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ACCAF52015年06月考试真题及答案

来源 :中华考试网 2016-08-30

  Section A – ALL 20 questions are compulsory and MUST be attempted

  Please use the grid provided on page two of the Candidate Answer Booklet to record your answers to each multiple

  choice question. Do not write out the answers to the MCQs on the lined pages of the answer booklet.

  Each question is worth 2 marks.

  A division is considering investing in capital equipment costing $2·7m. The useful economic life of the equipment is

  expected to be 50 years, with no resale value at the end of the period. The forecast return on the initial investment

  is 15% per annum before depreciation. The division’s cost of capital is 7%.

  What is the expected annual residual income of the initial investment?

  A

  B

  C

  D

  $0

  ($270,000)

  $162,000

  $216,000

  2

  The Fruit Company (F Co) currently grows fruit which customers pick themselves from the fields before paying. F Co

  is concerned that a large number of customers are eating some of the fruit whilst picking it and are therefore not

  paying for all of it. As a result, it has to decide whether to hire staff to pick and package the fruit instead. The following

  values and costs have been identified:

  (i)

  The total sales value of the fruit currently picked and paid for by customers

  (ii) The cost of growing the fruit

  (iii) The cost of hiring staff to pick and package the fruit

  (iv) The total sales value of the fruit if it is picked and packaged by staff instead

  Which of the above are relevant to the decision?

  A

  B

  C

  D

  All of the above

  (ii), (iii) and (iv) only

  (i), (ii) and (iv) only

  (i), (iii) and (iv) only

  3Which of the following statements describes target costing?

  A

  B

  It calculates the expected cost of a product and then adds a margin to it to arrive at the target selling price

  It allocates overhead costs to products by collecting the costs into pools and sharing them out according to each

  product’s usage of the cost driving activity

  C

  D

  It identifies the market price of a product and then subtracts a desired profit margin to arrive at the target cost

  It identifies different markets for a product and then sells that same product at different prices in each market

  2

  4

  The Mobile Sandwich Co prepares sandwiches which it delivers and sells to employees at local businesses each day.

  Demand varies between 325 and 400 sandwiches each day. As the day progresses, the price of the sandwiches is

  reduced and, at the end of the day, any sandwiches not sold are thrown away. The company has prepared a regret

  table to show the amount of profit which would be foregone each day at each supply level, given the varying daily

  levels of demand.

  Regret table

  Daily supply of sandwiches (units)

  325

  $0

  $36

  $82

  $142

  350

  $21

  $0

  $40

  $90

  375

  $82

  $44

  $0

  400

  $120

  $78

  $34

  $0

  325

  350

  375

  400

  Daily demand

  for sandwiches (units)

  $52

  Applying the decision criterion of minimax regret, how many sandwiches should the company decide to supply

  each day?

  A

  B

  C

  D

  325

  350

  375

  400

  5

  The following statements have been made about transaction processing systems and executive information systems:

  (i)

  A transaction processing system collects and records the transactions of an organisation

  (ii) An executive information system is a way of integrating the data from all operations within the organisation into

  a single system

  Which of the above statements is/are true?

  A

  B

  C

  D

  (i) only

  (ii) only

  Both (i) and (ii)

  Neither (i) nor (ii)

  6

  The following information is available for a manufacturing company which produces multiple products:

  (i)

  The product mix ratio

  (ii) Contribution to sales ratio for each product

  (iii) General fixed costs

  (iv) Method of apportioning general fixed costs

  Which of the above are required in order to calculate the break-even sales revenue for the company?

  A

  B

  C

  D

  All of the above

  (i), (ii) and (iii) only

  (i), (iii) and (iv) only

  (ii) and (iii) only

  7

  Which of the following is an external source of information?

  A

  B

  C

  D

  Value of sales, analysed for each customer

  Value of purchases, analysed for each supplier

  Prices of similar products, analysed for each competitor company

  Hours worked, analysed for each employee

  3

  [P.T.O.

  8

  C Co uses material B, which has a current market price of $0·80 per kg. In a linear program, where the objective is

  to maximise profit, the shadow price of material B is $2 per kg. The following statements have been made:

  (i)

  Contribution will be increased by $2 for each additional kg of material B purchased at the current market price

  (ii) The maximum price which should be paid for an additional kg of material B is $2

  (iii) Contribution will be increased by $1·20 for each additional kg of material B purchased at the current market

  price

  (iv) The maximum price which should be paid for an additional kg of material B is $2·80

  Which of the above statements is/are correct?

  A

  B

  C

  D

  (ii) only

  (ii) and (iii)

  (i) only

  (i) and (iv)

  9

  X Co uses a throughput accounting system. Details of product A, per unit, are as follows:

  Selling price

  Material costs

  $320

  $80

  Conversion costs

  Time on bottleneck resource

  $60

  6 minutes

  What is the return per hour for product A?

  A

  B

  C

  D

  $40

  $2,400

  $30

  $1,800

  10 The following ratios have been calculated for a company:

  Gross profit margin

  Operating profit margin

  Gearing (debt/equity)

  Asset turnover

  42%

  28%

  40%

  65%

  What is the return on capital employed for the company?

