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PerformanceManagement

Monday14December2009

FundamentalsLevel–SkillsModule

PaperF5

TheAssociationofCharteredCertifiedAccountants

PAGE

2

ALLFIVEquestionsarecompulsoryandMUSTbeattempted

1 SecureNet(SN)manufacturesecuritycardsthatrestrictaccesstoernmentownedbuildingsaroundtheworld.

Thestandardcostforthesticthatgoesintomakingacardis$4perkgandeachcarduses40gofsticafnallowanceforwaste.InNov e

budgetedsalesof60,000cards.

Theactualcostofthe nd

productionissues)wasaskedtoex 20%comparedtoourbudgetandIalsodecidedtou

reliabilityforaslightlyhigherprice.Iknowwehaveover

Theactualusageof

‘Theworld-widestandardsizeforsecuritycardsincreasedby5%d echnology,

however,ournew te.’

SNoperatesajustintime(JIT)systemandhencecarriesverylittleinventory.

Required:

Calculatethetotalmaterialpriceandtotalmaterialusagevariancesignoringanypossiblenningerrorinthefigures. (4marks)

h

detailastheinformationallows. (8marks)

Assesstheperformanceoftheproductionmanager. (8marks)

(20marks)

ecutiveleatherchairs.Theyareconsideringanewdesignofinwhichtheyoperate.

targetcostingsystemhavetargetedacompetitif20%(ignoringanyoverheads).

willupholsteri

thchairwill

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5

[P.T.O.

3 TheWesternisalocalernmentorganisationresponsibleforwastecollectionfromdomestichouseholds.Thenewmanagementaccountant he

accuracyofthebudgeting.

Wasteiscollectedbythetonn dbyusingtime

series

(T)andthetimeperiodinquestio ntsquarter1in2009andQ=2representsquarter2in2009

T=2,000+25Q

Eachquarterissubjecttosomeseasonalv beingcollectedinthemiddlequartersofeachyear.Theadjustmentsrequiredtotheunderly onare:

Quarter Tonnes

1 –200

2 +250

3 +150

4 –100

OnceTispredictedthe tousethevaluestopredictthevariableoperatingcostsandfixedoperatingcoststhatTheWesternwillbesubjectedto ngoperatingcostdatafor2009.

Volumeofwaste Totaloperatingcostin2009

(fixed+variable)

Tonnes $’000s

2,100 950

2,500 1,010

2,400 1,010

2,300 990

Inflationontheoperatingcosti

Theregressionformulaisshownontheformulasheet.

Required:

Calculatethetonnesofwasteto (4marks)

Calculatethevariable singregression

Manylocal es.They

takeapreviousperiod’sactualspend,adjustforanyknownchangestooperationsandthenadda%forexpectedinflationinordertosetthenextperiod’sbudget.

Describetwoadvantagesandtwodisadvantagesofalocal

moneyusingincrementalbudgetingasitsmainbudgetingtechnique. (6marks)

(20marks)

4ThatcherInternationalPark(TIP)isathemeparkandhasformanyyearsbeenasuccessfulbusiness,whichhastradedprofitably.Aboutthreeyearsagothedirectorsdecidedtocapitaliseontheirsuccessandreducedtheexpendituremadeonnewthrillrides,reducedroutinemaintenancewherepossible(decidinginsteadtorepairequipmentwhenitbrokedown)andmadeacommitmenttoregularlyincreaseadmissionprices.Onceanadmissionpriceispaidcustomerscanuseanyofthefacilitiesandridesfor.

Thesestepsincreasedprofitsconsiderably,enablinggooddividendstobepaidtotheownersandbonusestothedirectors.Thelasttwoyearsoffinancialresultsareshownbelow.

2008 2009

$ $

Sales 5,250,000 5,320,000

Lespenses:

Wages 2,500,000 2,200,000

Maintenance–routine 80,000 70,000

Repairs 260,000 320,000

Directorssalaries 150,000 160,000

Directorsbonuses 15,000 18,000

Othercosts(includingdepreciation) 1,200,000 1,180,000

–––––––––– ––––––––––

Netprofit 1,045,000 1,372,000

–––––––––– ––––––––––

Bookvalueofassetsatstartofyear 13,000,000 12,000,000Dividendpaid 500,000 650,000

Numberofvisitors 150,000 140,000

TIPoperatesinacountrywheretheaveragerateofinflationisaround1%perannum.

Required:

AssessthefinancialperformanceofTIPusingtheinformationgivenabove. (14marks)

Duringtheearlypartof2008TIPemployedanewlyqualifiedmanagementaccountant.HequicklybecameconcernedaboutthepotentialperformanceofTIPandtoinvestigatehisconcernshestartedtogatherdatatomeasuresomenon-financialmeasuresofsuccess.Thedatahehasgatheredisshownbelow:

Table1

2008

2009

Hourslostduetobreakdownofrides(seenote1)

9,000hours

32,000hours

Averagewaitingtimeperride

20minutes

30minutes

Note1:TIPhas50ridesofdifferenttypes.Itisopen360daysoftheyearfor10hourseachday

Required:

AssessthequalityoftheservicethatTIPprovidestoitscustomersusingTable1andanyotherrelevantdataandindicatetherisksitislikelytofaceifitcontinueswithitscurrentpolicies. (6marks)

(20marks)

5StayCleanmanufacturesandsellsasmallrangeofkitchenequipment.Specificallytheproductrangecontainsadishwasher(DW),awashingmachine(WM)andatumbledryer(TD).TheTDisofaratherolddesignandhasforsometimegeneratednegativecontribution.Itiswidelyexpectedthatinoneyear’stimethemarketforthisdesignofTDwillcease,aspeopleswitchtoawashingmachinethatcsodryclothesafterthewashingcyclehascompleted.

StayCleanistryingtodecidewhetherornottoceasetheprod henew

combinedwashingmachine/drierwillbeready.Tohelpwiththis eenprovided:

Thenormalsellingprices,annualsalesvolumesandtotalvar ductsareasfollows:

DW WM TD

Sellingpriceperunit $200 $350 $80

Materialcostperunit $70 $100 $50

Labourcostperunit ￡50 $40

Contributionperunit $80 –$10

Annualsales 5,000un 1,200units

Itisthoughtthatsomeofthecustome WM.Itisestimatedthat5%ofthesalesofWMandDWwillbelos

Allthedirectlabour mediayifTDisceasednow.

Thiswouldcost$6,000inredundancypayments.IfStayCleanwaitedfor12mon wouldberetainedandretrained

Recruitmentandtrainingcostsoflabourin12months’timewouldbe$1,200intheeve ancytakes

StayCleanoperatesajustintime(JIT) eTDfor12monthsifTDproductionceasednow.Equally,thematerial ntheWndtheDWwouldalsobesaved.However,thematerial

Totalannualexpenditure($)

Discount

0–600,000

0%

600,001–800,000

1%

800,001–900,000

2%

900,001–960,000

960,001andabove

StayCleanusesthis

thecostperunittableformaterialcostperunitarenetofanydiscountStayClereadyqualifiesfor.

ThespaceinthefactorycurrentlyusedfortheTDwillbesubletfor12monthsonashort-termleasecontractifproductionofTDstopsnow.Theefromthatcontractwillbe$12,000.

Thesupervisor(currentlyclassedasanoverhead)supervisestheproductionofallthreeproductsspendingapproximay20%ofhistimeontheTDproduction.HewouldcontinuetobefullyemployediftheTDceasestobeproducednow.

Required:

CalculatewhetherornotitisworthwhileceasingtoproducetheTDnowratherthanwa