Acca f5 Revision Mock June 2013 Questions

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ACCA Paper F5 Performance Management Revision Mock Examination June 2013 Question Paper

Time Allowed

15 minutes

Reading and planning

3 hours

Writing

ALL questions are compulsory and MUST be attempted Formulae are at the end of the paper. Do NOT open this paper until instructed by the supervisor. During reading and planning time only the question paper may be annotated. You must NOT write in your answer booklet until instructed by the supervisor.

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ALL questions are compulsory and MUST be attempted 1

Brunel Ltd makes and sell two products A and B, each of which passes through the same automated production operations. The following estimated information is available for period 1: (i)

Product unit data: Direct material cost Variable production overhead cost Overall hours per product unit

($) ($) (hours)

A 2 28 0.25

B 40 4 0.15

(ii)

Production/sales of products A and B are 120,000 units and 45,000 units respectively. The selling prices per unit for A and B are $60 and $70 respectively.

(iii)

Maximum demand for each product is 20% above the estimated sales levels.

(iv)

Total fixed production overhead cost is $1,470,000. This is absorbed by products A and B at an average rate per hour based on the estimated production levels.

One of the production operations has a maximum capacity of 3.075 hours which has been identified as a bottleneck which limits the overall production/sales of products A and B. The bottleneck hours required per product unit for products A and B are 0.02 and 0.015 respectively. Required: (a)

Calculate the mix (units) of products A and B which will maximise net profit and the value ($) of the maximum net profit using traditional contribution analysis. (6 marks)

The bottleneck situation detailed in (a) still applies. Brunel Ltd has decided to determine the profit maximising mix of products A and B based on the Throughput Accounting principle of maximising the throughput return per production hour of the bottleneck resources. Required: (b)

(c)

(i)

Calculate the mix (units) of products A and B which will maximise net profit and the value of that net profit using throughput accounting contribution analysis (6 marks)

(ii)

Calculate the throughput accounting ratio for product B. (2 marks)

Describe three ways in which Brunel Ltd could relieve the bottleneck situation that was detailed in part (b). (6 marks) (20 marks)

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Soft Touch is a company that manufactures a range of creams and lotions, for their household customers across the country. Due to strong competition and awareness about health standards, the company has for the last few years been introducing total quality management (TQM) and trying to keep inventories to minimum possibly zero. The management accountant has produced following estimates relating to one of its major products, Softgel, for August. This product is manufactured by mixing two liquids, Liquid A and Liquid B. Standard marginal cost information for one batch of Softgel is as follows: Cost Liquid A Liquid B

0.80 litres at a cost of $15.00 per litre 0.45 litres at a cost of $6.00 per litre

$12.00 $2.70

The expected loss from the process is 20% of material inputs. Variable overheads

3 hours at a cost of $1.40 per hour

$4.20

Budgeted data for product Softgel for the period is detailed below: ●

Sales - 10,000 litres

●

Production - 9,000 litres

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Selling price - $50.00 per litre

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Fixed production overheads - $200,000.

Fixed costs are to be treated as period costs, and written off fully in the period in which they occur. Actual data for product Softgel for the period is detailed below: ●

Sales - 9,500 litres

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Production - 10,500 litres

●

Actual variable overhead - 31,000 hours at a cost of $46,500

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Selling price - $46.00 per litre

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Fixed production overheads incurred - $220,000

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Cost per litre of Liquid A - $15.75

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Cost per litre of Liquid B - $5.95

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Input of Liquid A – 10,750 litres

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Input of Liquid B – 4,250 litres.

Required: (a)

Produce a statement that reconciles budgeted profit and actual profit for product Softgel for July, showing the variances in as much detail as possible. (12 marks)

The company has since realised that there has been a global shortage of both Liquid A and Liquid B, which has pushed the market prices for the liquids up to $15.50 and $6.50 per litre respectively. (b)

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Calculate the material price planning and operational variances for both Liquid A and Liquid B. (4 marks)

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(c)

Discuss the benefits of analysis variances into their planning and operational elements. (4 marks) (20 marks)

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The Igloo Ice Lolly company has won the contract to supply at an annual summer beach concert and have been asked to produce a new limited edition ice lolly for the event. The company is worried, however, as the concert is outdoors, and attendance is heavily influenced by the weather. The company has obtained figures giving the probability of different types of weather on the day, together with levels of sales for previous events experiencing different weather conditions. Weather Hot and Sunny Warm Cool but Dry Wet

