acca p5kit - advanced acca performance management p

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PR A C T I C E

&

R E V I S I O N

K I T

PAPER P5 ADVANCED PERFORMANCE MANAGEMENT

BPP Learning Media is the sole ACCA Platinum Approved Learning Provider content for the ACCA qualification. In this, the only Paper P5 Practice and Revision Kit to be reviewed by the examiner:

We discuss the best strategies for revising and taking your ACCA exams We show you how to be well prepared for your exam We give you lots of great guidance on tackling questions We show you how you can build your own exams We provide you with three mock exams including the new Pilot Paper Our Passcard and i-Pass products also support this paper.

FOR EXAMS UP TO JUNE 2014

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First edition 2007 Seventh edition January 2013

ISBN 9781 4453 6655 5 (previous ISBN 9780 4453 8004 9) e-ISBN 9781 4453 6958 7

British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library

Published by

BPP Learning Media Ltd BPP House, Aldine Place London W12 8AA www.bpp.com/learningmedia

Printed in the United Kingdom by Ricoh Ricoh House Ullswater Crescent Coulsdon CR5 2HR

Your learning materials, published by BPP Learning Media Ltd, are printed on paper sourced from sustainable, managed forests.

All our rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of BPP Learning Media Ltd.

We are grateful to the Association of Chartered Certified Accountants for permission to reproduce past examination questions. The suggested solutions in the exam answer bank have been prepared by BPP Learning Media Ltd, except where otherwise stated.

BPP Learning Media Ltd 2013

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Contents Page

Finding questions Question index ..................................................................................................................................................................v Topic index .......................................................................................................................................................................x

Helping you with your revision the ONLY P5 Practice and Revision Kit to be reviewed by the examiner! ............................................................. xii

Revising P5 Topics to revise & question practice ..............................................................................................................................xiii Passing the P5 exam...................................................................................................................................................... xiv Exam formulae ............................................................................................................................................................. xviii Exam information ............................................................................................................................................................ xx Analysis of past papers ............................................................................................................................................... xxiv Useful websites ............................................................................................................................................................. xxv

Planning your question practice BPP Learning Media's question plan............................................................................................................................ xxvi Build your own exams..................................................................................................................................................xxxv

Questions and answers Questions ..........................................................................................................................................................................3 Answers ........................................................................................................................................................................125

Exam practice Mock exam 1 Questions ............................................................................................................................................................457 Plan of attack .......................................................................................................................................................465 Answers...............................................................................................................................................................467 Mock exam 2 Questions ............................................................................................................................................................485 Plan of attack .......................................................................................................................................................497 Answers...............................................................................................................................................................500 Mock exam 3 (Pilot Paper) Questions ............................................................................................................................................................523 Plan of attack .......................................................................................................................................................531 Answers...............................................................................................................................................................533 ACCA examiner's answers Pilot paper ...........................................................................................................................................................555 Review form

iv Finding questions

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Using your BPP Learning Media products This Kit gives you the question practice and guidance you need in the exam. Our other products can also help you pass:

Learning to Learn Accountancy gives further valuable advice on revision Passcards provide you with clear topic summaries and exam tips Success CDs help you revise on the move i-Pass CDs offer tests of knowledge against the clock Underlying knowledge CD offers guidance on assumed knowledge for Options papers P4, P5, P6, P7

You can purchase these products by visiting http://www.bpp.com/acca

Finding questions v

Question index The headings in this checklist/index indicate the main topics of questions, but questions often cover several different topics. Where necessary, questions have been amended to reflect the new format of the exam, from June 2013.

Questions set under the old syllabus Performance Management paper are included because their style and content are similar to those which appear in the P5 exam. They have 'PM' after the question name. These questions have been amended to reflect the current exam format. Questions taken from the P3 Business Analysis syllabus (when a re-alignment of syllabuses took place in 2010) are denoted by BA' after the question name.

Exam questions set under the current syllabus are designated 'APM' after the question name.

Time Page number

Marks

allocation (Mins)

Question

Answer

Part A: Strategic planning and control

1 Diverse holdings (PM 12/05, amended) 25 45 3 125

2 ST University 25 45 4 127

3 HEG (APM 12/07, amended) 25 45 5 131

4 CTC (APM 6/08, Preparation question) 20 36 6 134

5 AB Electronics 25 45 7 137

6 Megasnack 25 45 8 139

7 Ganymede (APM 6/12, amended) 25 45 9 142

8 Budgeting (Preparation question) 20 36 10 147

9 Business process re-engineering 25 45 10 149

10 GMB Co (APM 12/07, amended) 25 45 11 151

11 Sports Shop 25 45 12 155

12 Scott 25 45 12 157

13 MKO clothing 25 45 13 160

14 BV Entertainments 25 45 14 162

15 EEE Chemical company 25 45 14 164

16 GSC groceries 25 45 15 166

Part B: External influences on organisational performance

17 GTR panels 25 45 17 169

18 GHG (APM 6/08, amended) 25 45 18 171

19 F4U (APM 6/09) 25 45 18 173

20 CAP (APM 12/09, amended) 25 45 19 176

21 EMA (APM 6/10) 25 45 21 180

22 FGH Telecom (APM 12/10, amended) 25 45 22 181

23 SQR Sports racquets 25 45 23 185

vi Finding questions

Time Page number

Marks

allocation (Mins)

Question

Answer

Part C: Performance measurement systems and design

24 Handra 25 45 25 188

25 FDS irrigation systems 25 45 26 190

26 TREN engine components 25 45 27 193

27 KLP divisions 25 45 27 195

28 Racer deliveries 25 45 28 197

29 Auto Parts 25 45 29 199

30 CMA Supermarkets 25 45 30 202

31 Viga Drinks (Preparation question) 20 36 31 204

32 Beachy 25 45 31 206

33 Cobra Golf Club (Preparation question) 20 36 32 208

34 Bluefin School (APM 12/11, amended) 25 45 34 210

Part D: Strategic performance measurement

35 CFD (APM 12/09, amended) 25 45 36 213

36 ZTC Communications 25 45 36 216

37 Large conglomerate (Preparation question) 20 36 37 219

38 CSG (PM 6/07, amended) 25 36 38 222

39 SEC 25 45 38 225

40 CD 25 45 40 228

41 Alpha Division (APM 12/07) 25 45 41 230

42 BAG (APM 12/08, Preparation question) 20 36 43 234

43 SSA (APM 12/09, amended) 25 45 44 236

44 Seatown 25 45 45 240

45 LGHD (APM 6/10, amended) 25 45 46 243

46 CFE coffee shops 25 45 46 245

47 JIT systems (Preparation question) 20 36 47 247

48 Tench (APM 12/11, amended) 25 45 48 250

49 TAW (APM 6/08, amended) 25 45 49 253

50 Thebe (APM 6/12, amended) 25 45 50 255

51 T4UC (APM 6/09, amended) 25 45 51 259

52 SSH (APM 12/08) 25 45 52 262

53 KPG Systems 25 45 53 265

54 Universal Pottery Company (BA 12/07) 25 45 54 267

55 CCT Computer Systems (Preparation question) 12 22 55 272

56 Astrodome (PM 12/05, amended) 25 45 55 273

57 TRG (APM 6/08, amended) 25 45 57 274

58 UU (APM 6/09, amended) 25 45 58 277

Finding questions vii

Time Page number

Marks

allocation (Mins)

