ACCA

F5 (PM)

Performance Management

QUESTIONS

MOCK B

We're not sure whether it is Becker's mock exam or

Kaplan's, or someone else's. Whomever it is, we are
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FORMULAE
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/log 2)
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

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SECTION A

ALL 15 QUESTIONS ARE COMPULSORY AND MUST BE ATTEMPTED

EACH QUESTION IS WORTH 2 MARKS

1 Target costing involves the calculation of a target cost, with a desired margin deducted
from a market price.
In service businesses in this context, which TWO of the following are true?
A Services often take place behind closed doors, and so understanding what is being
provided is more challenging. This makes setting a market price for target costing
more difficult.
B Margins vary so much with services, and this makes target costing impossible.
C All services cost bases are dominated by fixed costs. Therefore, calculating actual
costs as part of the target costing calculation is too heavily volume-driven to be
useful.
D Target costing is still relevant to service based businesses as a large cost gap could
indicate inefficiency.

2 Which TWO of the following actions would increase a product’s throughput accounting
ratio (TPAR) from one year to the next?
A Removing settlement discounts currently being offered to businesses that buy the
product
B Agreeing a less than expected annual pay rise for the factory staff
C Removing trade discounts being offered on the product
D Increasing the capacity of the business by working a longer day

3 A business produces a monthly newsletter to explain the steps it is taking to further

improve its environmental management. This newsletter is sent out to all staff and
customers of the business.
This type of expenditure is best defined as:
A A conventional environment cost
B A contingent environmental cost
C A reputational environmental cost
D A relationship environmental cost

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4 A business is considering changing its fixed cost to variable cost mix (its operational
gearing), by encouraging some staff to agree to be paid for the hours they actually work,
rather than being fully employed on salaries. If they make this change the C/S ratio will
reduce from 0.6 to 0.45 but the fixed cost base will drop 20% to $720,000 in total.
What will be the effect on the breakeven point in revenue terms and the risk profile of
the business?
A The BEP will increase by $100,000 and the risk profile will worsen
B The BEP will increase by $100,000 and the risk profile will improve
C The BEP will reduce by $100,000 and the risk profile will worsen
D The BEP will reduce by $100,000 and the risk profile will improve

5 A correctly produced linear programming model has shown that the optimal point on the
graph of two products X and Y lies at the intersection of the following equations:
Skilled labour: 5X + 3Y = 16,000 Demand for X = 2,000
The contribution from an X is $6 and the contribution from a Y is $8.
What is the dual price of an hour of labour?

Enter your answer to two decimal places $

6 The optimal solution for a linear programming problem has been correctly calculated as
follows:
Product X: 2,200 units Product Y: 3,100 units
One of the non-critical resources was found to be the material, where a unit of X used 1.25
kg and a unit of Y used 1.75 kg of this material.
If there was 8,520 kg of this non-critical material available, but it could only be delivered
in 40 kg bags, how many bags could be cancelled without the material becoming critical?

Enter your answer here bags

7 A business has an objective to maximise profit through its pricing strategy. It has carried
out some analysis of past sales and prices. It concluded that for every $5 it increases prices,
the sales of a particular product reduces by 500 units. Last year, the sales of the product in
question were 45,000 units at an average selling price of $2,000 per unit. The variable costs
of making and selling the product are $800 per unit.
What is the marginal revenue function that would be used in a profit maximisation
calculation?
A MR = 2,450 – 0.01Q
B MR = 1,550 – 0.01Q
C MR = 2,450 – 0.02Q
D MR = 1,550 – 0.02Q

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8 A business has an objective to maximise profit through its pricing strategy. It has carried
out some analysis of past sales and prices. It concluded that for every $5 it increases prices,
the sales of a particular product reduces by 500 units. Last year, the sales of the product in
question were 45,000 units at an average selling price of $2,000 per unit. The variable costs
of making and selling the product are $800 per unit.
What is the optimal selling price to be set in order to maximise profit?
A $1,625
B $2,075
C $800
D $3,275

9 A business sells an established single product to a base of similar customers. It competes

primarily on prices as there is little to distinguish their products from others in the market.
Which is the only pricing methodology appropriate from the options below?
A Price discrimination
B Product line pricing
C Skimming
D Volume based discounting

10 A business is considering expanding its product range to include a more upmarket version
of its tablet PC. It has decided to build this new tablet in spare space within an existing
factory. The lease has 10 years yet to run and there is no break clause within the lease
contract. Depreciation is calculated at the rate of 4% on the capitalised value of the leased
asset.
Which TWO of the following statements are true?
A Given the tablet will be manufactured in spare space within the factory, there will be
no incremental factory costs at all.
B The lease cost is a committed cost, and should be excluded from the decision
variables for that reason.
C Incremental fixed costs are never included when they relate to a lease rather than an
outright purchase.
D Depreciation is not a cash flow, and should be excluded from the decision variables
for that reason.

