DATE:18-11-24 CODE:SKL-2008 MARKS:100

BATCH:ACCA SKILL PM (NEW BATCH NO. 100)

ACCA
PERFORMANCE MANAGEMENT
SYLLABUS:FULL
DIVISION A (MCQ)
1. Hera Co is developing a new product using a target costing approach. The initial assumption was that a sales volume
of 200.000 units could be achieved at a selling price of S25 per unit. However, market research indicates that to
achieve the sales volume of 200.000 units, the selling price should be S23-50.
Hera wishes to obtain an average profit margin of 20% on sales.
The following data have been estimated for the product:
Direct material
Hourly production volume 20 units
Direct labour cost
Variable overheads (absorbed on a direct labour hour basis)
Fixed costs to produce 200.000 units are estimated to be S680.000.
What reduction in the cost per unit is required in order to achieve the target cost per unit?

2. Smith Co has introduced environmental management accounting. The monthly environmental management
accounts include input output analysis on a scarce metal used in a production process. Output is analysed into the
following four categories:
(1) % of input included in the final product
(2) % of input included in waste for recycling
(3) % of input included in waste that is not recycled
(4) % of input not accounted for
Which categories would management wish to reduce?
A. 2 and 3 B. 2 and 4 C. 3 and 4 D. 1 and 4
3. A company could sell 100.000 units per annum of a new product at a competitive market price of S80 per unit. Capital
investment of $I0.000.000 would be required to manufacture the product. The company seeks to earn a return on
initial capital employed of 15% per annum. Preliminary costings show that prime cost is likely to be S40 per unit.
What is the target cost per unit of the new product?
A.$34 B. $55 C. $65 D. $68
4. Which of the following best describes the term “opportunity cost”?
A . The benefits which would have been obtained from the next best alternative foregone
B . The difference in relevant costs between two choices
C . A future cost which cannot be avoided
D . An assumed cost to reflect the use of a benefit, for which no cash is paid
5. Quastir Co manufactures a single product which sells for S48-80 per unit. At this selling price, the profit per unit is S5-
35, after apportionment of the S65.000 of fixed costs. The budgeted production and sales volume is 20.000 units.
What is the margin of safety (to the nearest unit)?
A. 7,558 units B .7,850 units C .12,150 units D .12,442 units
6. The following graph relates to a linear programming problem:

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 The objective is to maximise contribution and the dotted line on the graph depicts this function. There are three
constraints which are all of the “less than or equal to” type which are depicted on the graph by the three solid lines
labelled (1), (2) and (3).
At which of the following intersections is contribution maximised?
A. Constraints (1) and (2) B. Constraints (2) and (3)
C. Constraints (1) and (3) D. Constraint (1) and the x-axis
7. Eamon Attwood must choose between four mutually exclusive projects, all of which require the same initial
investment. He has prepared the following payoff matrix:

If Eanion uses the maximin decision rule, which project will he choose?
A. Project A B. Project B C. Project C D. Project D
8. A product requires 24 hours to complete the first unit. Managerial experience has estimated the learning rate at
85%. For a learning rate of 85%, the value of the index of learning b is -0.2344653.
How much time should be required to produce the sixteenth unit?
A. Between 16 and 18 hours B.Between 10 and 12 hours
C. Between 14 and 16 hours D. Between 8 and 10 hours
9. The standard mix for producing 9 litres of output of a product is as follows:

A standard loss of 10% of inputs is expected to occur. The actual inputs for the latest period were:

What is the yield variance (to the nearest $) for the period?
A. An adverse variance of S631 B. A favourable variance of S650
C. A favourable variance of S3,463 D. A favourable variance of S5.850
10. Which of the following are used in assessing value for money?
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 (1) Earnings
(2) Effectiveness
(3) Efficiency
(4) Evaluation
A.1 and 2 B.2 and 3 C.3 and 4 D.1 and 4
11. Which of the following are deducted from revenue in calculating residual income?
(1) Depreciation on non-current assets owned by the division
(2) Allocation of head office costs
(3) An imputed interest charge on all assets of the division
(4) Taxation
A.1 and 3 only B.1 and 4 only C.1, 2 and 3 D.3 and 4
12. The manager of a division is considering a new project. The project is expected to increase the division’s annual net
profit by $153.900, but it will cause net current assets to rise by $810,000.
The manager”s performance is currently evaluated against a target return on investment of 18%. However, residual
income is being considered as an alternative.
The cost of capital for the division is 16%.
Which of the following correctly summarises the acceptability of the project to the manager?