Question

Answer

59 Elegant Hotels (BA 6/09) 25 45 59 279

60 Connie Head 25 45 60 282

61 Equiguard (BA, 12/08) 25 45 60 284

Part E: Performance evaluation and corporate failure

62 YCT yachts 25 45 62 287

63 Bettaserve (APM Pilot paper) 25 45 63 290

64 Cod (APM 12/11) 25 45 64 292

65 APX Accountancy (APM 6/11, amended) 25 45 66 296

66 Eatwell Restaurant (PM 6/02, amended) 25 45 67 299

67 Amal (APM 6/12, amended) 25 45 67 302

68 B2B Deliveries 25 45 68 306

69 Glitter Fashions 25 45 69 309

70 TOC (APM 12/08, Preparation question) 20 36 70 311

71 SFS (APM 6/10, amended) 25 45 71 313

72 LOL cards (APM 12/10, amended) 25 45 72 315

73 BEG (APM 6/10, amended) 25 45 73 318

74 ENT Entertainments (APM 6/11, amended) 25 45 74 321

75 Vision (PM 12/06, amended) 25 45 75 324

76 TMC (APM 12/08, amended) 25 45 76 328

77 Joint venture 25 45 77 330

78 Callisto (APM 6/12, amended) 25 45 78 332

79 CHN Retail chain 25 45 79 336

80 BPC (APM 12/07, amended) 25 45 80 338

81 RM Batteries (APM 12/10, amended) 25 45 81 340

82 NW Clothes 25 45 83 343

83 Action Buttons 25 45 84 345

viii Finding questions

Time Page number

Marks

allocation (Mins)

Question

Answer

Part F: Current developments and emerging issues in performance management

84 Environmental management accounting (Preparation question) 20 36 85 348

85 Management accounting relevance (Preparation question) 20 36 85 349

86 School League Tables 25 45 85 352

87 BPL Leisure 25 45 87 354

88 Mentons 25 45 88 357

Section A Questions

89 Cognet 50 90 89 361

90 Armstrong Stores (Sample question, amended) 50 90 90 365

91 Robust Laptops (APM 12/10, amended) 50 90 93 371

92 RRR (APM 12/09, amended) 50 90 95 376

93 BWY houses 50 90 97 380

94 Film Productions Co (APM 12/10, amended) 50 90 99 387

95 Metis (APM 6/12, amended) 50 90 100 391

96 GWCC (PM 6/06, amended) 50 90 103 400

97 JHK Coffee Machines (APM 6/11, amended) 50 90 104 405

98 TSC (APM 12/08, amended) 50 90 106 411

99 BEC (APM 12/09, amended) 50 90 108 417

100 HFG (APM 6/08, amended) 50 90 111 423

101 SBC (APM 6/10, amended) 50 90 113 430

102 Glasburgh (APM 6/09, amended) 50 90 116 435

103 AAA Management Consultancy 50 90 117 443

104 Zed Leisure 50 90 119 446

Finding questions ix

Mock exam 1

Questions 105 to 108

Mock exam 2


Mock exam 3 (Pilot paper)


Planning your question practice Our guidance from page xxvi shows you how to organise your question practice, either by attempting questions from each syllabus area or by building your own exams tackling questions as a series of practice exams.

June and December 2013 exams BPPs answers for these exams along with a small number of additional questions will be available for free after the exams on http://www.bpp.com/acca

x Finding questions

Topic index Listed below are the key Paper P5 syllabus topics and the numbers of the questions in this Kit covering those topics.

If you need to concentrate your practice and revision on certain topics or if you want to attempt all available questions that refer to a particular subject, you will find this index useful.

Syllabus topic Question numbers Accountability and responsibility accounting 27, 58, Mock 3 Qn 2 Activity based budgeting 8, 71, 89 Activity based costing 10, 70, 91 Activity based management 70, 71 Ansoff's growth vector matrix Appraisals and performance management

75, 76, 90 60

Balanced scorecard 62, 69, 90, 101-103, Mock 3 Qn 3 Behavioural aspects of budgeting 57 Benchmarking 7, 89, 90, 97, 100 Beyond budgeting 8, 91, 92 BCG matrix 74, 93 Branding 46 Budgeting and types of budget 8, 91, 92, Mock 2 Qn 2 Building blocks model (Fitzgerald and Moon) 65, 66, 98 Business process re-engineering 9 Business structure 78 Controls and security over information 31, 32, 34 Corporate failure 80, 81, 82, 104 Costs of quality 42, 48, 49, 96 Critical success factors 3, 35, 36, 91, 94 Cultural differences 18

Dimensions of performance Divisional performance measures

66 97

Environmental factors and impact on performance 18, 20, 22, 23, 36, 93, Mock 1 Qn 3 Environmental management accounting 84, Mock 3 Qn 4 Enterprise resource planning systems (ERPS) 3, 13 EVA (Economic value added) 41, 72, 100, Mock 2 Qn 3, Mock 2 Qn 1 External environment 18, 23, 36, 93

Financial performance 37-41, 52, 95-100, 104, Mock 1 Qn 3 Freewheeling opportunism Mock 1 Q1

Gap analysis 75, 76, 90, Mock 1 Qn 1 Global factors 18 Goal congruence 6 Governments, regulation and business performance 17, 76, Mock 2 Qn 3

Information for decision making Information overload Information systems and IT systems

2, 5, 24, 25, Mock 1 Qn 2, Mock 1 Qn 4 33, 34, Mock 2 Qn 1 9, 12, 14, 30, Mock 1 Qn 2, Mock 3 Qn 1

JIT Joint ventures

47, 48 77

Finding questions xi

Syllabus topic Question numbers

Kaizen costing Key performance indicators

League tables Lean information systems

48, 49, 71 35, 64, 91, 94

7, 86, 98 26, 32

Management accounting and information systems 12, 14, 24, 25, 85, Mock 1 Qn 2, Mock 3 Qn 1 Mission statements 35, 94

Net present value 4,19, 37 Non-financial performance indicators 35, 38, 50(a) 89, 101

Objectives 38 Operational planning Mock 1 Qn 2

Performance management in complex business structures

77, 78

Performance management information systems 24, 26, 27, 29, 97 Performance prism 67, 68, 69 Performance pyramid 63, 64, 73, Mock 2 Qn 4 Porter's Five forces 80, 103 Problems of performance measurement 56, 57 Public sector organisations 44, 45

Qualitative information Quality

28 42, 50, 53-55

Residual income 37, 41, 100, Mock 1 Qn 3 Responsibility and controllability 27, Mock 3 Qn 2 Reward schemes 59, 60, 61, 92, 99, 100, 101, Mock 2 Qn 1 Risk and uncertainty 5, 17, 19, 21, 40, 93, Mock 3 Qn 1 Role of management accountants 85, 87, 88, 98

Service organisations 14, 65, 66 Short and long-term decision making 41, 95 Six Sigma Social obligations

50, 51, 54, 59 22, 46

Stakeholders 15, 16, Mock 2 Qn 3, Mock 3 Qn 1 Strategic management accounting 5, 13, 18, 89, 90 Strategic decision making 4, 20 Strategic planning Supply chain management

2, 89, Mock 1 Qn 1 79

Survival vs growth 38, 62, 90 SWOT analysis 1

Target costing 71, 96 Total quality management (TQM) 48 Transfer pricing 42, 43, 97, 100

Value based management Value chain Value for money

72 11 45

xii Helping you with your revision

Helping you with your revision the ONLY P5 Practice and Revision Kit to be reviewed by the examiner!

BPP Learning Media the sole Platinum Approved Learning Partner - content

As ACCAs sole Platinum Approved Learning Partner content, BPP Learning Media gives you the unique opportunity to use examiner-reviewed revision materials for the 2013 and June 2014 exams. By incorporating the examiners comments and suggestions regarding syllabus coverage, the BPP Learning Media Practice and Revision Kit provides excellent, ACCA-approved support for your revision.

Tackling revision and the exam

You can significantly improve your chances of passing by tackling revision and the exam in the right ways. Our advice is based on feedback from ACCA examiners.

