uses a simple absorption rate to absorb these overheads. The rate iscalculated based on the budgeted annual overhead costs divided by the budgeted annualtotal list price of the drugs ordered.An analysis of customers has revealed that many customers place frequent small orders witheach order requesting a variety of drugs. The management of F company has examined morecarefully the nature of its overhead costs, and the following data have been prepared for thebudget for next year:Total list price of drugs supplied $8mNumber of customer orders 8,000

Overhead costs

$000 Cost driver Invoice processing 280 See Note 2Packing 220 Size of package – see Note 3Delivery 180 Number of deliveries – see Note 4Other overheads 200 ___ Number of ordersTotal overheads 880 ___

Notes:

1 Each order will be shipped in one package and will result in one delivery to thecustomer and one invoice (an order never results in more than one delivery).2 Each invoice has a different line for each drug ordered. There are 28,000 invoicelines each year. It is estimated that 25% of invoice processing costs are related to thenumber of invoices, and 75% are related to the number of invoice lines.3 Packing costs are $32 for a large package, and $25 for a small package.4 The delivery vehicles are always filled to capacity for each journey. The deliveryvehicles can carry either 6 large packages or 12 small packages (or appropriatecombinations of large and small packages). It is estimated that there will be 1,000delivery journeys each year, and the total delivery mileage that is specific to particular customers is estimated at 350,000 miles each year. $40,000 of delivery costs arerelated to loading the delivery vehicles, and the remainder of these costs are relatedto specific delivery distance to customers.