IPRO EDUCATION

ACCA MOCK
PERFORMANCE MANAGEMENT

MARCH 21
Time allowed
3 hours and 15 minutes
This 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, present value and annuity tables are on pages
3, 4
and 5

IPRO EDUCATION
IPRO EDUCATION
 IPRO EDUCATION

Q2 Which TWO of the following features distinguish throughput accounting

from other costing systems?
A It does not attempt to maximize profit.
B Work in progress is valued at material cost only.
C Costs are allocated to products when they are completed or sold.
D Only labor cost is treated as a variable cost
Q3 Which of the following statements describes target costing?
A It calculates the expected cost of a product and then adds a margin to it to
arrive at the target selling price
B It allocates overhead costs to products by collecting the costs into pools
and sharing them out according to each product’s usage of the cost
driving activity.
C It identifies the market price of a product and then subtracts a desired
profit margin to arrive at the desired cost.
D It identifies different markets for product and then sells that same
product at different prices in each market
Q4 Which of the following is NOT a benefit of life cycle costing?
A
B
C
D
 SECTION A
ALL 15 questions are compulsory and MUST be attempted. Each
question is worth two marks.
1 For which one of the following costs might the number of production
runs be a cost driver
A Production scheduling
B Product development costs
C Short-run variable overhead costs
D Materials handling and despatch costs

2. Dalton Co produces and sells a product for $90. The production for the
upcoming year is budgeted to be 30,000 units and Dalton Co expects all
the produced units to be sold.
The cost accountant has determined the break-even point (in revenue) to
be $600,000, whereas contribution to sales ratio is 40%.
What is the expected profit for the year?
A $840,000
B $960,000
C $720,000
D $980,000
3. ABC Co has received four different job orders from the customers.
However, given the limited capacity, it can only undertake one order at a
time. All the customers have agreed to pay a price of $325,000.
The costs incurred on the order will vary depending upon three different
scenarios.
The details of costs and probability of different scenarios are as under:
Costs Probability $000 $000 $000 $000
Job Order W X Y Z
Scenario 1 (0.6) 220 105 285 230
Scenario 2 (0.3) 300 135 290 310
Scenario 3 (0.1) 360 400 295 390
Assuming that the objective of ABC Co is to maximise profits and the
decision-maker is riskneutral, which of these job orders should be
accepted?
A Job Order ‘W’
B Job Order ‘X’
C Job Order ‘Y’
D Job Order ‘Z’

4. Which of the following statements regarding Fitzgerald and Moon’s

Building Blocks model are correct?
(1) Standards, i.e. performance targets, should always be achievable,
clear and controllable.
(2) Rewards should always be fair, sufficient and motivating.
(3) The framework is highly suitable for service organisations.
(4) The model ignores the external measures.
(5) The model includes both financial and non-financial measures.
A (1), (3) and (5)
B (3) and (5)
C (2), (4) and (5)
D (1) and (2)
5. Paris Inc produces and sells expensive perfumes. It uses full-cost
pricing system and keeps a mark up of 25%. The business has received
an order of 8,000 perfume bottles from one of its major customers.
Each perfume bottle will require 300 ml of liquid and will take around
45 seconds of labour time. The business will contract a courier
company for the delivery of these perfumes. The business estimates
the weight of entire consignment, including packaging, to be around
3,200 kg.
The information about various costs associated with each perfume is as
follows:
Cost of bottle = $10 per unit
Cost of liquid = $1,500 per litre
Labour rate = $20 per hour
Charges of courier company = $0.008 per gram
Calculate the price Paris Inc should quote to the customer.
A $4,536,500
B $4,634,500
C $4,632,500
D $4,532,500
6. Which of the following statements about pricing decisions are
incorrect?
(1) Penetration pricing is useful when the demand for a product is
highly inelastic.
(2) Price skimming is useful when a business wishes to achieve
economies of scale.
(3) Cost based pricing strategies tend to ignore the external factors.
(4) Full cost pricing requires the budgeted level of output to be
determined at the outset.
A (1) and (2)
B (1) and (3)
C (2) and (4)
D (3) and (4)
7. A business has formulated a linear programming function for two
products, A and B. The objective was to maximise the contribution and
this was reflected by C = 3A + 2B. Both units are produced with the help
of Chemical X, which is available in the market at a price of $5 per kg. The
shadow price of Chemical X is determined to be $9 per kg.
In the context of this scenario, which of the following statements is
correct?
A The maximum price to be paid for an additional unit of Chemical X is $4
per kg.
B The maximum price to be paid for an additional unit of Chemical X is $5
per kg.
C The maximum price to be paid for an additional unit of Chemical X is $9
per kg.
D The maximum price to be paid for an additional unit of Chemical X is
$14 per kg.
8. The following ratios have been calculated for Cola Co:
Gross profit margin 29%
Operating profit margin 16%
Gearing (debt/equity) 37%
Asset turnover 72%
Current ratio 1.5:1
Quick ratio 0.8:1
What is the return on capital employed?
A 11.52%
B 20.88%
C 15.33%
D 22.22%
9. Which of the following statements about life cycle costing are
correct?
(1) It focuses on short-term by trying to identify all costs at the
beginning of product’s life cycle.
(2) It can be applied to customers along with the products.
(3) It ignores the cost incurred in the development phase and only
considers the costs incurred during actual life cycle of the product.
(4) It includes the dismantling and environment related cost associated
with a product.
A (1) and (2)
B (1) and (3)
C (2) and (4)
D (3) and (4)