  A

  B

  C

  D

  27·3%

  18·2%

  11·2%

  16·8%

  4

  11 A company manufactures three products using different amounts of the same grade of labour, which is in short supply.

  The following budgeted data relates to the products:

  Per unit:

  P1

  $

  P2

  $

  P3

  $

  Selling price

  120

  (40)

  (10)

  (20)

  140

  (32)

  (20)

  (28)

  95

  Materials ($2 per kg)

  Labour ($10 per hour)

  Variable overheads

  Fixed overheads

  (22)

  (11)

  (24)

  (6)

  (9)

  (12)

  ––––

  ––––

  ––––

  Profit per unit

  44

  51

  26

  ––––

  ––––

  ––––

  What order should the products be manufactured in to ensure that profit is maximised?

  P1

  P2

  P3

  A

  B

  C

  D

  2nd

  2nd

  1st

  1st

  3rd

  3rd

  2nd

  3rd

  1st

  2nd

  3rd

  1st

  12 The following statements have been made about life cycle costing:

  (i)

  It focuses on the short-term by identifying costs at the beginning of a product’s life cycle

  (ii) It identifies all costs which arise in relation to the product each year and then calculates the product’s profitability

  on an annual basis

  (iii) It accumulates a product’s costs over its whole life time and works out the overall profitability of a product

  (iv) It allocates costs to each stage of a product’s life cycle and writes them off at the end of each stage

  Which of the above statements is/are correct?

  A

  B

  C

  D

  (i) and (iii)

  (iii) only

  (i) and (iv)

  (ii) only

  13 A company’s sales and cost of sales figures have remained unchanged for the last two years. The following information

  has been noted:

  Year ended

  31 May 2015

  45 days

  40 days

  60 days

  1·3

  31 May 2014

  38 days

  35 days

  68 days

  1·4

  Inventory turnover period

  Payables payment period

  Receivables payment period

  Current ratio

  Quick ratio

  1·1

  1·3

  The following statements have been made about the company’s performance for the most recent year:

  (i)

  Customers are taking longer to pay and this may have contributed to the decline in the company’s current ratio

  (ii) Inventory levels have decreased and this may have contributed to the decline in the company’s quick ratio

  Which of the above statements is/are true?

  A

  B

  C

  D

  (i) only

  (ii) only

  Both (i) and (ii)

  Neither (i) nor (ii)

  5

  [P.T.O.

  14 Caf Co budgeted to sell 10,000 units of a new product in the period at a budgeted selling price of $5 per unit. Actual

  sales volumes in the period were as budgeted but the actual sales price achieved was only $4 per unit. This was

  because a competitor launched a similar product at the same time. Caf Co had been unaware that this was going to

  happen when it prepared its budget and, had it known this, it would have revised its expected selling price to $3·80

  per unit, which was the price of the competitor’s product.

  What is the sales price planning variance?

  A

  B

  C

  D

  $12,000 A

  $12,000 F

  $2,000 F

  $2,000 A

  15 The following budgeted data for a particular period was available for a company selling two products:

  Sales price

  per unit

  $20

  Variable cost

  per unit

  $8

  Sales volume

  in units

  15,840

  Product A

  Product B

  $24

  $11

  10,560

  The actual results for the period were as follows:

  Sales price

  per unit

  $22

  Variable cost

  per unit

  $8

  Sales volume

  in units

  14,200

  Product A

  Product B

  $26

  $11

  12,500

  What is the total sales quantity contribution variance for the period?

  A

  B

  C

  D

  $3,720 F

  $3,720 A

  $4,320 F

  $4,320 A

  16 A company predicted that the learning rate for production of a new product would be 80%. The actual learning rate

  was 75%. The following possible reasons were stated for this:

  (i)

  The number of new employees recruited was lower than expected

  (ii) Unexpected problems were encountered with production

  (iii) Unexpected changes to Health and Safety laws meant that the company had to increase the number of breaks

  during production for employees

  Which of the above reasons could have caused the difference between the expected rate of learning and the

  actual rate of learning?

  A

  B

  C

  D

  All of the above

  (ii) and (iii) only

  (i) only

  None of the above

  6

  17 When activity-based costing is used for environmental accounting, which statement is correct for

  environment-related costs and environment-driven costs?

  A

  B

  C

  D

  Environment-related costs can be attributed to joint cost centres and environment-driven costs cannot be

  Environment-driven costs can be attributed to joint cost centres and environment-related costs cannot be

  Both environment-related costs and environment-driven costs can be attributed to joint cost centres

  Neither environment-related costs nor environment-driven costs can be attributed to joint cost centres

  18 The following statements have been made about the materials mix variance for a company manufacturing different

  products using the same type of material (measured in kgs):

  (i)

  The mix variance can be calculated by taking the difference between the actual quantity in the standard mix and

  the actual quantity in the actual mix, then multiplying it by the actual cost per kg

  (ii) The mix variance arises because there is a difference between what the input should have been for the output

  achieved and the actual output

  Which of the above statements is/are correct?