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11 A business is considering expanding its product range to include a more upmarket version
of its tablet PC. The labour required to make the tablet will come from two types of people,
programmers and engineers.
Programmers will be needed for 2,400 hours. There are 10 programmers working for the
business in contracts demanding 40 hours work per week for 48 weeks. The business feels
that 95% utilisation is acceptable and presently the programmers are operating at 93%.
Extra programmers are available from an agency at an hourly cost of $35/hr.
The engineers are fully utilised, and in short supply. The only way to source the 200 hours
needed to set up the production line is to divert existing engineers from another product.
Production of this other product will be delayed, meaning a penalty clause in a customer
contract will be triggered costing $4,000. Additionally, the engineers are paid $20/hr and
the contribution earned on the delayed products is $8,200.
What is the total relevant cash flow for the programmers and the engineers for this
project?
A $88,000
B $74,560
C $96,200
D $82,760

12 Printing Limited is trying to understand its cost base and has gathered some data covering
recent periods.

Total jobs Total cost ($)

January 62 13,160
February 75 15,800

The business, in response to the extra work in February employed another technician
whose monthly salary was $2,000, he was employed for only 80% of February starting late
in the first full week of that month.
What is the average variable cost per job and fixed cost per month of the business in
January?
A VC = $49.23 and FC = $10,108
B VC = $80 and FC = $8,200
C VC = $80 and FC = $9,800
D VC = 49.23 and FC = $12,108

13 Skilled Limited works on technically difficult jobs, and as such experiences substantial
“learning”. In the past, it has been very unscientific in estimating the effect of the
learning, but is now keen to understand how much learning is taking place.
Consequently, it has gathered some basic data: the time taken for the first 20 units of a
new job was 80 hours but the next 10 units took only 30 hours and the 10 after that took
25 hours.
Estimate the learning effect using all the data at your disposal. Enter your answer here (to 3
%
decimal places)

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14 A new system has been developed to provide a check to see whether a patent that already
exists would be breached by any new filing. The system will highlight similarities and will
even suggest which areas need to be changed to gain a successful filing. This quicker and
more accurate information should, it is thought, lead to better decisions on future filing
applications.
Which type of system is this best described as?
A Enterprise Resource Planning System (ERPS)
B Decision Support System (DSS)
C Expert system (ES)
D Management Information System (MIS)

15 A private school has grouped together with other schools to be able to gain volume
discounts on books and other supplies, and also invest in floating staff who teach part time
in a number of different schools. Grouping together has led to well-equipped classrooms
taught by good quality staff. The results have been encouraging too, with good attendance
and academic achievement. The head master feels that the extra investment in floating
staff members is worth the cost and has contributed to the above results.
Which of the following area(s) best describes ‘value for money’ in the context of the extra
investment in floating staff members?
A Economy
B Efficiency
C Effectiveness
D Efficiency and effectiveness

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SECTION B
ALL 15 QUESTIONS ARE COMPULSORY AND MUST BE ATTEMPTED.

EACH QUESTION IS WORTH 2 MARKS.

The following scenario relates to questions 16–20

Next Day Delivery (NDD) is considering which type of delivery van to buy at its next fleet
replacement point. The finance team has correctly prepared a decision table to assist in this
decision, which considers two van sizes - small (S) and medium (M), and each of three different
levels of activity expected in the market (the uncertainty). Level 1 is the lowest activity level, and
level 3 the highest.
The “outcome” measured in the table is the contribution per van likely to be gained over each
year of use. The same number of vans would be bought regardless of type.

Type of Van Small Medium

Activity Level Probability $ $
1 0.2 9,600 6,200
2 0.3 11,200 11,400
3 0.5 13,300 15,600

NDD’s board (and owners) consists of four people:

1 The Managing Director (MD), who has always been a very confident and optimistic
individual.
2 The Financial Director (FD), who is often teased by the others as being a bit too cautious; he
worries about the impact of getting a decision wrong, and insists on using the minimax
regret technique to make decisions.
3 The Operations Director (OD) is of the view that delivering correctly first time with no
mistakes is the only way to be successful in the delivery business. He defines himself as ‘risk
neutral’ and bases his decisions on expected values of returns.
4 The fourth owner (a silent investor) is on the board but doesn’t really understand the
details of the business, preferring to focus on long average returns to fund a looming
retirement.