We look at the dos and don'ts of revising for, and taking, ACCA exams We focus on Paper P5; we discuss revising the syllabus, what to do (and what not to do) in the exam, how

to approach different types of question and ways of obtaining easy marks

Selecting questions

We provide signposts to help you plan your revision.

A full question index A topic index listing all the questions that cover key topics, so that you can locate the questions that provide

practice on these topics, and see the different ways in which they might be examined

BPP's question plan highlighting the most important questions and explaining why you should attempt them

Build your own exams, showing how you can practise questions in a series of exams

Making the most of question practice

At BPP Learning Media we realise that you need more than just questions and model answers to get the most from your question practice.

Our Top tips included for certain questions provide essential advice on tackling questions, presenting answers and the key points that answers need to include

We show you how you can pick up Easy marks on some questions, as we know that picking up all readily available marks often can make the difference between passing and failing

We include marking guides to show you what the examiner rewards We include examiners' comments to show you where students struggled or performed well in the actual

exam

We refer to the 2012 BPP Study Text (for exams up to June 2014) for detailed coverage of the topics covered in questions

Attempting mock exams

There are three mock exams that provide practice at coping with the pressures of the exam day. We strongly recommend that you attempt them under exam conditions. Mock exams 1 and 2 reflect the question styles and syllabus coverage of the exam; Mock exam 3 is the new Pilot paper which ACCA has issued for 2013 exams.

Revising P5 xiii

Revising P5

Topics to revise

Any part of the syllabus could be tested in the compulsory Section A question. Therefore it is essential to learn the entire syllabus to maximise your changes of passing. There are no short cuts trying to spot topics is dangerous and will significantly reduce the likelihood of success. As this is an advanced paper it also assumes knowledge of topics covered in Paper F5 Performance Management.

That said, the main capabilities in the syllabus (which is on ACCAs website) take you through what the examiner expects from you when you have completed your studies. There are six key areas for you to concentrate on. These six areas are the syllabus areas covered in the Study Text.

However, whilst it is important that you work through your way through the Study Text and cover all the different syllabus areas, it is also important to try and think how the areas might relate to each other, and how they could be used to help managers in a business control and improve the performance of a business. Remember, this paper is about performance management, and not simply about performance measurement.

Remember to come out of the detail once you have finished a chapter and practised some questions. Take some time to reflect on how the chapter has covered the syllabus and how it feeds back into the capabilities which you will need to display in order to pass this paper.

Question practice

You should use the Passcards and any brief notes you have to revise the syllabus, but you mustn't spend all your revision time passively reading. Question practice is vital; doing as many questions as you can in full will help develop your ability to analyse scenarios and produce relevant discussion and recommendations. The question plan on page xxviii tells you what questions cover so that you can choose questions covering a variety of syllabus areas.

Make sure you leave enough time in your revision schedule to practise 50 mark Section A questions, as the Section A question is compulsory in the exam. The scenarios and requirements of Section A questions are more extensive than Section B questions and will integrate several parts of the syllabus, therefore practice is essential. Also ensure that you attempt all three mock exams under exam conditions.

xiv Revising P5

Passing the P5 exam

Displaying the right qualities The examiner wrote an article in Student Accountant in August 2010 where he outlined the qualities he expects students to display. He based his advice on the six main syllabus areas (A to F) and what qualities students should demonstrate under each. We reproduce the main points here.

1. The application of strategic planning and control models in performance management. The models stress the need to take an all-encompassing view of the factors that affect a business and to consider them when giving strategic advice on performance. Good candidates at Paper P5 often distinguish themselves by being able to synthesise disparate detailed points into an overall, strategic approach for an organisation.

2. Factors external to the business. Here candidates need to move beyond the internal factors associated with traditional management accounting to consider the information needs of the strategic level of management as well as the operational and tactical levels.

3. The information that management require and the systems that are needed for its delivery. Candidates are expected to be aware of the effect of information technologies on performance management decision making rather than the detail of these technologies. They should be conversant with the broad hardware and software trends and issues and how these interact with the provision of performance information throughout the organization.

4 and 5. The fourth capability is the application of the techniques and assumed knowledge to specific scenarios. You shouldnt simply discuss theories and models in general terms; you need to apply them specifically to the scenario identified in the question. The fifth capability is being able to take this information and turn it into advice which is commercially valuable for strategic decision makers. This capability also requires the candidate to be able to recognise and advise on situations where the organisation is in danger of failing.

6. Finally, candidates are expected to be aware of new knowledge from the general technical press. The examiner stresses that articles in Student Accountant may be sources of topics for the exam, although as the syllabus is not regularly updated older articles may also remain relevant.

There will be a small number of Professional marks available in the compulsory 50 mark Section A question, and it should be possible for a well-prepared student to score most of these. For example, the effective use of appropriate introductions and conclusions, and helpfully breaking the document into properly headed sub-sections, will help to demonstrate a professional approach to writing a report. However, it should be stressed that the approach taken will vary from question to question and the exam tests the candidates ability to apply their knowledge of professional presentation. In order to score full professional marks, the answer will have to be tailored to the specifics of the scenario in the question recognising the needs of the readers of the document.

Presentation points. First: on rounding. At this final level the candidate should use their own judgment on how to round figures the basic rule is that there should be enough detail to make a useful conclusion without obscuring it with insignificant figures.

Second, short paragraphs are usually clear but single sentence paragraphs are often insufficient and unable to get to the depth required at Paper P5. Bullet points are useful for lists but not if commentary is required. Finally, reading model solutions is not a substitute for actually writing out your own answers.

Summarising the advice the examiner gives:

Candidates should:

Understand the objectives of the exam as explained in the Syllabus and prepare the detailed topics in the Study Guide

Be very comfortable with the areas tested in Paper F5 Performance Management and Paper P3 Business Analysis

Ensure that their preparation for the exam has been based on a programme of study set for the required syllabus and exam structure

Revising P5 xv

Use an ACCA-approved textbook for Paper P5. They are structured around the syllabus and the examiner reviews them so that they give an effective coverage of what is examinable

Practise questions under exam conditions in order to improve speed and presentation skills, ensuring these test discursive, computational and analytic abilities

Study all the relevant articles that appear in Student Accountant Be able to clearly communicate understanding and application of knowledge in the context of a Professional

level exam.

The questions tend to be wide-ranging, as the examiner wants to link topics and mix ideas up. So you are better knowing something about every part of the syllabus than a lot of detail about a few areas only.

Avoiding weaknesses Our experience of, and examiner feedback from, other higher level exams enables us to predict a number of weaknesses that are likely to occur in many students answers. You will enhance your chances significantly if you ensure you avoid these mistakes:

Failing to provide what the question verbs require (discussion, evaluation, recommendation) or to write about the topics specified in the question requirements

Repeating the same material in different parts of answers Stating theories and concepts rather than applying them Quoting chunks of detail from the question that don't add any value Failing to make the most of the information given in the question. Remember, you need to apply your

knowledge specifically to the scenario given in the question.

Failing to set out workings clearly and separately Not planning and preparing the answer properly, taking into account mark allocation. Students often leave

part-questions out.

Not refreshing brought-forward knowledge (for example, from Paper F5).

Use of reading time ACCA permits a 15-minute reading time in addition to the 3 hour time given to sit this paper.

We recommend that you spend the first part of the 15 minutes reading time choosing the Section B questions you will do, on the basis of your knowledge of the syllabus areas being tested and whether you can fulfil all the question requirements. Remember that Section B questions can cover different parts of the syllabus, and you should be happy with all the areas that the questions you choose cover. We suggest that you should note on the paper any ideas that come to you about these questions.

However don't spend all the reading time going through and analysing the Section B question requirements in detail; leave that until the three hours writing time. Instead you should be looking to spend as much of the reading time as possible looking at the Section A scenario, as this will be longer and more complex than the Section B scenarios and cover more of the syllabus. You should highlight and annotate the key points of the scenario on the question paper.

