\\4q38708370 2013acca.taobao.com \| fm, \| ——_ \| HCCA LEARNINGMEDIA | ACCA-F5 || Performance Management Mock Exam | Jun 2013 | Time allowed | Reading and planning: 15 minutes Writing: 3 hours || ALL FIVE questions are compulsory and MUST be attempted. 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. This question paper must not be removed from the examination hall. |] Address Website Hi 4/F, Yue On Commercial Building, — www.hkcaexam.com 1] 387 Lockhart Road, Email I] Causeway Bay, Hong Kon: a | cain info@hkcaexam.com Lf} (852) 3107 0088 Take a shot to Contact us0708370 «(20 ALL FIVE questions are compulsory and MUST be attempted. Question 4 Strong Foundation is engaged in mixing, processing and then distributing a variety of materials that are used in strengthening foundations of large buildings. The business operates at full capacity every year and makes annual profit of $24 million (on an average). A similar company, Denton Plc, has developed an innovative material “Safe Base”, which can provide a stronger and safer foundation for large. buildings as against other traditional materials produced elsewhere. The production of "Safe Base” takes place by passing traditional materials through an additional process. Denton Plc has developed this finishing process, but does not have access to the earlier stages of the process or a distribution network. Consequently, Denton Pic has offered to lease the machinery needed for the finishing process to Strong Foundation. There are three sizes of machinery that could be leased. However, the machines are not reliable. Their possible annual outputs and associated probabilities are shown in the table below. The annual lease payments are also shown. Probabil ‘Annual output (m’)~ | Size 1 | Size 2 | Size 3 T milion 080] 040 : 5 million 020! 030] 060 8 milion -| 030} 0.40 Annual lease ($ milion) | _$20| _$30| _ $40 * Square metre of foundation laid Operating costs If Strong Foundation processed "Safe Base’, it would not be able to sell any of its traditional products. Due to the unreliability of the machinery, rectification problems, overtime working and possibly the Need to reduce the output of the earlier processing plants, the costs per square metre (m2) will vary with the size of machine and its output. The uncertainty is so great that even for a given output there is a range of possible costs. Denton Pic will dictate the selling price of “Safe Base”. The accountant for Strong Foundation has produced the following forecasts of profit (in millions of dollar) per million square metres and their probabilities. Sizet Size 2 Sizes ‘Annual | _ Profits Profit Profit (S output (mt) | Million per | Probability | million per | Probability | million per | Probability million mi?) million m?) million ri?) Tmilion: 35 oT 5 of 5 - 4 milion 25 03 © 06 : - 5 milion 35 04 Pr] o4 10 03 5 milion 15 03 15 03 5 05 5 milion 5 03 5 03 © 02 8 million S 5 2 05 25 06 8 milion = = 5 05 5 04 Note: the profit per square metre is after charging all costs except lease payments. Required: (a) With the help of a decision tree, analyse the choices before Strong Foundation. Ere) marks} (b) For each machine size, calculate the expected value of the total profit and the probability of breaking even. (8 marks) (c) As a management accountant, write a report to the management of Strong Foundation recommending the action it should take. The report must support your recommendation by evaluating the situation and include a discussion of the appropriateness of the methodologies used in part (b). (7 marks) (20 marks) HZ Al for you to ... PASS!2013acca.tagheecom.. Question 2 Quick Foods, a producer of tinned foods, has determined the following standard cost details for the three ingredients that are blended together in the processing of one of its products, Tiffiny: ‘Standard data for 1 kg of Tiffiny: Price of Ingredient (S per Kg) |S ‘050 kg of ingredient A 0.50 | 0.25 0.30 kg of ingredient 8 1.20 | 0.36 (0.25 kg of ingredient C 080 | 0.20 ost ‘Actual data for the month of October has been as follows: ‘Output of Tiny (00's ka) 1,650, Details of ingredients used: aA [ea ,c¢ Quantity (000's kg) [7,072 | 412 | 396 Cost ($1000) 510 |520| 310 Itis the policy of Quick Foods not to hold any inventory of the ingredients. It acquires the ingredients on a JIT basis. ‘The purchase department of Quick Foods has analysed that the standard price of ingredient A was inflated because of a shortage due to a natural calamity that occurred in the supplier's country. A more realistic target ‘would have been $0.55 per kg. Required: (a) (Evaluate the usefulness of categorising variances into “planning” and “operational (2marks) (@ Calculate these variances for ingredient A. (S marks) (b) Calculate material mix and yield variances for October. (6 marks) ‘The deviations (in weight) from the standardised mix for the quantity input expressed as a percentage of the standardised weight for each ingredient are shown below Input: Percentage deviation from standardised mi July ‘August Ingredient A mix 10,436 (A) 14.1% (AD Ingredient B mix 14.0% (F) 20.9% (F) Ingredient C mix 4.2% (F) 32% (F) Yield 7,0% (A) 87% (A) ‘These percentages are based on the following data: January (0005 ka) February (0005 ka) ‘Output 1,000 1,800 Ingredient A ‘600 125 Ingredient B 280 "468 Ingredient C 260 a Required: (©) Calculate the corresponding values for the month of October and comment on the usefulness of this type of analysis for operational control (7 marks) (20 marks) Alin wots... 2955) ETery 370 204 a LeaRnina MEDIA Question 3 Haydon Plc manufactures and sells three different types of industrial machines, M1, M2 and M3. Each machine is manufactured on a separate production line. ‘The market conditions for the coming year are not very promising. Haydon Pic has forecasted the following for the next year: Details ma (8) m2 (S) M3 (8) Direct materials per machine 2,520 2,924 3,960 