10. Technology Co produces and sells mobile phones. The current price
for one of its mobile phones is $600, the variable cost is $420 and the
expected demand is 90,000 units. The business wishes to increase the
price of this model by $50. However, the marketing department has
warned about the fall in demand by 2,500 units for every $50 increase
in the price.
Assuming that profits are maximised when marginal revenue equals
marginal cost, calculate the profit- maximising selling price.
A $1,700
B $1,410
C $1,230
D $1,100
11. The key steps in limiting factor analysis include:
(1) Ranking the products.
(2) Estimating the total demand of all products.
(3) Calculating contribution per unit.
(4) Calculating contribution per unit of limiting factor.
(5) Identifying the limiting factor.
What is the correct order of these steps?
A (1), (4), (3), (5), (2)
B (2), (1), (4), (5), (3)
C (2), (5), (3), (4), (1)
D (3), (4), (2), (5), (1)

12. The selling price of Product X is $300 per unit. Sales for the coming
month are expected to be 1,200 units. The company has a policy of
keeping 25% profit margin.
The cost accountant has prepared the following cost estimates for
Product X:
Cost $
Direct Material 90.10
Direct Labour 75.30
Ordering Costs 60.80
Quality Control 18.90
Despatch Costs 25.20
Marketing Costs 11.20
Calculate the cost gap for Product X.
A $12.40
B $20.10
C $45.30
D $56.50
13. Beta Co produces and sells two different products. The details about
budgeted sales and profits of these products are as follows;
Products Budgeted sales Profit per unit ($)
Product A 1,200 16.40
Product B 1,800 30.20
Beta Co actually sold 1,500 units of Product A and 1,000 units of Product B.
What is the sales mix variance?
A $6,900 (F)
B $8,200 (F)
C $8,200 (A)
D $6,900 (A)
14. Which of the following statements about standard costing and
variance analysis are correct?
A An adverse sales volume variance can arise due to unexpected increase
in product demand.
B Idle time variance can be favourable if the actual labour rate turns out
to be less than the standard labour rate.
C A favourable material price variance can arise if a business avails
unforeseen discounts.
D Labour efficiency variance compares the actual cost of labour with
what it should have cost.
15. The following information has been extracted from the labour budget
of Alpha Co:
Budgeted hours Rate Total cost 40,000 hours $15 $600,000
The labour actually worked for 35,000 hours and the labour rate variance
for the period was found to be $300,000 adverse.
Calculate the actual hourly rate paid to the labour. (Rounded to two
decimal places)
A $22.57
B $26.33
C $20.12
D $23.57
The following scenario relates to question 16 - 20
Schedule Co is a calendar printing company. Given the intensive
competition, the business has a policy of pricing all job orders at relevant
cost plus 15%. The business has received a printing order from a larger
retailer. The following information is relevant for this order:
Paper:
The order requires three different types of paper. Paper A, purchased
three years ago for $125,000, is currently available. It is now being sold in
the market for $89,000. If not utilized on this order, it will be scrapped at a
price of $8,000. Paper B will be purchased from market at a cost of
$250,000. Paper C was purchased last month for $200,000. This paper is
regularly used by Schedule Co. and is now available in the market for
$220,000.
Labour:
The order requires 300 hours of skilled labour and 600 hours of semi-
skilled labour. Skilled workers are employed under permanent contracts at
$28 per hour and must be paid even when the time is idle. There is
currently a spare capacity of 100 skilled labour hours. Semi-skilled workers
are paid $16 per hour and time and a half for overtime. Schedule Co does
not have any spare capacity for semi-skilled workers. A local agency has
agreed to provide additional semi-skilled workers for $21 per hour.
Printing:
A customised printer, having useful life of three years, will be utilised on
this job. It was purchase last year for $30,000 and can no longer be sold.
The current book value of the printer is $20,000. After completion of this
order, the net book value of the printer will be $10,000. Printer cartridges
for this job will be refilled at a cost of $15,000.
Overheads:
The entire job order is estimated to consume 1,200 units of electricity.
Schedule Co pays a fixed monthly electricity charge of $400 and a
variable charge of $2.50 per unit of electricity consumed. To account for
the interest on outstanding loan of $10,000, Schedule Co charges an
interest rate at 2% to each job order.
16. What is the total relevant cost of paper?
A $575,000
B $595,000
C $478,000
D $458,000

