Performance

Management (PM)
March/July 2020
Detailed
commentary
The aim of this commentary is to provide constructive
guidance for future candidates and their tutors by
giving insight into what markers are looking for and
identifying issues encountered by candidates who sat
these questions.

Contents
General comments ............................................................... 2
Clear Co ............................................................................... 2
Hammocks Co ..................................................................... 4

Examiner’s report – PM March/July 2020 1

General comments

This detailed commentary should be used in conjunction with the published

March/July 2020 sample exam which can be found on the ACCA website.

Clear Co

Variance analysis is a regularly examined topic in the Performance Management

exam, so it should not be a surprise to see a question of this type. In this question,
sales mix and quantity variances were tested. The question required the calculation
of the variances followed by discussion, both of what the variances mean and of the
business’ performance.

Part (a) asked for the sales mix and quantity contribution variances, for 8 marks.
This really highlights the need to practise variance calculations in depth as part of
your revision. There was nothing surprising or unusual in these calculations and
many candidates achieved all eight marks.

There are several different layouts and methods for calculating mix and quantity
variances. All are equally valid and all would be given full credit. It is best to stick
with the method that you are comfortable with, and practise as many variance
questions as you can find. In all variance questions you should identify the actual
results, the standard or expected results, and in the case of planning and operational
variances, any factors which would cause the original standards to require revision.
The most common error seen in this requirement was the use of standard price
instead of contribution. The mix and quantity variances are just a further analysis of
the sales volume variance. This is always valued at the standard profit (if using
absorption costing) or standard contribution (for marginal costing). Although credit
will be given for the rest of the calculations, it’s an unnecessary mistake to make
given that the word contribution is used in the name of the variance!

Part (b) for two marks asked what each variance measures. From an exam
technique point of view, it is worth mentioning that this is just two marks, so there is
no need to spend too long on it. A brief description of each variance is all that’s
required. Note too that the question asks what they measure, not for a commentary
on the results the business achieved.

The main issue here is that many answers said something like ‘The mix variance
shows the change in the mix of sales.’ Firstly, an explanation of what is meant by mix
would be helpful, i.e. the proportion (or percentage) of each product sold. Secondly,
and more important is that this answer does not say what is being measured (the
change in contribution caused by a change in the mix). Likewise, the quantity
variance shows the change in contribution caused by a change in sales volume (at
the standard mix). It’s important to include these little details in your answers.

Part (c) for 10 marks was another fairly typical performance management
requirement. It is important to read the requirement carefully here, it asked for a
discussion on Clear Co’s SALES performance. There is no point talking about
variable cost control or any other aspect of performance. It won’t earn any credit
however valid the point is.

Examiner’s report – PM March/July 2020 2

On the whole, the performance on this part was disappointing. From an exam
technique point of view, it is important to look at the mark allocation. This
requirement was worth 10 marks. It’s important to manage your time so that you can
get the credit you deserve on these questions. Practising questions under time
pressure is an essential part of revision.

One of the most important skills in written questions is linking calculations to the
scenario. The scenario gives detail about the company, its history, and the market it
operates in. There’s quite a lot to take in but if you keep it simple you can pick up
marks. The main skill with these questions is identifying cause and effect – calculate
your measure, state whether it shows good or bad (or better/worse) performance,
and crucially explain why it has happened. This information can be obtained from the
scenario.

In terms of which measures to use, the requirement clearly states that we should use
our answer to (a). Note that if we made a mistake in (a) and for example, said that
the mix variance was favourable instead of adverse, it is still possible to make valid
points and follow-on marks would be awarded where possible.