Probability of weather occurring 0.2 0.5 0.2 0.1

Previous sales of Tshirts (units) 8,000 3,000 1,000 250

It costs the company $250 to create the new flavour and $0.75 to produce each one. The Ice Lolly retails at $2.10 each. If there are any ice lollies unsold at the end of the party they will be sold to a nearby supermarket for $0.30 each. Required: (a)

Explain the principles of maximax, minimax regret and expected values. (4 marks)

(b)

Construct a payoff table showing all possible outcomes. (8 marks)

(c)

Using the decision models in part (a) advise Igloo limited how many ice lollies they should choose to produce considering the possible risk attitudes of the managers. (8 marks) (20 marks)

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Exelcier Co, an events management company is trying to decide whether or not to advertise an outdoor concert. The sale of tickets is dependent on the weather. If the weather is poor it is expected that 5,000 tickets will be sold without advertising. There is a 70% chance that the weather will be poor. If the weather is good it is expected that 10,000 tickets will be sold without advertising. There is a 30% chance that the weather will be good. If the concert is advertised and the weather is poor, there is a 60% chance that the advertising will stimulate further demand and ticket sales will increase to 7,000. If the weather is good there is a 25% chance the advertising will stimulate demand and ticket sales will increase to 13,000. The profit expected, before deducting the cost of advertising, at different levels of ticket sales are as follows: Number of tickets sold 5,000 6,000 7,000 8,000 9,000 10,000 11,000 12,000 13,000

Profit $ (20,000) (5,000) 35,000 55,000 70,000 90,000 115,000 130,000 150,000

The cost of advertising the concert will be $15,000. Required: (a)

Demonstrate, using a decision tree, all courses of actions and all possible outcomes. (10 marks)

(b)

With all supporting working, recommend, whether the concert should be advertised by Exelcier Co. (10 marks) (20 marks)

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Seagull publishes and prints fiction books from its print works in eastern Europe. It is difficult for Seagull to predict how popular any one particular title will be, and so the financial controller of Seagull has always tried to allow maximum flexibility in letting managers make changes to the detailed budgets they are required to prepare for sales, production, non-production costs etc within the business. The financial controller argues that this enhances the controllability of these budgets. Recently the profitability of Seagull has been in decline, partly due to economic recession, partly due to the popularity of non-paper delivery systems for books, such as talking books and electronic reader systems that allow novels to be consumed via Internet downloads. The CEO of Seagull is concerned that she is unable to take timely control actions in addressing these threats due to the frequent changes being made to budgeted figures in the budgetary control information she is receiving. Required: (a)

Explain the importance of assessing the performance Seagull.

the controllability principle in of individual managers within (4 marks)

(b)

Explain the purpose of a budget in the context of performance management, and also the factors that Seagull should consider in deciding whether or not to allow revisions to a budget. (4 marks)

The financial controller has produced some statistics for Seagull for the month of June 2012. Because of the time of year, Seagull only sold one particular book during that month. Original budget for June:

Actual data for June:

Sales volume Sales price Standard contribution

Sales volume Sales price

15,000 books $13 per book $5 per book

14,000 books $12 per book

The original budget for June 2012 had forecast that the total market size for paper-based novels would amount to 3 million units. In fact, due to an aggressive marketing campaign for electronic reader novels by one of Seagull's internet-based rivals, the actual total market size for paper-based novels was only 2.4 million novels for the month. Required: (c)

Using the data provided for the month of June 2012:

(i)

calculate the total sales price and total sales volume contribution variances; (4 marks)

(ii)

analyse total sales volume contribution variance into market size and market share elements; (4 marks)

(iii) comment upon the sales performance of Seagull.

(4 marks) (20 marks)

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Formulae Sheet

Learning curve Y = ax b

Where:

y = cumulative average time 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

Regression analysis

y = a + bx

b=

a=

n∑ xy − ∑ x∑ y 2

n∑ x 2 − (∑ x ) ∑ y b∑ x − n n

n∑ xy − ∑ x∑ y

r = 2

2

(

2

n∑ x − (∑ x ) n∑ y 2 − (∑ y ) Demand curve

P = a − bQ b=

change in price change in quantity

a = price when Q = 0 MR = a – 2bQ

)