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PM SD20 Examiner's Report
PM SD20 Examiner's Report
Management (PM)
Sept / Dec 2020
Examiner’s report
The examining team share their observations from the
marking process to highlight strengths and
weaknesses in candidates’ performance, and to offer
constructive advice for those sitting the exam in the
future.
Contents
General comments .................................................... 2
Section A ................................................................... 2
Example 1 .............................................................. 2
Example 2 .............................................................. 4
Example 3 .............................................................. 5
Example 4 .............................................................. 6
Section B ................................................................... 7
Question 1 .............................................................. 8
Question 2 .............................................................. 8
Question 3 .............................................................. 9
Question 4 .............................................................. 9
Question 5 ............................................................ 10
Section C ................................................................. 11
Question 1 - Health Nuts ...................................... 11
Requirement (a) – 5 marks ................................ 12
Requirement (b) – 3 marks ................................ 15
Requirement (c) – 6 marks ................................ 15
Requirement (d) – 6 marks ................................ 18
Question 2 - Tonford School ................................. 19
Examiner’s
Requirementreport
(a) –– 4PM September/December
marks 2020
................................ 19 1
Requirement (b) – 12 marks .............................. 20
Requirement (c) – 4 marks ................................ 24
General comments
Section A
In this section we will look at FOUR Section A questions which proved to be particularly
difficult for candidates.
Example 1
Broad Co produces quarterly rolling budgets and had forecast the costs of material
purchases for the next four quarters (quarters 1, 2, 3 and 4). Purchases for quarter 1
were budgeted to be $220,000 and it was anticipated that the cost of materials would
rise at a rate of 2% per quarter.
Actual material purchases were recorded as $210,000. This was due to a change of
material supplier during the quarter.
• A revised estimate for the increase in material purchase costs was made. The
rise was now predicted to be only 1% per quarter.
• The budget was updated.
$ ____________
When using rolling budgets, two things happen at the end of an accounting period
(month or quarter):
• the remaining budget for the year is updated based on the actual results and
the up to date information available, and
• a further accounting period (month or quarter) is added.
In this question, the total annual material purchases will be the sum of the next four
quarters i.e. the remaining quarters of the current year (Y1 quarters 2, 3 and 4) plus
the first quarter of the following year (Y2 quarter 1). The budgets for these quarters
will have been updated based on the actual material purchases from quarter 1
($210,000) and the predicted cost increase of 1%.
The total annual material purchases figure in the updated rolling budget would
therefore be $212,100 + $214,221 + $216,363 + $218,527 = $861,211
A common error in this question was to revise the budgets for quarters 2 – 4 as
shown, but to state the annual budget as the sum of the actual for quarter 1 and the
budgets for quarters 2 – 4. This showed a misunderstanding of the rolling budget
technique.
Another common error was to state the answer as $212,100 which is the restated
budget for quarter 2. This showed that the question requirements were not read
carefully enough.
Options:
B. Water purification treatment to clean waste water before it leaves the factory
This question asks for the identification of the two environmental internal failure
costs. These are costs relating to an environmental failure, for example pollution or
wastage but where the failure has been identified and dealt with within the
organisation before it manages to affect the external environment. Water purification
treatment to clean waste water before it leaves the factory and capturing and
recycling of waste exhaust gases to generate energy would be examples of
environmental internal failure costs.
They key here is that waste water has been produced which is a failure cost, but it
has been cleaned before leaving the factory, making it an internal failure cost.
Likewise, waste exhaust gases have been produced, but these have been captured
and recycled within the factory.
Environmental prevention costs relate to activities or measure which aim to avoid the
pollution or wastage occurring. Insulation of heating pipes in the factory to reduce
Environmental detection costs relate to the costs incurred to test the levels of
emissions and wastage to ensure that the organisation is being compliant with
internal standards and external regulations. Quality control inspections to monitor
pollution levels in water leaving a production process and power usage measuring
system to monitor energy consumption within the factory would come under this
heading.
External failure costs relate to pollution which has affected the outside environment.