Choosing which questions to answer first Spending most of your reading time on the Section A scenario will mean that you can get underway with planning and writing your answer to the Section A question as soon as the three hours start. It will give you more actual writing time during the one and a half hours you should allocate to it, and it is writing time that you'll need.

xvi Revising P5

Comments from examiners of other syllabuses that have similar exam formats suggest that students appear less time-pressured if they do the big compulsory question first.

During the second half of the exam, you can put Section A aside and concentrate on the two Section B questions youve chosen.

However, our recommendations are not inflexible. If you really think the Section A question looks a lot harder than the Section B questions youve chosen, then do one of those first, but DON'T run over time on it. You must have an hour and a half to tackle the Section A question and you will feel under much more pressure on it if you leave it till last. If you do one of the Section B questions first, and then tackle the Section A question having had initial thoughts on it during the reading time, you should be able to generate more ideas and find the Section A question is not as bad as it looks.

Remember also that small overruns of time during the first half of the exam can add up to you being very short of time towards the end.

Tackling questions You'll improve your chances by following a step-by-step approach along the following lines.

Step 1 Read the background Usually the first couple of paragraphs will give some background on the company and what it is

aiming to achieve. By reading this carefully you will be better equipped to relate your answers to the company as much as possible.

Step 2 Read the requirements There is no point reading the detailed information in the question until you know what it is going to be used for. Dont panic if some of the requirements look challenging identify the elements you are able to do and look for links between requirements, as well as possible indications of the syllabus areas the question is covering.

Step 3 Highlight the action verbs that are used in each requirement These convey the level of skill you need to exhibit and also the structure your answer should have. A lower level verb such as define will require a more descriptive answer; a higher level verb such as evaluate will require a more applied, critical answer.

The examiner has stressed that higher level requirements and verbs will be most significant in this paper, for example critically evaluating a statement and arguing for or against a given idea or position. Action verbs that are likely to be frequently used in this exam are listed below, together with their intellectual levels and guidance on their meaning.

Level

1 Define Give the meaning of

1 Explain Make clear

1 Identify Recognise or select

1 Describe Give the key features

3 Assess Determine the strengths/weaknesses/importance/ significance/ability to contribute

3 Discuss Examine in detail by using arguments for and against

3 Recommend Advise the appropriate actions to pursue in terms the recipient will understand

3 Evaluate Determine the value of, in the light of the arguments for and against

Revising P5 xvii

Step 4 Identify what each part of the question requires Think about what frameworks of theories you could choose to support your answer (if the question doesnt indicate a specific one you need to use).

Look at how the different parts of a question fit together, and make sure you dont end up repeating the same points in more than one part of the question.

Step 4 Check the mark allocation to each part This shows you the depth anticipated and helps allocate time.

Step 5 Read the question slowly, focusing on the initial requirements Once you know what you are expected to do in the first requirement, read the question in detail, trying to focus on the information that will be needed for your first task.

Step 6 Read the scenario carefully Put points under headings related to requirements (eg by noting in the margin to what part of the question the scenario detail relates).

Step 7 Consider the consequences of the points youve identified You will often have to provide recommendations based on the information you've been given. Be prepared to criticize the framework or model that youve been told to use, if required. You may have also to bring in wider issues or viewpoints, for example the views of different stakeholders.

Step 8 Write a brief plan You may be able to do this on the question paper as often there will be at least one blank page in the question booklet. However any plan you make should be reproduced in the answer booklet when writing time begins. Make sure you identify all the requirements of the question in your plan each requirement may have sub-requirements that must also be addressed. If there are professional marks available, highlight in your plan where these may be gained; for example, preparing a report.

Step 9 Write the answer Make every effort to present your answer clearly. The pilot paper and exam papers so far indicate that the examiner will be looking for you to make a number of clear points. The best way to demonstrate what youre doing is to put points into separate paragraphs with clear headers.

Discussion questions

Do not be tempted to write all you know about a particular topic in a discussion question. Markers can easily spot when a student is waffling and you will receive little or no credit for this approach. Keep referring back to the question requirement to ensure you are not straying from the point.

To make it easier for the marker to determine the relevance of the points you are making, you could explain what you mean in one sentence and then why this point is relevant in another.

Remember that depth of discussion will be important. Always bear in mind how many marks are available for the discussion as this will give you an indication of the depth that is required. Ask yourself the following questions as you are tackling a discussion question:

Have I made a point in a coherent sentence? Have I explained the point (to answer the so what or why queries)? Have I related the point to the company in the scenario?

xviii Revising P5

Exam formulae

Revising P5 xix

xx Revising P5

Exam information

The exam paper

Format of the paper

The format of the P5 exam has changed, with effect from June 2013. The new format is: Number of marks Section A: 1 compulsory case study 50 Section B: Choice of 2 from 3 questions (25 marks each) 50 100

Time: 3 hours plus 15 minutes reading time

Please note: Although the format of the exams has changed from June 2013, the underlying syllabus content and the way in which subjects are examined has not changed. The changes only relate to the number of questions in the exam, and the mark allocations for each question.

Section A will be a compulsory case study question, typically with four or five sub-requirements relating to the same scenario information. The question will usually assess and link a range of subject areas from across the syllabus. It will require students to demonstrate high-level capabilities to understand the complexities of the case, and evaluate, relate and apply the information in the case study to the requirements.

Professional marks will be available in Section A for presentation, logical flow of argument and quality of argument.

Section B questions are more likely to assess a range of discrete subject areas from the main syllabus section headings; they may require evaluation and synthesis of information contained within short scenarios and application of this information to the question requirements.

Although one subject area is likely to be emphasised in each Section B question, students should not assume that questions will be solely about content from that area. Each question will be based on a short case scenario to contextualise the question.

The pass mark for Paper P5 remains at 50%.

Additional information The Study Guide provides more detailed guidance on the syllabus.

Exams prior to 2013 Questions and answers for exams prior to 2013 are available on ACCAs website:

http://www.accaglobal.com/en/student/qualification-resources/acca-qualification/acca-exams/p5-exams/exams-p51.html

Please note, these questions reflect of the format of the exam prior to 2013. In the main body of this Kit, where we have used past exam questions, we have adapted them to fit the format of the exam from June 2013.

Revising P5 xxi

Examiners comments The following comments have been extracted from the reports the Examiner has written on past exams. They illustrate common weaknesses in candidates answers, and therefore highlight areas you should consider in your preparation for the exam, in order to avoid making the mistakes the Examiner has commented on.

June 2012

As has been noted in previous sittings, candidates still need to appreciate that performance management is an area which, at an advanced level, is dependent on situation and environment. Therefore a good answer will go beyond the mere repetition of how a technique or model works, and will relate it to an entitys specific environment. Equally, good answers will evaluate how useful a technique is for a given scenario, rather than simply describing that technique.

The quality of the numerical workings and the commentary on the results of these workings remains an area of concern. For example, when rounding numbers, 229.6 rounds to 230 not 229. An accountant is expected to be an expert on numerical issues in a business situation, but this sort of carelessness can dent that reputation. When commenting on numerical work, there were numerous examples of scripts that did little more than put into sentences the numbers which had been calculated. For example, simply stating that one company has a higher profit margin than another, does not add any value, and so such a comment will gain no marks.

Also, as in previous sittings, candidates do not appear to be spending sufficient time reading the question and understanding its requirements. For example, if you are asked to evaluate a companys performance report, that is not the same thing as being asked to evaluate a companys performance.

December 2011

In general, it was encouraging to see candidates making use of the detail use of the detail provided in the scenario. The basis of this examination is analysis and application. Candidates need to appreciate that performance management is an area which, at an advanced level, is dependent on situation and environment. Therefore a good answer will go beyond the mere repetition of how a technique or model works, and will relate it to an entitys specific environment.

