Episode # 3: Mgmt Accounting Vs Adv Performc Mgmt

[Muhammad Amir]

Episode # 3 CA Module ‘F’ F-18 “Management Accounting” Vs ACCA ‘Professional Level’ P-5 “Advanced Performance Management”.

Look at these papers in the perspectives of paper pattern, assessment criteria and marking scheme.

I am comparing winter (December) 2006 paper of “Management Accounting” with December 2007 paper of “Advanced Performance Management”.

At the end of the topic I will post the differences between paper pattern, assessment criteria and marking schemes of both bodies.

The layout of this paper is in tabular form so this forum does not support tabular format so instead of giving full data I am just pasting non-tabular data and requirements of question.

So lets start with CA Module ‘F’ “Management Accounting” paper.

Q.1 AZKA Manufacturing Company is involved in manufacturing and sale of a single
product called AZKA. Sales and operating profits of the company for the first two
quarters of the year were as follows

Required
<b><font color="red">(a) Prepare an income statement for second quarter under
(i) Absorption costing
(ii) Direct costing
(b) Reconcile the profits of the two quarters in such a way as to highlight the</font id="red">(Absorption And Marginal Costing and Reconciliation is not a matter of Module 'F' Level after all Module F is demanding)</b>reasons for low profit percentage in the second quarter. (12)


Q.2 Leads Pharmaceuticals Limited is engaged in the production and marketing of a
number of products. PQR is their main product. This product is produced in three
different formats. Following data pertains to one month of production

Required
<b><font color="red">Prepare a production plan for next month which would give maximum profit while
maintaining the market share at a reasonable level in each category. (20)</font id="red">(Production Budget at this level is a joke)</b>


Q.3 A company manufactures three products. Extracts from its standard cost data are given
below

Required
<b><font color="red">
(a) Prepare budgets for the next four week period for the following (03)
(i) Production (in quantity); (04)
(ii) Materials usage (in quantity); (04)
(iii) Materials purchases (in quantity and value).
(b) Briefly describe the four main types of standards under standard costing. (02)</font id="red">Again Budgeting, Budgeting is the level of ACCAs F5 fundamental level paper</b>

Q.4 Reliable Cement Ltd. has an installed capacity of 125 000 tonnes of cement per annum.
Its present capacity utilization is 80 per cent. The company produces cement in bags of
50 kgs each. Cost structure per bag of cement, as estimated by the management is
given below

Rupees
Limestone 30
Other raw materials 50
Packing material 20
Direct labour 60
Fuel 100
Factory overheads (including deprecation of Rs 20) 60
Administrative overheads 40
Selling overheads 50
Total cost 410
Profit margin 90
Selling price 500
Add Government levies (20 per cent of selling price) 100
Invoice price to consumers 600
Following additional information is also available

(i) Desired holding period of various materials is Limestone 1 month; Other raw
materials 3 months; Fuel 2.5 months; Packing material 1.5 months.
(4)
(ii) Work in process is equal to approximately half month’s production (assume
that full units of materials are required in the beginning; other conversion costs
are to be taken at 50 per cent).
(iii) Finished goods are in stock for a period of 1 month before they are sold.
(iv) Debtors are extended credit for a period of 3 months.
(v) Average time lag in payment of wages is approximately ½ month and that of
overheads is one month.
(vi) Average time lag in payment of government levies is 1 month.
(vii) The credit period extended by suppliers of fuel, packing materials and other
raw materials is 1 month, ½ month and 2 months respectively.
(viii) Minimum desired cash balance is Rs. 5 million.

Required
<b>From the information given above, determine the net <font color="red">working capital requirement</font id="red"></b> of
the company for the current year. (15)


Q.5 Desktop Products propose to install a central air-conditioning system in their city
office building. Three systems - gas, oil and solid fuel are under consideration. The
costs of installing and running the three systems are estimated as follows

Required
Prepare calculations showing which central air-conditioning system should be
installed, assuming that the decision will be based on the expected present values of the
costs of each system. (14)


Q.6 Your assistant has been preparing the profit and loss statement for the week ended
October 31. Unfortunately he had to proceed on leave in an emergency. The
incomplete statement and relevant data are shown below

Required
Complete the above statement for the week ended October 31. (18)

Q.7 With reference to the concept of <font color="red">Total Quality Management (TQM)</font id="red">

(a) <font color="red"><b>Identify and explain the categories of quality costs. Also give two examples in
each case</b></font id="red">.

