(i) ACCA PAPER F5 PERFORMANCE MANAGEMENT REVISION QUESTION PRACTICE For ...

38 Pages·2015·0.55 MB·English

ACCA

PAPER F5
PERFORMANCE MANAGEMENT

REVISION QUESTION PRACTICE

For Examinations to June 2017

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Acknowledgement
Past ACCA examination questions are the copyright of the Association of Chartered Certified
Accountants and have been reproduced by kind permission.

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REVISION QUESTION BANK – PERFORMANCE MANAGEMENT (F5)
Formulae Sheet
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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PERFORMANCE MANAGEMENT (F5) – REVISION QUESTION BANK
MCQs 7 RISK AND UNCERTAINTY
7.1 The committee of a new golf club is setting the annual membership fee. The number of
members depends on the membership fee charged and economic conditions. The forecast
annual cash inflows from membership fees are shown below:
Membership Fee
$600 $800 $900 $1,000
Economic conditions:
Low 360 400 360 320
Average 480 440 405 380
High 540 480 495 420

Applying the minimax regret criterion, what fee would be set by the committee?
A $600
B $800
C $900
D $1,000

7.2 The following statements have been made about expected values:
(1) Expected value is of limited use for decisions regarding outcomes which will be
repeated often.
(2) Using expected value in decision-making can lead to the worst possible outcome
being ignored.
(3) The reliability of expected value calculations is heavily influenced by the accuracy
of the probabilities assigned to outcomes.

Which of the statements are correct?
A All three statements
B 1 and 2 only
C 1 and 3 only
D 2 and 3 only

7.3 The following statements have been made about the use of expected values in decision
making:
(1) Expected values ignore the risk associated with decisions.
(2) Expected values are most useful for recurring rather than one-off events.
Which of the above statements is/are true?
A 1 only
B 2 only
C Neither 1 nor 2
D Both 1 and 2

7.4 PT provides expert quality assurance services on a consultancy basis. The management of the
company is unsure whether to price the services it offers at the Deluxe, High, Standard or
Low fee level. There is uncertainty about the mix of staff that would be available to provide
each of the services. As the staff are on different pay scales the mix of staff would affect the
variable costs of each service.
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REVISION QUESTION BANK – PERFORMANCE MANAGEMENT (F5)
The table below details the annual contribution earned from each of the possible outcomes.
Staffing mix Fee level
Deluxe High Standard Low
X $135,000 $140,000 $137,500 $120,000
Y $150,000 $160,000 $165,000 $160,000
Z $165,000 $180,000 $192,500 $200,000

If PT applies the minimax regret criterion, what fee level it will it choose?
A Deluxe
B High
C Standard
D Low

7.5 NG is deciding which of four potential venues should be used to stage an entertainment event.
Demand for the event may be low, medium or high depending on weather conditions on the
day. The management accountant has estimated the contribution that would be earned for
each of the possible outcomes and has produced the following regret matrix:
Regret Matrix
Venue Ayefield Beefield Ceefield Deefield
Demand
Low $0 $200,000 $300,000 $450,000
Medium $330,000 $110,000 $0 $150,000
High $810,000 $590,000 $480,000 $0

If the company applies the minimax regret criterion, which venue would be chosen?
A Ayefield
B Beefield
C Ceefield
D Deefield

7.6 FP can choose from three mutually exclusive projects. The net cash flows from the projects
will depend on market demand. All of the projects will last for only one year. The forecast
net cash flows and their associated probabilities are given below:
Market demand Weak Average Good
Probability 0.30 0.50 0.20

Project A 400 500 600
Project B 300 350 400
Project C 500 450 650

FP can commission a forecast that would tell it with certainty what demand conditions will be
before the decision is made about which project to invest in.

What is the maximum amount that FP should pay for the forecast?
A $530
B $505
C $25
D $0
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PERFORMANCE MANAGEMENT (F5) – REVISION QUESTION BANK
7.7 A company is considering whether to develop and market a new product. The cost of
developing the product is estimated to be $150,000. There is a 70% probability that the
development will succeed and a 30% probability that the development will be unsuccessful.
If the development is successful the product will be marketed. There is a 50% chance that the
marketing will be very successful and the product will make a profit of $250,000. There is a
30% chance that the marketing will be reasonably successful and the product will make a
profit of $150,000 and a 20% chance that the marketing will be unsuccessful and the product
will make a loss of $80,000. These profit and loss amounts take account of the $150,000
development cost.
What is the expected value of the decision to develop and market the product?
A $154,000
B $107,800
C $62,800
D $4,000
(14 marks)