17. What is relevant cost of labour?

Skilled Semi-skilled
A $2,800 $12,600
B $2,800 $14,400
C Nil $12,600
D Nil $14,400

18. What is the total relevant cost of printing?

A $15,000
B $25,000
C $35,000
D $45,000

19. What is the relevant cost of overheads?

A $3,400
B $3,000
C $3,200
D $3,600
20. Which of the following statements about relevant costing is correct?
A The overheads are considered relevant as the business needs to recover
all costs.
B An opportunity cost is always relevant even if it is a sunk cost.
C Notional costs are always relevant.
D An opportunity cost represents the cost of the best alternative forgone.
The following scenario relates to question 21 - 25
Delicious Food is a newly established fast food restaurant situated in
busy part of the city. The lunch menu is prepared each morning and the
business has to decide the number of meals to make each day. If the
demand turns out higher than the number of meals prepared, the
business has to refuse the customers, thereby resulting in loss of
goodwill and lesser profitability. Conversely, if the demand turns out
lower than the number of meals prepared, unsold meals reduce the
overall profitability.
Based on the sales made during its first month of operation, Delicious
Food has established four possible demand levels and the associated
probabilities. The daily profits at different combinations of demand and
supply are presented in the payoff table below:

Supply level
Demand level Probability 300 400 500 600
$ $ $ $
300 0.2 1,200 1,050 900 750
400 0.3 1,200 1,450 1,350 1,250
500 0.4 1,200 1,450 1,700 1,600
600 0.1 1,200 1,450 1,700 1,950

21. Assuming that Delicious Food follows maximax approach, how

many meals should it prepare?
A 300 meals
B 400 meals
C 500 meals
D 600 meals
22. Assuming that Delicious Food follows maximin approach, how many
meals should it prepare?
A 300 meals
B 400 meals
C 500 meals
D 600 meals
23. Assuming that Delicious Food follows minimax regret approach, how
many meals should it prepare?
A 300 meals
B 400 meals
C 500 meals
D 600 meals

24. An experienced restaurant has offered to provide advice to Delicious

Food. Based on the extensive
experience, this restaurant can inform Delicious Food about the exact
level of demand in a particular day.
What is the maximum price which Delicious Food should pay for this
information?
A $115
B $235
C $460
D $1,550

25. Which of the following statements about decision making are

incorrect?
(1) A risk-averse decision-maker uses expected values to choose the right
option.
(2) A risk taking decision-maker uses maximin approach to choose the
right option.
(3) Expected values take account of the likelihood of different outcomes.
(4) Maximax is an aggressive and risk taking approach to decision making.
A (1) and (2)
B (1) and (3)
C (2) and (3)
D (2) and (4)
The following scenario relates to question 26 - 30
Security Inc. manufactures different type of steel lockers. Two of the
most common lockers include waterproof lockers which are supplied to
health clubs and high-security lockers which are supplied to various
banks.
The extracts from standard cost card are as follows:
Material cost of Waterproof lockers 2 kg of steel @ $5 per kg = $10 per
unit
Material cost of High- security lockers 5 kg of steel @ $5 per kg = $25
per unit
The production levels for the previous month are as follows:
Budgeted production Actual production
Waterproof lockers 20,000 units 20,000 units
High-security lockers 60,000 units 50,000 units
The steel was actually procured at $6 per kg. A total of 55,000 kilograms
were actually used to manufacture waterproof lockers and 260,000
kilograms were used to manufacture high-security lockers.
The world commodity prices for steel increased by 30% during the
previous month. A complaint made by local health club forced Security
Inc. to revise the design of waterproof lockers. The revised design
required 10% more steel than the standard.