  A

  B

  C

  D

  Neither (i) nor (ii)

  Both (i) and (ii)

  (i) only

  (ii) only

  19 At the start of the year, a division has non-current assets of $4 million and makes no additions or disposals during

  the year. Depreciation is charged at a rate of 10% per annum on all non-current assets held at the end of the year.

  Working capital is $0·5 million at the start of the year although this is expected to increase by 20% by the end of the

  year. The budgeted profit of the division after depreciation is $1·2m.

  What is the expected ROI of the division for the year, based on average capital employed?

  A

  B

  C

  D

  27·59%

  26·37%

  18·39%

  31·58%

  20 The following statements have been made in relation to the concepts outlined in throughput accounting:

  (i)

  Inventory levels should be kept to a minimum

  (ii) All machines within a factory should be 100% efficient, with no idle time

  Which of the above statements is/are correct?

  A

  B

  C

  D

  (i) only

  (ii) only

  Both (i) and (ii)

  Neither (i) nor (ii)

  (40 marks)

  [P.T.O.

  Section B – ALL FIVE questions are compulsory and MUST be attempted

  Please write your answers to all parts of these questions on the lined pages within the Candidate Answer Booklet.

  1

  Beckley Hill (BH) is a private hospital carrying out two types of procedures on patients. Each type of procedure incurs

  the following direct costs:

  Procedure

  A

  $

  B

  $

  Surgical time and materials

  Anaesthesia time and materials

  1,200

  800

  2,640

  1,620

  BH currently calculates the overhead cost per procedure by taking the total overhead cost and simply dividing it by

  the number of procedures, then rounding the cost to the nearest 2 decimal places. Using this method, the total cost

  is $2,475·85 for Procedure A and $4,735·85 for Procedure B.

  Recently, another local hospital has implemented activity-based costing (ABC). This has led the finance director at BH

  to consider whether this alternative costing technique would bring any benefits to BH. He has obtained an analysis

  of BH’s total overheads for the last year and some additional data, all of which is shown below:

  Cost

  Cost driver

  $

  Administrative costs

  Nursing costs

  Catering costs

  General facility costs

  Administrative time per procedure

  Length of patient stay

  Number of meals

  1,870,160

  6,215,616

  966,976

  Length of patient stay

  8,553,600

  –––––––––––

  Total overhead costs

  17,606,352

  –––––––––––

  Procedure

  No. of procedures

  Administrative time per procedure (hours)

  Length of patient stay per procedure (hours)

  Average no. of meals required per patient

  A

  14,600

  1

  24

  1

  B

  22,400

  1·5

  48

  4

  Required:

  (a) Calculate the full cost per procedure using activity-based costing.

  (6 marks)

  (b) Making reference to your findings in part (a), advise the finance director as to whether activity-based costing

  should be implemented at BH.

  (4 marks)

  (10 marks)

  2

  Mobe Co manufactures electronic mobility scooters. The company is split into two divisions: the scooter division

  (Division S) and the motor division (Division M). Division M supplies electronic motors to both Division S and to

  external customers. The two divisions run as autonomously as possible, subject to the group’s current policy that

  Division M must make internal sales first before selling outside the group; and that Division S must always buy its

  motors from Division M. However, this company policy, together with the transfer price which Division M charges

  Division S, is currently under review.

  Details of the two divisions are given below.

  Division S

  Division S’s budget for the coming year shows that 35,000 electronic motors will be needed. An external supplier

  could supply these to Division S for $800 each.

  Division M

  Division M has the capacity to produce a total of 60,000 electronic motors per year. Details of Division M’s budget,

  which has just been prepared for the forthcoming year, are as follows:

  Budgeted sales volume (units)

  Selling price per unit for external sales of motors

  Variable costs per unit for external sales of motors

  60,000

  $850

  $770

  The variable cost per unit for motors sold to Division S is $30 per unit lower due to cost savings on distribution and

  packaging.

  Maximum external demand for the motors is 30,000 units per year.

  Required:

  Assuming that the group’s current policy could be changed, advise, using suitable calculations, the number of

  motors which Division M should supply to Division S in order to maximise group profits. Recommend the transfer

  price or prices at which these internal sales should take place.

  Note: All relevant workings must be shown.

  (10 marks)

  [P.T.O.

  3

  Bokco is a manufacturing company. It has a small permanent workforce but it is also reliant on temporary workers,

  whom it hires on three-month contracts whenever production requirements increase. All buying of materials is the

  responsibility of the company’s purchasing department and the company’s policy is to hold low levels of raw materials

  in order to minimise inventory holding costs. Bokco uses cost plus pricing to set the selling prices for its products once

  an initial cost card has been drawn up. Prices are then reviewed on a quarterly basis. Detailed variance reports are

  produced each month for sales, material costs and labour costs. Departmental managers are then paid a monthly

  bonus depending on the performance of their department.

