PERFORMANCE MANAGEMENT QUESTION

PM/PROGRESS  TEST  2/MAR2020/QUESTION  
 

   
Fundamentals  Level  –  Skills  Module  

 

PERFORMANCE Paper PM
MANAGEMENT (PM)

Wednesday, 11 March 2020  
9.00am – 12.00pm  

  ACCA  
 
1  
PROGRESS TEST 2

CA2A, CA2B, CA2C, CA2D, CA2E, CA2F, CA2G JJ2020

Time allowed (3 hours)

This paper is divided into three sections:

Section A – ALL 15 questions are compulsory and must be
attempted
Section B – ALL 15 questions are compulsory and must be
attempted
Section C – BOTH questions are compulsory and must be
attempted
Formula sheet is given on page 22.
Do NOT open this paper until instructed by the supervisor.
 
 
 
 
The  Association  of  Chartered  Certified  Accountants  
 
 
 
 
 

 

 

PM/PROGRESS  TEST  2/MAR2020/QUESTION  
 

Section  A  -­  All  15  questions  are  compulsory  and  MUST  be  attempted  

 

Each  question  is  worth  2  marks.  

 

1.   Alpha  Co  uses  rolling  budgeting,  updating  its  budgets  on  a  quarterly  basis.  After  carrying  out  the  last  

quarter's  update  to  the  cash  budget,  it  projected  a  large   forecast  cash  deficit  at  the  end  of  the  year.  

Consequently,  the  planned  purchase  of  new  capital  equipment  for  Project  A  has  been  postponed.  Alpha  

Co  has  been  working  on  a  second  project,  Project  B,  and  has  developed  a  new  product.  The  first  batch  

of  20  units  will  take  600  labour  hours  to  produce.  There  will  be  an  80%  learning  curve  that  will  continue  

until  600  units  have  been  produced.  Batches  after  this  level  will  each  take  the  same  amount  of  time  as  

the  30th  batch.  The  batch  size  will  always  be  20  units.  

 

Note.  The  learning  index  for  an  80%  learning  curve  is  –0.3219  

 

How  long  will  Alpha  Co  take  to  produce  the  next  25  batches?    

(round  up  your  final  answer  to  the  nearest  figure)  

 

          Hour  

 

2.   Match  each  of  the  following  as  either  direct  data  capture  costs,  process  costs  or  indirect  costs  

of  capturing  data.  

(i)   The  use  of  bar  codes  and  scanners    

(ii)   Storing  information  long  after  it  is  needed    

(iii)   Payroll  department  time  spent  processing  and  analyzing  personnel  costs    

(iv)   Information  disseminated  more  widely  than  needed    

 

 

3.   Select  ‘True’  or  ‘False’  for  the  following  statements  on  types  of  information  systems.  

 

  Statements   TRUE   FALSE  

(i)   The  components  of  a  transaction  processing  systems  (TPS)  include      

hardware,  software  and  people.    

(ii)   Executive   Information   systems   (EIS)   draw   data   from   the   TPS   and      

allow  communication  with  external  sources  of  information.  

(iii)   Enterprise  resource  planning  systems  (ERP)  integrate  all  processes      

in   an   organization   so   that   a   dual   system   can   serve   all   database  

applications.  

(iv)   The  benefits  of  customer  relationship  management  (CRM)  systems      

are  in  regards  to  customer  retention  and  targeted  marketing.  

 

 

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PM/PROGRESS  TEST  2/MAR2020/QUESTION  
 

4.   The  following  statements  have  been  made  about  environmental  cost  accounting,  select  ‘True’  or  

‘False’.  

 

  Statements   TRUE   FALSE  

(i)   Identifying   environmental   costs   associated   with   individual   products      

and  services  can  assist  with  pricing  decisions.  

(ii)   The   majority   of   environmental   costs   are   already   captured   within   a      

typical   organisation’s   accounting   system.   The   difficulty   lies   in  

identifying  them.  

(iii)   Input/output  analysis  divides  material  flows  within  an  organization  into      

three   categories:   material   flows,   system   flows   and   delivery   and  

disposal  flows.  

(iv)   In  flow  cost  accounting,  any  difference  between  the  input  and  output      

is  called  ‘waste’.  

 

5.   Pearl  Co  is  setting  up  an  online  business  importing  and  selling  pearl  headphones.  The  cost  of  each  set  

of   headphones   varies   depending   on   the   number   purchased,   although   they   can   only   be   purchased   in  

batches  of  1,000  units.  It  also  has  to  pay  import  taxes  which  vary  according  to  the  quantity  purchased.    

 

Market   research   has   revealed   that   the   maximum   demand   for   Pearl   Co’s   headphones   in   the   USA   is  

76,000  units  per  year,  and  that  demand  will  reduce  by  8,000  units  for  every  $5  that  the  selling  price  is  

increased.  Based  on  this  information,  Pearl  Co  has  calculated  that  the  profit  maximizing  level  of  sales  

for  its  headphones,  for  the  coming  year,  is  36,000  units.  

 

Calculate  the  unit  price  at  which  these  headphones  will  be  sold.    

