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09 Sep 2010

 
A company made some measurements of output and costs and obtained the following results for each
quarter of the year:

  


   
1 2,500 50,000
2 5,000 80,000
3 3,000 60,000
4 4,500 70,000

Using the high-low (range) method, estimated fixed costs per year, and variable costs per unit are:

A - Variable cost per unit = $10; fixed cost per year = $25,000
B - Variable cost per unit = $12; fixed cost per year = $80,000
C - Variable cost per unit = $10; fixed cost per year = $100,000
D - Variable cost per unit = $12; fixed cost per year = $20,000

 
An advertising executive can show a strong positive correlation between advertising spend in a month and
sales in that month. Which of the following claims can be legitimately made about the effect of
advertising on sales?

A - More advertising causes higher sales

B - More advertising causes lower sales
C - Evidence is consistent with the claim that more advertising causes higher sales
D - Evidence is consistent with the claim that more advertising causes lower sales

 
In a moving average time series analysis, what is the term applied to variations that repeat over a period of
longer than a year?

A - Seasonal variations
B - Trend variations
C - Random variations
D - Cyclical variations

 
A moving average analysis has resulted in a trend estimation of $1,000 per quarter. Seasonal variations
using the additive model have been estimated at:

Quarter 1: +500
Quarter 2: +300
Quarter 3: + 50
Quarter 4: -800

The last quarter for which there is a trend figure if quarter 3 of 2010 and the trend then was $10,000.
What would be the predicted amount for quarter 2 of 2011, after taking into account the seasonal
adjustment?

A - 13,300
B - 14,300
C - 12,700
D - 13,700

 
Which of the following statements is true about using forecasting results?

A - Interpolation can usually be expected to be more reliable then extrapolation

B - Interpolation can usually be expected to be more unreliable than extrapolation
C - Extrapolation and interpolation can usually be expected to be equally reliable
D - Extrapolation and interpolation are not relevant to forecasting

 
If a coefficient of correlation is 0.64, the coefficient of determination is:

A - 0.64 (ie the same)

B - 0.80
C - 0.41
D - 0.36

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There are 20,000 hours of labour available and 18,000 machine hours. Variable overheads represent the
direct cost of running the machinery.

The company operates a backflush accounting system using two trigger points: purchase of raw material
and completion of goods.

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(a) What is the throughput per unit of Product X?
(b) What is the throughput per unit of Product Y?
(c) Which of labour or machine time is the bottleneck resource?
(d) What is the return per factory hour for Product X?
(e) What is the return per factory hour for Product Y?
(f) To which product should priority be given?
(g) What is the cost per factory hour?
(h) What is the throughput accounting ratio for Product X?
(i) What is the throughput accounting ratio for Product Y?
(j) Which product has an unacceptable TAR?
(k) At the end of a period there are 100 units half-finished of each of Product X and Product Y on the
production line. What is the valuation of these units in the costing records?
(l) When 200 units of each product are completed, what value is transferred to the finished goods
account?
(m) If the second trigger point is adjusted to be when goods are sold, what value is transferred out of the
conversion cost account when 100 units of Product X are completed?

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by c
 
  
09 Sep 2010

  
The balanced scorecard of Kaplan and Norton suggests that there should be four performance
perspectives. However, a proper appreciation of this approach recognises that the perspectives form a
hierarchy. Which of the following is the correct order (from top to bottom) of the perspectives?

A - Financial, customer, internal business, innovation and learning

B - Internal business, innovation and learning, financial, customer
C - Innovation and learning, financial, customer, internal business
D - Financial, customer, internal business, innovation and learning

 
In the SMART approach to setting objectives, what does 'R' stand for?

A - Rigorous
B - Relevant
C - Right
D - Rough

 
In the diagram, at what level should the budget be set to be a motivating budget?

A - Difficulty level A
B - Difficulty level B
C - Difficulty level C
D - Difficulty level D

 
What style of using budget information is being applied by a manager who primarily judges employees'
performance on their ability to increase the long-term effectiveness of their departments?

A - Budget-constrained style
B - Profit conscious style
C - Non-accounting style
D - Balanced scorecard style

 
Budgets should be set only for aspects of performance that are easy to measure.

A - True
 B - False

 
Authorisation can be included as one of the functions of budgeting and this can help with«

A - The centralisation of decision making

B - A bottom-up approach to decision making
C - The non-accounting style of budget use
D - The delegation of decision making

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It is not uncommon to see students recoil in horror at the mention of Paper F5, Performance Management.
The purpose of this article is to identify the reasons why sitting the Paper F5 exam seems to cause such a
problem for students and try and improve performance in the future.

As you are aware, Paper F5 builds on the blocks of knowledge gained from sitting the Paper F2 exam.
Although the pass rates for Paper F2 tend to be on the low side when compared with some of the other
Knowledge papers, they are still significantly higher than the Paper F5 pass rates. Therefore, although
poor pass rates could be blamed on the fact that Paper F5 covers an area that most ACCA students have
no experience of and find it difficult to relate to, the same could be said of Paper F2. Why then, does
Paper F5 seem to invoke such fear and poor performance from students?