Payment of fines for breaching environmental regulations in the industry and public
relations costs to remedy reputational damage caused by accidental river pollution
would be examples of environmental external failure costs.
A number of candidates did not answer the question which was asked and instead
gave the answer for the two environmental prevention costs, or the two
environmental detection costs or the two environmental external failure costs.
Environmental management accounting is an important area and candidates should
ensure that they are familiar with the different categories of environmental costs.
They should also read the requirements of the question carefully.
Example 3
A company had budgeted sales of $30.9 million within a market worth $61.8 million.
When the budget was drafted, it was assumed that inflation would be 3%. After the
end of the budget period, it was discovered that inflation had been 2% and that the
market had been worth $65 million.
What is the sales revenue figure which should be used when assessing
company performance (to one decimal place)?
$ ____________ million
B. ABC is useful for businesses which have high overheads in their cost structure
D. Marginal costing understates the true cost of a product when compared to ABC
F. Both ABC and marginal costing treat all fixed costs as product costs
ABC can be applied to both manufacturing and service industry. In fact, ABC is
relevant in service industries where overheads account for a significant share of the
total cost. Hence, this answer option is incorrect.
Marginal costing takes into account only variable costs whereas ABC accounts for all
costs when computing the cost of a product. This means that ABC gives a better
reflection of the true cost of a product unlike marginal costing which computes a
lower cost. Hence, this answer option is correct.
ABC absorbs costs on the basis of cost driver units consumed in the making of a
product or provision of a service. Cost drivers are specific actions that cause the
costs to be incurred. As a result, ABC helps to understand what really drives costs.
In contrast, absorption costing absorbs costs using rather generic or blanket factors
for absorbing overheads. This does not help to ascertain what is driving costs.
Hence, this answer option is correct.
Section B
In this section we will look in detail at a case covering lifecycle costing from syllabus
area B – Specialist cost and management techniques.
Midhurst Co
Midhurst Co expects to sell 10,000 units over the predicted five-year life cycle of the
unit. The finance director has just prepared the initial costings for the unit as follows:
$'000
Research and development costs 6,200
Design costs 33,450
Marketing costs 177,685
Variable production cost per unit 42
Fixed production cost 98,470
Variable distribution cost per unit 9
Fixed distribution cost 10,300
Variable selling cost per unit 4
Fixed selling cost 7,790
Administration cost 23,450
The finance director plans to use life-cycle costing to measure the profitability of the
new product. The chief executive has asked for more information about life-cycle
costing, as she is not sure whether it is the right method to use.
The production director has reviewed the costings in detail and suggested a couple
of changes. He is enthusiastic about the product and believes that modifications
could be made to prolong the product's life but wonders when the best time would be
to make changes to the product.
Options:
A. At the introduction stage, further capital expenditure will be needed as
production capacity will need to increase to meet demand
B. The maturity stage occurs when the market has reached 'saturation point' and
bought enough of the product
D. The growth stage, when sales will have reached their peak and become stable,
will be the most profitable stage
Statement B defines the decline stage of the product lifecycle and Statement D
defines the maturity stage.
Question 2
What is the cost per unit for the new air conditioning unit using life-cycle
costing (to the nearest $)?
Options:
A. $35,740
B. $51,847
C. $88,390
D. $90,735
To calculate a cost per unit using life-cycle costing, the first step is to calculate the
total cost over the full life-cycle of the product.
To calculate the cost per unit, divide the total cost by the number of units to be
produced over the life-cycle of the product. $907,345,000/10,000 = $90,735.
If A was selected, the variable costs per unit were omitted from the total cost.
If B was selected, the total production cost was used, and all non-production costs
were excluded.
If C was selected, the administration costs were excluded.
Question 3
The production director has suggested the following change for the costing of the
new unit:
Currently material costs are 20% of the variable production costs per unit. One of the
materials used is stainless steel which is budgeted at $2,000 per unit but an
alternative corrosion-resistant metal costing 25% less can be used. The production
director believes a 15% discount can be negotiated for the remainder of the
materials.
What would be the revised material cost per unit (to the nearest whole $)?