  One month ago, Bokco began production of a new product. The standard cost card for one unit was drawn up to

  include a cost of $84 for labour, based on seven hours of labour at $12 per hour. Actual output of the product during

  the first month of production was 460 units and the actual time taken to manufacture the product totalled 1,860

  hours at a total cost of $26,040.

  After being presented with some initial variance calculations, the production manager has realised that the standard

  time per unit of seven hours was the time taken to produce the first unit and that a learning rate of 90% should have

  been anticipated for the first 1,000 units of production. He has consequently been criticised by other departmental

  managers who have said that, ‘He has no idea of all the problems this has caused.’

  Required:

  (a) Calculate the labour efficiency planning variance and the labour efficiency operational variance AFTER taking

  account of the learning effect.

  Note: The learning index for a 90% learning curve is –0·1520

  (5 marks)

  (b) Discuss the likely consequences arising from the production manager’s failure to take into account the

  learning effect before production commenced.

  (5 marks)

  (10 marks)

  4

  ALG Co is launching a new, innovative product onto the market and is trying to decide on the right launch price for

  the product. The product’s expected life is three years. Given the high level of costs which have been incurred in

  developing the product, ALG Co wants to ensure that it sets its price at the right level and has therefore consulted a

  market research company to help it do this. The research, which relates to similar but not identical products launched

  by other companies, has revealed that at a price of $60, annual demand would be expected to be 250,000 units.

  However, for every $2 increase in selling price, demand would be expected to fall by 2,000 units and for every $2

  decrease in selling price, demand would be expected to increase by 2,000 units.

  A forecast of the annual production costs which would be incurred by ALG Co in relation to the new product are as

  follows:

  Annual production (units)

  200,000

  $

  250,000

  $

  300,000

  $

  350,000

  $

  Direct material

  Direct labour

  Overheads

  2,400,000

  1,200,000

  1,400,000

  3,000,000

  1,500,000

  1,550,000

  3,600,000

  1,800,000

  1,700,000

  4,200,000

  2,100,000

  1,850,000

  Required:

  (a) Calculate the total variable cost per unit and total fixed overheads.

  (3 marks)

  (b) Calculate the optimum (profit maximising) selling price for the new product AND calculate the resulting profit

  for the period.

  Note: If P = a – bx then MR = a – 2bx.

  (7 marks)

  (c) The sales director is unconvinced that the sales price calculated in (b) above is the right one to charge on the

  initial launch of the product. He believes that a high price should be charged at launch so that those customers

  prepared to pay a higher price for the product can be ‘skimmed off’ first.

  Required:

  Discuss the conditions which would make market skimming a more suitable pricing strategy for ALG, and

  recommend whether ALG should adopt this approach instead.

  (5 marks)

  (15 marks)

  [P.T.O.

  5

  Lesting Regional Authority (LRA) is responsible for the provision of a wide range of services in the Lesting region,

  which is based in the south of the country ‘Alaia’. These services include, amongst other things, responsibility for

  residents’ welfare, schools, housing, hospitals, roads and waste management.

  Over recent months the Lesting region experienced the hottest temperatures on record, resulting in several forest fires,

  which caused damage to several schools and some local roads. Unfortunately, these hot temperatures were then

  followed by flooding, which left a number of residents without homes and saw higher than usual numbers of

  admissions to hospitals due to the outbreak of disease. These hospitals were full and some patients were treated in

  tents. Residents have been complaining for some years that a new hospital is needed in the area.

  Prior to these events, the LRA was proudly leading the way in a new approach to waste management, with the

  introduction of its new ‘Waste Recycling Scheme.’ Two years ago, it began phase 1 of the scheme and half of its

  residents were issued with different coloured waste bins for different types of waste. The final phase was due to begin

  in one month’s time. The cost of providing the new waste bins is significant but LRA’s focus has always been on the

  long-term savings both to the environment and in terms of reduced waste disposal costs.

  The LRA is about to begin preparing its budget for the coming financial year, which starts in one month’s time. Over

  recent years, zero-based budgeting (ZBB) has been introduced at a number of regional authorities in Alaia and, given

  the demand on resources which LRA faces this year, it is considering whether now would be a good time to introduce

  it.

  Required:

  (a) Describe the main steps involved in preparing a zero-based budget.

  (3 marks)

  (b) Discuss the problems which the Lesting Regional Authority (LRA) may encounter if it decides to introduce

  and use ZBB to prepare its budget for the coming financial year.

  (9 marks)

  (3 marks)

  (c) Outline THREE potential benefits of introducing zero-based budgeting at the LRA.

  (15 marks)

  Formulae Sheet

  Learning curve

  Y = axb

  Where Y = cumulative average time per unit 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/log2)

  LR = the learning rate as a decimal

  Demand curve

  P = a – bQ

  change in price

  b = change in quantity

  a = price when Q = 0

  MR = a – 2bQ

  End of Question Paper

  Section A

  1

  C

  Divisional profit before depreciation = $2·7m x 15% = $405,000 per annum.

  Less depreciation = $2·7m x 1/50 = $54,000 per annum.