One of the reasons why I think the problem arises is because the Skills papers, of which Paper F5 is one,
are often the first time that students have had to tackle written questions. No longer is it sufficient to
simply learn material and churn out calculations. With the Knowledge papers, ability to write clearly and
set out workings logically and neatly is not required; the papers are in the form of sets of objective test
questions. Instead, the skills involved become fourfold, with candidates being required to do all of the
following:

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Another reason why problems arise is because candidates do not take the time to understand the
differences between Paper F2 and Paper F5. Some subject areas are obviously included in both syllabuses,
but you can be sure that where subjects are repeated in Paper F5, the skills required of you are over and
above the knowledge required in Paper F2.

I am going to concentrate on a brief step by step approach to the exam on the day and then on a more
detailed explanation of how you should interpret all the different 'instructions' contained within question
requirements. The points made in this article about interpreting requirements in questions are equally valid
for interpreting the depth of the Paper F5 Study Guide which is attached to the Syllabus, since this too is
written in terms of 'instructions' such as discuss, describe and so forth.

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The Paper F5 exam, as with all three-hour exams, starts with 15 minutes of reading time. This time should
be spent by quickly allocating your 180 minutes to each question and reading all the requirements and the
questions so that you can think about your answers and decide the order in which you will answer your
questions. Remember, always start with your best question first. It is important to build your confidence
up so that you perform your best.

When it comes to answering the question, be sure that you are strict with your time allocation. If you are
spending too long on one question, it is either because you can't do it anyway (in which case move on and
come back to it later) or you are saying too much and going beyond what the examiner expected of you.
How much an examiner expects you to write is directly linked to the marks available and therefore the
time available.

To spend half an hour, for example, on Part (c) of a question, which is only worth five marks is madness:
the examiner expected you to spend nine minutes on it. As well as allocating time to individual questions,
you should allocate time to individual requirements in questions.

In the reading time, you should get a chance to have a good look at the requirements of all five questions.
Remember: the requirement should always be the first thing that you look at in a question. What is the
point in reading a question if you don't know what you are looking for? When you read each part of the
requirement, underline the 'content' - what the question is about, for example target costing, and the
'instruction' - what it is telling you to do. This helps you to focus your mind on answering the actual
question rather than answering what you thought the question was going to ask you.

As regards the content, you have either studied the area and can tackle it, or not. This instruction could be
a whole variety of verbs ranging from numerical requirements such as calculate, produce, derive and
apply; or more wordy requirements such as describe, interpret, outline, compare, identify, discuss,
explain, evaluate, suggest and justify. The possibilities are endless and the one thing you can be sure of is
that the verb used has been carefully thought about by the examiner, obviously taking into account any
restrictions imposed by the syllabus. If you don't read and understand the instruction carefully, then you
will find that you are not actually answering the question. If you are not answering the question, then you
are not earning marks. For example, being asked to justify the use of target costing as opposed to
traditional absorption costing is different from being asked to explain target costing. Each of the common
exam 'instructions' are dealt with below.

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Some instructions are easier to understand than others. For example, there can be no confusion as to what
the word 'calculate' means; if you are asked to calculate a number, you just have to work it out. Similarly,
'derive' should pose little problem. In the context of Paper F5, you might have to derive an equation
showing the relationship between price and quantity or derive a target cost for a product. Being able to
'derive' a figure sometimes requires more than simply being able to calculate a figure, as a candidate may
have to use their powers of deduction to derive something. However, the mechanics of 'deriving' or
'calculating' would actually be very similar in most cases.

 
If a question asks you to 'estimate' a figure it suggests that the answer cannot be calculated with certainty.
For example, if you are asked to estimate the time taken to produce a batch of items where an 80%
learning curve has been shown to exist, you are making an estimate rather than an exact calculation. This
is due to the fact that the learning rate itself reflects what a business THINKS will happen but it is not
certain until it has happened. Once again, however, as with a 'derive' instruction, the mechanics of
 'estimating' are much the same as 'calculating'. There is a set approach to the question (tabular or
algebraic, in the case of learning curves).

Why, then, do candidates often still perform poorly on the numerical parts of the Paper F5 exam paper? In
my opinion, poor numerical answers often arise merely as a result of candidates failing to study the whole
syllabus well enough in the first place. Anyone who thinks they can question spot exam questions for a
particular sitting, based on topics that have been examined or not examined in recent papers, is sadly
mistaken. Certain publications publish 'top tips' which should most certainly be ignored.

If exam papers were this predictable, they would not be a true test of candidates' knowledge as students
would then simply be able to learn distinct areas of the syllabus and ignore the rest. Study all of the Paper
F5 syllabus or you are not giving yourself a real chance.