16 Assuming the MD has the final say, which type of van is likely to be chosen?

Enter your answer here as ‘small’ or ‘medium’ Small / Medium

17 Assuming the FD prevails, which type of van is likely to be chosen?

Enter your answer here as small or medium Small / Medium

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18 Assuming the OD’s preferences are met, what will be the average return gained per van?
A $11,930
B $12,460
C $9,600
D $13,300

19 What is the minimum return needed from the medium van at the activity level 1, to make
the silent partner indifferent between the types of van, assuming that the average return
for the small van is $11,930?

Enter your answer here to the nearest whole number $

20 Which TWO of the following statements are true of an expected value?

A It can never equal an actual result
B It is a poor approach for a one-off decision
C It is normally very difficult to calculate even when you have all of the data
D Investors tend to feel that they understand it

The following scenario relates to questions 21–25

Hangers Limited manufactures two different styles of clothes hangers: a basic (B) and a luxury (L)
version. The finance department has correctly produced some costing information about the
products and the overheads of the business.
The basic hanger weighs 50g, with the luxury version 60% heavier. Each hanger suffers waste in
the manufacturing process with 10% of the input wasted for a basic and 20% wasted for a luxury.
Both styles of hanger are made from the same material, at a cost of $2 per kg.
Labour time to make the hangers varies dependent on type of hanger. A batch of 1,000 of the
basic hanger takes two hours to make and a batch of 1,000 of the luxury hanger takes three hours
to make. Labour costs $8 per hour.
Production levels expected next period are 10,000 batches of the basic hanger and 20,000
batches of the luxury version.
Overheads total $40,000 per period, which are made up of $10,000 for deliveries and $30,000 for
set up costs. 25 deliveries in total are expected, 80% of which are for the luxury hanger. The
machines will be set up 150 times, including 100 times for the luxury hanger.

21 What is the combined cost of materials for one basic and one luxury hanger combined?
A $0.11
B $0.20
C $0.31
D $0.26

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22 What would be the total labour cost of production in the next period?

Enter your answer here to the nearest whole number $

23 If overheads are absorbed on a labour hours basis, how much overhead would be
allocated to each luxury hanger?
A $0.50
B $3.00
C $1.50
D $0.0015

24 If activity based costing is to be used, what will the overhead cost allocation be to
the luxury hanger?
A $0.40
B $0.004
C $1.40
D $0.0014

25 Which of the following statements concerning ABC are true?

(i) ABC always makes a big difference to overhead allocations.
(ii) Identifying the drivers of cost does not change the fact that fixed costs cannot be
controlled, so real savings cannot be made.
A Both are true
B Both are false
C Only statement (i) is true
D Only statement (ii) is true

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The following scenario relates to questions 26–30

Coffee Cup manufactures and then hand paints cups for sale to the wholesale traders. It sells two
types of cup, a small cup for espresso drinkers and a large cup for drinkers liking a longer coffee.
The process of making a cup can be broken down into three basic processes; forming the cup,
baking the cup in an oven and then finishing.
The management accountant has carried out some time and cost analysis and provides the
following data:

Small Large
$ $
Selling price/cup 3.80 6.60
Materials/cup 0.84 1.75

Forming time/cup 4 mins 6 mins

Baking time/cup 2 mins 3 mins
Finishing time/cup 5 mins 7 mins

The processes maximum capacities have been measured as follows:

Forming Baking Finishing

Production Capacity in period 120,000 cups 210,000 cups 95,000 cups
Productive time available in period 10,000 hours 10,000 hours 10,000 hours

Labour costs are all fixed and these, along with other period costs, total $295,000.

