Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2011 Exam General Comments Overall, performance

was good. Well-prepared candidates were capable of obtaining clear passes. Weaker candidates tended to avoid the requirements of the question, either through a failure to grasp what was required or as an attempt to obtain marks for repetition of memorised facts and information. Generally, where candidates did not achieve a pass, the main problems were a failure to apply their knowledge to the scenario and missing out parts of the questions. When information is given in the scenario candidates are expected to use it to illustrate the main issues in their answer. It is very important that all parts of the syllabus are revised, there is less choice now so only one question can be missed out. Also the financial risk part of the syllabus is 35%. This means that Question 1 will contain some financial risk. Many candidates missed out these parts of question 1. Using the reading time wisely can be of huge benefit; candidates should always plan their answers and ensure they read the questions carefully before starting the paper. Candidates who answer the specific question asked could achieve high marks. Candidates waste valuable time if they fail to be specific in their answer, as only the points which answer the question will get marks. Question 1 was answered reasonably in parts. Parts (a) and (c) were not answered well. Question 2 was about value streams and lean management accounting and was the least popular of the optional questions. It was however answered well by many candidates. Question 3 was about economy, efficiency and effectiveness audits. Generally candidates did not know what effectiveness was. Question 4 was about financial risks and was done reasonably well; in fact the calculations were done well by most candidates which was heartening. Note that the attached marking scheme often makes more marks available than indicated on the question paper. This reflects the fact that questions at this level can often be approached in more than one way and that there is no single “perfect” answer. In applying this marking scheme, marks are always restricted to the total offered by the question and so there is no advantage to be gained from over-developing the answer to one question at the expense of another that may appear more difficult.

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(8 marks) (Total for part (a) = 16 marks) (ii) (b) Advise the board of F plc on the control procedures that should be established over the development and running of the food technology courses that will be provided by the West African colleges for F plc. Use CIMA’s Risk Management Cycle to evaluate FOUR possible risks to F plc’s reputation. (12 marks) (d) Evaluate both the currency and the non-currency risks associated with each of the two loan packages for the financing of the West African factory.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2011 Exam SECTION A – 50 MARKS ANSWER THIS QUESTION Question 1 (a) (i) F plc’s directors are concerned about the risks to F plc’s reputation arising from moving production to West Africa. (12 marks) (Total for Question One = 50 marks) ©The Chartered Institute of Management Accountants Page 2 . Your answer should consider the following areas: • • • • Governance Staffing Support facilities Course content (10 marks) (c) Advise the board on the controls necessary during the development and implementation of the changes to the inventory management system. (8 marks) Recommend appropriate actions to manage those risks.

using a certain amount of common sense. it should be clear that F plc needs to ensure that the college courses are working properly. the scenario deals with the provision of an important service and the need to ensure that the service provider delivers appropriate support. corporate social responsibility and press relations. It asks candidates to consider the risks associated with two alternative funding strategies. The focus is on the entity’s reputation. such as the qualifications and experience of the teaching staff. ideally. The scenario raises questions of human resourcing. Part (d) requires the application of some fairly straightforward material on currency risk to a specific scenario. Candidates are expected to identify both the financial and non-financial risks and to deal with both. Part (c) draws on section E (Risk and Control in Information Systems). The expectation is that a practical set of suggestions will be provided. The entity plans to make a significant change to its business model and it requires major changes to the information system in order to support that. Those changes must be implemented and tested thoroughly and. There are certain fairly visible signs that can be studied. Part (b) may well be familiar ground to many candidates who have taken an interest in the management of any courses taken. Suggested Approach Part (a)(i) asks for a discussion of the risks using the framework provided by CIMA’s Risk Management Cycle and part (a)(ii) requires a response to those risks. ©The Chartered Institute of Management Accountants Page 3 . Part (a) draws mainly on Section B of the syllabus (Risk and Internal Control). Part (c) is a relatively straightforward discussion of a new information system. one of which will offer security against government interference and expropriation. The question deals with the quality control over college courses. Answers should reflect the importance and sensitivity of the system because of the potential costs and scope for bad publicity.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2011 Exam Rationale This question is based on both the common pre-seen scenario and the unseen scenario. This part asks for the application of the CIMA risk management cycle to a significant overseas investment that will have the effect of exporting jobs from the home country. It is to be hoped that most CIMA candidates will have some familiarity with formal tuition for both their CIMA classes and any courses taken prior to CIMA and so they should be able to draw on those experiences. It draws on themes that have been discussed in the context of outsourcing and foreign direct investment. but focuses more on dealing with risks rather than their identification. Failing that. This has been a common issue facing many successful businesses. It also draws upon some of the environmental debates that have affected companies in the food business. Part (b) also draws mainly on Section B of the syllabus (Risk and Internal Control). in such a way that operations are not disrupted when the new factory is opened and the inventory management process changes. Regardless of that. Part (d) focuses on section D (Management of Financial Risk).