 

  $

 

6.   BFF  Co  makes  house  signs.  Three  different  styles  of  signs  are  made  and  the  following  unitary  information  

is  available:  

                        Square     Oval     Clover  Leaf  
  $     $     $  
         
  4.00     5.00     6.00  
Materials         2.00     3.00     4.00  

Metal  @$1/kg       14.00     10.00  
9.00     12.00  
Paint  @  $4/litre      
10.50     20.00  
  12.00     15.00  

Labour  

Manufacturing  @  $4/hour     8.00    
  3.00    
Painting  @  $6/hour    
  7.00    
    13.00    

Variable  overhead    

Fixed  overheads      

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PM/PROGRESS  TEST  2/MAR2020/QUESTION  
 

             

Selling  price           39.00     56.50     68.00  

Maximum  monthly  demand     4,000     4,500     1,800  

 

BFF  has  also  been  told  that  during  that  2nd  week,  both  the  metal  and  the  paint  supplier  will  be  willing  to  

supply   36,000   kg   of   metals   and   4,500   litres   of   paints   respectively.   Painting   labour   is   limited   to   8,800  

hours  for  the  2nd  week  as  some  of  the  workers  will  be  away  on  a  training  course.  BFF  Co  has  decided  to  

concentrate   its   activities   on   the   square   and   oval   plates   and   temporarily   shut   down   the   clover   leaf  

production  line.    

 

Which  of  the  following  statements  are  false?  

(1)   Painting  labour  will  have  a  positive  shadow  price.  

(2)   The   objective   function   will   be   to   maximize   15S   +15O,   where   S   is   the   number   of   square   plates  

produced  and  O  is  the  number  of  Oval  plates  produced.  

(3)   If  solved  graphically,  the  optimal  solution  will  be  where  the  constraints  for  metal  and  painting  labour  

intersect.  

(4)   Paint  will  have  a  shadow  price  of  zero.  

 

A.   (1)  and  (2)  

B.   (1),  (2)  and  (3)  

C.   (1),  (3)  and  (4)  

D.   (1)  and  (4)  

 

7.   De’  Suria  an  events  management  company  is  trying  to  decide  whether  or  not  to  advertise  an  outdoor  

concert.  The  sale  of  tickets  is  dependent  on  the  weather.  If  the  weather  is  poor  it  is  expected  that  5,000  

tickets  will  be  sold  without  advertising.  There  is  a  70%  chance  that  the  weather  will  be  poor.  If  the  weather  

is  good  it  is  expected  that  10,000  tickets  will  be  sold  without  advertising.  There  is  a  30%  chance  that  the  

weather  will  be  good.    

If   the   concert   is   advertised   and   the   weather   is   poor,   there   is   a   60%   chance   that   the   advertising   will  

stimulate  further  demand  and  ticket  sales  will  increase  to  7,000.  If  the  weather  is  good  there  is  a  25%  

chance  the  advertising  will  stimulate  demand  and  ticket  sales  will  increase  to  13,000.  The  profit  expected,  

before  deducting  the  cost  of  advertising,  at  different  levels  of  ticket  sales  are  as  follows:    

Number  of  tickets  sold   Profit/(loss)  ($)  

5,000   (20,000)  

6,000   (5,000)  

7,000   35,000  

8,000   55,000  

9,000   70,000  

10,000   90,000  

11,000   115,000  

12,000   130,000  

13,000   150,000  

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PM/PROGRESS  TEST  2/MAR2020/QUESTION  
 

 
The  cost  of  advertising  the  concert  will  be  $15,000.  The  decision  tree  has  been  drawn  as  below:  

 

 

You  are  required  to  advise  De’  Suria  management  as  to  their  best  course  of  action.    

 

Decision:             Expected  Value:     $  

 

8.   The  Roti  Boy  Company  (RBC)  makes  a  range  of  breads  for  sale  direct  to  the  public.  The  production  

process  begins  with  workers  weighing  out  ingredients  on  electronic  scales  and  then  placing  them  in  a  

machine  for  mixing.  A  worker  then  manually  removes  the  mix  from  the  machine  and  shapes  it  into  loaves  

by   hand,   after   which   the   bread   is   then   placed   into   the   oven   for   baking.     All   baked   loaves   are   then  

inspected  by  RBC’s  quality  inspector  before  they  are  packaged  up  and  made  ready  for  sale.  Any  loaves  

which  fail  the  inspection  are  donated  to  a  local  food  bank.    

 

The  standard  cost  card  for  RBC’s  ‘Mixed  Bloomer’,  one  of  its  most  popular  loaves,  is  as  follows:  

$  

White  flour     450  grams  at  $1.80  per  kg   0.81  

Wholegrain  flour     150  grams  at  $4.20  per  kg   0.63  

Yeast        10  grams  at  $20  per  kg     0.20  

Total       610  grams       1.64  

 

Budgeted  production  of  Mixed  Bloomers  was  10,000  units  for  the  month,  although  actual  production  

was  only  9,500  units.  The  total  actual  quantities  used,  and  their  actual  costs  were:  

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PM/PROGRESS  TEST  2/MAR2020/QUESTION  
 

 

        Kg     $  per  kg  

White  flour     4,085     1.90  

Wholegrain  flour     1,520     5.10  

Yeast            100     20.50  

   Total       5,705  

 

What  is  the  total  material  usage  variance  for  RBC  for  the  last  month?  