Some candidates are still not spending sufficient time reading the questions and understanding their requirements. Questions must not be skim read. There were numerous examples of answers which related to a different question requirement than the one which had actually be set, and therefore only scored very few marks. For example, one of the questions asked for an evaluation of a companys performance measurement system. It did not ask for an evaluation of the companys performance, although a number of candidates provided an evaluation of the companys performance. Similarly, one of the other questions asked about the suitability of the performance information which was used to assess a shop managers performance. Again, the focus should have been on the performance information, not the shop or the managers performance.

June 2011

It was encouraging to see some candidates applying good analytic reasoning, and making better use of the detail provided in the question scenario. If candidates come into the P5 examination expecting to repeat memorised material, they will probably only score between 20% and 30%.

The basis of this examination is analysis and application. Candidates will need to a foundation in the techniques and models listed in the syllabus, but should focus more on the evaluation of these techniques and consideration of their usefulness to given scenarios.

Performance management, at an advanced level like P5, is dependent on situation and context. A good answer will go beyond simple description of how a technique works, and will focus on relating it to the specific scenario given in the question.

xxii Revising P5

December 2010

A large number of candidates were either inadequately prepared for the examination or else they failed to read the question requirements carefully.

Candidates need to be flexible in their approach to the examination. They cannot expect there to be one standard answer to all questions on a given topic. The examination is intended to make candidates apply their knowledge to a given scenario, and the scenario will always present new challenges or details.

In general, candidates appear better at description than analysis. However, candidates need to remember that the P5 examination is intended to test their ability to add value in their work in other words, to identify the key points in a scenario, and then apply their knowledge to them in order to address performance issues or performance improvements as required by the question.

June 2010

A large number of candidates achieved high marks. However a large number of candidates were inadequately prepared though overall performance has improved. Candidates demonstrate good descriptive skills but are weak on analysis falling to include numerical analysis and the commercial implications of their findings. Candidates should refer to any scenarios given in their answers rather than to prepared analyses which may be irrelevant.

December 2009

Many candidates continue to display their answers poorly, and would benefit from giving more thought to the presentation of their answers. This will not only improve the organisation of their answers, but it will also assist the marking in identifying the points which deserve marks.

Many candidates would clearly also benefit from planning their answers. For example, in their answers to question 5 a number of candidates discussed the organisations mission statement in part (a) (i), although this was actually a requirement of part (a) (ii).

It was also noticeable that some candidates had clearly memorised solutions to past examination questions and were determined to include them in their answers to the questions set here. Unfortunately this does not work, and you must make your answers appropriate to the specific scenario being described in the question.

June 2009

Well-prepared candidates achieved comfortable passes. However many candidates failed quite badly and few were marginal in their performance. Common errors included not answering all parts to questions and a tendency to write at length without answering the question. Candidates must set out their answers clearly and label their scripts to help markers. This is especially important as professional marks can be earned for presentation and organisation.

December 2008

Scripts suggested a significant number of candidates were unprepared for the exam. Again, many omitted to answer all parts of questions losing valuable marks. A major problem was insisting on using a memorised answer to answer a question rather than the actual question set. There was an inability to interpret numbers and ratios beyond classifying performance as either 'good' or 'bad'.

Revising P5 xxiii

June 2008

A significant number of candidates provided good answers to every question they attempted and consequently earned high marks. However, the overall performance of candidates was good. Poor candidates revealed poor presentation and/or time management or not observing the specific requirements of each question. Candidates need to give more thought to the layout and organisation of their answers now that professional marks are available for well-presented answers.

xxiv Revising P5

Analysis of past papers The table below provides details of when each element of the syllabus has been examined and whether it was examined as part of a compulsory question (C) or an optional one (O). Please note that up to December 2012, the exam contained two compulsory questions, unlike exams from 2013 which will only contain one compulsory question.

Covered in Text chapter

Dec 2012

June 2012

Dec 2011

June 2011

Dec 2010

June 2010

Dec 2009

June 2009

STRATEGIC PLANNING AND CONTROL

1 Introduction to strategic management accounting

O C

2 Performance management and control of the organisation

C C C

3 Business structure, IT developments and other environmental and ethical issues

C, C

EXTERNAL INFLUENCES ON ORGANISATIONAL PERFORMANCE

4 Changing business environment and external factors

C O C O C

5, 6 PERFORMANCE MEASUREMENT SYSTEMS AND DESIGN

C O, O C

STRATEGIC PERFORMANCE MEASUREMENT

7 Performance hierarchy C O

8 Scope of strategic performance measures in the private sector

C, O C C O C C,O

9 Divisional performance and transfer pricing issues

C O,O O

10a Scope of strategic performance measures in not-for-profit organisations

C,O

10b Non-financial performance indicators O C

11 The role of quality in management information and performance measurement systems

O O

12 Performance measurement: strategy, reward and behaviour

C O O,O O

PERFORMANCE EVALUATION AND CORPORATE FAILURE

13 Alternative views of performance measurement and management

C C C, O C,O O,O

14 Strategic performance issues in complex business structures

O O

15 Predicting and preventing corporate failure O O

CURRENT DEVELOPMENTS AND EMERGING ISSUES IN PERFORMANCE MANAGEMENT

16 Current developments, issues and trends O O

Revising P5 xxv

Useful websites The websites below provide additional sources of information of relevance to your studies for Advanced Performance Management.

www.accaglobal.com ACCA's website. The students' section of the website is invaluable for detailed information about the qualification, past issues of Student Accountant (including technical articles) and even interviews with the examiners.

www.bpp.com Our website provides information about BPP products and services, with a link to the ACCA website.

www.ft.com This website provides information about current international business. You can search for information and articles on specific industry groups as well as individual companies.

www.economist.com Here you can search for business information on a week-by-week basis, search articles by business subject and use the resources of the Economist Intelligence Unit to research sectors, companies or countries.

www.cfo.com This site provides useful news and insights for financial executives.

xxvi Planning your question practice

Planning your question practice We have already stressed that question practice should be right at the centre of your revision. Whilst you will spend some time looking at your notes and Paper P5 Passcards, you should spend the majority of your revision time practising questions.

We recommend two ways in which you can practise questions.

Use BPP Learning Media's question plan to work systematically through the syllabus and attempt key and other questions on a section-by-section basis

Build your own exams attempt questions as a series of practice exams These ways are suggestions and simply following them is no guarantee of success. You or your college may prefer an alternative but equally valid approach.

Additional questions

BPPs answers for the June and December 2013 exams, along with a small number of additional questions, will be available after the relevant exams on: http://www.bpp.com/acca

BPP Learning Media's question plan The BPP plan below requires you to devote a minimum of 40 hours to revision of Paper P5. Any time you can spend over and above this should only increase your chances of success.

Step 1 Review your notes and the chapter summaries in the Paper P5 Passcards for each section of the syllabus.

Step 2 Answer the key questions for that section. These questions have boxes round the question number in the table below and you should answer them in full. Even if you are short of time you must attempt these questions if you want to pass the exam. You should complete your answers without referring to our solutions.

Step 3 Attempt the other questions in that section. For some questions we have suggested that you prepare answer plans or do the calculations rather than full solutions. Planning an answer means that you should spend about 40% of the time allowance for the questions brainstorming the question and drawing up a list of points to be included in the answer.

Step 4 Attempt Mock exams 1, 2 and 3 under strict exam conditions.

Planning your question practice xxvii

Syllabus section

2012 Pass cards

chapters Questions in this Kit Comments

Done

Strategic planning and control

Introduction to strategic management accounting

1 3

Answer in full.

Note the importance in part (b) of identifying critical success factors that are specifically relevant for HEG. Applying your knowledge to specific scenarios is vital in P5.

6

Prepare an answer plan.