13. At the end of the year, before comparing the actual results against the budget, the management accountant adjusts
the budget to the actual level of activity (sales units and production units), using the original budget assumptions.
What type of budgeting is this an example of?
A. Flexed budgeting B. Rolling budgeting
C. Incremental budgeting D. Activity-based budgeting
14. A company manufactures three products: W, X and Y. The products use a series of different machines, but there is a
common machine that is a bottleneck.
The standard selling price and standard cost per unit for each product for the next period are as follows:

Which of the following options ranks the products in order (best to worst) using a throughput accounting approach?
A. W, X, Y B. W, Y, X C. X, W, Y D. Y, X, W
15. A company produces a single product. Budgeted details are as follows:

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 What is the breakeven volume for the next three-month period?
A. 1,064 units B. 10,313 units C .20,625 units D. 35.106 units
(15*2 MARKS=30 MARKS)
* FOR 16 TO 20

16. What is the total cost of Car X using absorption costing?

A.$37,434 B.$39,462 C.$43,151 D.$53,655
17. What is the overhead cost per inspection using activity based costing?
A. S 1.300 B. $2,600 C. $70,200 D. S93.600
18. What is the setup cost per unit of Car Y using activity based costing?
A. $2,000 B. $4,444 C. $7,500 D. $8,000
19. RJ has correctly calculated that the cost per unit of Car Y is $43,151 using absorption costing, but only $39,600 using
activity based costing.
Which of the following statements about the difference between these costs are true?
(1) A lower portion of the machine costs is apportioned to Car Y when using activity based costing, compared to
absorption costing
(2) A lower portion of the total set up costs is apportioned to Car Y when using activity based costing, compared to
absorption costing
(3) A lower portion of the total inspection costs is apportioned to Car Y when using activity based costing, compared
to absorption costing
(4) The cost calculated using activity based costing better reflects the overhead costs used in making Car Y than the
absorption costing
A. 1,2 and 3 B. 1 and 3 only C. 2, 3 and 4 D. 2 and 4 only
20. Activity based costing has shown that the cost of Car X is 14% higher than the management of RJ had realised.
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 Which of the following actions would reduce the cost per unit of Car X?
(1) Reducing the number of cars per production run
(2) Reducing the number of inspections per production run
(3) Using higher quality components so that the life of the cars increases
(4) Running a staff training programme aimed at reducing the labour time per car
(5) Improving the machine senip process so that the seuip process is less complex and quicker to perform
A. 1,2 and 3 B. 1,2 and 4 C. 2, 4 and 5 D. 3,4 and 5
(5*2 MARKS=10 MARKS)
* FOR 21 TO 25
A manufacturer of electronic components produces a statement comparing acmal performance against budget on a
monthly basis. The statement for the most recent month is set out below. Closing inventory is valued at the budgeted
variable production cost per unit.

The finance director has reviewed the comparison above and suggested that the budget should be flexed before
comparing it against the acmal results for the month, as this would provide a more meaningful comparison.
21. What is the sales price variance?
A. 25,000 favourable B. 38.000 favourable
C. 20,000 adverse D. 5,000 adverse
22. What contribution would be shown in the flexed budget?
A. $ 144.000 B. $ 56.000 C. $ 74.000 D. $ 183,000
23. Which of the following statements regarding favourable materials variance of $1,000 shown in the statement are
correct?
(1) It is equal to the sum of the material price and material usage variances
(2) It is entirely due to the difference between budgeted and acmal production quantities
(3) It is not possible from the information given to calculate the materials price and material usages variances
(4) It is meaningless as it compares acmal cost with a budget for a different quantity of production
A. 1,2 and 3 B. 1 and 2 only C. 2, 3 and 4 D. 3 and 4 only
24. The management accountant has started work on next year’s budget. He is starting with the current year’s budget
and will adjust this for any changes he is aware of. such as inflation.
What method of budgeting is the management accounting using?
A. Rolling budgets B. Incremental budgeting
C. Flexible budgeting D. Zero based budgeting
25. The management of RJ are considering introducing a more participative bottom-up style of budgeting whereby
departmental managers would prepare their own budgets, which would then be approved by senior managers,
after some negotiation.
Which of the following factors would make participative budgeting more appropriate?
(1) Divisional managers are highly motivated and wish to take on more responsibility
(2) Senior managers lack the specific knowledge of customers and markets that departmental managers possess
(3) There is a high level of trust between senior management and departmental managers
(4) Departmental managers do not have a good understanding of accounting
(5) There is a high degree of dependency between each department requiring coordination
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 A. 1,2 and 3 B. 1,2 and 4 C. 2, 4 and 5 D. 3,4 and 5
(5*2 MARKS=10 MARKS)
* FOR 26 TO 30
QP Co is a food processing company that produces pre prepared meals for sale to major supermarket groups. The
company makes two types of pre-prepared meals. These are produced in batches of 100 units. Costs and selling
price per batch are as follows:

Variable production costs are charged at S10 per labour hour and reflect the energy used by the machines when
labourers are working.
Factory fixed costs are not specific to the products and are absorbed based on an old activity based study. Fixed costs
will be 100% absorbed if production is as per the budget.
There is currently a shortage of the skilled labour required to run the machines and labour hours are limited to 1,000
hours per week. Labour is fully flexible and can work on both products.
26. What weekly production output would maximise profit?

