EXAMINATION : INTERMEDIATE LEVEL

SUBJECT : PERFORMANCE MANAGEMENT

CODE : B5

EXAMINATION DATE : FRIDAY, 5TH NOVEMBER, 2021

TIME ALLOWED : THREE HOURS (9.00 A.M. – 12.00 NOON)

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GENERAL INSTRUCTIONS

1. There are TWO Sections in this paper. Sections A and B which comprise a total of
SIX questions.

2. Answer question ONE in Section A

3. Answer ANY FOUR questions in Section B.

4. In total answer FIVE questions.

5. Marks are shown at the end of each question.

6. Show clearly all your workings in respective answers where applicable.

7. State clearly any assumptions made in your answers.

8. Graph papers will be provided, where applicable.

9. This question paper comprises 8 printed pages.

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SECTION A
Compulsory Question
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QUESTION 1
Jabari Property Developers Ltd (JPDL) is a company that builds innovative, environmentally
friendly housing. JPDL’s houses use high quality materials and the unique patented energy
saving technology as a result of the company’s own extensive research in the area. JPDL is
planning to expand into another country and has been asked by a prominent person in that
country for a price quotation to build them a house. The Board of Directors believes that
securing the contract will help to launch their houses in the country and have agreed to quote a
price for the house that will exactly cover its relevant cost. The following information has been
obtained in relation to the contract:
1. The Chief Executive and Marketing Director recently met with the potential client to
discuss the proposal. The meeting was held at a restaurant and JPDL provided food and
drinks at a cost of TZS.375,000.
2. 1200kg, of Material Z will be required for the house. JPDL currently has 550kg, of
material Z in its inventory purchased at a price of TZS.58,000 per kg. Material Z is
regularly used by JPDL in its houses and has a current replacement cost of TZS.65,000
per kg. The resale value of the material Z in inventory is TZS.35,000 per kg.
3. 400 hours of construction workers time are required to build the house. JPDL’s
construction workers are paid an hourly rate of TZS.22,000 under a guaranteed wage
agreement and currently have spare capacity to building the house.
4. The house will require 90 hours of engineer time. JPDL engineers are paid a monthly
salary of TZS.4,750,000 each and do not have any spare capacity. In order to meet the
engineering requirement for the house, JPDL can choose one of the two options:
(i) Pay the engineers an overtime rate of TZS.52,000 per hour to perform the additional
work.
(ii) Reduce the number of engineers’ hours available for their existing job, the building
of Product Y. This would result in lost sales of Product Y. Summary details of the
existing job the engineers are working on: Information for one unit of Product Y.
- Sales revenue TZS.4,860,000
- Variable costs TZS.3,365,000
- Engineers’ time required per unit 30 hours.

5. A specialised machine would be required for 7 weeks for the house building. JPDL have
4 weeks remaining on the 15 week specialised machine rental contract that cost
TZS.15,000,000. The machine is currently not in use. The machine can be rented for an
additional 15 weeks at a cost of TZS.15,250,000. The specialised machine can only be
rented in blocks of 15 weeks. Alternatively, a machine can be purchased for
TZS.160,000,000 and sold after the work when the house has been completed for
TZS.140,000,000.
6. The windows required for the house have recently been developed by JPDL and uses the
latest environmentally friendly insulating material. JPDL produced the windows at a cost
of TZS.34,950,000 and they are currently the only ones of their type. JPDL were

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 planning to exhibit the windows at a house building conference. The windows would
only be used for display purposes at the conference and would not be for sale to
prospective clients. JPDL has had assurances from three separate clients that they would
place an order for 25 windows each if they saw the technology demonstrated at the
conference. The contribution from each window is TZS.10,450,000. If the windows are
used for the contract, JPDL would not be able to attend the conference. The conference
organizers will charge a penalty fee of TZS.1,500,000 for non-attendance by JPDL. The
Chief Executive of JPDL can meet the clients directly and still secure the orders for the
windows. The meetings would require two days of the Chief Executive’s time. The
Chief Executive is paid an annual salary of TZS.414,000,000 and contracted to work 260
days per year.

7. The house build requires 400kg of other materials. JPDL currently has none of these
materials in its inventory. The total current purchase price for these other materials is
TZS.6,000,000.