Ensuring localised decision-making is aligned to overall strategic goals is an important aspect of performance management, and is the main focus of this question.

7

Answer in full.

The focus of this question, based on one from the June 2012 exam is benchmarking. However, you need to use benchmarking to assess the performance of an organisation, rather than simply discussing, in general terms, what benchmarking is or how it could be useful for an organisation.

Performance management and control of the organisation

2 91

Answer parts (a) & (b) only, in full.

This question, adapted from the December 2010 exam, looks at different aspects of costing and budgeting, in particular beyond budgeting. Note your answer should be presented as a report.

92 Answer part (a) only.

This question (from the December 2009 exam) tests your knowledge of alternative budget models, in particular beyond budgeting.

Business structure, IT developments and other environmental and ethical issues

3 12 Answer in full.

Information systems, and their usefulness in helping managers make decisions and control organisations, are a vital component of performance management.

xxviii Planning your question practice

Syllabus section

2012 Pass cards


Done

13

Answer in full.

Another question about information systems, but here also looking at the way they might be able to improve the competitiveness of an organisation. Part (b) also highlights the importance of external information (eg competitor analysis) as well as internal information when assessing an organisations performance.

14

15

Answer in full.

This question highlights the difference in potential information requirements for manufacturing organisations compared to service organisations. It is important to appreciate how information requirements are likely to vary in different organisations.


It is important to appreciate the influence that different stakeholders can have on organisations strategies and performance.

External influences on organisational performance

Changing business environment and external factors

4 17 Prepare an answer plan.

Risk and uncertainty are examined in the compulsory question in the Pilot Paper (which you will cover as Mock Exam 3 later). The issue here is: how do risk and uncertainty affect planning and decision-making in an organisation?

93 Prepare an answer plan.

This question combines aspects of risk and uncertainty with a discussion of the way external factors can affect an organisations performance.

(As a minimum, you should prepare an answer plan for this question, but if you have time you should tackle the question in full, to get practice at answering 50 mark questions.)

19 Answer in full. A question from the June 2009 exam which looks at investment decisions (in particular, NPV calculations) and risk (in particular, decision rules).

Planning your question practice xxix

Syllabus section

2012 Pass cards


Done

20

22


This question (adapted from the December 2009 exam) combines an evaluation of financial performance, with a discussion of the factors that should influence a proposed business decision.

Answer in full.

This question (based on the December 2010 exam) reminds you that performance management is not simply about financial performance management. Here the focus is on environmental performance, specifically carbon dioxide emissions.

Performance measurement systems and design

Performance management information systems

5 24 Prepare an answer plan.

This question looks at various issues surrounding the provision of information and how it can be used in organisations.

27 Answer in full.

This question looks at some of the factors that should affect the design of information systems.

Management information, recording and processing and management reports


The key message here is that while managers need information for control and decision-making, having too much information may actually be a hindrance rather than a help.

34 Answer in full.

This question (adapted from the December 2011 exam) looks at two different aspects of management information: controls and security; and, the usefulness of information and performance reports.

xxx Planning your question practice

Syllabus section

2012 Pass cards


Done

Strategic performance measurement

Performance hierarchy

7

94

Answer in full.

The main focus of this question (adapted from the December 2010 exam) is on critical success factors (CSFs) and key performance indicators (KPIs). However, there is also a reference back to information systems (from the previous section), and part of the question also looks at mission statements.

95

Answer in full.

This question (adapted from the June 2012 exam) combines issues around performance reports with the choice of measures which an organisation selects in order to help manage its performance.


This question (amended from the December 2009 paper) looks at three different aspects of the performance hierarchy: mission, critical success factors, and performance measures. It is very important to recognise the link between CSFs and KPIs in the performance hierarchy.

Scope of strategic performance measures in the private sector

8 97

Answer parts (a) (c) in full.

This question is adapted from a compulsory question in the June 2011 exam. The examiner has highlighted the importance of being able to evaluate performance or performance models. The focus in part (a) of this question is on evaluating the performance of a division. The focus in part (c) is on evaluating the potential impact of introducing a new executive information system.

98 Prepare an answer plan for part (a).

This question has been adapted from a compulsory question in the December 2008 exam. Part (a) highlights that performance does not simply mean financial performance.

Parts (b) and (c) cover topics covered in Chapter 16 (Current developments and issues).

99 Answer part (a) in full.

This question is adapted from a compulsory question in the December 2009 exam. Use this to test your familiarity with financial and non-financial measures of performance.

Planning your question practice xxxi

Syllabus section

2012 Pass cards


Done

Divisional performance and transfer pricing issues


This question is taken from the December 2007 exam. It covers a lot of syllabus areas, such as: short-term and long-term performance measures, comparing divisional performance, calculating EVA, and discussing the potential disadvantages of EVA.

100 Answer part (a) in full.

This question is based on one from the June 2008 exam. Again it looks at a range of different financial performance measures as well as bonuses and reward schemes.

43 Answer in full.

The main focus of this question from the December 2009 is transfer pricing in a strategic context.

Scope of strategic performance measures in not-for-profit organisations

10a 44 Prepare an answer plan.

This question looks at the aspects of performance which are important when generating a profit is not an organisations primary objective.

Non-financial performance indicators

10b 101

45

Answer in full.

This question (adapted from the June 2010 exam) looks at the importance of non-financial performance indicators, particularly with reference to the balanced scorecard.


Another question the June 2010 exam, this time looking at the importance of value for money, and the measures of economy, efficiency, and effectiveness in public sector organisations.

The role of quality in management information and performance measurement systems

11 4 8

5 0

Answer in full.

This question (adapted from the December 2011 exam) looks at a number of issues around quality management, including Kaizen, just-in-time production, and TQM.

Answer in full.

The main focus of this question (adapted from the June 2012 exam) is Six Sigma and its role in improving performance. Part (c) looks specifically at the DMAIC methodology for implementing Six Sigma.

xxxii Planning your question practice

Syllabus section

2012 Pass cards


Done

Performance measurement: strategy reward and behaviour

12 56


This question looks at some specific problems with performance measurement, but you need to be aware of the potential problems with performance measurement in general.

60

61

Answer in full.

Staff represent a valuable asset to many organisations. But how do appraisals and performance management help organisations achieve their goals?


This question looks at the potential problems reward management schemes can cause in organisations if they are poorly designed.

Make sure you base your answer directly on the scenario rather than preparing a theoretical answer.

Performance evaluation and corporate failure

Alternative views of performance measurement


This question covers a range of different areas and topics: the balanced scorecard; benchmarking; and the potential conflict between strategies aimed at strategy and those focusing on survival.

64 Answer in full.

This question (taken from the December 2011 exam) focuses on another multi-dimensional performance management model: the performance pyramid.

65 Answer in full.

This question (adapted from the June 2011 exam) looks at a third multi-dimensional performance management model the building block model.

67 Answer in full.

This question (adapted from the June 2012 exam) looks at another different model: the performance prism.

72 Answer in full.

This question (amended from the December 2010 exam) looks at value generation in respect of a companys shareholders. Specific topics covered are value-based management, activity-based management, and EVA.

Planning your question practice xxxiii

Syllabus section

2012 Pass cards


Done

Strategic performance issues in complex business structures


This question (adapted from the June 2011exam) looks at the BCG matrix, and how the matrix can be used to evaluate a companys performance. However, note that in part (b) you also need to evaluate the model itself. How useful is BCG analysis as a performance management system?


This question looks at the performance management issues which arise in relation to joint ventures.

78 Answer in full.

This question (adapted from the June 2012 exam) looks at the difficulties of performance measurement and performance management in a virtual company.

Predicting and preventing corporate failure

15 80


This question addresses two separate topics. Use part (a) to revise your understanding of Porter's Five forces model. Then use part (b) to make sure you understand how performance measures can be used to indicate corporate failure.