  Divisional profit after depreciation = $351,000

  Imputed interest = $2·7m x 7% = $189,000

  Residual income = $162,000.

  2

  3

  4

  D

  Option (ii) is not relevant since it is a common cost.

  C

  A target cost is arrived at by identifying the market price of a product and then subtracting a desired profit margin from it.

  C

  The maximum regret at each supply level is as follows:

  At 325: $142

  At 350: $90

  At 375: $82

  At 400: $120

  The minimum of these is $82 at 375, therefore the answer is C.

  5

  6

  7

  8

  A

  Statement (ii) describes an enterprise resource planning system, not an executive information system.

  B

  The method of apportioning general fixed costs is not required to calculate the break-even sales revenue.

  C

  All of the others are internal sources of information.

  D

  Statement (ii) is wrong as it reflects the common misconception that the shadow price is the maximum price which should be paid,

  rather than the maximum extra over the current purchase price.

  Statement (iii) is wrong but could be thought to be correct if (ii) was wrongly assumed to be correct.

  9

  B

  $320 – $80/(6/60) = $2,400

  10

  B

  ROCE can be calculated by multiplying the operating profit margin and the asset turnover.

  28% x 65% = 18·2%

  17

  11

  C

  Labour hours per unit

  1

  2

  1·1

  $

  44

  6

  $

  51

  9

  $

  26

  12

  Profit per unit

  Add back fixed costs

  Contribution per unit

  Contribution per labour hour

  Ranking

  50

  50

  1st

  60

  30

  3rd

  38

  34·55

  2nd

  12

  13

  B

  All of the statements are false except statement (iii).

  D

  The first statement is wrong because customers are actually paying more quickly.

  The second statement is wrong because inventory levels have increased.

  14

  15

  A

  Planning variance = ($3·80 – $5) x 10,000 = $12,000 A

  A

  The sales quantity contribution variance is calculated as follows:

  Actual sales

  units in std mix

  16,020

  Standard sales

  units in std mix

  15,840

  Difference

  in units

  180F

  Standard

  contribution

  $12

  Variance

  Product A

  Product B

  $2,160F

  10,680

  10,560

  120F

  $13

  $1,560F

  ––––––––

  Total

  $3,720F

  ––––––––

  16

  17

  18

  C

  The learning rate was actually better than expected and only (i) could cause it to improve.

  A

  This is the correct option as environment-driven costs are allocated to general overheads, not joint cost centres.

  A

  The first statement is incorrect as the difference between actual quantity in standard mix and the actual quantity in the actual mix

  is valued at the standard cost per kg, not the actual cost.

  The second statement is incorrect as that is the definition of the yield variance.

  19

  A

  Working

  Opening capital employed: $4m + $0·5m = $4·5m

  Closing capital employed: ($4m x 0·9) + ($0·5 x 1·2) = $3·6m + $0·6 = $4·2m

  Average capital employed = $4·35m

  Profit after depreciation = $1·2m

  Therefore ROI = $1·2m/$4·35m = 27·59%

  20

  A

  The first statement is correct as throughput accounting discourages production for inventory purposes and is often used in a just

  in time environment.

  The second statement is incorrect as in throughput accounting it is the bottleneck resource which should be 100% efficient which

  actually may mean unused capacity elsewhere.

  18

  Section B

  1

  (a)

  Beckley Hill

  Annual activity per cost driver

  Procedure

  No. of procedures

  Admin. time per procedure (hours)

  Patient hours

  Number of meals

  A

  B

  22,400

  33,600

  1,075,200

  89,600

  Total

  37,000

  48,200

  1,425,600

  104,200

  14,600

  14,600

  350,400

  14,600

  Cost driver rates

  Administrative costs – $1,870,160/48,200 = $38·80 per admin hour

  Nursing costs

  Catering costs

  – $6,215,616/1,425,600 = $4·36 per patient hour

  – $966,976/104,200 = $9·28 per meal

  General facility costs – $8,553,600/1,425,600 = $6 per patient hour

  Overhead allocation per procedure

  Procedure

  A

  B

  Administrative costs

  Nursing costs

  Catering costs

  38·80

  104·64

  9·28

  58·20

  209·28

  37·12

  General facility costs

  144·00

  288·00

  –––––––––

  –––––––––

  296·72

  592·60

  –––––––––

  –––––––––

  Add direct costs:

  Surgical

  1,200

  2,640

  Anaesthesia

  800

  1,620

  –––––––––

  –––––––––

  Total cost per procedure

  2,296·72

  4,852·60

  –––––––––

  –––––––––

  (b)

  When activity-based costing (ABC) is used as in (a) above, the cost for Procedure A is approximately $2,297 as compared

  to the approximate $2,476 currently calculated by BH. For Procedure B, the cost using ABC is approximately $4,853 as

  compared to the approximate current cost of $4,736. Hence, the cost of Procedure A goes down using ABC and the cost of

  Procedure B goes up. This reflects the fact that the largest proportion of the overhead costs is the nursing and general facility

  costs. Both of these are driven by the number of patient hours for each procedure. Procedure B has twice as many patient

  hours as Procedure A. Whilst this is not taken into account when the overheads are simply being divided by the number of

  procedures and allocated to each product, it would be if ABC were adopted instead. Hence, the allocation of costs would

  more fairly reflect the use of resources driving the overheads.