(b) How quality can be measured? (08)


(THE END)



So, you have seen this paper and its marking scheme now lets see the criteria of ACCA ‘Professional Level’ P-5 “Advanced Performance Management” paper.

[Muhammad Amir]

It is almost impossible for me to post full paper of ACCA P5 Advanced Performance Management, I am only posting Question Requirments because every scenario is having 2 to 3 pages plus lots of tabular information which can't be posted in forum because of incapability of this forum.


Question # 1

Required
<font color="purple">(a)<b> Prepare a report on the operating performance and financial performance of GBC and TTC for the years ended 30 November 2006 and 2007. As part of your report, you should include an appendix showing
detailed workings of how each of the six figures marked with an asterisk (*) in note 1 has been calculated</b>.</font id="purple"><b>See the difference by your own eyes</b> (23 marks)

Note 6 marks are available in respect of the six figures marked with an asterisk (*). 17 marks are available for other calculations and discussion, including 4 professional marks.

(b) <font color="purple">Explain THREE problems in undertaking a performance comparison of GBC and TTC and also explain THREE items of additional information that would be of assistance in assessing the operating and financial
performance of GBC and TTC. (6 marks)</font id="purple">

(c) <font color="purple">Critically discuss the statement (in note 12) of the managing director of GBC and suggest how the company could calculate the value of the service provision to the population of the Western region.</font id="purple">
(6 marks)

(35 marks)


2 Alpha Division, which is part of the Delta Group, is considering an investment opportunity to which the following estimated information relates

(1) An initial investment of $45m in equipment at the beginning of year 1 will be depreciated on a straight-line basis over a three-year period with a nil residual value at the end of year 3.

(2) Net operating cash inflows in each of years 1 to 3 will be $12·5m, $18·5m and $27m respectively.

(3) The management accountant of Alpha Division has estimated that the NPV of the investment would be $1·937m using a cost of capital of 10%.

(4) A bonus scheme which is based on short-term performance evaluation is in operation in all divisions within the Delta Group.

Required
(a) (i) <font color="purple">Calculate the residual income of the proposed investment and comment briefly (using ONLY the above information) on the values obtained in reconciling the short-term and long-term decision views likely to be adopted by divisional management regarding the viability of the proposed investment. </font id="purple"><b>this is much more than module 'F' Absorption and Marginal Costing</b> (6 marks)

(ii) A possible analysis of divisional profit measurement at Alpha Division might be as follows

$m

Sales revenue xxx
Less variable costs xxx
–––
1. Variable short run contribution margin xxx
Less controllable fixed costs xxx
–––
2. Controllable profit xxx
Less non-controllable avoidable costs xxx
–––
3. Divisional profit xxx
–––


Required
Discuss the relevance of each of the divisional profit measures 1, 2 and 3 in the above analysis as an acceptable measure of divisional management performance and/or divisional economic performance at Alpha Division.

You should use appropriate items from the following list relating to Alpha Division in order to illustrate your discussion
(i) Sales to customers external to the Delta Group
(ii) Inter-divisional transfers to other divisions within the Delta Group at adjusted market price
(iii) Labour costs or equipment rental costs that are fixed in the short term
(iv) Depreciation of non-current assets at Alpha Division
(v) Head office finance and legal staff costs for services provided to Alpha Division.

(8 marks)


(b) Summary financial information for the Gamma Group (which is not connected with the Delta Group) is as follows

Income statements/financial information

Other information is as follows

(1) Capital employed at the end of 2005 amounted to $279m.

(2) The Gamma Group had non-capitalised leases valued at $16m in each of the years 2005 to 2007 which were not subject to amortisation.

(3) Amortisation of goodwill amounted to $5m per year in both 2006 and 2007. The amount of goodwill written off against reserves on acquisitions in years prior to 2006 amounted to $45m.

(4) The Group’s pre-tax cost of debt was estimated to be 10%.

(5) The Group’s cost of equity was estimated to be 16% in 2006 and 18% in 2007.

(6) The target capital structure is 50% equity, 50% debt.

(7) The rate of taxation is 30% in both 2006 and 2007.

(8) Economic depreciation amounted to $40m in 2006 and $45m in 2007. These amounts were equal to the depreciation used for tax purposes and depreciation charged in the income statements.

(9) Interest payable amounted to $6m per year in both 2006 and 2007.