8. JPDL’s fixed overhead absorption rate is TZS.37,000 per construction worker hour.

9. JPDL’s normal policy is to add a 12% mark-up to the cost of each house built.

REQUIRED:
(a) Produce a schedule that shows the minimum price that could be quoted for the contract
to build the house. Your schedule should show the relevant cost of each of the nine items
identified above. You should also explain each relevant cost value you have included in
your schedule and why any values you have excluded are not relevant. (16 marks)
(b) Recommend, with justifications, a pricing strategy that JPDL should use to price the
innovative, environmentally friendly houses when they are launched in the new country.
(4 marks)
(Total: 20 marks)

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SECTION B
There are FIVE questions. Answer ANY FOUR questions
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QUESTION 2

‘Bonge enterprises’ Limited (BEL) is a company operating in a market where selling prices are
fixed under price controls agency. The two products Zedi and Elo are sold in three different
sales territories and territorial sales data are kept for performance management purposes. Raw
materials have to be procured from the open market where there are stable prices, but the
principal material is not freely available. It is now the end of 2021 and the management has
provided you with the following data for the year just ended:
Zedi Elo
Zone 1 Zone 2 Zone 3 Zone 1 Zone 2 Zone 3
Units sold 10,000 15,000 8,000 15,000 12,000 5,000
Sales value 100,000,000 165,000,000 96,000,000 180,000,000 144,000,000 65,000,000
Contribution 30,000,000 49,500,000 24,000,000 45,000,000 43,200,000 13,000,000
(TZS.)
Profit 10,000,000 12,500,000 6,000,000 12,500,000 11,500,000 3,256,000
(TZS.)
Consumption of principal material is 1 kg per unit of product Zedi and 1.25kg per unit of
product Elo. Availability of principal material in 2022 is expected to be the same as the in
2021. The scope for changing the sales mix is limited such that revised volume (both overall
and within zones) should not fall below 50% for either product or exceed 125% of the 2021
volume. Effect of the revised sales mix on fixed costs should be ignored.

REQUIRED:
Prepare a budget that you will recommend to the management of BEL for the year 2022 and
comment on the projected 2022 results.
(Total: 20 marks)

QUESTION 3
(a) Mama Chuwa is a strong business woman at Mbeya City. Whenever she buys and
prepare animal food some output give her a different result than what she expected. She
came to you for assistance on how material mix and material variance happen.

REQUIRED:
Advise her on how material mix and material variance happen. (5 marks)

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(b) The following information relates with Mama Chuwa Animal Food Company which has
established the standard mix for producing 9kg of animal food named Mashudu (a
standard loss of 10% inputs is expected):
Material Quantity Price per Kg Amount
(Kg) TZS. TZS.
A 5 7 35
B 3 5 15
C 2 2 4
Total 10 54
Actual inputs of material for the month of July 2021 were as follows:
TZS.
53,000 Kg of Material A at TZS.7 per Kg 371,000
28,000 Kg of Material B at TZS.5.30 per Kg 148,400
19,000 Kg of Material C at TZS.2.20 per Kg 41,800
Total 100,000 561,200

The actual output of Mashudu for the month of July 2021 was 92,700 kgs.

REQUIRED:
For the month of July 2021, calculate and show a detailed analysis of:
(i) Material price variance. (4 marks)
(ii) Material mix variance. (3 marks)

(iii) Material yield variance. (3 marks)

(iv) Material usage variance (5 marks)
(Total: 20 marks)

QUESTION 4
Kompyuta Company Limited (KOCOLI) manufactures two components P and Q for the
computer industry. The following details have been generated by the production manager and
sales manager:
1. Component P has annual production and sales of 100,000 units at a selling price of
TZS.100,050 per unit.
2. Component Q has annual production and sales of 50,000 units at a selling price of
TZS.150,000 per unit.
3. Direct and indirect costs incurred on these two components are as follows:
P (TZS.) Q (TZS.) TOTAL (TZS.)
Direct material cost (variable) 4,200,000,000 3,000,000,000 7,200,000,000
Direct labour cost (variable) 1,500,000,000 1,000,000,000 2,500,000,000
Direct machining cost1 700,000,000 550,000,000 1,250,000,000
Indirect costs:
Machine set up cost 462,000,000
Testing cost 2,375,000,000
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 Engineering cost 2,250,000,000
16,037,000,000
1
Direct machining costs represent the cost of machine capacity dedicated to the production of
each product. These costs are fixed and are not expected to vary over the long-run horizon.