  However, ABC can be a lot of work to implement, and whilst the comparative costs are different, they are not significantly

  different. Given that ABC is costly to implement, it may be that a similar allocation in overheads can be achieved simply by

  using a fairer basis to absorb the costs. If patient hours are used as the basis of absorption instead of simply dividing the

  overheads by the number of procedures, the costs for Procedures A and B would be $2,296 and $4,853 (W1). Hence, the

  same result can be achieved without going to all of the time and expense of using ABC. Therefore BH should not adopt ABC

  but use this more accurate basis of absorbing overheads instead.

  Working 1

  $17,606,352/1,425,600 hours = $12·35 per hour.

  Therefore absorption cost for A = $1,200 + $800 + (24 x $12·35) = $2,296.

  Same calculation for B but with 48 hours instead.

  2

  Mobe Co

  From the group’s perspective

  For every motor sold externally, Division M generates a profit of $80 ($850 – $770) for the group as a whole. For every motor

  which Division S has to buy from outside of the group, there is an incremental cost of $60 per unit ($800 – [$770 – $30]).

  Therefore, from a group perspective, as many external sales should be made as possible before any internal sales are made.

  Consequently, the group’s current policy will need to be changed. This does, however, assume that the quality of the motors bought

  from outside the group is the same as the quality of the motors made by Division M.

  Division M’s total capacity is 60,000 units. Given that it can make external sales of 30,000 units, it can only supply 30,000 of

  Division S’s demand for 35,000 motors. These 30,000 units should be bought from Division M since, from a group perspective,

  the cost of supplying these internally is $60 per unit cheaper than buying externally. The remaining 5,000 motors required by

  Division S should then be bought in from the external supplier at $800 per unit. .

  In order to work out the transfer price which should be set for the internal sales of 30,000 motors, the perspective of both divisions

  must be considered.

  19

  From Division M’s perspective

  Division M’s only buyer for these 30,000 motors is Division S, so the lowest price it would be prepared to charge is the marginal

  cost of making these units, which is $740 per unit. However, it would ideally want to make some profit on these motors too and

  would consequently expect a significantly higher price than this.

  From Division S’s perspective

  Division S knows that it can buy as many external motors as it needs from outside the group at a price of $800 per unit. Therefore,

  this will be the maximum price which it is prepared to pay.

  Overall

  Therefore, the transfer price should be set somewhere between $740 and $800. From the perspective of the group, the total group

  profit will be the same irrespective of where in this range the transfer price is set. However, it is important that divisional managers

  and staff remain motivated. Given the external sales price which Division M can achieve and the fact that Division S would have

  to pay $800 for each motor bought from outside the group, the transfer price should probably be at the higher end of the range.

  3

  Bokco

  (a)

  Planning and operational variances

  Revised hours for actual production:

  Cumulative time per hour for 460 units is calculated by using the learning curve formula: Y = ax b

  a = 7

  x = 460

  b = –0·1520

  Therefore y = 7 x 460 –0·1520 = 2·7565054

  Therefore revised time for 460 units = 1,268 hours.

  Labour efficiency planning variance

  (Standard hours for actual production – revised hours for actual production) x std rate

  = ([460 x 7] – 1,268) x $12 = $23,424F

  Labour efficiency operational variance

  (Revised hours for actual production – actual hours for actual production) x std rate

  (1,268 – 1,860) x $12 = $7,104A

  (b)

  Consequences of failure to anticipate learning effect

  The likely consequences are as follows:

  –

  Bokco will have hired too many temporary staff because of the fact that the new product can actually be produced more

  quickly than originally thought. Given that these staff are hired on three-month contracts, Bokco will presumably have

  to pay the staff for the full three months even if all of them are not needed. This will be a significant and unnecessary

  cost to the business.

  –

  –

  Since production is actually happening more quickly than anticipated, the company may well have run out of raw

  materials, leading to a stop in production. Idle time is a waste of resources and costs money.

  If there have been stockouts, the buying department may have incurred additional costs for expedited deliveries or may

  have been forced to use more expensive suppliers. This would have made the material price variance adverse and

  negatively affected the buying department’s manager bonus, which would have a demotivational effect on him.

  –

  –

  Since Bokco uses cost plus pricing for its products, the price for the product will have been set too high. This means

  that sales volumes may well have been lower than they otherwise might have been, leading to lost revenue for the

  company and maybe even failure of the new product launch altogether. This will continue to be the case for the next

  two months unless the price review is moved forward.

  The sales manager will be held responsible for the poorer sales of the product, which will probably be reflected in an

  adverse sales volume variance. This means that he may lose his bonus through no fault of his own. This will have a

  demotivational effect on him.

  Note: Other valid points could be made too.