$ ____________
Question 4
The production director has also asked about the implications for production
planning if the company wishes to extend the product's life-cycle.
At what stage of the life-cycle is the new unit most likely to undergo product
development?
Options:
A. Introduction
B. Growth
C. Maturity
D. Decline
Normally product development occurs at the maturity phase in order to extend the
profitable stage of the life-cycle. This is usually done by adding enhancements or
new features.
Question 5
The chief executive wants to be briefed on the advantages of using life-cycle costing.
(1) It draws management's attention to all costs related to a product which other
costing methods usually treat as period costs
(2) It focuses on measuring a product's costs from concept to withdrawal rather than
reviewing costs on a period by period basis
(3) It focuses on what consumers are prepared to pay for a product and establishes
cost budgets based on an expected selling price
(4) It aids understanding of the relationship between decisions at the design stage
and the cost of other functions, such as marketing
Options:
A. 2, 3 and 4 only
B. 1, 2 and 4 only
C. 1 and 3 only
D. 1, 2, 3 and 4
In this section we will look in detail at TWO constructed response questions from
different syllabus areas. The full questions and solutions have been published and
are available on the ACCA website.
The topic for this question is Cost/Volume/Profit (CVP) analysis, from the decision-
making area of the syllabus (section C).
The scenario was based on a fitness centre (Health Nuts) which offered gym and café
facilities. There was a proposal to close the café and use the space to offer creche
facilities to the gym users. The requirements asked for some standard CVP
calculations (breakeven, margin of safety and C/S ratio) for 11 marks with the
remaining 9 marks for discussion elements regarding the performance of Health Nuts
and whether it should accept the proposal to close the café and open the creche.
On the whole, answers were disappointing – most candidates were aware of the basic
breakeven and margin of safety calculations but were unable to score well on part (c),
where a multi-product situation was introduced. There seemed to be several reasons
for this – firstly a lack of knowledge of the calculation of weighted average C/S ratio;
secondly poor presentation leading to confused calculations and thirdly, poor exam
technique meaning that easier parts of the question were not fully attempted. Part (d)
was a discussion-based requirement which could, for the most part, be completed
without successfully calculating parts (a) or (c), but unfortunately many candidates
performed poorly here too.
Health Nuts consisted of a reasonably long scenario which contained a lot of data.
There were five main requirements. This can make time management tricky – it is
important not to spend too long on one part and run out of time for the later ones.
Remember the rule of 1.8 minutes per mark.
When tackling a question like this, it is a good approach to scan through the scenario
to get an overall idea of what the question is about and then take time to read the
Two calculations are required for each part, the formulae are:
It is good practice to write down any formulae being used to show the marker what is
being calculated.
Here, units are the number of customers. The information needed (for both the gym
and the café) is:
• fixed costs
• contribution (sales price and variable costs)
• budgeted sales
Make use of the spreadsheet in laying out these answers clearly, as some the figures
may also be used in later parts of the question.
For the gym, the BEP formula is in cell B6 – taking the fixed costs in cell B5 and
dividing by the contribution per unit in B4. For the MOS formula, budgeted customers
Make sure to practise using the spreadsheet answer space before attempting to
sit an exam.
All of the above could be set up before reading the detail in the scenario, just by
knowing the formulae. The difficulty in this question was reading through the detail in
the scenario to pick out the figures needed in the calculations.
Paragraph 1 – general information about capacity, car park and opening times.
Paragraph 2 – Gym price ($8.40), Car park fees and usage, June attendance of the
gym and café. We can add the information in to our workings:
The calculation for selling price is at the top of the screenshot – the $8.40 admission,
plus 80% of users paying $1. Simple calculations like this should be done within the
spreadsheet, so the marker can easily see where any mistakes have arisen. Similarly,
the customer numbers are given daily, so the gym has 330 per day for 30 days, ie
9900.
Paragraph 3 – Gym fixed and variable costs are given which can be added to the
calculation. This completes the gym calculations.