81 Answer in full.

This question (amended from the December 2010 exam) looks at performance issues which can lead to corporate failure, and the models which can be used to help predict corporate failure.

83 Answer in full.

This question looks specifically at Argentis A score model, and its usefulness for predicting corporate failure.

Current developments and emerging issues in performance management

86


This question looks at the use of league tables for monitoring performance. What are the advantages and disadvantages of using league tables to monitor performance?

Current developments, issues and trends

16


This question looks at the changing role of management accountants in organisations.

xxxiv Planning your question practice

Syllabus section

2012 Pass cards


Done


This is a second question looks at the changing role of management accountants in organisations, but with a direct reference to the work of Burns and Scapens, which is specifically mentioned in the P5 syllabus.

Planning your question practice xxxv

Build your own exams Having revised your notes and the BPP Learning Media Passcards, you can attempt the questions in the Kit as a series of practice exams using the suggestions we have listed below.

1 2 3 4 5 6 Section A 1 99 95 91 97 94 101 Section B 2 20 7 34 65 22 45 3 35 50 48 67 72 71 4 43 78 64 74 81 73

xxxvi Planning your question practice

1

Questions

2

June and December 2013 exams BPPs answers for these exams, along with a small number of additional questions, will be available for free after the exams on http://www.bpp.com/acca

Questions 3

STRATEGIC PLANNING AND CONTROL

Questions 1 to 16 cover strategic planning and control, the subject of Part A of the BPP Study Text for Paper P5.

1 Diverse holdings (PM 12/05, amended) 45 mins Diverse Holdings plc has five wholly-owned subsidiary companies. These are:

(i) Organic Foods Ltd (OFL) which is involved in the production and sale of organically grown fruit and vegetables. OFL has built up a very good reputation as a supplier of quality produce.

(ii) Haul-Trans Ltd (HTL) which was acquired on 1 December 20X5 and is involved in transporting a range of products on behalf of third parties.

(iii) Kitchen Appliances Ltd (KAL) which is involved in the manufacture and sale of small, manually-operated kitchen appliances. KAL has recently suffered from squeezed margins as a consequence of competition from low cost imports.

(iv) Paper Supplies Ltd (PSL) which manufactures and sells a narrow range of stationery products to two distributors.

(v) Office Products Ltd (OPL) which manufactures and sells computer workstations with unique design features which are highly regarded by health and safety experts.

The management accountant of Diverse Holdings plc has gathered the following actual and forecast information relating to the five subsidiaries:

Year ending 30 November 20X3 20X4 20X5 20X6 20X7 Actual Actual Actual Forecast Forecast

(OFL) Market size ($m) 100.0 120.0 150.0 180.0 225.0 Revenue ($m) 5.0 8.0 10.0 13.5 18.0 Operating profit ($m) 1.0 1.8 2.5 3.0 3.6

(HTL) Market size ($m) Unknown Unknown Unknown Unknown Unknown Revenue ($m) 40.0 40.0 41.0 42.0 42.0 Operating profit ($m) 4.0 4.0 4.0 5.0 5.6

(KAL) Market size ($m) 252.0 250.0 245.0 242.0 240.0 Revenue ($m) 37.5 37.5 35.5 32.0 29.0 Operating profit/(loss) ($m) 1.5 1.1 0.7 0.3 (0.2)

(PSL) Market size ($m) 60.0 65.0 70.0 77.0 84.0 Revenue ($m) 2.0 2.0 2.0 2.0 2.1 Operating profit ($m) 0.6 0.6 0.6 0.5 0.5

(OPL) Market size ($m) 200.0 220.0 240.0 260.0 280.0 Revenue ($m) 15.0 16.0 16.5 17.0 17.5 Operating profit ($m) 1.50 1.60 1.65 1.70 1.75

The management accountant has also collated the following information relating to the market share held at 30 November 20X5 by the market leader in those markets in which each subsidiary operates:

Subsidiary Market Market share held by market leader % Organic Foods Ltd Food production 6.66 Haul-Trans Ltd Transport Unknown Kitchen Appliances Ltd Kitchen appliances 16.00 Paper Supplies Ltd Stationery 35.00 Office Products Ltd Workstations 25.00

4 Questions

The management has decided not to undertake any further acquisitions during the next two years due to a shortage of funds.

Required

(a) Identify and comment on FIVE advantages that may be gained as a result of the adoption of a formal system of strategic planning. (5 marks)

(b) Explain how SWOT analysis could be used to assist the performance management process at Diverse Holdings plc. (7 marks)

(c) (i) Using ONLY the information provided in the scenario, assess the competitive position of Diverse Holdings plc. (7 marks) (ii) Explain THREE strategies that might be adopted in order to improve the future prospects of Diverse Holdings plc. (6 marks)

(Total = 25 marks)

2 ST University 45 mins ST University (STU) is university in a European country, with approximately 8,500 full time students. It employs 360 academic staff and 450 other staff.

STU currently receives a significant amount of government funding, which covers its capital budget (for buildings and equipment), teaching, and research.

However, a recent visit from government appointed auditors has been critical of STUs performance in a number of areas:

For the last two financial years, STU has operated at a deficit, with its expenditure being greater than its income.

The percentage of students dropping-out of courses is greatly in excess of the national average, as is the failure rate.

The number of student complaints was very high, and has been increasing over the past 5 years It has had an abnormally high level of staff turnover STUs internal control of cash receipts is weak, and in several areas there were discrepancies between the

cash actually held and the expected amount It also had a large number of debtors (receivables), mainly ex-students, but was not taking any action to

collect outstanding debts. STU could not accurately produce a head-count of the number of students enrolled on its courses Overall, the quality of education provided by STU has been graded as Poor, which is the lowest possible

rating.

Following the visit, the government has instructed STU to prepare a new strategic plan for the next five years, which addresses the criticisms identified by the audit.

Although STUs senior management team were disappointed at the level of the auditors criticism overall, they were particularly surprised at the comments about its computing facilities. Over the past two years, STU has made a major capital investment in upgrading all the computing facilities across the university.

The auditors report made reference to this investment, but pointed out that some department faculties are making much better use of them to promote learning than others.

Questions 5

Required

(a) Discuss the extent to which the criticisms made about the University are strategic or operational. (6 marks)

(b) Advise STU how control measures could assist in the successful implementation of the new strategic plan, and recommend controls the university could use to assist in the improvement of any TWO of the areas which were criticised in the recent audit. (10 marks)

(c) Advise STU how it could use information systems to support the successful implementation of the strategic plan. (9 marks)

(Total = 25 marks)

3 HEG (APM 12/07, amended) 45 mins 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 20X8.

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 $240. 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 $070. All sandwiches are made by hand.

(5) Packaging and labelling costs amount to $015 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. (6 marks)

(b) Explain the concept of critical success factors, and 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. (13 marks)

(c) Explain how the introduction of an ERPS could impact on the role of management accountants. (6 marks)

(Total = 25 marks)

6 Questions

4 CTC (APM 6/08, Preparation question) 36 mins The Children's Toy Company (CTC) manufactures electrically-operated toy versions of animals. The activities of CTC are confined to the country of Stableland, which has a zero-inflation economy. The government of Stableland has granted tax-exempt status to CTC since it provides goods or services exclusively for children. However, no tax allowances are available on investments made by CTC.