$    
 

 

9.   In  order  to  indicate  to  managers  the  trend  and  materiality  of  variances,  C  plc  expresses  them  as  

percentage  as  in  the  following:  

 

  July   August   September   October   November  

Material   usage   as   percentage   of   3%  F   2%  A   6%  A   10%  A   12%  A  

standard  total  production  cost  

Material  price  variance  as  a  percentage   1%  A   2%  A   7%  F   8%  F   9%  F  

of  standard  cost  of  material  used  

 

A  -­    denotes  adverse  variance        

F  -­  denotes  favorable  variance  

   

The  following  relates  to  recent  operational  events.  

1.   In  September  the  buyer  located  a  new  supplier  who  charged  a  lower  price  that  the  previous  supplier.  

The  material  was  found  to  be  of  low  quality,  however  leading  to  a  high  level  of  waste.  

2.   The  general  trend  is  that  all  direct  material  variances  are  becoming  more  significant  and  are  likely  

to  be  worthy  of  management  attention.  

3.   A   change   in   the   bonus   payment   scheme   has   improved   the   productivity   of   labour,   who   are   now  

processing  material  more  effectively.  

 

Which  of  the  statements  is  /are  consistent  with  results  shown?  

 

A.   Statements  1  and  2  

B.   Statement  1  and  3  

C.   Statement  2  and  3  

D.   Statement  2  only  

 

 

 

 

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PM/PROGRESS  TEST  2/MAR2020/QUESTION  
 

10.    A  company  makes  many  products,  one  of  which  is  Product  P.  Extracts  from  the  budget  for  the  whole  

company  for  June  are  set  out  below:    

 

Budget  category     $     Cost  driver  details  

Direct  labour  cost     64,000     8,000  direct  labour  hours  

Set-­up  costs       22,000     44  set-­ups  

Quality  testing  costs     6,800     160  tests  

General  overheads                    18,800   Absorbed  using  direct  labour  hours        

 

Budgeted  data  for  the  manufacture  of  Product  P  in  June  as  follows:  

 

Budgeted  output       200  units  

Direct  materials         $18.00  per  unit  

Direct  labour         0.4  hours  per  unit  

Batch  size         100  units  

Set-­ups         1  set-­up  per  batch  

Quality  tests         2  test  per  batch  

 

Calculate,  using  an  activity-­based  costing  approach,  the  budgeted  cost  per  unit  of  Product  P  for  

June.  Round  your  answer  to  the  nearest  $.    

  $             per  unit  

 

11.   A  company  produces  two  products,  S  and  T,  which  pass  through  two  production  processes,  X  and  Y.  

The  time  taken  to  make  each  product  in  each  process  is:  

 

      Product  S   Product  T  

Process  X   5  mins     7.5  mins  

Process  Y   18  mins     12  mins  

 

The  company  operates  a  15-­hour  day  and  the  processes  have  an  average  downtime  each  day  of:  

Process  X   1.5  hours  

Process  Y   1.0  hours  

 

The  costs  and  revenue  for  each  product  are:  

        Product  S   Product  T  

                       $                  $  

Direct  materials     20.00     20.00  

Direct  labour     18.00     14.00    

Variable  overhead   4.00     4.00    

Fixed  costs     5.00     4.00    

Total  costs     48.00     42.00    

Selling  price     95.00     85.00  

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PM/PROGRESS  TEST  2/MAR2020/QUESTION  
 

 

Sales  demand  restricts  the  output  of  S  and  T  to  50  and  80  units  a  day  respectively.  

Calculate  the  daily  production  plan  that  would  maximise  the  throughput  contribution.  

 

12.   Rightlight  Ltd  is  an  advertising  company  and  has  been  asked  to  tender  for  a  contract  to  increase  public  

awareness   of   global   environmental   issues   as   part   of   the   government’s   commitment   to   improving  the  

country’s  eco-­footprint.  

 

Rightlight  Ltd  believes  that  the  campaign  work  will  take  a  period  of  six  months.  

 

Five   advertising   specialists   would   need   to   be   recruited   on   an   annual   salary   of   $45,000.   A   project  

manager   would   be   needed   to   coordinate   the   campaign.  An   existing   project   manager   would   be   used  

whose  annual  salary  is  currently  $55,000.  He  would  be  expected  to  devote  30%  of  his  time  on  the  new  

contract.  

 

The  new  employees  would  have  to  go  through  a  ‘Environmental  Awareness’  training  programme  in  order  

to   get   approval   to   work   on   government   contracts.   This   would   cost   $3,000   per   employee,   but   it   is  

anticipated  that  a  grant  of  20%  towards  this  cost  will  be  available.    