27. The unions have informed management that the workers would be prepared to work overtime at the weekend but
would expect a higher hourly rate of pay. The shadow price of labour has been calculated as S46.7 per hour.
What is the maximum hourly rate that management should pay for the weekend working?

28. The finance director wishes to introduce throughput accounting taking labour as the bottleneck process. Labour and
variable overheads are fixed in the short run at 1.000 hours per week.
What is the throughput accounting ratio of PN?

29. Which of the following actions could improve the throughput accounting ratio of the two products?
(1) Buying higher quality materials to improve the quality of output
(2) Reducing the selling price to sell more units
(3) Training staff to reduce the time taken to make one unit
(4) Finding ways to reduce the fixed costs using the activity based costing information
(5) Automating some of the tasks performed by labour to increase productivity
A. 1,2 and 3 B. 1,2 and 4 C. 2, 4 and 5 D. 3,4 and 5
30. One of the materials used in the production of product PN is Material X. The management accountant has calculated
that the slack for Material X is 500 kg per week.
What does a slack of 500 kg per week for material X represent?

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 A. The quantity of Material X that is available each week
B. The excess of Material X available over production needs
C. The additional kilos of Material X needed to meet required production
D. How much inventory of Material X is kept in case of funire shortages
(5*2 MARKS=10 MARKS)
(60 MARKS)
DIVISION B (DESCRIPTIVE)
Q-1. Boro has identified a market for a new product, the Madison, at a selling price of SI 15 per unit. The company
believes that it will be able to sell 2.000 units of the Madison per month.
The estimated cost structure for the product per unit is as follows:
Raw materials: 8 -5kg at $2 per kg
Special ingredient Z: 2 kg
Other variable costs are 60% of selling price
Boro has been offered supplies of special ingredient Z at a transfer price of S15 per kg by Magpie which is part of the
same group of companies. This is the same price that Magpie charges to its external customers. Magpie bases its
external prices on total cost plus 25% profit mark-up. Total cost has been estimated as 75% variable and 25% fixed.
Internal transfers to Boro would enable SI -50 per kg of variable packing cost to be avoided.
There are currently no other suppliers of special ingredient Z.
Required:
(a) Calculate the maximum transfer price that would be acceptable to Boro for each kg of special ingredient Z.
(3 marks)
(b) Calculate and explain the minimum transfer price that Magpie would be prepared to accept for supplying special
ingredient Z to Boro under each of the following situations:
(i) Magpie has monthly spare production capacity for 4,000 kg of special ingredient Z for which no external market
is available.
(5 marks)
(ii) Magpie has an external market for all of its production of special ingredient Z at a selling price of $15 per kg.
(2 marks)
(iii) Conditions are as per (i) but Magpie has an alternative use for some of its spare production capacity. This
alternative use is equivalent to 2,000 kg of special ingredient Z and would earn a contribution of $6,000.
(4 marks)
(c) Assume that conditions are as per (b) (i) where Magpie has a spare production capacity of 4,000 kg of special
ingredient Z. Magpie is insisting on a transfer price of $ 15 per kg of special unit Z.
Required:
(i) Explain the decision of the manager of Boro if offered such a price.
(2 marks)
(ii) Explain and calculate the impact that a decision not to purchase ingredient Z will have on the profits of the
group.
(4 marks)
(20 MARKS)
Q-2. GTK Co makes high quality stereo headphones. The market for this product is growing rapidly due to the increased
use of MP3 players and mobile devices.
The company uses a standard costing system to assess the performance of its managers. At the start of the period
under review, the following standard cost card was calculated for one product, the delta:

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 At the end of the period, the finance director noted that a mistake had been made in forecasting selling price
inflation. Inflation was lower than expected and the finance director believes that a lower standard selling price per
unit of $12.18 should have been used.
Required:
(a) Using a marginal costing approach, calculate the selling price variance and the sales volume contribution variance
and reconcile budgeted contribution to actual contribution based on the original standard.
(4 marks)
(b) Using a marginal costing approach, analyse the selling price variance into planning and operational variances.
(4 marks)
(c) Comment on the meaning of each of the variances calculated in parts (a) and (b) and the overall performance of the
sales department.
(4 marks)
(d) The managing director of GTK has expressed some surprise about the proposal of the finance director that the
standard cost should be revised. “What’s the point in having a standard cost if we actually change it at the end of the
year before doing variance analysis?” he asked. “Doesn’t this just mean that we move the goal posts to ensure we
meet the target?”
Required:
Describe the principles that should be applied in deciding whether a standard should be revised at the end of the
year, prior to variances.
(4 marks)
(e) The production manager has requested that the standard cost be revised to reflect a higher than expected wage
increase. When the standard was set. the expected pay rise was 2% - in line with inflation. The production manager
claimed that the extra pay rise was necessary as the workers were demotivated. “I gave them all 5% to keep them
happy!” he said.
Required:
Discuss the request of the production manager to revise the standard cost, putting what you see as both sides of the
argument and reach a conclusion on whether the standard should be revised.
(4 marks)
(20 MARKS)
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