Candidates did not seem to have read the question properly. Part (b) was done quite well and part (d) was done reasonably. Some candidates had learned about financial risk and produced good answers but others gave very weak answers. ©The Chartered Institute of Management Accountants Page 4 . Part (c) was asking about the development and implementation of the IT system for managing inventory not asking for a list of issues to be considered in managing the actual inventory itself. In part (c) some candidates discussed problems with the existing system and some discussed the problems of physically dealing with inventory rather than the development and implementation of an IT system. to a maximum of 4 for each of the bullet points. This unfortunately meant that these candidates got low marks. It would be useful to candidates to learn this area of the syllabus as it will always be a part of question 1 and an optional question as well. The answers on currency risk were reasonable but the answers on non-currency risks were weaker. Part (d) the answers to this part were very mixed. in part (a) it was expected that some reference would be made to the CIMA risk management cycle. If there was no mention of it then low marks were awarded. The question was very clear so it was disappointing that some candidates did not answer what was asked. The question quite clearly asked for this to be discussed. Common Errors The main errors were in parts (a) and (c). (a)(ii) 1 mark per reasonable point (upside and downside). It is important that candidates answer what is asked. In part (a) and part (c) it was clear that candidates had only skimmed through the question and had not read what was asked for. Another problem was that many candidates ignored that the question asked about reputation risk and discussed many other risks which achieved no marks.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2011 Exam Marking Guide (a)(i) 1 mark per reasonable point. (b) 1 mark per reasonable point: Governance Staffing Support facilities Course content Marks Max 8 marks Max 8 marks 5 marks 5 marks 5 marks 5 marks Max 10 marks (c) 1 mark per reasonable point: System design and specification Programming and documentation Testing Training 4 marks 2 marks 6 marks 1 mark Max 12 marks (d) 1 mark per reasonable point: currency and non-currency up to 8 marks each Max 12 marks Maximum mark awarded 50 marks Examiner’s Comments This question was done reasonably in parts but some parts were poor. In part (a) many candidates did not mention CIMA’s risk management system at all.

Your advice should include recommendations as to how those difficulties might best be dealt with. Part (b) asks for consideration of the motivational aspects of changing a management accounting system. given that any change in the measurement of performance will create stresses and pressures and so the associated uncertainty may be quite harmful. (10 marks) (Total for part (a) = 15 marks) (ii) (b) Advise H’s directors on the difficulties that are likely to be associated with implementing the changes that a move towards lean management accounting will create. (10 marks) (Total for Question Two = 25 marks) Rationale This question draws mainly on section A (Management Control Systems). Suggested Approach The most important thing about part (a) is the ability to relate management accounting systems to the commercial priorities associated with running a professional practice.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2011 Exam SECTION B – 50 MARKS ANSWER TWO QUESTIONS ONLY Question 2 (a) (i) Advise H’s board on the differences between managing value streams and managing departmental profits. (5 marks) Recommend. stating reasons. An entity has been unwittingly stifling itself because its heavy reliance on traditional management accounting practices has led to dysfunctional behaviour. the changes that H should make to its management accounting systems and policies in order to improve the management of the value streams. The entity has been exploring lean management accounting and lean manufacturing techniques in order to explore ways to remedy matters. Part (b) asks about the manner in which this change should be introduced. Part (a)(i) of the question sets the scene by asking candidates to consider the implications of a shift from creating value for the enterprise as opposed to maximising departmental profits. ©The Chartered Institute of Management Accountants Page 5 . Part (a)(ii) builds on this by asking candidates to suggest changes to the reporting system in order to facilitate that changed mindset.

resistance to change etc. Part (c) was done well with most candidates giving good answers about the problems of change within organisations. Very few candidates mentioned overheads or changing to marginal costing or ABC. Common Errors Although many candidates gave excellent answers to this question some candidates did not seem to know there was a difference between managing profits and managing value streams. Maximum mark awarded Examiner’s Comments 25 marks This question was the least popular of the optional question but was done very well by most of the candidates who chose it. ©The Chartered Institute of Management Accountants Page 6 .Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2011 Exam Marking Guide (a)(i) 1 mark per reasonable point (a)(ii) 1 mark per reasonable point: Marginal costing Overhead apportionment Client focus Media budget Marks Max 5 marks Max 4 marks Max 5 marks Max 5 marks Max 3 marks Max 10 marks Max 10 marks (b) 1 mark per reasonable point Could include discussion between departments. That was really one of the main points of the question so that was a little disappointing. Most candidates discussed value streams very well and were clear about the difference between adding value and profits. uncertainty about new procedures.