 

Alternatively,   Rightlight   Ltd   could   subcontract   the   work   (with   the   government’s   agreement)   to   another  

PR   that   it   sometimes   uses   for   joint   venture   projects.   It   is   anticipated   that   the   subcontract   firm   would  

demand  a  fee  of  $135,000  to  undertake  the  work.  

 

What  would  be  the  relevant  cost  of  labour  in  this  contract?  

 

A.   $135,000  

B.   $253,500  

C.   $124,500  

D.   $141,000  

 

13.   Match  the  following  statements  with  the  budgetary  type  systems:    

 

Statements   Budgetary  type  

systems  

This  budgetary  system  is  suitable  for  organizations  that  operate  in  a    

stable  environment  where  historic  figures  are  reliable  and  are  not  

expected  to  change  significantly.  

Every  item  of  expenditure  has  to  be  justified  in  its  entirety  in  order  to  be    

included  in  the  next  year’s  budget.  

In  this  budgetary  system,  planning  and  control  will  be  based  on  a  recent    

plan  which  is  likely  to  be  far  more  realistic  that  a  fixed  annual  budget  

made  many  months  ago.  

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PM/PROGRESS  TEST  2/MAR2020/QUESTION  
 

This  budgeting  concept  move  towards  devolved  networks  rather  than    

centralized  hierarchies.  

This  type  of  budget  recognizes  different  cost  behavior  pattern  and  is    

changed  as  the  volume  of  output  and  sales  changes.    

 

14.   Which  of  the  following  statement/s  is/are  true  about  cost  volume  profit  analysis?  

 

I.   One  of  the  limitations  of  CVP  analysis  is  that  uncertainty  in  the  estimates  of  fixed  costs  and  unit  

variable  cost  is  often  ignored.  

II.   Production  and  sales  are  assumed  to  be  the  same,  so  that  the  consequences  of  any  increase  in  

inventory  levels  or  of  ‘de-­stocking’  are  ignored.  

III.   The  multi  product  P/V  chart  will  only  identify  the  company  breakeven  point  and  which  product  

should  be  expanded  in  output  and  which  (if  any)  should  be  discontinued.  

IV.   Breakeven  chart  for  multiple  products  can  be  drawn  if  a  constant  product  sales  mix  is  assumed.  

 

A.   I  and  II  

B.   I,  II  and  III  

C.   I,  II  and  IV  

D.   II,  III  and  IV  

 

15.   Which  following  statement/s  is/are  true  about  short  term  decision  making?  

 

I.   Employees  morale  and  customer  reaction  are  among  quantitative  factors  that  should  be  

considered  in  deciding  to  shut  down  operations.  

II.   Since  both  products  incur  the  pre-­separation  cost,  it  is  relevant  to  the  further  processing  decision.  

III.   One  of  the  reasons  for  trend  towards  outsourcing  is  the  contractors  have  the  capacity  and  

flexibility  to  start  production  very  quickly  to  meet  sudden  variations  in  demand.  

IV.   Make  or  buy  decisions  should  certainly  be  based  exclusively  on  cost  considerations.  

 

A.   I  and  III  

B.   III  only  

C.   II  and  III  

D.   II  and  IV  

 

 

 

 

 

 

 

 

 

  9  

PM/PROGRESS  TEST  2/MAR2020/QUESTION  
 

Section  B  –  All  15  questions  are  compulsory  and  MUST  be  attempted  
Each  question  is  worth  2  marks.  
 

The  following  scenario  relates  to  questions  16-­20.  
 

Luna   Lovegood   (LL)   is   a   manufacturing   company   within   the   DF   group.   LL   has   been   asked   to   provide   a  
quotation   for   a   contract   for   a   new   customer   and   is   aware   that   this   could   lead   to   further   orders.   As   a  
consequence,  LL  will  produce  the  quotation  by  using  relevant  costing  instead  of  its  usual  method  of  full  cost  
plus  pricing.    
 
LL   has   spent   $100   to   obtain   the   following   information   for   the   new   contract.   The   following   information   in  
relation  to  the  contract  are  as  follows:    
 
Material  D  
40  tonnes  of  material  D  would  be  required.  This  material  is  in  regular  use  by  LL  and  has  a  current  purchase  
price  of  $38  per  tonne.  Currently,  there  are  5  tonnes  in  inventory  which  cost  $35  per  tonne.  The  resale  value  
of  the  material  in  inventory  is  $24  per  tonne  
 
Labour  hours    
850   direct   labour   hours   would   be   required.   All   direct   labour   within   LL   is   paid   on   an   hourly   basis  with   no  
guaranteed  wage  agreement.  The  grade  of  labour  required  is  currently  paid  $10  per  hour,  but  department  W  
is  already  working  at  100%  capacity.  Possible  ways  of  overcoming  this  problem  are:    

•   Use  workers  in  department  Z,  because  it  has  sufficient  capacity.  These  workers  are  paid  $15  per  
hour.    

•   Arrange   for   sub-­contract   workers   to   undertake   some   of   the   other   work   that   is   performed   in  
department  W.  The  sub-­contract  workers  would  cost  $13  per  hour.    