4. Other relevant information are follows:

P Q
Production batch size 1,000 units 500 units
Set up time per batch 30 hours 36 hours
Testing time per unit 5 hours 9 hours
Engineering cost incurred on each product (TZS.) 840,000 1,410,000

5. A foreign competitor has introduced a product very similar to P. To maintain the

company’s share and profit, KOCOLI has to reduce the price of P to TZS.86,250. The
company calls for a meeting and comes up with a proposal to change the design of P. The
expected effect of the new design is as follows:
(i) Direct materials cost is expected to decrease by TZS.5,000 per unit.
(ii) Direct labour cost is expected to decrease by TZS.2,000 per unit.
(iii) Machine time is expected to decrease by 15 minutes. It previously took 3 hours to
produce 1 unit of P. The machine will be dedicated to the production of new design.
(iv) Set up time will be 28 hours for each set up.
(v) Time required for testing each unit will be reduced by 1 hour.
(vi) Engineering cost and batch size will remain unchanged.
The production manager has identified that cost driver for machine set up costs, and
testing costs to be ‘set up hours used in batch setting’ and ‘testing time’ respectively.
Engineering costs are assigned to production by special study.

REQUIRED:
(a) Calculate the full cost per unit for component P and Q using Activity-Based
Costing. (6 marks)
(b) Calculate the mark-up on full cost per unit of P. (3 marks)
(c) Calculate the target cost per unit for the new design to maintain the same mark-
up percentage on full cost per unit, assuming cost per unit of cost drivers for the
new design remains unchanged. (2 marks)
(d) Comment on whether the new design achieves the cost reduction target of not.
(5 marks)
(e) List any four (4) possible management actions that KOCOLI should take
regarding the new design. (4 marks)
(Total: 20 marks)

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QUESTION 5
(a) The absence of profit measure in Non-For-Profit (NFP) Organizations causes problems
for measurement of their efficiency and effectiveness.
REQUIRED:
(i) Explain why the absence of the profit measure should be a cause of the problems
referred to. (7 marks)
(ii) Explain how these problems extend to activities within business entities which
have a profit motive. Support your answer with examples. (4 marks)
(b) A public health clinic is the subject of a scheme to measure its efficiency and
effectiveness. Among a number of factors, the ‘quality of care provided’ has been
included as an aspect of the clinic’s service to be measured. Three features of ‘quality
of care provided’ have been listed: clinic’s adherence to appointment times; patients’
ability to contact the clinic and make appointments without difficult and the provision
of a comprehensive patient health monitoring programme.

REQUIRED:
(i) Suggest a set of quantitative measures that can be used to identify the effective level
of achievement of each of the features listed. (7 marks)
(ii) Indicate how these measures could be combined into a single ‘quality of care’
measure. (2 marks)
(Total: 20 marks)

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QUESTION 6

(a) Kifwe Ltd manufactures and sells three products W, X and Y and has supplied you with
the following details for ye year ended 30th September 2021:

Price Unit Variable Cost % of total sales

TZS./Units TZS. value
W 20,000 10,000 40
X 25,000 15,000 35
Y 20,000 12,000 25
.
Total fixed costs per year amounted to TZS.110,000,000 and the sales for the year ended
30th September 2021 summed up to TZS.500,000,000.
REQUIRED:
Calculate the Break-Even Point (BEP) in TZS for each product and profit or loss
generated for the year ended 30th September 2021 product wise. (10 marks)
(a) Suppose the management of Kifwe Ltd in part (a) has approved substitution of product
Y with product Z in the coming year. The later product has a selling price of TZS.25,000
and a unit variable cost of TZS.12,500. The new sales mix of W, X and Z is expected to
be 50: 30:20 in terms of sales value. The fixed costs are expected to increase by
TZS.31,000,000 for next year and total sales are expected to remain the same.

REQUIRED:
(i) Calculate the new Break-Even Points in TZS revenue and units of each product
and profits/losses with and without the substitution of product Y and the new
sales mix. (8 marks)
(ii) Comment on the management decision regarding changing the product mix and
substituting product Y. (2 marks)
(Total: 20 marks)

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