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
1 - A Production scheduling

2. A
The candidates need thorough knowledge of break-even formulas
to solve this question.
Break-even revenue = Fixed costs / Contribution to sales ratio
Re-arranging the formula;
Fixed costs = Break-even revenue x Contribution to sales ratio
Fixed costs = $600,000 x 40%
Fixed costs = $240,000

Contribution per unit = Selling price x Contribution to sales ratio

Contribution per unit = $90 x 40%
Contribution per unit = $36
Total contribution = Units sold x Contribution per unit
Total contribution = 30,000 x $36
Total contribution = $1,080,000
Total profit = Total contribution – Fixed costs
Total profit = $1,080,000 - $240,000
Total profit = $840,000

3. B
A risk-neutral decision-maker uses expected values to select the
right option. Given that the revenue from each job order is
$325,000, the profits can be maximised by selecting the project
with lowest cost.
Costs of Job Orders:
Job Order ‘W’ = 220,000 x 0.6 + 300,000 x 0.3 + 360,000 x 0.1 = $258,000
Job Order ‘X’ = 105,000 x 0.6 + 135,000 x 0.3 + 400,000 x 0.1 = $143,500
Job Order ‘Y’ = 285,000 x 0.6 + 290,000 x 0.3 + 295,000 x 0.1 = $287,500
Job Order ‘Z’ = 230,000 x 0.6 + 310,000 x 0.3 + 390,000 x 0.1 = $270,000
Based on expected values, Job order X incurs the lowest cost and,
therefore, results in maximum profits.
4. B

The first, second and fourth statements are incorrect. The characteristics of
standards include ownership, achievability and fairness. Rewards should be
clear, motivating and controllable. The model considers internal as well as
external factors.

5. B
This question tests the ability of candidates to convert quantities from one
unit to another.
Cost of one bottle = $10
Cost of 8,000 bottles = $10 x 8,000 = $80,000
Liquid cost of one bottle = $1,500 / 1,000 x 300 = $450
Liquid cost of 8,000 bottles = $450 x 8,000 = $3,600,000
Labour cost of one bottle = $20 / 3,600 x 45 = $0.25
Labour cost of 8,000 bottles = $0.25 x 8,000 = $2,000
Courier charges of entire shipment = $0.008 x 1,000 x 3,200 = $25,600
Total cost of 8,000 bottles = $80,000 + $3,600,000 + $2,000 + $25,600 =
$3,707,600
Price to quote = $3,707,600 x 125% = $4,634,500

6. A
The first two statements are incorrect. Penetration pricing is useful when
the demand for a product is highly elastic. Penetration pricing and not price
skimming, is useful when a business wishes to achieve economies of scale.
7. D
Shadow price of a material is the value by which contribution increases for
each additional unit of material. It is the ‘extra’ price that a business can
bear over and above the current price.
Therefore, the maximum price a business can bear is $5 + $9 = $14 per kg.
8. A
To be able to solve this question, candidates need to know the formula for
calculating return on capital employed, operating profit margin as well as
asset turnover ratio.
ROCE = Operating profit / Total assets
Operating profit margin = Operating profit / Revenue
Asset turnover = Revenue / Total assets
If we multiply operating profit margin with asset turnover, the revenue in
numerator of the former and denominator of the latter are cancelled out.
Therefore,
ROCE = Operating profit margin x Asset turnover
ROCE = 16% x 72%
ROCE = 11.52%

9. C
The first and third statements are incorrect. Life-cycle costing encourages
long-term focus. Moreover, it includes the costs incurred during the
development phase.