 
Specialist  machine    
The   contract   would   require   a   specialist   machine.   The   machine   could   be   hired   for   $15,000   or   it   could   be  
bought   for   $50,000.   At   the   end   of   the   contract   if   the   machine   were   bought,   it   could   be  sold   for   $30,000.  
Alternatively,   it   could   be   modified   at   a   cost   of   $5,000   and   then   used   on   other   contracts   instead   of   buying  
another  essential  machine  that  would  cost  $45,000.    
 
Supervisor    
The  contract  would  be  supervised  by  an  existing  manager  who  is  paid  an  annual  salary  of  $50,000  and  has  
sufficient  capacity  to  carry  out  this  supervision.  The  manager  would  receive  a  bonus  of  $500  for  the  additional  
work.  
 
Development  time    
15   hours   of   development   time   at   a   cost   of   $3,000   have   already   been   worked   in   determining   the   resource  
requirements  of  the  contract.    
 

  10  

PM/PROGRESS  TEST  2/MAR2020/QUESTION  
 

Fixed  overhead  absorption  rate    

LL   uses   an   absorption   rate   of   $20   per   direct   labour   hour   to   recover   its   general   fixed   overhead   costs.   This  

includes  $5  per  hour  for  depreciation.  

 

16.   What  are  the  figures  to  be  included  in  the  quote  for  Material  D  and  Labour?  

 

Material  D     $              

 

Labour       $  

 

 

 

17.   What  figure  should  be  included  in  the  quote  for  the  specialist  machine  and  supervisor?  

 

Specialist  machine     $  

 

Supervisor     $    

 

 

 

18.   What  figures  should  be  included  in  the  quote  for  the  development  time  and  fixed  overheads?  

 

Development  time   $  

 

Fixed  overheads   $  

 

 

19.   It  is  factory  policy  to  add  $1,500  per  week  to  a  project,  for  the  duration  of  the  project.  This  is  to  cover:  

 

Factory  rates   $500  

Interest  on  long  term  loan  to  purchase  plant  and  equipment   $400  

Profit  element     $600  

 

Which  option  correctly  classifies  these  costs?  

 

  Factory  rates     Interest       Profit  

A   Relevant     Non-­cash     Committed  

B   Notional      Committed     Non-­cash  

C   Non-­cash     Relevant     Notional  

D     Committed     Committed     Non-­cash  

 

 

  11  

PM/PROGRESS  TEST  2/MAR2020/QUESTION  
 

20.   State  true  or  false  for  each  of  the  following  statements:   TRUE   FALSE  
  TRUE   FALSE  
TRUE   FALSE  
I.   The   $100   spent   obtaining   the   cost   information   should   be   TRUE   FALSE  
included  in  the  quote   TRUE   FALSE  
TRUE   FALSE  
II.   If  LL  charges  the  minimum  price  for  a  product  or  service  based  
on  relevant  costs,  it  will  not  improve  its  overall  profitability  

III.   Timescale  is  not  relevant  and  many  fixed  costs  can  be  varied,  
but  only  in  the  long  term  

IV.   Fixed   costs   are   always   general   in   nature   and   therefore   not  
relevant  

V.   Avoidable  costs  would  be  saved  if  an  activity  did  not  happen  and  
so  are  relevant  

VI.   Common   costs   are   only   relevant   if   the   viability   of   the   whole  
process  is  being  assessed  

 
 
   

  12  

PM/PROGRESS  TEST  2/MAR2020/QUESTION  
 

The  following  scenario  relates  to  questions  21-­25.  

 

Yummy   Yoghurt   Co   (YY)   produces   and   sells   frozen   yoghurt   in   small   tubs.   The   company   has   found   that  

demand   for   frozen   yoghurt   is   weather   dependent.   Last   summer   the   weather   was   poor   and   they   ended   up  

throwing  lots  of  frozen  yoghurt  away  at  the  end  of  the  summer.  Using  estimates  about  the  probable  weather  

conditions  and  corresponding  demand  levels  for  weekends  next  summer,  the  following  pay  off  table  has  been  

produced  to  show  all  the  possible  contribution  outcomes.  

 

    Number  of  tubes  of  frozen  yogurt  produced  

    10,000   8,000   4,000  

Weather   Probability   $   $   $  

Good   20%   3,000   2,400   1,200  

Average   50%   1,900   2,400   1,200  

Poor   30%   (300)   200   1,200  

 

YY  has  decided  to  sign  an  advance  contract  at  one  of  the  three  levels  to  match  forecast  demand.  It  now  

has  to  decide  which  level  to  select.  

 

21.  How  many  tubs  should  the  company  produce  based  on  the  maximin,  maximax  and  minimax  

regret  decision  rules?  

Maximin     Maximax     Minimax  regret  rule  

A.    10,000       4,000       8,000  

B.   8,000       10,000       4,000  

C.   4,000        8,000       10,000  

D.   4,000     10,000       8,000  

 

22.   If  FY  applies  the  minimax  regret  rule,  what  kind  of  decision  making  is  this?  

A.   Risk  averse  

B.   Risk  seeking  

C.   Risk  neutral  

D.   Risk  spreading        

   

23.   What   is   the   expected   contribution   if   4,000   tubs   are   produced   and   how   many   tubs   should   the  

company  produce  based  on  the  expected  value  decision  rules?  