©The Chartered Institute of Management Accountants Page 7 .Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2011 Exam Question 3 (a) Recommend. giving reasons. Your answer should include advice on how to obtain the necessary data and information. the matters that the town council’s internal audit department should study in order to evaluate the effectiveness of the beach cleaning activities. It relates to value for money audit in a local government setting. giving reasons. Your answer should include advice on how to obtain the necessary data and information. Suggested Approach The most important thing about parts (a) and (b) is the ability to identify meaningful performance measures. (10 marks) (b) Recommend. (5 marks) (Total for Question Three = 25 marks) Rationale This question draws mainly on section C (Review and Audit of Control Systems). (10 marks) (c) Explain why it is easier to investigate the economy and efficiency rather than the effectiveness of the cleaning activities. Quite apart from the importance of value for money audit in itself. Part (c) requires some thought about the conflicts that can arise in measuring different aspects of performance. The question provides sufficient lead for candidates to consider the manner in which economy and efficiency and also effectiveness audits may be carried out and also asks for some discussion of their relative difficulty. the matters that the town council’s internal audit department should study in order to evaluate the economy and efficiency of the beach cleaning activities. this question tests transferrable skills such as the ability to identify relevant performance measures that are appropriate to any management accounting scenario. This is an important aspect of the syllabus.

Could include: Costs of other services . They did not seem to understand the difference between efficiency and effectiveness and many of the answers given in part (a) included effectiveness. Points must relate to effectiveness. Points must relate to economy and efficiency. time taken etc (b) 1 mark per reasonable point. Candidates did not seem to have enough knowledge to be able to suggest answers for part (b). Candidates did not seem to understand what effectiveness was in the context of an audit. Could include: How clean is the beach. Common Errors This question was not done particularly well. ©The Chartered Institute of Management Accountants Page 8 . The question was quite popular but was generally not well answered. This area requires some revision as it was clear that candidates did not really understand effectiveness. In general candidates had a good understanding of economy and efficiency which was good. costs of labour and machinery. any complaints etc (c) 1 mark per reasonable point Maximum mark awarded Examiner’s Comments This question was not done very well. Marks Max 10 marks Max 10 marks Max 5 marks 25 marks Candidates managed to give reasonable answers to part (a) but did less well on parts (b) and (c).Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2011 Exam Marking Guide (a) 1 mark per reasonable point. costs of other towns. any injuries.

(8 marks) (ii) (b) (i) Evaluate the suggestion that K should pay the P$2m immediately. The question raises important questions about the management of foreign currency exposures. The future payment can be fixed. Part (b) requires the ability to link currency management to wider commercial considerations.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2011 Exam Question 4 (a) (i) Construct the transactions that K would have to undertake in order to create a money market hedge. but at what risk? Does a transaction or linked series of transactions that prevents currency risk make commercial sense? Does passing the risks to another party make sense? Suggested Approach Part (a) requires the preparation of some simple calculations and the description of the transactions associated with creating a money market hedge. ignoring transaction costs. (5 marks) (Total for Question Four = 25 marks) Rationale This question draws mainly on section D (Management of Financial Risk). It presents a situation in which an entity has to make a future payment in a foreign currency that cannot be purchased in advance using forward contracts or any of the traditional financial instruments. possible to construct a money market hedge. It is. however. ©The Chartered Institute of Management Accountants Page 9 . payable when the contract is signed instead of the current agreement. Your answer should include calculations of all relevant figures. (5 marks) Advise K on the costs that are likely to be associated with this hedge and also the risks that will be involved. (7 marks) (ii) Explain whether the manufacturer would be likely to accept payment of GBP1m in GBP. Your evaluation should consider the risks and also the costs of doing so.

(b)(ii) 1 mark per reasonable point Could include: Risks passed to vendor. ©The Chartered Institute of Management Accountants Page 10 . This area of financial risk still requires revision by candidates. Candidates do not appear to have sufficient knowledge of this topic so cannot demonstrate understanding or apply knowledge to any situation. Part (b) was poor.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2011 Exam Marking Guide (a)(i) calculation (a)(ii) 1 mark per reasonable point Could include: High fees. Common Errors Part (a) was done quite well so no common errors to report. Part (a) was done well by many candidates. bank charges. risks etc (b)(i) 1 mark per reasonable point Could include: Risks. It is 35% of the paper and yet candidates still do the question when they know very little about the subject. vendor may speculate etc Maximum mark awarded Examiner’s Comments Max 5 marks Max 8 marks Max 7 marks Max 5 marks 25 marks Parts of this question were done well. Revision of this topic is required. The calculation was done very well which was excellent. fixed costs etc. Many candidates failed to come up with any reasonable points. compliance . Part (b) was done badly.