10. B
MR = a - 2bQ
b = 50 / 2,500
b = 0.02
a = 600 + 0.02 x 90,000

a = 2,400
Substituting the values in first equation;
MR = 2,400 - 2 x 0.02Q
MR = 2,400 - 0.04Q
Since the profits are maximised when marginal revenue equals marginal
cost;
MC = MR
Substituting the values of MC and MR;
420 = 2,400 – 0.04Q
0.04Q = 2,400 – 420
Q = 1980 / 0.04
Q = 49,500
All these values can now be entered in the demand equation to
calculate profit-maximising selling price;
P = a – bQ
P = 2,400 – 0.02 x 49,500
P = $1,410
11. C
The limiting factor analysis begins with the estimation of total
demand and identification of limit factor (if any). The
contribution per unit and contribution per unit of limiting factor
are then calculated. The last step is to rank the products based
upon the highest contribution per unit of limiting factor. This
enables the organisation to maximise the benefits within the
constraints of limiting factor.
12. D
The cost gap can be calculated as;
Cost gap = Estimated cost – Target cost
Estimated costs comprise of all types of costs, including production costs,
non-production costs, variable costs and fixed costs.
Estimated cost = 90.10 + 75.30 + 60.80 + 18.90 + 25.20 + 11.20 = $281.50
Remember, margin is applied on sales, whereas mark-up is applied on
cost.
Target cost = $300 / 100 x 75 = $225
Cost gap = $281.50 – $225 = $56.50
13. D
Standard proportion of Product A = 1,200 / 3,000 = 40%
Standard proportion of Product B = 1,800 / 3,000 = 60%
Actual quantity sold =1,500 + 1,000 = 2,500
Standard mix of actual quantity – Product A =2,500 x 40% = 1,000
Standard mix of actual quantity – Product B = 2,500 x 60% = 1,500
Product Standard mix Actual mix Variance Profit Variance
A 1,000 1,500 500 (F) $16.40 $8,200 (F)
B 1,500 1,000 500 (A) $30.20 $15,100 (A)
Total 2,500 2,500 - $6,900 (A)
14. C
Unexpected increase in product demand results in favourable sales
volume variance. Idle time variance is always adverse. Labour rate
variance compares the actual cost of labour with what it should have
cost.

15. D
In order to solve this question, the candidates need to have a complete
understanding of the elements involved in labour rate variance. Some
additional maths is required to solve.
Labour Rate Variance: (Actual rate – Standard rate) x Actual hours worked
The value is positive, if the variance is adverse. Putting values in the
formula;
300,000 = (Actual rate – 15.00) x 35,000
300,000 = Actual rate x 35,000 – 15.00 x 35,000
300,000 = Actual rate x 35,000 – 525,000
300,000 + 525,000= Actual rate x 35,000
825,000 / 35,000 = Actual rate
Actual Rate = $23.57
Section B

16. C
The relevant cost of Paper A is its scrap value of $8,000 and any other
information is irrelevant as the material is no longer in use. The relevant
cost of Paper B is $250,000. The relevant cost of Paper C is $220,000 and
the historical cost of $200,000 is irrelevant.
Total relevant cost = $8,000 + $250,000 + $220,000
Total relevant cost = $478,000
17. C
Given that skilled workers will be compensated regardless of the job order,
their entire cost is irrelevant. Semi-skilled workers will be hired through
local agency at a cost of $600 x 21 = $12,600.

18. A
All information about the historical cost and book value of the printer is
irrelevant. Since the printer can no longer be sold, it has a relevant cost of
zero. The cartridges, however, will have to be procured for $15,000 and
represent relevant cost
19. B
The fixed cost of electricity is not incremental and, therefore, irrelevant.
Only the variable charge of 1,200 units x $2.5 = $3,000 are relevant.
Similarly, the interest charge is notional and irrelevant cost.
20. D
Overheads are excluded as they are not incremental. All sunk costs, i.e.
costs incurred in the past, are irrelevant. Notional costs are considered
irrelevant.
21. D
Under maximax approach, Delicious Food will select the maximum of
maximum outcomes for each supply level.
300 meals = 1,200
400 meals = 1,450
500 meals = 1,700
600 meals = 1,950
Delicious Food will, therefore, prepare 600 meals.