Expected  contribution  from  4,000  tubs     Tubs  to  be  produced  using  expected  value  rules  

A.    $1,460             10,000  

B.   $1,200                8,000  

C.   $1,460              8,000  

D.   $1,200              4,000  

 

24.   Calculate  the  maximum  price  that  YY  should  pay  for  the  state  of  demand.    

 
$  

  13  

PM/PROGRESS  TEST  2/MAR2020/QUESTION  
 

25.   The  following  statements  have  been  made  about  perfect  information  by  a  trainee  at  YY.  
 

(1)   Perfect  information  is  guaranteed  to  predict  the  future  with  100%  accuracy.  
(2)   Perfect  information  means  that  the  correct  decision  would  always  been  made,  but  as  this  is  in  

hindsight  it  is  not  useful  for  calculations.  
 

Which  of  the  above  statements  is/are  true?  
 

A.    (1)  only  
B.   (2)  only  
C.   Neither  (1)  nor  (2)  
D.   Both  (1)  and  (2)  
 
 
 
 
 
 
 
 
 
 
 
   

  14  

PM/PROGRESS  TEST  2/MAR2020/QUESTION  
 

The  following  scenario  relate  to  questions  26-­30.  

 

Petunia   Dursley   (PD)  Co   makes   and   sells   lawnmowers.  It   has   developed   a   new   robotic   lawnmower   (the  

Dudley),  which  is  able  to  cut  the  grass  automatically,  i.e.  it  does  not  require  an  operator.  Currently  there  are  

no   similar   products   in   the   market.   Significant   expenditure   on   research   and   development   expenditure   was  

required   to   develop   the   Dudley,   to   date   $2   million   has   been   spent.   The   lawnmower   is   expected   to   have   a  

product  lifecycle  of  three  years.  Market  research  has  been  carried  out  to  establish  a  target  selling  price  and  

projected   lifetime   sales   volumes   for   the   product.   Cost   estimates   have   also   been   prepared,   based   on   the  

current  design.    

 

PD  Co  uses  lifecycle  costing  to  work  out  the  target  costs  for  its  products.  You  are  provided  with  the  following  

relevant  information  for  the  lawnmower:    

 

Projected  lifetime  sales  volume       1,000,000  units  

Target  selling  price  per  unit       $500  

Target  profit  margin         30%  

 

Note:  Estimated  lifetime  cost  per  unit:    

        $     $  

Manufacturing  costs  

Direct  material       120  

Direct  labour       65  

Machine  costs       90  

Quality  control  test  costs     10  

            285  

Non-­manufacturing  costs         110  

Estimated  lifetime  cost  per  unit       395  

 

PD   Co   is   looking   to   address   a   possible   cost   gap   and   is   considering   direct   material   costs.   All   of   the   parts  

currently   proposed   for   the   lawnmower   are   bespoke.   However,   it   has   been   established   that   the   majority   of  

parts  can  be  replaced  by  parts  used  in  other  lawnmowers.  The  standard  parts  cost  60%  less  than  the  bespoke  

parts,  but  four  bespoke  parts  which  account  for  25%  of  the  current  direct  estimated  cost  cannot  be  replaced.  

These  parts  can  however  be  sourced  from  an  alternative  supplier  for  5%  less  than  currently  forecast.    

 

26.   What  is  the  target  cost  per  unit  of  the  Dudley  and  the  revised  material  cost  per  unit  in  light  of  the  

new  information  to  two  decimal  places?    

 

Target  cost  per  unit       $    

 

  Revised  material  cost  per  unit   $  

 

 

  15  

PM/PROGRESS  TEST  2/MAR2020/QUESTION  
 

 
27.   If  F  Co  discovers  that  there  is  a  cost  gap,  which  of  the  following  may  be  an  appropriate  strategy  

to  close  the  cost  gap?    
A.   Increase  the  selling  price  of  the  RLM    
B.   Use  skilled  labour  for  the  manual  unskilled  elements  of  production    
C.   Reverse  the  decision  to  use  standard  components    
D.   Redesign  the  lawnmower    

 
28.   Which  of  the  following  statement/(s)  apply  to  F  co?  

(1)   Life   cycle   costing   should   not   be   used   by   F   Co,   because   lifecycle   of   the   ‘RLM’   is   short   and   the  
development  costs  is  too  high.  

(2)   Life  cycle  costing  should  be  used  by  F  Co  because  it  will  provide  the  true  financial  costs  of  producing  
the  shoes.  