26. What is the material price planning variance?

Waterproof lockers High-security lockers
A $82,500 (A) $390,000 (A)
B $82,500 (F) $390,000 (F)
C $27,500 (F) $130,000 (F)
D $27,500 (A) $130,000 (A)
27. What is the material price operational variance?
Waterproof lockers High-security lockers
A $82,500 (A) $390,000 (A)
B $82,500 (F) $390,000 (F)
C $27,500 (F) $130,000 (F)
D $27,500 (A) $130,000 (A)

28. What is the material usage planning variance?

Waterproof lockers High-security lockers
A $0 $20,000 (A)
B $0 $20,000 (F)
C $20,000 (F) $0
D $20,000 (A) $0

29. Which of the following statements about planning and operational

variances is / are correct?
(1) Planning variances are always inevitable and there is no way to control
or reduce them.
(2) Operational variances compare the original standard with revised
standard based on the availability of new information.
A 1 Only
B 2 Only
C Both 1 and 2
D Neither 1 nor 2

30. Which of the following statements about variances is correct?

A If sales price planning variance is adverse, the sales price operational
variance is always favourable.
B If sales price planning variance is adverse, the sales price operational
variance is always adverse too.
C Materials price planning variance and materials price operational
variance are the two components of materials price variance.
D Materials planning variance is a useful variance to assess the
performance of a production supervisor.
Section B – BOTH questions are compulsory MUST be attempted
1. Silicon Co produces and sells electronic components. The business has
two divisions, A and B. Division A produces three types of transistors, X, Y
and Z. These transistors can be either sold to the external market or can
be transferred to Division B, which uses them to produce three different
types of amplifiers, XX, YY and ZZ. Division B can only procure these
transistors from Division A, as there is no other supplier of such transistors
in the area. Importing result in substantial costs, which Division B cannot
afford.
In the previous month, output of Division A was as follows:
Transistor Units
X 1,400
Y 1,700
Z 2,000
The information about selling price and variable cost per unit incurred in
each respective division is as follows:
Product Selling price Variable cost per unit
Transistor X $17.20 $15.20
Transistor Y $19.60 $16.50
Transistor Z $22.50 $17.10
Amplifier XX $30.20 $14.50
Amplifier YY $46.50 $11.30
Amplifier ZZ $36.40 $10.80

If the products from Division A are transferred to Division B, the variable

cost per unit in Division A is $2.50 lower due to cost savings on packaging.
At the end of the process in Division B, there is a normal loss of 2% of the
total quantity processed.
Division A incurs a fixed cost of $120,000 per annum and Division B incurs
a fixed cost of $300,000 per annum.
Required
(a) Assuming that all units from Division A are transferred to Division B for
further processing, calculate the monthly profit for the company in a given
month. (4 marks)
(b) Calculate and conclude, for each product, whether they should be
further processed in Division B in order to maximise the profitability of
Silicon Co. (10 marks)

Division A and Division B are separate investment centres. The board has
identified a potentially growing market for Amplifiers, whereas Transistors
are already in the declining stage of their respective life cycles.
Consequently, board has ordered Division A to transfer all Transistors at
marginal cost to Division B.

(c) Discuss the implications of this decision for the future prospects and
performance measurement of Division A. (6 marks)

(20 marks
2. Clean Co produces and sells three different types of detergents, X, Y and
Z. Each detergent is made from a combination of two different materials, A
and B. The company uses traditional absorption costing to allocate
overheads on the basis of direct labour hours. The selling prices currently
charged by the business cannot be increased due to intensive competition.
Information from the annual budget about the three products is as follows:

X Y Z
Production and sales (units) 14,000 16,000 18,000
Selling price per unit $36 $28 $53
Direct material cost (A) $4 $6 $2
Direct material cost (B) $4 $2 $18
Direct labour cost ($15 per hour) $1.5 $3 $7.5
Number of purchase orders per annum 30 40 10
Number of production runs per annum 6 12 2
Number of deliveries to retailers per annum 20 30 10
Megawatts of electricity consumed 3 6 1
The annual overheads of the business are as follows:
Procurement costs $240,000
Machine set up costs $100,000
Delivery costs $200,000
Electricity costs $140,000

The finance director has expressed concerns over the usage of absorption
costing. She has suggested using activity based costing (ABC) to calculate
the full cost of producing each detergent.
Required:
(a)Calculate the budgeted production cost per unit of each
detergent using absorption costing.
(3 marks)
(b)Using the cost per unit calculated in part (a), Calculate the
total profit / loss of each detergent.
(3 marks)
(c) Calculate the budgeted production cost per unit of each
detergent using activity based costing.
(9 marks)
(d)Using the cost per unit calculated in part (c), Calculate the
total profit / loss of each detergent.
(3 marks)
(e)Based on your calculations from (a) to (d), discuss whether
Clean Co should continue to produce all three detergents.
(2 marks)

(20 marks