ADVANCE PERFORMANCE

MANAGEMENT
Week 1
• An introduction to APM
• Review of pre-requisite knowledge to APM
• Decision making techniques and methods

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Introduction
Course Leader: Loong Yik Yan aka Simson
Email: loongyy@tarc.edu.my
Consultation hours:

Venue: Level 3, Block SA, East Campus

(Kindly book your consultation slot at least a day prior to consultation
via email.)

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Introduction
Assessment
Coursework (50% weightage)
• Coursework Test (60%)
1 compulsory question (50 marks) to be conducted in week 8.
Duration: 1 hour 30 minutes

• Group assignment (40%)

Submission in week 10
1. Critical success factors
2. Communication
3. Implementing change
4. Digital strategy

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Introduction
Final Examination (Weightage 50%)
Format – 3 compulsory questions:
• Question 1 – 50 marks
Divisional performance measures, EVA
• Question 2 – 25 marks
• Question 3 – 25 marks

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Introduction
• Lecture – PowerPoint slide lecture notes will be given to compliment
with BPP workbook, where the ACCA APM syllabus will be covered
completely in this course
• Tutorials – Tutor to discuss together with the students the
examination approach. Then students are to complete the full
answers during tutorial classes.
• Additional Self-Practice questions – to refer to BPP practice and
revision kit for extra questions especially for those preparing to take
external ACCA examination

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Introduction
Success in APM (extracted from ACCA’s “Examiner Approach” article):
 Cover the whole syllabus
 Be prepared to apply all of this knowledge to a business scenario – a
good candidate will be able to tailor the approaches suitable to the
organisation described in the scenario and justify this advice using the
evidence given in the scenario
 Read and answer the question asked
 Add value to the organisation that is being advised –analyse the
numerical data given from a scenario & add value with comments relevant
to the issue at hand

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 Introduction
3 skills to master!
 Calculation skills (EVA, ratios , planning & operational variances, target &
lifecycle costing)
 Understanding the question requirements
 Writing style that adds value:
- Use short sentences and open a new paragraph for every new point
- Elaborate each point:
• (1) because…
• (2) however,… (use critical thinking to argue the positive and negative
aspects)
• (3) therefore,… (to elaborate the consequences in future if the problem
persists)
• (4) suggest… (provide justified suggestions/recommendations)
• (5) illustrate to the scenario (or provide new examples)
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Introduction
- Quantify by providing a relevant financial analysis e.g. __% of costs are
fixed costs; increase of __% from previous year…
- Provide an overall conclusion (i.e. a “big-picture” view)
- Advise next steps
- Use creative thinking to link the scenario to the issue being discussed
with a realistic justification/reason

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Review of pre-requisite knowledge to APM
Short Decision making
 Based on a given set of assets and resources that cannot be altered 
most costs are fixed costs
 Focused on optimising the use of the given assets and resources and
exploiting the opportunities arising from a given market situation  focus
on the relevant costs
 Examples:
- Making or buying a component
- Accepting or rejecting a customer order
- Prioritising products to make the most efficient use of a limited/scarce
resource
- Closing or keeping open a factory site
- Replacement of machinery
- Setting a profit maximising selling price for a product
- Management accounting techniques – cost-volume-profit, relevant
cost analysis and limiting factor analysis
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Long-term/strategic decisions:
 All costs (including the capacity-related costs) are capable of alteration, i.e.
most costs can be varied
 Involve significant outlays that have long-term consequences, uncertain and
difficult to reverse
 Examples:
- Choice of product range, market and customer segments
- Choice of organisation structure (i.e. centralised, decentralised)
- Choice of financing structure (i.e. financial gearing)
- Choice of critical internal processes that the organisation must excel at to
deliver value to customers (i.e. value chain analysis, JIT, ABM, business
process reengineering)
- Capital expenditure/investments
- Decisions to enter or exit a business area
- Acquisitions and mergers

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Review of pre-requisite knowledge to APM
CVP analysis
Breakeven qty formula (units):

Explanation – The breakeven point represents the activity level for

which the company needs to achieve to earn neither profit nor loss

Targeted sales quantity to earn RM X profit formula (units):

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Review of pre-requisite knowledge to APM
The breakeven formula are mathematically derived from the
accounting equation demonstrated as follows:
Total revenue – Total costs = Net profit before tax

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Review of pre-requisite knowledge to APM
Assumptions of CVP analysis:
 Total costs can be divided into fixed costs and variable costs
 Revenue and costs have a linear relationship to output units within a
relevant range
 Selling price per unit and variable cost per unit are constant
 Sales mix of multiple products will be constant
 No change to inventories level (i.e. all incremental units produced are
sold)

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Review of pre-requisite knowledge to APM
• It is vital that for management accounting to be able to analyse costs
based on behaviour for the purpose of decision making, planning and
control.
• Basically costs can be analysed into:
o Variable costs – vary in direct proportion with activity

o Fixed costs – constant over a wide range of activity

o Semi-fixed costs – fixed within a specified activity level, but eventually

increase or decrease by some constant amount at critical activity levels

o Semi-variable costs – include both a fixed and a variable component (e.g.