The tricky part is deciding what other measures to use. We are given number of
treatments (sales volume) and selling price – if nothing else we could use those, or
we could calculate overall revenue and use that. However, we’re also told that there
are 4 marks for further calculations. Pay attention to these details. We are not going
to get any credit for just comparing sales volume, so what can we do? Use your
knowledge here – what do you know? Hopefully thinking about sales variances
triggers something in the back of your mind – sales price variance could be
calculated. Sales volume variance is another easy win. Not only will these score
calculation marks, they will give you something to talk about. For other calculations,
remember that percentage movements are more useful than absolute movements. A
32% drop in revenue is severe, but a $1.5m fall might be really bad, or just a slight
issue – it doesn’t explain much on its own.

The suggested solution shows the sort of points that could be made. You wouldn’t be
expected to make all of them to score full marks, but it’s important to use the
knowledge and information you have. When you’re reading the scenario, try and
think what the effect might be – for example we are told that the competition has
reduced its prices for ICL. Think what effect that might have on the business. When
you look at the numbers, you can see that Clear’s ICL sales are very poor compared
to budget, and they also reduced their selling price – probably to compete. Both of
these points would be given credit, but it’s easy to gloss over the details in a rush to
start your answer.

Examiner’s report – PM March/July 2020 3

Hammocks Co

This question is from the performance measurement and control section of the
syllabus This area is regularly examined in section C, so it is essential to practise
these types of questions. As is often the case in this area, the knowledge required is
not as technical as some areas, but exam technique and time management are
crucial skills. Exam technique because it is essential to make sure that the
requirements are addressed and use the information in the scenario, and time
management as there is often a lot of information to absorb, which can take time.

As with any long question, it’s worth having a quick read of the first paragraph to see
what sort of business the question is about. This can give useful information such as
whether it is a not-for-profit organisation, or what products it offers. This question
relates to a company which operates four luxury vacation resorts. Although it is
important not to waste time, don’t ignore the little details. The scenario states that it
is a luxury business, so there is likely to be a focus on quality in order to achieve
high margins.

From an exam technique point of view, it is useful to read the requirements at this
stage, before reading the rest of the detail in the scenario.

The overall requirements are broadly split in two; firstly to discuss the performance of
the business, and secondly testing knowledge and application of the Balanced
Scorecard model. From a time management point of view, don’t spend all of your
time on part (a), and have to rush part (b), where there will be some easy marks that
could be missed under pressure.

Analysing the requirements is another important skill – it is worth practising this as

part of revision with past questions. A couple of tips to get the most out of them:

Identify the verb(s) – the verbs used in the requirements not only indicate what to
do, but often how much detail to go in to. It is important to recognise the difference
between, for example, state the advantages of... and explain the advantages of...
State requires no justification; simply a list of advantages. Explain needs meaning to
be added to the advantages, often with a because to back it up.

Look for extra requirements – the word ‘and’ is particularly important in a

requirement. It is very easy to read the first part of a requirement, for example
‘Discuss the performance of the business...’ and miss out a further task later on,
such as ‘... and state any further information you may find useful.’ Identifying the
verbs above should help to avoid this problem. If multiple requirements are given, it’s
usually a good idea to separate answers into different headings – this makes it clear
to the marker that all parts of the requirement have been addressed.

Look at the number of marks – the verbs should give a good idea of how much
work is needed, but the number of marks will also help. As a rough guide, 1.8
minutes per mark can be used – naturally some questions will take more time than
this, and some less, but it’s a good starting point. It is important to practise questions
to time to get an idea of how long certain questions take. It’s worth factoring in a bit

Examiner’s report – PM March/July 2020 4

of reading time too. Putting a limit on how long you spend on each part of the
question helps avoid running out of time later and missing out on easier marks.

Part (a) only has one verb – discuss. Discuss questions require some detail, and
ideally both sides of an argument. So here, it is important to look at good and bad
aspects of the business’ performance. This should be done in light of its two
business objectives. This is important, as it gives the answer some structure. The
requirement is worth eight marks and this will be split between the two objectives.
Breaking things up like this can make longer questions less daunting.
The scenario gives information about how the hotel operates, and some
management accounting data. All of this can be used to assess the business’
financial and customer performance in line with the objectives. As with any
performance assessment question, compare and give reasons for performance. In
this case, there is information on budget, prior year and a competitor to compare to.