  4

  ALG Co

  (a)

  Variable cost per unit

  Material cost = $2,400,000/200,000 = $12 per unit.

  Labour cost = $1,200,000/200,000 = $6 per unit.

  Variable overhead cost using high-low method: ($1,850,000 – $1,400,000)/(350,000 – 200,000) = $3 per unit.

  Therefore total variable cost per unit = $21.

  Fixed costs = $1,400,000 – (200,000 x $3) = $800,000

  20

  (b)

  Optimum price

  Find the demand function

  Demand function is P = a – bx, where P = price and x = quantity, therefore find a value for a and b firstly.

  B = ∆P/∆Q = 2/2,000 = 0·001 (ignore the minus sign as it is already reflected in the formula P = a – bx.)

  Therefore P = a – 0·001x

  Find value for ‘a’ by substituting in the known price and demand relationship from the question, matching ‘p’ and ‘x’

  accordingly.

  60 = a – (0·001 x 250,000)

  60 = a – 250

  310 = a

  Therefore P = 310 – 0·001x.

  Identify MC

  MC = $21 calculated in (a)

  State MR

  MR = 310 – 0·002x

  Equate MC and MR to find x

  21 = 310 – 0·002x

  0·002x = 289

  x = 144,500

  Substitute x into demand function to find P

  P = 310 – (0·001 x 144,500)

  P = $165·50

  Calculate profit

  Sales revenue = 144,500 x $165·50 = $23,914,750

  Variable overheads = 144,500 x $21 = $3,034,500

  Fixed overheads = $800,000

  Therefore profit = $20,080,250

  (c)

  Market skimming

  As the sales director suggests, market skimming is a strategy which initially charges high prices for the product in order to

  take advantage of those buyers who want to buy it as soon as possible, and are prepared to pay high prices in order to do

  so.

  If certain conditions exist, the strategy could be a suitable one for ALG Co. The conditions are as follows:

  –

  Where a product is new and different, so that customers are prepared to pay high prices in order to gain the perceived

  status of owning the product early. All we know about ALG Co’s product is that it is ‘innovative’, so it may well meet this

  condition.

  –

  –

  Where products have a short life cycle this strategy is more likely to be used, because of the need to recover development

  costs and make a profit quickly. ALG Co’s product does only have a three-year life cycle, which does make it fairly short.

  Where high prices in the early stages of a product’s life cycle are expected to generate high initial cash inflows. If this

  is the case here, then skimming would be useful to help ALG Co cover the high initial development costs which it has

  incurred.

  –

  –

  Where barriers to entry exist, which deter other competitors from entering the market; as otherwise, they will be enticed

  by the high prices being charged. These might include prohibitively high investment costs, patent protection or unusually

  strong brand loyalty. According to the information we have been given, high development costs were involved in this

  case, which would be a barrier to entry.

  Where demand and sensitivity of demand to price are unknown. In ALG Co’s case, market research has been carried

  out to establish a price. However, this information is based on the launch of similar but not identical products, so it is

  not really known just how accurate it will be.

  It is not possible to say for definite whether this pricing strategy would be suitable for ALG Co, because of the limited

  information available. However, it could always be launched at a higher price initially to see what demand is. It is far easier

  to lower a price after launch than to raise it. The optimum pricing approach in (b) above is based on a set of assumptions

  which do not hold true in the real world. Also, as the data is derived from similar but not identical products, it may not hold

  true for this particular product.

  21

  5

  (a)

  Main steps

  1.

  Activities are identified by managers. Managers are then forced to consider different ways of performing the activities.

  These activities are then described in what is called a ‘decision package’, which:

  –

  –

  –

  –

  –

  analyses the cost of the activity;

  states its purpose;

  identifies alternative methods of achieving the same purpose;

  establishes performance measures for the activity;

  assesses the consequence of not performing the activity at all or of performing it at different levels.

  As regards this last point, the decision package may be prepared at the base level, representing the minimum level of

  service or support needed to achieve the organisation’s objectives. Further incremental packages may then be prepared

  to reflect a higher level of service or support.

  2.

  3.

  Management will then rank all the packages in the order of decreasing benefits to the organisation. This will help

  management decide what to spend and where to spend it. This ranking of the decision packages happens at numerous

  levels of the organisation.

  The resources are then allocated based on order of priority up to the spending level available.

  (b)

  Potential problems

  At present, the LRA finds itself facing particularly difficult circumstances. The fires and the floods have meant that urgent

  expenditure is now needed on schools, roads and hospitals which would not have been required if these environmental

  problems had not occurred. Lesting is facing a crisis situation and the main question is therefore whether this is a good time

  to introduce anything new at the LRA when it already faces so many challenges.

  The introduction of ZBB in any organisation is difficult at any time because of the fact that the process requires far more skills

  than, for example, incremental budgeting. Managers would definitely need some specialist training as they simply will not

  have the skills which they would need in order to construct decision packages. This then would have further implications in

  terms of time and cost, and, at the moment, both of these are more limited than ever for the LRA. When so many costs are

  being faced by the LRA, can it really consider spending money on training staff to prepare and evaluate decision packages?