a basic flat salary plus a variable commission for the number of units sold)

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Review of pre-requisite knowledge to APM
Techniques to separate the fixed and variable elements of a semi-variable
costs:
1) Scatter graph method – to draw the line of best fit by visual inspection
using a graph paper. (Not in APM syllabus)
2) Regression analysis – to determine the line of best fits mathematically
(Not in APM syllabus)

• b=nxy - xy ;
nx2 - (x)2
• a= y - bx
n n
• r= [ NΣXY - (ΣX)(ΣY)
Sqrt([NΣX2 - (ΣX)2][NΣY2 - (ΣY)2])]

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Review of pre-requisite knowledge to APM
3) High-low method – based on the analysis of historical information
on costs at different level of activities.
Illustration
The following output and the associated total production costs incurred
for the quarters in year 2023:
Quarter Output Total production costs
1 11,500 108,750
2 12,000 111,250
3 14,000 121,250
4 13,500 118,750

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Review of pre-requisite knowledge to APM
Solution
Output Total production costs (RM)
Highest activity level
Lowest activity level
Difference

Variable production cost per unit =

Fixed production costs = Total production costs – Total variable
production costs
=
At the activity level of 14,850 units, total production costs =

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Review of pre-requisite knowledge to APM
Relevant cost analysis (RCA)
 The primary goal of the organisation is to maximise shareholders’ wealth,
i.e.
- Profit maximisation for short-term decisions
- Maximisation of the net present value of future cash flows for long-term
decisions
 Relevant costs and revenue – future cash flows that can be changed by a
decision, i.e. avoidable, incremental, marginal and opportunity costs
 Irrelevant costs and revenue – will not be changed by a decision, i.e.
sunk, past, unavoidable, committed costs

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Review of pre-requisite knowledge to APM
GENERAL RULE FOR COST TO BE REGARDED AS RELEVANT COSTS:
FUTURE, INCREMENTAL, CASH FLOW
Example:
Identify the relevancy of the following cost classification in the context of
relevant cost:
 Variable costs –

 Specific fixed costs –

 General fixed costs –

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Uses of RCA:
(1)Special order (min. price) decision
 RCA is applicable when companies are faced with the opportunity of
bidding for one-time special orders in competition with other suppliers
 The bids should be made at prices that exceed the incremental cost.
 Minimum price = Incremental cost + Opportunity cost

Opportunity cost is relevant only if the company is operating at full capacity,

i.e. a scarce resource situation.

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Review of pre-requisite knowledge to APM
Ilustration
A company received a request from a potential customer to provide a
bid price for a special order. The following information relates to
materials for the special order:
Material A Material B
Amount required for the order 200kg 100kg
Stock in hand 500kg 80kg
Last purchase price/kg RM6 RM4
Replacement price/kg RM7 RM6
Disposal price/kg RM4 RM3

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Review of pre-requisite knowledge to APM
• Material A is used for the production of all the products produced by
the company.
• Material B is no longer used by the company.
• Conversion in Department X requires 300 hours:
- Variable cost/hour :RM4.50
- Fixed cost/hour :RM2.10
• Department X is fully occupied and acceptance of this order would
displace another order which earns a contribution rate of RM5.30 per
hour.
Required:
Calculate the minimum price to bid for the special order.

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Solution
RM
Material A
Material B
Department X
Minimum price to bid 4,700

At RM4,700, the order will only breakeven. The final bid price depends
on the target profit, competitors’ bid, probability of recurring business,
effect on existing customers, etc.

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Review of pre-requisite knowledge to APM
2) Make or buy decision
The decision criteria depend upon whether capacity is available or scarce:
 With spare capacity, the decision is to make in-house if the variable cost
of production is lower than the price of buying externally
 With scarce capacity, rank the products for in-house production based on
net savings generated per unit of the scarce resource

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Review of pre-requisite knowledge to APM
Solution
X Y Z
Variable cost of in-house
production
Buy-in costs
Additional (cost)/savings from
buy-in
Decision
Machine hours per unit
Savings per unit
Production ranking
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Production plan
Product Quantity Machine hours Total machine
per unit hours

Total machine hours available 600

The remaining 3,200 units of Product A should be purchased externally.

Other factors that need to be considered:
• The quality, delivery reliability and price stability of buying from external
suppliers
• Costs of reinstating the in-house production facility later.
• In-house benefits of continuity and control of supply.
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3) Limiting factor analysis (LFA)
 Applicable for short-run product-mix decisions with capacity
constraints/bottlenecks
 If fixed costs remain unchanged, maximisation of total contribution will
result in the maximisation of short-run profits

Marginal costing principles is to rank products based on contribution per unit

of scarce resource/limiting factor:
Contribution per unit of output
=
Scarce resources required per unit of output
where:
Contribution per unit of output = Selling price per unit – Variable costs per
unit

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