(10) Other non-cash expenses amounted to $12m per year in both 2006 and 2007.

Required
<font color="purple">(i) Stating clearly any assumptions that you make, estimate the <b>Economic Value Added (EVA™) </b> of the Gamma Group for both 2006 and 2007 and comment briefly on the performance of the Group.</font id="purple">
(8 marks)

(ii) <b>Briefly discuss THREE disadvantages of using EVA™ in the measurement of financial performance.</b> (3 marks)

(25 marks)


Section B – TWO questions ONLY to be attempted
3 The directors of The Healthy Eating Group (HEG), a successful restaurant chain, which commenced trading in 1998, have decided to enter the sandwich market in Homeland, its country of operation. It has set up a separate operation under the name of Healthy Sandwiches Co (HSC). A management team for HSC has been recruited via a recruitment consultancy which specialises in food sector appointments. Homeland has very high unemployment and the vast
majority of its workforce has no experience in a food manufacturing environment. HSC will commence trading on 1 January 2008.

The following information is available

(1) HSC has agreed to make and supply sandwiches to agreed recipes for the Superior Food Group (SFG) which owns a chain of supermarkets in all towns and cities within Homeland. SFG insists that it selects the suppliers of the ingredients that are used in making the sandwiches it sells and therefore HSC would be unable to reduce the costs of the ingredients used in the sandwiches. HSC will be the sole supplier for SFG.

(2) The number of sandwiches sold per year in Homeland is 625 million. SFG has a market share of 4%.

(3) The average selling price of all sandwiches sold by SFG is $2·40. SFG wishes to make a mark-up of 331/3% on all sandwiches sold. 90% of all sandwiches sold by SFG are sold before 2 pm each day. The majority of the remaining 10% are sold after 8 pm. It is the intention that all sandwiches are sold on the day that they are delivered into SFG’s supermarkets.

(4) The finance director of HSC has estimated that the average cost of ingredients per sandwich is $0·70. All sandwiches are made by hand.

(5) Packaging and labelling costs amount to $0·15 per sandwich.

(6) Fixed overheads have been estimated to amount to $5,401,000 per annum. Note that fixed overheads include all wages and salaries costs as all employees are subject to fixed term employment contracts.

(7) Distribution costs are expected to amount to 8% of HSC’s revenue.

(8) The finance director of HSC has stated that he believes the target sales margin of 32% can be achieved, although he is concerned about the effect that an increase in the cost of all ingredients would have on the forecast profits (assuming that all other revenue/cost data remains unchanged).

(9) The existing management information system of HEG was purchased at the time that HEG commenced trading.

The directors are now considering investing in an enterprise resource planning system (ERPS).

Required

(a) Using only the above information, show how the finance director of HSC reached his conclusion regarding the expected sales margin and also state whether he was correct to be concerned about an increase in the price of ingredients. (5 marks)

(b) <font color="purple">Explain FIVE critical success factors to the performance of HSC on which the directors must focus if HSC is to achieve success in its marketplace. </font id="purple"> (10 marks)

(c) <font color="purple"><b>Explain how the introduction of an ERPS could impact on the role of management accountants</b></font id="purple">. (5 marks)

(20 marks)


4 GMB Co designs, produces and sells a number of products. Functions are recognised from design through to the distribution of products. Within each function, a number of activities may be distinguished and a principal driver identified for each activity.

Each sales order will normally comprise a number of batches of any one of a range of products. The company is active in promoting, where possible, a product focus for design, dedicated production lines and product marketing. It also recognises that a considerable level of expenditure will relate to supporting the overall business operation.

It is known that many costs may initially be recognised at the unit, batch, product sustaining (order) or business/facility sustaining (overall) levels. A list of expense items relating to Order Number 377 of product Zeta is shown below. The methods of calculating the values for Order Number 377 shown below are given in brackets alongside each expense item. These methods also indicate whether the expense items should be regarded as product unit, batch, product sustaining (order) or business/facility sustaining (overall) level costs. The expense items are not
listed in any particular sequence. Each expense item should be adjusted to reflect its total cost for
Order Number 377.