22. A
Under maximin approach, Delicious Food will select the maximum of
minimum outcomes for each supply level.
300 meals = 1,200
400 meals = 1,050
500 meals = 900
600 meals = 750
Delicious Food will, therefore, prepare 300 meals.
23. C
Supply level
Demand level 300 400 500 600
$ $ $ $
300 0 150 300 450
400 250 0 100 200
500 500 250 0 100
600 750 500 250 0
Max regret 750 500 300 450
On the basis of minimax regret rule, Delicious Food will choose to
prepare 500 meals as it minimises the maximum regret.
24. A
The maximum price Delicious Food should pay would be the difference
between expected value with perfect information and expected value
without perfect information.
Expected value with perfect information = (0·20 x $1,200) + (0·30 x $1,450)
+ (0·40 x $1,700) + (0·10 x $1,950)
Expected value with perfect information =$1,550
Expected value of producing 300 meals = (0·20 x $1,200) + (0·30 x $1,200) +
(0·40 x $1,200) + (0·10 x $1,200)
Expected value of producing 300 meals = $1,200
Expected value of producing 400 meals = (0·20 x $1,050) + (0·30 x $1,450) +
(0·40 x $1,450) + (0·10 x $1,450)
Expected value of producing 400 meals =$1,370
Expected value of producing 500 meals = (0·20 x $900) + (0·30 x $1,350) +
(0·40 x $1,700) + (0·10 x $1,700)
Expected value of producing 500 meals = $1,435
Expected value of producing 600 meals = (0·20 x $750) + (0·30 x $1,250) +
(0·40 x $1,600) + (0·10 x $1,950)
Expected value of producing 600 meals = $1,360
In the absence of perfect information, Delicious Food would choose to
produce 500 meals with a total profit of $1,435.
Value of perfect information = $1,550 - $1,435
Value of perfect information = $115
25. A
The first and second statements are incorrect. A risk-neutral decision-
maker uses expected values to choose the right option. A risk taking
decision-maker uses maximax approach to choose the right option.
26. A
The first step is to calculate the revised standard rate of steel. Given that
the price of steel has increased by 30% in the international market, the
standard should be revised to: $5 x 130% = $6.5
Planning variance = (Revised standard Rate – Standard rate) x Actual
quantity
Planning variance for Waterproof lockers = ($6.50 – $5.00) x 55,000
Planning variance for Waterproof lockers = $82,500 (A)
Planning variance for High-security lockers = ($6.50 – $5.00) x 260,000
Planning variance for High-security lockers = $390,000 (A)

27. C
Operational variance = (Actual rate – Revised standard rate) x Actual
quantity
Operational variance for Waterproof lockers = ($6.00 - $6.50) x 55,000
Operational variance for Waterproof lockers = $27,500 (F)
Operational variance for High-security lockers = ($6.00 - $6.50) x 260,000
Operational variance for High-security lockers = $130,000 (F)
28. D
The first step is to calculate the revised standard usage of steel for
Waterproof lockers. Given that the usage of steel has increased by 10%,
the standard should be revised to: 2 kg x 110% = 2.20 kg per unit.
Material usage planning variance = (Standard quantity for actual
production – Revised quantity for actual production) x Standard price
Material usage planning variance for Waterproof lockers = (40,000 –
44,000) x $5
Material usage planning variance for Waterproof lockers = $20,000 (A)
Material usage planning variance for High-security lockers = (250,000 –
250,000) x $5
Material usage planning variance for High-security lockers = $0
29. D
Both statements are incorrect. Planning variances can be reduced by
extensive research and by incorporating external factors in the plan.
Planning variances compare original standard with revised standard.

30. C
The first two statements are incorrect. There is no, positive or negative,
relationship between planning and operational variance. Both the
variances can be adverse as well as favourable. Planning variances are not
used to assess the performance of junior managers. Instead, operational
variances are used for this purpose.

31. Silicon Co
Part (a)
Revenue from XX – 1,400 x 98% x $30.20 $41,434
Revenue from YY – 1,700 x 98% x $46.50 $77,469
Revenue from ZZ – 2,000 x 98% x $46.50 $71,344
Total Revenue $190,247
Total variable cost of XX – 1,400 x ($15.20 + $14.50 - $2.50) ($38,080)
Total variable cost of YY – 1,700 x ($16.50 + $11.30 - $2.50) ($43,010)
Total variable cost of ZZ – 2,000 x ($17.10 + $10.80 - $2.50) ($50,800)
Fixed monthly cost of Division A - $120,000/12 ($10,000)
Fixed monthly cost of Division B - $300,000/12 ($25,000)
Total Costs ($166,890)
Total Profit $23,357
Part (b)
Processing Transistor X to Amplifier XX
Incremental revenue: (1,400 x 0.98 x $30.20) – (1,400 x $17.20) $17,354
Incremental cost: {1,400 x ($14.50 - $2.50)} ($16,800)
Net profit due to further processing: $554
Processing Transistor Y to Amplifier YY