Direct labour per machine 4,120, 1,292 1,980 Total direct cost per machine 3,640 4,216 5,940 Budgeted production (units) 75,000 75,000 75,000 Number of production runs 1,000 1,000 1,500 Number of orders executed 4,000 5,000 5,600 Machine hours 41,080,000 41,800,000 4,680,000 Further analysis of overheads for the coming year has also been provided by Haydon Pic. Overheads Fixed ($000) Variable ($) Set-ups 42,660 | 13,000 per production run Materials handling ‘52,890 | 4,000 per order executed Inspection 59,880 | 18,000 per production run Machining 144,540 | 40. per machine hour Warehousing 42,900 | 3,000 _ per order executed ‘The management of Haydon Plc has hired a consultant to advise them on how to reduce costs. The consultant has suggested that the company adopt a just-in-time (JIT) manufacturing system, ‘The introduction of the JIT system would have the following impact on costs (fixed and variable) Direct labour Increase by 20% Set-ups. Decrease by 30% Materials handling Decrease by 30% Inspection Decrease by 30% Machining Decrease by 15% Warehousing Eliminated Required: (a) Based on the budgeted production levels, calculate the total annual savings that would be achieved by introducing the JIT system. (8 marks) The relationship between price and demand for each type of machinery is provided by the market research analyst of Haydon Plc: M1 M2 M3 Price (8) | Demand | Price ($) | Demand ® 5000] 75,000; 5,750] 75,000] 6,500 5,750} 65,000] 6,250] 60,000} 6,750, 6,000] 50,000} 6500] 45,000] 7,750 6500} 35,000] 7,500] 35,000} 8,000 (b) Assuming that Haydon Pic adopts the JIT system and that the revised variable overhead cost per machine remains constant (under the proposed JIT system budget), calculate the profit maximising price and output level for each type of machine. (12 marks) (20 marks) GD bo ee. Bass2013acca.tagheecom.. Question 4 Garden Companion manufactures and sells two types of gardening equipment, namely, rotary tillers and pruners. The company operates a just in time (JIT) manufacturing system for manufacturing the garden equipment and aims to hold very litle work-in-progress and no finished goods inventory. Each piece of equipment passes through a machining department, Pieces of both types of equipment that can be completed in one hour in the machining department are: > Rotary tillers: 4 > Pruners: 2.50 A total of 30,000 hours are available in the machining department, ‘The market research group of the company, along with the finance department, has forecasted the following for the coming period: Rotary Tillers | Pruners ‘Sales units 75,000 | 48,000 Selling price per unit $100] $160 Material cost per unit s4o| _$50 Fixed production overheads (For both types of equipment) ‘$2,025,000 Labour and other variable production overheads (for both types of equipment) ‘$2,400,000 Required: (a) Calculate the throughput accounting ratio for each type of equipment and briefly comment on the ratios calculated. (8 marks) (b) Using throughput accounting principles, determine the quantities of each type of equipment that should be manufactured in order to maximise the net profit and prepare a projection of the net profit that would be eamed by Garden Companion in the coming period, (6 marks) (c) Ata recent board meeting, one of the directors of Garden Companion suggested that the company should also consider implementing environmental costing as a part of the company's strategic decision making process. Explain the need for Garden Companion to adopt environmental costing and identify the organisation's environmental preventive, detaction and failure costs. (6 marks) (20 marks) Alin wots... 255) ETery 370 6209 a LeaRnina MEDIA Question § A team of five dynamic, enthusiastic entrepreneurs have come together to start Smart Shoes, manufacturing and selling formal shoes for both ladies and gentlemen. The entrepreneurs are well aware that it might not be possible for them to break even before at least 9 months of operation and are thus prepared to bear the initial losses. While researching the market of such footwear, it was realised that they can be best sold via internet marketing. Keeping this in mind, a substantial amount of funds was expended in designing a user friendly website for the company and making it operational, Furthermore, in order to make the new range of footwear popular amongst the target audience, Smart Shoes had to incur a significant amount of promotional expenses too, ‘Smart Shoes’ business results for the first two quarters have been as follows: (The sales have been $550,000 in the first quarter and $775,000 in the second quarter. The costs of sales during the same periods were $247,500 and $372,000 respectively. (ii) Website design and operation expenses were $165,000 in the first quarter and these decreased by $48,750 in the second quarter. Initial promotional expenses respectively amounted to $82,500 and $54,250 in the ‘two quarters. (ii) Selling and distribution expenses were 6% of sales in quarter one and 5.8% of sales in quarter two. (iv) Admin expenses recorded in the two quarters were $137,500 and $178,250 respectively. (v) Other variable operating expenses were $66,000 in the first quarter and these increased to $93,000 in the ‘second quarter. The young entrepreneurs have also decided to keep a record of non-financial indicators as a measure of performance of Smart Shoes. They have collected the following data: ‘Sales (units) Website Visitors | Unproductive | Delivery (numbers) ‘System Time Efficiency (%) (%) First Quarter 77,000 858,233, 23 0 ‘Second Quarter 45,500 10,65,652 27 87 Required: (a) Assess the financial performance of Smart Shoes with regards to the business results provided, and ‘comment on the profits / losses. (12 marks) (b) Assess the non - financial performance based on the non-financial data collected by the entrepreneurs of ‘Smart Shoes. (8 marks) (20 marks) End of Questions GD bo ee. Bass