26 What is the bottleneck process?

A Forming
B Baking
C Finishing
D They all have the same productive time, so the process has three bottlenecks

27 Assuming that finishing is the bottleneck, what is the throughput accounting ratio (TPAR)
for the large product?

Enter your answer here to 2 decimal places $

28 Assuming Coffee Cup wanted to improve its TPAR ratios and that finishing remained the
bottleneck, which two of the following tactics would be most effective and cost efficient?
A Invest in more forming capacity
B Double the number of shifts for all processes
C Double the number of shifts for the finishing process
D Negotiate a materials discount

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29 If a TPAR fell to a positive value below the value of 1 which two of the following
statements could be made?
A Production of the product in question will cease
B The product is loss making
C The product is still making a contribution
D For a profitable company this is not possible

30 An important feature of throughput accounting is the assumption of just in time

processing. Which of the following statements about JIT are true?
(i) It is only workable if a business can predict demand patterns.
(ii) It can often force suppliers to become surrogate stock holders. A
Both are true
B Both are false
C (i) is true only
D (ii) is true only

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SECTION C
BOTH QUESTIONS ARE COMPULSORY AND MUST BE ATTEMPTED

31 Yummy Doughnuts Limited is attempting to dominate the doughnut market in its home
market of Seatown. In 20X6, Yummy sold an average of 8,000 doughnuts every week, at a
unit price of 60 cents. Its 20X7 budget was aggressive, predicting sales of 8,000 doughnuts
per week which it felt represented 20% of the doughnut market in the area. The budget
was in fact beaten, with actual sales of 8,500 doughnuts per week. The marketing director,
Mr Dumpling, a big fan of the doughnut himself, recently commented:
“This is an amazing result, particularly when one reflects on the fact that the overall market
for doughnuts is down by 5% since we did the budget, mainly due to the negative media
coverage that has hit this type of food. But I want everyone to know that our doughnuts are
‘Taste of the South Coast’ award winners and that in the marketing department, we are
doing everything we can to support the growth in sales”.
The 20X7 price charged on the doughnuts had to be reduced slightly, as there had been
negative media coverage about the fat content of most of the range. The price per
doughnut achieved was 5 cents less than the 60 cents budgeted, in order to gain a
sufficiently large share of the reduced market. This, somewhat inevitably, reduced the
budget contribution from its predicted level of 18 cents per doughnut.

Required:
(a) Calculate the price elasticity of the Yummy doughnut and comment briefly on your
results. (3 marks)
(b) Calculate the budget weekly revenue and related contribution. (2 marks)
(c) Calculate the weekly sales price and sales volume contribution variances.
(4 marks)
(d) Calculate the weekly sales market size and share variances and an estimate of the
actual market share achieved. (6 marks)
(e) Briefly discuss the sales performance of Yummy Doughnuts Limited. (5 marks)
(Total: 20 marks)

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32 Armadillo Limited assesses its divisions using return on investment (ROI), with managers
being rewarded with a bonus of $500 per full percentage point above their target for a
given year.
The North division’s manager has been reviewing her prospects for bonus for this year and
the following year and is a little concerned about her short-term prospects for earnings.
She has worked hard and feels she should be rewarded accordingly.
The financial projections before any last-minute change of strategy are as follows:

20X8 20X9
$m $m
Turnover 260 285
Locally controlled costs –185 –205
Controllable profit 75 80
Head Office costs –42 –49
Taxation (allocation) –5 –6
Net profit 28 25

Opening capital employed 550 625

Target ROI 12% 12%

Notes on the financial projections

1 Right at the end of 20X8, the North division is planning to invest in a new project
costing $80m. Predictions are strongly positive for the 10-year project, and the
expectation is for strong growth in revenue and profit margin as a result.
2 Taxation is calculated centrally and allocated to the divisions based on turnover.
The business’ year end is 31st December and it is now 30th November 20X8. The new
investment has not yet been made.
Armadillo’s CEO feels that both head office costs and taxation should be allocated to the
divisions on the basis of turnover and taken into account when calculating ROI. This is
unpopular with the local managers.
The head office currently deals with all recruitment, marketing, finance and accounting for
all the divisions. It also provides IT support and taxation planning, ensuring that best use of
divisional losses and reliefs are claimed for everyone. It is generally accepted that they do a
good job in these regards. The head office has no income.

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Required:
(a) Discuss the arguments for the treatment of head office costs and taxation as shown
above. Your answer should include a discussion as to:
• whether head office costs should be allocated
• how the allocation should be made
• whether allocated costs should be included in the ROI calculation
• the fairness of the taxation costs (no detailed knowledge of taxation rules is
expected). (10 marks)
(b) Calculate the North division’s ROI based on controllable profit for both years, and
the related bonus that could be expected. (4 marks)
(c) Briefly discuss the suggestion and consider the impact of the new project being
delayed for 3 months. You should consider performance metrics, potential
bonuses and any other relevant factor. Calculations are not required. (6 marks)
(Total: 20 marks)

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