Incremental revenue: (1,700 x 0.98 x $46.50) – (1,700 x $19.60) $44,149

Incremental cost: {1,700 x ($11.30 - $2.50)} ($14,960)
Net profit due to further processing: $29,189
Processing Transistor Z to Amplifier ZZ
Incremental revenue: (2,000 x 0.98 x $36.40) – (2,000 x $22.50) $26,344
Incremental cost: {2,000 x ($10.80 - $2.50)} ($16,600)
Net profit due to further processing: $9,744
(Note: The calculations assume that fixed costs in Division B would be
incurred regardless of the decision to further process. In the longer run,
fixed costs will also be saved. Alternate calculations, with proper
justification of fixed costs, will earn due credit).
Conclusion
Given that further processing of each of the product results in net profit,
all of them should be processed further.
Part (c)
The board has ordered Division A to transfer all products at marginal cost.
Although Division A would be able to recover its variable costs, it would
not be able to generate any profits. Transferring at marginal cost will also
prevent Division A to recover its fixed costs, thereby resulting in overall
loss for the division. Consequently, Division A will openly oppose such a
decision. This decision will also have a detrimental effect on the
motivation of staff in Division A.
Both divisions currently operate as investment centres. This implies that
their performance is assessed on the basis of profitability, residual income
and overall return on capital employed. The decision made by the board
will drastically affect the profits of Division A. The usual criteria of
assessing performance on the basis of RI and ROI will become
meaningless.
An alternate option for the board is to reclassify Division A as a cost centre
instead of investment centre. Since it will be transferring all of its products
at marginal cost, and without any profits, the suggested classification will
limit the responsibility of Division A to costs. However, the sales and
marketing staff at Division A will have to be transferred or made
redundant. The additional costs associated with this process must also be
ascertained. Ideally, the board will have to merge the two divisions into
one as divisional structure will no longer be useful. Division A will simply
function as a production department.
32. Clean Co
Part (a)
X Y Z
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
Overhead cost per unit (W1) $5 $10 $25
Total cost per unit $14.5 $21 $52.5
W1 – Overhead cost per unit
Total overhead costs = $240,000 + $100,000 + $200,000 + $140,000
Total overhead costs = $680,000
Total labour hours = (1.5 / 15 x 14,000) + (3 / 15 x 16,000) + (7.5 / 15 x
18,000)
Total labour hours = 13,600
Overhead absorption rate (OAR) = $680,000 / 13,600
Overhead absorption rate (OAR) = $50 per labour hour

Detergent X = 1.5 / 15 x $50 = $5

Detergent Y = 3 / 15 x $50 = $10
Detergent Z = 7.5 / 15 x $50 = $25
Part (b)
Detergent X
Revenue – 14,000 x $36 $504,000
Cost – 14,000 x $14.50 ($203,000)
Profit $301,000
Detergent Y
Revenue – 16,000 x $28 $448,000
Cost – 16,000 x $21 ($336,000)
Profit $112,000
Detergent Z
Revenue – 18,000 x $53 $954,000
Cost – 18,000 x $52.50 ($945,000)
Profit $9,000
Part (c)
X Y Z
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
Overhead cost per unit (W1, W2 and W3) $16.33 $22.75 $4.85
Total cost per unit $25.83 $33.75 $32.35
W1 - Overhead cost of Detergent X
Procurement costs - $240,000 / 80 x 30 $90,000
Machine set up costs - $100,000 / 20 x 6 $30,000
Delivery costs - $200,000 / 60 x 20 $66,667
Electricity costs - $140,000 / 10 x 3 $42,000
Total cost $228,667
Units produced 14,000
Cost per unit $16.33
W2 - Overhead cost of Detergent Y
Procurement costs - $240,000 / 80 x 40 $120,000
Machine set up costs - $100,000 / 20 x 12 $60,000
Delivery costs - $200,000 / 60 x 30 $100,000
Electricity costs - $140,000 / 10 x 6 $84,000
Total cost $364,000
Units produced 16,000
Cost per unit $22.75
W3 - Overhead cost of Detergent Z
Procurement costs - $240,000 / 80 x 10 $30,000
Machine set up costs - $100,000 / 20 x 2 $10,000
Delivery costs - $200,000 / 60 x 10 $33,000
Electricity costs - $140,000 / 10 x 1 $14,000
Total cost $87,333
Units produced 18,000
Cost per unit $4.85

Part (d)
Detergent X
Revenue – 14,000 x $36 $504,000
Cost – 14,000 x $25.83 ($361,620)
Profit $142,380
Detergent Y
Revenue – 16,000 x $28 $448,000
Cost – 16,000 x $33.75 ($540,000)
Loss ($92,000)

Detergent Z
Revenue – 18,000 x $53 $954,000
Cost – 18,000 x $32.35 ($582,300)
Profit $371,700
Part (e)
The overheads calculated on the basis of activity based costing (ABC) are
fundamentally different from the ones calculated through absorption
costing. ABC traces all the costs to their actual drivers and, therefore,
provides a better understanding of the costs. It also illustrates the true
profitability of each product.
ABC reveals that Detergent Y is actually loss making. The production of
detergent Y includes considerably higher activities than the production
of other two detergents. Based on this information, it is beneficial for
Clean Co to discontinue the production of Detergent Y.