The other reason why candidates score poorly on numerical questions is because they approach the
question in a disorganised fashion, with no logical progression through the calculations and no clear,
numbered workings. You should go into the exam with a metaphorical management accounting toolbox,
full of all the tools that are going to help you answer the questions. So, for example, if it is a linear
programming question, go in your toolbox and pull out your five-step guide for linear programming:

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out of your management accounting toolbox and follow your five-step guide:

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The problem with Paper F5 is that students go into the exam with only a few tools in their 'box'. If you put
the work in, you will reap the rewards.

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Requirements that necessitate candidates writing in a coherent, organised manner are also a big issue in
Paper F5. Candidates are not penalised for the fact that English may be their second language, and I do not
think it is this that causes the real problem. The issue is often that candidates appear unable to grasp what
to write and how much to write, ie they don't understand the instruction. Further clarification of all the
main instructions you would expect to find in a Paper F5 exam is given below.

 
When you are asked to 'describe' something you are expected to give some sort of narrative about it. For
example, if you were being asked to describe suitable non-financial performance indicators for a hospital,
you would be expected to describe indicators such as number of patient complaints, bed occupancy rate,
number of admissions per employee. It would not be enough to merely 'list' these indicators. You would
have to go a step further and describe how they might be calculated. As always, you should be guided by
the mark allocation in deciding how much time you spend answering the requirements and therefore what
level of detail you should go into.

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When you are asked to 'interpret' something, for example, the balanced scorecard approach, you are being
asked to explain the approach in your own words and give your opinion about it. It is quite a high-level
requirement that will usually be reflected with higher marks than, for example, 'outline'.

 
As suggested previously, this is quite a straightforward, low-level requirement. An outline should be fairly
brief and well organised. It is simply an overview, without the level of detail that would be required by the
'describe' instruction, for example. Since it requires less detail, you could be asked to outline a bigger
topic than you would have time to describe. In Section C of the Study Guide, you are asked to 'outline the
objectives of a budgetary control system'. This is something that could be discussed at length but the
Study Guide is clear in that it only expects your knowledge to be sufficient enough to outline.

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The instruction 'compare' requires you to discuss similarities between two or more things and draw
conclusions. For example, if you are asked to compare product costs using activity-based costing as
opposed to traditional costing, you need to say why the costs are different. This will involve looking in
detail at the activity-based costs and ascertaining the reason why the overheads absorbed into one product
are, for example, higher under activity-based costing than traditional absorption costing. In this kind of
question, 'comparing' needs to be preceded by a degree of analysis.

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This means to pinpoint and list. It can be quite a simple requirement, requiring knowledge rather than
skill. For example, in the Study Guide, it states that candidates must be able to 'identify and explain the
interrelationship between price, mix and yield'. This simply requires candidates to understand what the
relationship is and then state it and explain it. Sometimes, however, candidates may have to identify points
from within a question scenario, and this can be a more demanding requirement because it requires more
skill.


This is a higher level skill and requires a candidate to give their own thoughts on a subject, supporting it
with facts and logical reasoning.

For example, you could be asked to discuss the effect that variances have on staff motivation. You would
need to discuss the fact that they can be demotivational, for example, if they lead to managers being
assessed for cost increases that were beyond their control. The material price variance may be adverse but
this could be because the market price for materials increased. This will be demotivational unless the price
variance is broken down into its controllable and uncontrollable aspects, ie planning and operational
variances are calculated.

The opinions you give in any discussion must be sound and well reasoned. It is no good saying that
variances are demotivational without explaining why. Also, you are expected to look at both sides of the
story. The 'discuss' instruction is always a good test of candidates real understanding.

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This means that you need to give a reason for something; say why it is as it is rather than just stating that it
is. It is a very common requirement and appears many times in the Study Guide. It requires understanding
as well as knowledge.

 
This requirement would not be expected to arise much in Paper F5. Most of the evaluation work is
reserved for Paper P5. If you are asked to evaluate something, you are being asked to decide on the merits
of it. It is most definitely a higher level skill.

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The use of the word 'suggest' itself suggests that there may be more than one answer to the question being
asked. It means give a suitable idea or solution, bearing in mind that there will probably be more than one.
For example, you might be asked to suggest how a target cost gap can be closed. Your answer could only
ever be a suggestion as there will be many possible ways to close a cost gap.

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With this requirement, you need to tell the reader why a particular answer or position makes sense. For
example, if you had to justify the use of backflush accounting within an organisation, you would have to
mention the relative immateriality of inventory balances, presuming this was in fact the case (otherwise
you would struggle to justify the use of backflush accounting in the first place).



To conclude, the step up from Paper F2 to F5 is a big one, with a sudden need for clarity of writing and
understanding of 'instructions' within requirements that was not essential for Paper F2. Contrary to
popular belief, it is not a disproportionately hard paper. It does require students to work hard in order to
gain knowledge of areas that they have not practised. All written papers require the organised approach set
out above, whereby you underline the content and instruction of all requirements at the beginning of each
question. Keep referring back to them, particularly on wordy questions, to make sure that you are not
going off on a tangent. And remember, practice makes perfect. Keep practising past questions until your
approach and layout becomes second nature, leaving you with plenty of time to think about the issues in
the question.

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