Fundamentals Level – Skills Module

Paper F5
Performance
Management
Wednesday 7 June 2017

Time allowed: 3 hours 15 minutes

This question paper is divided into three sections:

Section A – ALL 15 questions are compulsory and MUST be attempted
Section B – ALL 15 questions are compulsory and MUST be attempted
Section C – BOTH questions are compulsory and MUST be attempted

Formulae Sheet is on page 16.

Do NOT open this question paper until instructed by the supervisor.

Do NOT record any of your answers on the question paper.
This question paper must not be removed from the examination hall.

The Association of
Chartered Certified
Accountants
Section C – Both questions are compulsory and MUST be attempted

Please write your answers to all parts of these questions on the lined pages within the Candidate Answer Booklet.

31 The Western Regional Authority (WRA) is a regional authority in the country of Langden. The central government of
Langden delegates the management of policing, education, healthcare and housing to its regional authorities who
receive 100% of their funding from central government. Each regional authority submits a budget each year and this
is used as the basis for allocating funding.
The WRA is preparing its 20X7 overhead and direct cost budgets for routine housing maintenance in the region. The
WRA uses an incremental budgeting system which takes the cost for the previous year and adjusts it for inflation and
other known changes.
The following information for the 20X7 overhead budget is available:
Overhead 20X6 cost Inflation adjustment between Notes
$ 20X6 and 20X7
IT provision 200,000 +3% (1)
Administration salaries 320,000 +2% (2)
Inspection costs 600,000 +5% (3)
The notes relate to other incremental differences to the 20X6 budget:
(1) A software upgrade in 20X7 will cost $40,000.
(2) All staff are paid the same. There were 16 staff in 20X6 and there will be 15 in 20X7.
(3) This is a variable cost. 30% of all houses were inspected in 20X6 and this will reduce to 20% in 20X7.
The direct costs incurred by the WRA are the routine maintenance work which is outsourced to contractors.
Contractors have to tender for the routine maintenance contract each year and the lowest price is selected by the WRA.
The tender quotes depend on the state of the economy as follows:
State of the economy Probability Likely change in
tender price from
20X6
Recession 0·6 –20%
Zero growth 0·3 0%
Boom 0·1 +40%
In 20X6 the total routine maintenance work cost $3,000,000. A third of the cost was for gas appliance checks and
only appliances over three years old had to be checked. In 20X6 only 62·5% of all gas appliances were over three
years old.
From the start of 20X7 legislation will change and all gas appliances will have to be checked annually.

Required:
(a) Calculate the WRA’s 20X7 overhead budget. (4 marks)

(b) Calculate the WRA’s 20X7 contractors budget. (4 marks)

(c) Explain the main stages involved in preparing zero-based budgets. (3 marks)

(d) Discuss the extent to which zero-based budgeting could be useful to the WRA. (9 marks)

(20 marks)

13 [P.T.O.
32 The Institute of Architects (IOA) is a professional body for architects. Students study for its exams and, when they
have passed all nine papers, they can apply for membership. The IOA is funded primarily through member and
student subscriptions and fees. They have four offices worldwide and employ a global workforce of nearly 120 people.
The aims of the organisation are:
(1) To achieve sustainable growth
(2) To be a leader in design and innovation
(3) To deliver a flexible and efficient service to students training to qualify as IOA accredited architects
(4) To support members throughout their careers
(5) To promote the highest professional and ethical standards
The market
There are three other institutes also offering accreditation for architects, the largest being a professional body called
‘ARCHI’. The IOA is the second largest institute. In a recent survey carried out by the IOA, 40% of employers
interviewed said that the IOA is a brand aligned with quality and innovation.
Exams
The IOA is still using paper-based exams and paper-based marking. All of ARCHI’s exams are both sat and marked
on the computer. The following data also highlights other differences between the organisations:
IOA ARCHI
Number of exam sittings each year 1 2
Number of papers students can sit each year 3 2
Time taken to issue results after date of exam 3 months 6 weeks
Number of exam centres worldwide 16 12
Average number of years taken by a student to qualify 5 4
Number of papers which offer international variants 2 0
Continuing professional development (CPD)
All IOA members have to complete CPD hours each year to keep up-to-date with industry regulations. The IOA offers
a range of CPD events which members can attend. None of the other professional bodies offers this service and the
IOA often finds that members of other professional bodies attend its CPD events. Members must file an online return
each year as proof of completion. The IOA performs random checks on members each year to see if a return has been
filed and sends out a reminder if it discovers one has not been filed. No other checks are made by the IOA.
The press
Over the last year, an IOA member found himself in the news after an error he made in a building design caused a
project to be abandoned part way through the build, costing his client $20m. A review showed that he had not
completed his CPD for the last two years. The IOA asked him to make sure he completed his CPD in future.
Innovation
The IOA has an innovation department which provides advice to members on any innovative ideas they have,
providing support and advice on driving new ideas forward. For three years in a row, IOA members have been
shortlisted for the annual International Architect Design Awards, although no IOA members have actually won an
award to date. However, in the last year, five of the IOA’s members have had buildings which they designed awarded
a ’Gold Star’ for innovation by industry experts.
Other information
IOA IOA ARCHI ARCHI
Year ending 31 August 31 August 31 August 31 August
20X7 20X6 20X7 20X6
Number of students 40,000 39,000 80,000 60,000
Number of members 80,000 79,000 120,000 105,000
Operating surplus (million) $5·40 $5·20 $8·64 $6·90
Number of complaints against members 180 120 162 158
Student satisfaction 74% 70% 90% 88%
Number of members completing CPD returns 90% 92% 100% 100%
Number of members awarded Gold Stars for innovation 5 4 2 2

14
Required:
Discuss the performance of the IOA for the year ending 31 August 20X7, focusing on the extent to which it is
achieving its aims. Use each of the aims of the organisation as headings for your discussion.
Note: There are 4 marks available for calculations and 16 marks available for discussion.

(20 marks)

15 [P.T.O.
 Formulae Sheet

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 produced
b = the index of learning (log LR/log2)
LR = the learning rate as a decimal

Demand curve

P = a – bQ
change in price
b=
change in quantity
a = price when Q = 0
MR = a – 2bQ

End of Question Paper

16