A more detailed calculation like this can be performed separately – either to the side
or underneath the main working. Always do the easy bits first – we are told that half of
gym users use the café, and fixed costs are $3,600 so:
As the formula in D7 shows, the number of café users is half of the number of gym
customers. It is important to show this calculation. If the calculation for the number of
gym customers was incorrect, the marks for the café customers can still be gained –
as long as the workings show that the number of café customers is half of the number
of gym customers.
Overall café spend is split between food and drinks Both have different profit margins,
so the individual contributions need to be calculated in order to get the overall
contribution figure. Most candidates were able to complete this. This could be shown
as follows:
It is possible to do all the workings for the contribution in one cell, but if you mistype
something, or use the wrong number somewhere, it’s very hard tor the marker to see
what you’re trying to achieve and they cannot give you credit. The separate working
is much clearer.
The calculation of profit is one of the simpler formulae you could be asked for. The
main problem with this part of the requirement was not that candidates could not
perform the calculation; it’s was that they missed that part of the requirement. Always
read the requirement carefully to ensure that all parts are fully answered.
• the total contribution and total revenue for the gym and the crèche - not the
café. We should have the gym details from (a), so we need information on the
selling price, variable costs and customer volume for the crèche.
Set up the headings and the formula for the C/S ratio on the spreadsheet:
Paragraph 5 gives details about the crèche option – the fact that the café would close,
and how much would be charged for each child. Paragraph 6 gives more information
about the crèche, including expected usage and costs. Put this information into the
spreadsheet and calculate the contribution.
For the gym, the revenue and contribution per unit are unchanged, however customer
numbers will change. The number of customers arriving between 9am and 5pm will
increase by 300%. There is no information about any other time of day, so it can be
assumed that it stays the same. So, new customer numbers are:
Read the question carefully – the new number of gym customers is 450. Now calculate
the number of creche customers. The scenario states only those new customers
will use the creche facilities, so 120 customers will use the creche per day.
The gym revenue and contribution can be worked out relatively easily now – the selling
price of $9.20 and the contribution/customer of $8 haven’t changed since part (a), so
multiply each by the 13,500.
It is possible to calculate the weighted average C/S ratio in different ways – usually by
weighting the individual C/S ratios. This is acceptable, however the majority of
candidates who tried this method used the sales volumes as their weighting factor
instead of sales revenue which was incorrect.
Finally, calculate the budgeted profit. The formula is total contribution – total fixed
costs. The total contribution was just worked out as part of the C/S ratio calculation.
The gym fixed costs are the same as in (a), and the creche fixed costs of $8,000
should be added to this.
This was not an easy question – there was a lot of information to digest from the
question, but if you have the basic knowledge of the formulae then you can make it
Advise is a higher level verb – we need to offer advice here. There will be arguments
for and against whatever it is we are advising, but we should give our opinion. There
are a number of points to address in this requirement:
• Financial and non-financial factors. With written questions like this it can be
helpful to use headings, one for financial and another for non-financial This really
stresses to your marker that you’re dealing with the whole requirement.
• The decision to replace the café with a crèche (or not)
• Does (c) give enough information to make such a decision? A number of
candidates missed this part out.
You don’t have to answer these in any particular order. Some non-financial ideas might
have come up while reading the scenario, such as numbers will increase if the creche
opens but has Health Nuts considered customers going elsewhere because they can’t
use the gym any more, or there is an increase in customers between 9am and 5pm,
but what about other times?
The suggested solution performs more calculations, but these were not necessarily
required. The most obvious calculation would be to work out the profit of the gym and
the café which could be compared to the profit of the gym and the crèche. Only the
very best answers did this.
This was a challenging question and remember, you are not expected to produce the
model answer.
This question is taken from the Performance measurement and control area of the
syllabus (section E).
The emphasis here was an organisation having many different objectives, and what
issues or difficulties could be caused by this. Those who understood and answered
the requirements in the question tended to score well, however many candidates did
not answer the requirement set.
This requirement could have been answered with a little thought and consideration
for any not-for-profit organisations. Candidates however struggled to achieve high
Candidates should have contemplated the state funding of the school and the
expectations of the various stakeholders. As an approach, candidates should firstly
have considered the difficulties faced in any situation where multiple objective exist,
then relate this to the situation to a not-for-profit organisation.