The extracts from customer feedback given in the scenario will be useful for
discussing Hammock Co’s performance from a customer point of view but may also
highlight goals the business may wish to achieve to use in (b)(ii). For example, one
customer complains about the lack of modern haircare equipment in the rooms – a
goal could be to modernise the facilities, which could come under the innovation and
learning perspective.

Part (b)(i) requires candidates to Explain two advantages of Hammocks using the
Balanced Scorecard. This requires more than just listing two advantages. The key
thing here is to explain why any advantage will help Hammocks specifically. Broadly,
two advantages of the scorecard are that it focuses on both financial and non-
financial information, as well as internal and external factors. The scenario explains
that Hammocks provides luxury holidays, therefore information on customer
satisfaction (non-financial) will be especially important to them. This requirement is
only worth 3 marks, so it should not take too long.

The requirement in part (b)(ii) is more complicated than the others, and it is easy to
miss things out. Firstly the verbs – suggest and justify. On its own, suggest
requires nothing more than offering an opinion. Justify though, requires saying why
any suggestion is valid. What is required? Firstly, ONE goal. A goal is something the
company would like to achieve – this should tie in with the company’s objectives.
Secondly, TWO performance measures. Performance measures should measure
whether goals have been achieved or not. So, one goal and two performance
measures, but for each of the TWO perspectives of the balanced scorecard
which are not currently addressed by Hammock Co’s objectives.

Reading the scenario, straight away we are given two objectives – long term profit
and customer loyalty. These objectives clearly cover the financial and customer side
of the business, so the two ‘missing’ perspectives must be internal business process
and innovation and growth. It show the importance of knowing the models, especially
the Balanced Scorecard as it is examined regularly.

It is worth noting that any reasonable goals could be used, and any measure which
could be used to determine if a goal has been met – there are many possible
options.

Examiner’s report – PM March/July 2020 5

All responses to this question will use the word processing software. There are a
couple of quick hints which can improve presentation, which as well as making it
easier to mark, also makes self-review quicker and easier. It can make any mistakes
made easier to spot and can make it easier to add in additional information to the
answer:

Headings – split the answer up wherever possible. So, for (a), write each objective
as a heading first, and then put in the discussion. This ensures that both objectives
are addressed. It is quick and easy to underline or embolden headings so that they
are clear.

Use space – separate out points in paragraphs. Again, this not only makes it easier
to identify the points for the marker, but also makes it easy to identify what points
have already been made.

Use tables if necessary. This comes with experience, but sometimes a table
answers a question in a much more efficient way than a string of text. For example,
(b)(ii) could potentially be answered using a table. It’s not essential, but something
like the table below would be one approach you could use:

Perspective Goal Justification Measure Justification

Internal To have an Feedback on % guest Measuring the % of
business effective and TripEvent show requests guest requests met will
process efficient that guests met identify when the guest
administration have experience was not as
complained expected
about poor
administration
Number of More corrections will
corrections lead to more customer
to booking complaints
due to
admin
errors
Innovation To modernise Feedback said Number of This will show where
and growth facilities that appliances Hammocks could
competitors in-room improve to match the
offer better offered by competition
facilities competition
but not by
Hammocks
Number of This will show whether
new menu the menus are being
items kept fresh for the
customers

This clearly shows that all of the requirements have been met, and avoids
unnecessary repetition or over-explanation.

Examiner’s report – PM March/July 2020 6

Hopefully the above contains some useful ideas for how to approach the longer
written questions. Each of them is obviously different – you can read the suggested
solutions for the types of points you could make, but the approach used can be
applied to other questions. Remember to practise as many questions as possible,
under time pressure and using the CBE software. Make sure you can use all the
functionality offered by the CBE software so no time is wasted in the middle of the
exam!

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