Order Number 377 comprises 5,000 units of product Zeta. The order will be provided in batches of 1,000 product units. Order Number 377 Production scheduling (rate per hour x hours per batch) 60,000 Direct material cost (per unit material specification) 180
Selling – batch expediting (at rate per batch) 60,000 Engineering design & support (rate per hour x hours per order) 350,000 Direct labour cost (rate per hour x hours per unit) 150
Machine set-up (rate per set-up x number of set-ups per batch) 34,000
Production line maintenance (rate per hour x hours per order) 1,100,000
Business/facility sustaining cost (at 30% of all other costs) 1,500,000
Marketing (rate per visit to client x number of visits per order) 200,000
Distribution (tonne miles x rate per tonne mile per batch) 12,000
Power cost (rate per Kilowatt hour x Kilowatts per unit) 120
Design work (rate per hour x hours per batch) 30,000
Administration – invoicing and accounting (at rate per batch) 24,000

Required
(a) Prepare a statement of total cost for Order Number 377, which analyses the expense items into sections for each of four levels, with sub-totals for each level where appropriate. The four levels are

(i) Unit-based costs;

(ii) Batch-related costs;

(iii) Product sustaining (order level) costs; and

(iv) Business/facility sustaining (overall level) costs. (5 marks)

(b) Identify and discuss the appropriateness of the cost drivers of any TWO expense values in EACH of levels (i) to (iii) above and ONE value that relates to level (iv).
In addition, suggest a likely cause of the cost driver for any ONE value in EACH of levels (i) to (iii), and comment on possible benefits from the identification of the cause of each cost driver. (10 marks)

(c) <font color="purple">Discuss the practical problems that may be encountered in the implementation of an activity-based system of product cost management. </font id="purple"> (5 marks)

(20 marks)


5 The directors of Blaina Packaging Co (BPC), a well-established manufacturer of cardboard boxes, are currently considering whether to enter the cardboard tube market. Cardboard tubes are purchased by customers whose products are wound around tubes of various sizes ranging from large tubes on which carpets are wound, to small tubes around which films and paper products are wound. The cardboard tubes are usually purchased in very large quantities by customers. On average, the cardboard tubes comprise between 1% and 2% of the total cost of the customers’ finished product.

The directors have gathered the following information

(1) The cardboard tubes are manufactured on machines which vary in size and speed. The lowest cost machine is priced at $30,000 and requires only one operative for its operation. A one-day training course is required in order that an unskilled person can then operate such a machine in an efficient and effective manner.

(2) The cardboard tubes are made from specially formulated paper which, at times during recent years, has been in short supply.

(3) At present, four major manufacturers of cardboard tubes have an aggregate market share of 80%. The current market leader has a 26% market share. The market shares of the other three major manufacturers, one of which is JOL Co, are equal in size. The product ranges offered by the four major manufacturers are similar in terms of size and quality. The market has grown by 2% per annum during recent years.

(4) A recent report on the activities of a foreign-based multinational company revealed that consideration was being given to expanding operations in their packaging division overseas. The division possesses large-scale automated machinery for the manufacture of cardboard tubes of any size.

(5) Another company, Plastic Tubes Co (PTC) produces a narrow, but increasing, range of plastic tubes which are capable of housing small products such as film and paper-based products. At present, these tubes are on average 30% more expensive than the equivalent sized cardboard tubes sold in the marketplace.

Required
<font color="purple">(a) Using Porter’s five forces model, assess the attractiveness of the option to enter the market for cardboard tubes as a performance improvement strategy for BPC. (10 marks)</font id="purple">

JOL Co was the market leader with a share of 30% three years ago. The managing director of JOL Co stated at a recent meeting of the board of directors that ‘our loss of market share during the last three years might lead to the end of JOL Co as an organisation and therefore we must address this issue immediately’.

Required
(b) <font color="purple"><b>Discuss the statement of the managing director of JOL Co and discuss six performance indicators, other than decreasing market share, which might indicate that JOL Co might fail as a corporate entity. (10 marks)</b></font id="purple">
(20 marks)

[Muhammad Amir]

ACCAs Advanced Performance Management Paper is much more than CAs Management Accounting where students are asked to made budgets(Cash, Production, Matarial Usage, Purchase), Compute Variances, Making Profit and Loss using Absorption and Marginal Costing, TQM(Total Quality Management), Pricing and Working Capital, all of these topics are of ACCAs F-5 level(Performance Management) [^]

If we see this situation in Market Demand Perspective we will certainly say that P-5 is more strategic level subject than F-18.

P5 is much more than clerical and labourous workings to produce budgets and Absorption/Marginal.