For example:
Difficulty of multiple objectives:
When an organisation has many objectives, it is not unusual for some of those
objectives to be contradictory. The organisation’s management will face a dilemma
when trying to decide which objectives are most important.
Relate to scenario:
The multiple objectives require different courses of action and different objectives
make different demands on resources which, in this case, are state funded.
This can be a particular problem when the different objectives reflect the varying
interests of the organisation’s stakeholders and therefore complicating further the
prioritisation in the course of strategic planning and decision-making.
A number of candidates provided a general discussion of not-for-profit organisations
or suggested the use of a value for money framework (3 Es) to create the objectives
in the first place. These approaches did not answer the requirement. This gave the
impression that candidates are not giving themselves time to consider what is
expected from the requirement before attempting to write an answer.
Requirement (b) – 12 marks
In this part of the question candidates were asked to assess the performance of the
school. Candidates were given a template to structure their answer around the
school’s four objectives.
To be able to score well in this type of question, candidates need to utilise the
scenario and link this to any figures or calculations. Therefore, candidates need to
read the scenario to find out why Tonford School’s data may be as it is.
It is absolutely crucial not to rush through in answering the question as some points
might be missed. Care needs to be taken to understand and explain using the
scenario, why there could have been changes in data over the five years, or
differences between the school’s results and the national targets. A wrong approach
would be to just discuss the figures and almost guess what has happened without an
attempt to read the scenario, or just stating that a result has gone up or down.
This is a common problem where candidates do not often use the information
provided to do a useful analysis of the scenario given. Without this, candidates have
very little information to apply their answer to, so they have little to talk about for the
discussion marks.
Candidates should of course refer to the scenario but, when doing so, they must
always add value to whatever they are writing about, a useful tip would be to
consider if someone would pay for the assessment you have just delivered in your
answer, or would anyone have been able to clearly identify what you have written
about?
The correct approach (linked to Objective 2):
Tonford School’s teacher/pupil ratio has slightly improved but remained essentially the
same over the last five years – at 19 pupils per teacher, which is favourable compared
to the national target of 22 pupils per teacher.
20X7: 662 pupils/35 members of teaching staff =18.9 pupils per member of staff
20X2: 627 pupils/33 members of teaching staff = 19 pupils per member of staff
Having a low teacher pupil ratio is likely to be beneficial because it will allow teachers
to give more time to each pupil, thereby achieving the objective of providing a
supportive learning environment.
This could be expanded further to consider how this could have occurred.
Given that the school is state-funded, it seems likely that the Department of Education
(DoE) would have had to authorise the budget needed to recruit the additional
To earn marks a good script should refer to problems that could happen when using
qualitative factors to assess performance. To make an answer more complete, the
emphasis here should be based on a school.
For example:
Difficulty using qualitative factors to assess performance:
The subjective nature of the scoring and the difficulties in measurement cause
problems when assessing performance.
Relate to the scenario to ensure that the answer is relevant:
The subjective nature of the scoring is a problem, for example, objective 4 states that
all children should be provided with high- quality education, regardless of their
location or background. The various stakeholders are likely to have differing views
and expectations on what constitutes a high-quality education.
There were several approaches that did not score any credit here and highlighted
that candidates did not take time to appreciate what the requirement was asking for:
- A detailed explanation of why it may be difficult for the school to meet its
objectives, rather than the qualitative measurement itself.
- Using a quantitative measure (e.g. exam results) as the basis of the comments.
Without taking time to clearly distinguish what each requirement is asking for, there
is a tendency for some candidates to think they have been asked the same thing
more than once, and therefore repeat their written answer for different requirements.
A further common problem throughout was that some candidates answered the
question that they thought they were being asked, rather than what they were
actually being asked.
As with any written answer the suggested solution is not the only possible response,
and it is not expected that any candidate would reproduce this exactly, but as long as
the requirement is addressed and sensible points are made, credit would be given.