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REVISION QUESTION BANK – PERFORMANCE MANAGEMENT (F5)
MCQs 13 BEHAVIOURAL ASPECTS OF STANDARD COSTING
13.1 DB manufactures and sells e-readers. The standard labour cost per unit of the product is $7.
Each unit takes 0.5 hours to produce at a labour rate of $14 per hour. The budgeted
production for August was 20,000 units.
The Production Director subsequently reviewed the market conditions that had been
experienced during August and determined that market labour rates were $17.50 per hour.
The actual production was 22,000 units. Actual labour hours worked were 11,400 hours at
$15.50 per hour.
It is the policy of the company to calculate labour rate planning variances based on actual
hours paid.
What was the labour rate planning variance during August?
A A favourable variance of $17,100
B A favourable variance of $39,900
C An adverse variance of $17,100
D An adverse variance of $39,900

13.2 What is meant by “budgetary slack”?
A The lead time between the preparation of the functional budgets and the approval of
the master budget by senior management
B The difference between the budgeted output and the actual output
C The difference between budgeted capacity utilisation and full capacity
D The intentional over estimation of costs and/or under estimation of revenue in a
budget

13.3 Which of the following is/are necessary for the successful operation of a Just in Time
purchasing system?
(1) Long-term contracts with suppliers.
(2) A reliable forecast of the level of demand.
(3) An effective quality assurance programme.

A 1 and 2 only
B 1 and 3 only
C 2 and 3 only
D All of the above

13.4 Operation B, in a factory, has a standard time of 15 minutes. The standard rate of pay for
operatives is $10 per hour. The budget for a period was based on carrying out the operation
350 times. It was subsequently realised that the standard time for Operation B included in the
budget did not incorporate expected time savings from the use of new machinery from the
start of the period. The standard time should have been reduced to 12 minutes.
Operation B was actually carried out 370 times in the period in a total of 80 hours. The
operatives were paid $850.
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PERFORMANCE MANAGEMENT (F5) – REVISION QUESTION BANK
What was the operational labour efficiency variance?
A $60 Adverse
B $75 Favourable
C $100 Adverse
D $125 Adverse

13.5 The following data relates to Product Z and its raw material content for September:
Budget
Output 11,000 units of Z
Standard materials content 3 kg per unit at $4·00 per kg

Actual
Output 10,000 units of Z
Materials purchased and used 32,000 kg at $4·80 per kg

It has now been agreed that the standard price for the raw material purchased in September
should have been $5 per kg.
What was the materials planning price variance for September?
A $6,000 Adverse
B $30,000 Adverse
C $32,000 Adverse
D $33,000 Adverse

13.6 Gonav makes satellite navigation systems for cars. Budgeted sales for the financial year just
ended were 900,000 units, based on an expected market size of 9 million units. The actual
market size was lower than expected due to the increased use of navigation apps on smart
phones. The total market was only 6 million units. Gonav made sales of 700,000 units.

The sales volume variance will be analysed into market size and market share variances.

Which of the following correctly describe the nature of these variances?
Market size Market share
A Adverse Adverse
B Adverse Favourable
C Favourable Adverse
D Favourable Favourable

13.7 At the start of the year, the standard material cost of a product was estimated. The actual cost
incurred during the recent month was higher than this, and the purchasing manager is
suggesting that the standard should be revised. He has suggested two reasons why the
standard should be revised:

(1) A delay in placing some orders led to the supplier charging a premium for express
delivery services. The delay was caused by poor organisation in the purchasing
department.
(2) Market prices of the material in question have risen by 10% on world commodity
markets.
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REVISION QUESTION BANK – PERFORMANCE MANAGEMENT (F5)
Which of the above would be valid reasons for revising the standard?
A 1 only
B 2 only
C Neither 1 nor 2
D Both 1 and 2
(14 marks)

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PERFORMANCE MANAGEMENT (F5) – REVISION QUESTION BANK
Q
Question 39 BIG CHEESE CHAIRS
Big Cheese Chairs (BCC) manufactures and sells executive leather chairs. It is considering a new
design of massaging chair to launch into the competitive market in which it operates.
It has carried out an investigation in the market and, using a target costing system, has targeted a
competitive selling price of $120 for the chair. BCC wants a margin on selling price of 20% (ignoring
any overheads).
The frame and massage mechanism will be bought in for $51 per chair and BCC will upholster it in
leather and assemble it ready for despatch.
Leather costs $10 per metre and two metres are needed for a complete chair although 20% of all leather
is wasted in the upholstery process.
The upholstery and assembly process will be subject to a learning effect as the workers get used to the
new design. BCC estimates that the first chair will take two hours to prepare but this will be subject to
a learning rate of 95%. The learning improvement will stop once 128 chairs have been made and the
time for the 128th chair will be the time for all subsequent chairs. The cost of labour is $15 per hour.
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