(3)   A  higher  price  should  be  charged  by  F  Co  from  the  start,  as  the  product  is  unique  
A.   (1)  and  (2)  
B.   (1)  and  (3)  
C.   (2)  and  (3)  
D.   (2)  only  
 
29.   Select  true  or  false  for  each  of  the  follow  statement.  

 
In  order  to  improve  the  financial  results  of  the  product  over  its  lifecycle  F  co  should   TRUE   FALSE  
minimize  its  time  to  the  market,  minimize  length  of  the  lifecycle  and  minimize  the  
breakeven  time  
Lifecycle  costing  aims  to  ensure  that  profit  is  generated  over  the  entire  life  of  the   TRUE   FALSE  
product  
At  the  maturity  phase  of  the  lifecycle  is  where  F  Co’s  product  strategy  should  focus   TRUE   FALSE  
on  forecasting  capacity  requirements  
In  lifecycle  costing  all  costs  will  be  included  as  part  of  lifecycle  cost  in  exception  of   TRUE   FALSE  
research  and  development  costs  incurred  at  the  beginning  as  this  is  a  sunk  cost  
 
30.   PD  co  is  planning  to  launch  a  new  component,  component  Harry.  Production  volume  will  be  

limited,  with  only  128  components  to  be  produced  in  total.    
 
PD  co  expects  the  manufacture  of  the  first  component  to  take  25  direct  labour  hours.  It  is  
anticipated  there  will  be  a  90%  learning  curve  that  will  continue  until  all  128  components  have  
been  produced.  Direct  labour  is  paid  at  a  rate  of  $15  per  hour.    
 
Non  labour-­related  costs  are  expected  to  be  $265  per  component;;  this  will  apply  to  all  128  
components  produced.  There  are  no  product-­specific  fixed  costs  associated  with  this  new  
component.    

  16  

PM/PROGRESS  TEST  2/MAR2020/QUESTION  
 

PD  is  going  to  use  a  target  costing  approach  for  the  new  component.  Based  on  the  market  
research  it  has  undertaken,  PD  plans  to  sell  the  components  for  $530  each.  PD  requires  an  
average  profit  margin  of  20%  of  the  selling  price  over  the  life  of  this  new  component.    
 
Note:  The  learning  index  for  a  90%  learning  curve  =  -­0.152    
 
Calculate  the  learning  rate  required  to  close  the  cost  gap  in  order  to  achieve  the  required  
profit  margin  of  20%.  Provide  answer  to  the  nearest  whole  percentage    
 
                                                                                                                                                   %  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

  17  

PM/PROGRESS  TEST  2/MAR2020/QUESTION  
 

Section  C  –  Both  questions  are  compulsory  and  MUST  be  attempted.  

Provide  your  answer  for  31  (a)  and  (b)  in  the  Excel  Template,  and  31  (c)  and  (d)  in  the  Word  Template.  

 

31.   A  company  produces  trays  of  pre-­prepared  meals  that  are  sold  to  restaurants  and  food  retailers.  
Three  varieties  of  meals  are  sold:  economy,  premium  and  deluxe.  
 
Extracts  from  the  budget  for  last  year  are  given  below:  
 

  Economy   Premium   Deluxe  

Sales  quantity  (trays)   180,000   360,000   260,000  

Selling  price  per  tray   $2.80   $3.20   $4.49  

Total  sales  revenue   $504,000   $1,152,000   $1,167,400  

Direct  material  cost  per   $1.00   $1.60   $2.20  

tray  

Total  direct  material  cost   $180,000   $576,000   $572,000  

Direct  labour  cost  per  tray   $0.50   $0.50   $0.50  

Total  direct  labour  cost   $90,000   $180,000   $130,000  

 

Overhead  costs  for  the  budget  were  estimated  using  the  high-­low  method  based  on  the  total  

overhead  costs  for  the  three  previous  years.  

 

Output   720,000  trays   680,000  trays   840,000  trays  

Total  overheads   $1,018,000   $992,000   $1,096,000  

 

Actual  results  for  last  year  were  as  follows:  

 

  Economy   Premium   Deluxe  

Sales  quantity  (trays)   186,000   396,000   278,000  

Selling  price  per  tray   $2.82   $3.21   $4.50  

Total  sales  revenue   $524,520   $1,271,160   $1,251,000  

Direct  material  cost  per  tray   $1.10   $1.50   $2.10  

Total  direct  material  cost   $204,600   $594,000   $583,800  

Direct  labour  cost  per  tray   $0.52   $0.54   $0.48  

Total  direct  labour  cost   $96,720   $213,840   $133,440  

Variable  overhead  per  tray   $0.64   $0.66   $0.63  

Total  variable  overheads   $119,040   $261,360   $175,140  

Actual  fixed  overheads:  $546,000  

 

  18  

PM/PROGRESS  TEST  2/MAR2020/QUESTION  
 

The  company  operates  a  just-­in-­times  system  for  purchasing  and  production  and  does  not  hold  
any  inventory.  Budgeted  and  actual  fixed  overheads  will  be  apportioned  to  Economy,  Premium  
and  Deluxe  at  a  ratio  1:2:2.  
 
Ignore  inflation.  
 