  Given that the budget needs preparing imminently as the new financial year is approaching, it is really too late to start training

  staff. With ZBB, the whole budgeting process becomes a lot more cumbersome as it has to be started from scratch. There is

  a lot of paperwork involved and the whole process of identifying decision packages and determining their costs and benefits

  is extremely time-consuming. There are often too many decision packages to evaluate and there is frequently insufficient

  information for them to be ranked. The LRA provides a wide range of services and it is therefore obvious that this would be

  a really lengthy and costly process to introduce. At the moment, some residents are homeless and several schools have been

  damaged by fire. How can one rank one as more important than the other when both are equally important for the

  community? Sometimes, the information needed in order to rank them simply will not be available, or managers will not feel

  able to assimilate it properly.

  Another problem with ZBB is that it can cause conflict to arise as departments compete for the resources available. Since

  expenditure is urgently required for schools, roads and hospitals, it is likely that these would be ranked above expenditure on

  the recycling scheme. In fact, the final phase of the scheme may well be postponed. This is likely to cause conflict between

  departments as those staff and managers involved in the recycling scheme will be disappointed if the final phase has to be

  postponed.

  (c)

  The potential benefits

  –

  ZBB will respond to changes in the economic environment since the budget starts from scratch each year and takes into

  account the environment at that time. This is particularly relevant this year after the fires and the floods. Without ZBB,

  adequate consideration may not be given to whether the waste management scheme should continue but, if ZBB is

  used, the scheme will probably be postponed as it is unlikely to rank as high as expenditure needed for schools, housing

  and hospitals.

  –

  If any of the activities or operations at LRA are wasteful, ZBB should be able to identify these and remove them. This is

  particularly important now when the LRA faces so many demands on its resources.

  –

  –

  –

  –

  –

  Managers may become more motivated as they have had a key role in putting the budget together.

  It encourages a more questioning attitude rather than just accepting the status quo.

  Overall, it leads to a more efficient allocation of resources.

  All of the organisations activities and operations are reviewed in depth.

  ZBB focuses attention on outputs in relation to value for money. This is particularly important in the public sector where

  the 3 Es (economy, efficiency and effectiveness) are often used to measure performance.

  Note: Only three were required.

  22

  Fundamentals Level – Skills Module, Paper F5

  Performance Management

  June 2015 Marking Scheme

  Section A

  Marks

  2 marks per question

  40

  –––

  –––

  Section B

  1

  (a)

  ABC calculation

  Correct cost driver rates

  Overhead unit cost for A

  Overhead unit cost for B

  Total cost for A

  2

  1·5

  1·5

  0·5

  Total cost for B

  0·5

  –––

  6

  –––

  (b)

  Discussion

  Per valid point

  2

  –––

  Maximum

  4

  –––

  Total marks

  10

  –––

  –––

  2

  Division M’s external sales generate $80 per unit

  Divison S’s external purchases cost $60 per unit

  Comparison of the $60 & $80

  Reasoned conclusion that Div M should make 30,000 external sales

  Division S should buy 5,000 units from outside

  Co policy should be changed

  Minimum TP from Division M’s perspective

  Maximum TP from Division S’s perspective

  Range of TPs discussed

  1

  1

  1

  2

  1

  1

  1

  1

  2

  Irrelevant to group which TP charged

  1

  –––

  Total marks (maximum)

  10

  –––

  –––

  3

  (a)

  (b)

  Advanced variances

  Revised labour hours

  Planning variance

  1

  2

  Operational variance

  2

  –––

  5

  –––

  Consequences

  Maximum per point

  2

  –––

  5

  –––

  Total marks

  10

  –––

  –––

  4

  (a)

  Costs

  Material cost

  Labour cost

  Variable overhead cost

  Total variable cost

  Fixed costs

  0·5

  0·5

  1

  0·5

  0·5

  –––

  3

  –––

  (b)

  Optimum price and profit

  Find value for b

  1

  1

  Find value for a

  Identify MC (figure from (a))

  State MR function with values for a and b

  Equate MC and MR to find x

  Substitute x in to find P

  Calculate profit

  0·5

  0·5

  1·5

  1

  1·5

  –––

  7

  –––

  (c)

  Market skimming

  Discussion of each condition – maximum 4

  Criticisms of optimal pricing – maximum 2

  Conclusion

  1

  1

  1

  –––

  Maximum

  5

  –––

  Total marks

  15

  –––

  –––

  5

  (a)

  (b)

  Steps

  Identification of decision packages

  Rank

  1

  1

  Allocation of resources

  1

  –––

  3

  –––

  Problems

  Times more difficult at minute

  Need more skills and training

  Less money now than ever

  Too late in terms of timing now

  Lots of paperwork and time

  Can cause conflicts

  2

  2

  2

  2

  2

  2

  Other valid points

  2

  –––

  Overall maximum

  9

  –––

  (c)

  Benefits

  Per point

  1

  –––

  3

  –––

  Total marks

  15

  –––

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