Required:  
a)   Calculate,  for  the  original  budget,  the  budgeted  fixed  overhead  costs  and  the  budgeted  

variable  overhead  cost  per  tray    
(2  marks)  
 

b)   Prepare  a  flexed  budget  for  the  company  (using  a  marginal  costing  approach).  
(6  marks)  
 

c)   Discuss  the  benefits  of  flexible  budgeting  for  planning  and  control  purposes.    
You  should  use  the  figures  calculated  in  (b)  above  to  illustrate  your  answer.  
(5  marks)  
 

The  modern  dynamic  business  environment  has  been  described  as  a  “buyer’s  market”  in  which  
companies  must  react  to  the  rapidly  changing  characteristics  of  the  market  and  the  needs  of  
customers.  Many  managers  have  criticised  traditional  forms  of  budgeting  for  being  too  restrictive  
and  for  being  of  little  use  for  performance  management  and  control.  
 
d)   Describe  the  principle  of  “Beyond  Budgeting”,  and  discuss  the  advantages  that  

organizations  will  gain  from  making  a  move  to  Beyond  Budgeting.  
 

(7  marks)  
(Total:  20  marks)  

 
 
 
 
 
 
 
 
 
 
 
 

  19  

PM/PROGRESS  TEST  2/MAR2020/QUESTION  
 

 

Provide   your   answer   for   32   (a)   and   (c)   in   the   Excel   Template,   and   32   (b),   (d)   and   (e)   in   the   Word  

Template.  

 

32.  AVX  Plc  assembles  circuit  boards  for  use  by  high  technology  audio  video  companies.  Due  to  the  

rapidly   advancing   technology   in   this   field,   AVX   Plc   is   constantly   being   challenged   to   learn   new  

techniques.    

 

AVX   Plc   uses   standard   costing   to   control   its   costs   against   targets   set   by  senior   managers.   The  

standard  labour  cost  per  batch  of  one  particular  type  of  circuit  board  (CB45)  is  set  out  below:  

 

Direct  labour  –  50  hours  @$10/hour     $500  

 

The  following  labour  efficiency  variances  arose  during  the  first  six  months  of  the  assembly  of  CB45:  

 

      Month     Number  of  batches     Labour  efficiency    

      assembled  and  sold     variance  ($)  

      November     1       Nil  

  December     1       170  (F)  

  January     2       452.20  (F)    

  February     4       1,089.30  (F)  

  March       8       1,711.50  (F)  

  April       16       3,423  (F)  

 

An   investigation   has   confirmed   that   all   of   the   costs   were   as   expected   except   that   there   was   a  

learning  effect  in  respect  of  the  direct  labour  that  had  not  been  anticipated  when  the  standard  cost  

was  set.  

 

Required:  

 

(a)   Calculate  the  monthly  rates  of  learning  that  applied  during  the  six  months  

(8  marks)  

 

(b)   Identify   when   the   learning   period   ended   and   briefly   explain   the   implication   of   your  

finding  for  AVX  Plc.                  

(2  marks)    

 

AVX  Plc  initially  priced  each  batch  of  CB45  circuit  boards  on  the  basis  of  its  standard  cost  of  $960  

plus  a  mark-­up  of  25%.  Recently,  the  company  has  noticed  that,  due  to  increasing  competition,  it  

is  having  difficulty  maintaining  its  sales  volume  at  this  price.    

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PM/PROGRESS  TEST  2/MAR2020/QUESTION  
 

 

The   Finance   Director   has   agreed   that   the   long   run   unit   variable   cost   of   the   CB45   circuit   board   is  

$672.72  per  batch.  She  has  suggested  that  the  price  charged  should  be  based  on  an  analysis  of  

market  demand.  She  has  discovered  that  at  a  price  of  $1,200  the  demand  is  16  batches  per  month.  

For  every  $20  reduction  in  selling  price,  there  is  an  increase  in  demand  of  1  batch  of  CB45  circuit  

boards.  

 

(c)   Calculate  the   profit   maximizing   selling   price   per   batch  using   the   data   supplied  by  the  

Finance  Director                    

(4  marks)  

 

The  Technical  Director  cannot  understand  why  there  is  a  need  to  change  the  selling  price.  He  

argues  that  this  is  a  highly  advanced  technological  product  and  that  AVX  Plc  should  not  reduce  its  

price  as  this  reflects  badly  on  the  company.  If  anything  is  at  fault,  he  argues,  it  is  the  use  of  

Standard  Costing  and  he  has  asked  whether  Target  Costing  should  be  used  instead.    

 

(d)   Explain  the  difference  between  standard  costs  and  target  costs      

(2  marks)  

 

(e)   Explain  the  possible  reasons  why  AVX  Plc  needs  to  reconsider  its  pricing  policy  now  

given  the  fact  that  the  CB45  circuit  board  has  been  available  in  the  market  for  six  

months.    

(4  marks)  

 (Total:  20  marks)  

   

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PM/PROGRESS  TEST  2/MAR2020/QUESTION  
 

 

Formulae  Sheet  

 

Learning  curve  

 

Y  =  ax  b  

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  

b     =     change  in  price  

      change  in  quantity  

a     =     price  when  Q  =  0  

 

MR     =     a  –  2bQ  

 
 

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