CTC has a total production capacity of 400,000 units which cannot be exceeded. The products to be manufactured together with forecast sales volumes are as follows:

Product Forecast sales units ('000) 20X8 20X9 20Y0 20Y1 Bruno the Bear 180 120 100 60 Kong the Ape 150 48 24 0 Leo the Lion 60 72 76 30

Other relevant information relating to the products is as follows:

1 Selling prices per unit and contribution to sales ratios (%) for 20X8 and 20X9:

Selling price per unit ($)

Contribution to sales ratio (%)

Product: Bruno 40 70 Kong 50 65 Leo 60 60

2 Product-specific fixed overheads:

Year 20X8 20X9 $000 $000 Bruno 3,800 2,400 Kong 2,400 1,340 Leo 2,040 2,100

3 The company's other fixed overheads are estimated at $165 million per annum.

Required

(a) (i) Prepare a statement of product profitability for each of years 20X8 and 20X9 which also shows the net profit or loss of CTC. (4 marks)

(ii) Comment on the figures in the statement prepared in (a)(i) above. (4 marks)

(b) The marketing director of CTC has suggested the introduction of a new toy 'Nellie the Elephant' for which the following estimated information is available:

1 Sales volumes and selling prices per unit

Year ending 31 May 20X9 20Y0 20Y1 Sales units (000) 80 180 100 Selling price per unit ($) 50 50 50

2 Nellie will generate a contribution to sales ratio of 50% throughout the three year period. 3 Product specific fixed overheads during the year ending 31 May 20X9 are estimated to be $16

million. It is anticipated that these fixed overheads would decrease by 10% per annum during each of the years ending 31 May 20X0 and 31 May 20X1.

4 Capital investment amounting to $39 million would be required in June 20X8. The investment would have no residual value at 31 May 20X1.

5 Additional working capital of $500,000 would be required in June 20X8. A further $200,000 would be required on 31 May 20X9. These amounts would be recovered in full at the end of the three year period.

6 The cost of capital is expected to be 12% per annum.

Assume all cash flows (other than where stated) arise at the end of the year.

Questions 7

Required

(i) Determine whether the new product is viable purely on financial grounds. (4 marks)

(ii) Calculate the minimum target contribution to sales ratio (%) at which 'Nellie the Elephant' will be financially viable, assuming that all other data remain unchanged. (4 marks)

(iii) Identify and discuss an alternative strategy that may assist in improving the performance of CTC with effect from 1 May 20X9 (where only the products in (a) and (b) above are available for manufacture). (4 marks)

(Total = 20 marks)

5 AB Electronics 45 mins AB Co manufactures, markets and distributes a large range of electronic components, and it is has established a significant market share across Europe and the United States of America.

AB has three different divisions: the Domestic Electronic Components division (DEC), the Industrial Electronic Components division (IEC), and the Specialist Components (SC) division. The DEC division and the IEC division supply standard electronic components for domestic and industrial use, while the SC division supplies specialist components which are often unique and made to specific customer requirements. Each division has its own factory, with DEC and IECs factories based in the same Eastern European country and SCs factory based in a Western European country.

All three divisions have been profitable over the past five years, although the Board has traditionally taken a relatively cautious approach to providing strategic direction for the company. However, ABs institutional shareholders are now looking for increased growth and profitability. In the past, the institutional shareholders have been critical of ABs board for being overly cautious in their attitude to risk.

In ABs most recent annual report, published in March 20Y0, the Board stated that ABs overall strategic aim is to: Achieve growth and increase shareholder returns by continuing to produce and distribute high quality electronic components, and develop our international presence through expansion into new overseas markets.

Two years earlier, in 20X8, AB established a separate trading company with a local partner in Asia to sell the IEC divisions products. The ownership of the company is shared: 50% by AB and 50% with a local entrepreneur. AB chose this structure because of local legal requirements. A further legal requirement is that, in the case of the company ceasing to trade, AB will be required to reimburse the local entrepreneur the full amount of his original investment (which was $500,000).

This expansion was initially very successful, with good levels of demand being experienced for IECs products. Recently, however, a number of environmental factors have rapidly changed. These include a forecast of declining demand for IECs products in Asia due to adverse world economic factors (which have slowed the growth in demand for electronic components in total) and a move towards protectionism in some Asian countries. The trading company had originally been forecast to make a profit of $2 million in 20Y1, but this figure has now been re-forecast to $1.6 million.

IEC has also been unfortunate in that its direct labour costs in Asia have increased by more than the planned level. Economic intelligence suggests that this inflation will continue increasing for the next two years.

However, analysis by ABs management accountant shows that the trading companys costs (and in particular its wage costs) are proportionally much higher than its competitors.

Required

(a) Advise the Board of AB how strategic management accounting could help it manage the performance of the trading company in Asia. (8 marks)

(b) Discuss the factors which AB should consider before withdrawing from the trading company it has established with its partner in Asia. (12 marks)

(c) Briefly discuss how the Boards attitude to risk means it may respond to potential new opportunities in a different way than the institutional shareholders would like. (5 marks)

(Total = 25 marks)

8 Questions

6 Megasnack 45 mins Megasnack Co operates an extensive chain of fast-food outlets in a number of countries. Most outlets are owned and managed by the company but some are operated under a franchising agreement. The companys strategy is based on conformity providing a range of standard products at a standard price, in similarly-designed stores, using the same service procedures. This means that customers visiting a Megasnack outlet in any country will know what service, what eating environment and what products to expect, and (depending on currency rates) how much they will pay for their food.

The financial strategy of the company has been to achieve targets for gross contribution and net operating profit at all outlets, and to achieve sales growth by meeting customer needs and expectations better than rival fast-food companies, with support from extensive advertising. Two key performance indicators which Megasnack uses to measure the performance of its outlets are: revenue per outlet; and staff costs as a percentage of revenue.

The senior operations management team at head office have become concerned recently by a number of reported incidents in which some local outlets have been deviating from company strategy in order to meet targets for sales growth or profit margins. Several incidents are itemised below:

(1) Some outlets have been offering special discount prices or special deals (two-for-the-price-of-one) in order to increase sales, and, for the same reason, some outlets have offered a home delivery service, which is against company policy.

(2) Some outlets have cut training costs for staff in order to save costs, and head office managers are concerned that this could affect the quality and speed of service given to customers. Other outlets have taken on temporary staff without training them, in order to meet the demand from customers.

(3) There have been reports that in one country, outlets have been offering extra products on their menu, in addition to the standard Megasnack product range.

(4) There has been adverse publicity in the media about one outlet that was disposing of food waste in a way that was contrary to health and safety laws, and in breach of the companys health and environmental policies.

(5) Another adverse media story has been the decision by the manager of one outlet to dismiss all the staff after they took unofficial strike action. The manager took this action without consulting head office or referring to the companys industrial relations policy.

Another source of concern has been a problem with the quality of the pre-preparation of food products. Megasnacks products are pre-prepared at a number of large processing centres, and they are then transported to the outlets each day from these processing centres. Each outlet then finishes the preparation of the products for serving to customers in their own kitchen. Recently, during a period of high demand for products from the Megasnack outlets, the managers of some processing centres had resisted demands to produce more pre-prepared output, on the grounds that this would stretch their resources and damage the quality of the food items produced.

Senior management have recognised that a problem exists with the processing centres and are considering what action to take.

Required

(a) Briefly evaluate the choice of revenue per outlet, and staff costs as a percentage of revenue as key performance indicators for Megasnacks outlets. (5 marks)

(b) With reference to the experiences at Megasnack, discuss the reasons for conflict between the strategic business plans of a large organisation and short-term decision making at local level. (10 marks)

(c) Recommend the measures that senior management at Megasnack should take to reduce the scope for such conflict and the risk that this conflict might occur. (10 marks)

(Total = 25 marks)

Questions 9

7 Ganymede (APM, 6/12, amended) 45 mins Ganymede University (GU) is one of the three largest universities in Teeland, which has eight universities in total. All of the universities are in the public sector. GU obtains the vast majority of its revenue through government contracts for academic research and payments per head for teaching students. The economy of Teeland has been in recession in the last year and this has caused the government to cut funding for all the universities in the country.

In order to try to improve efficiency, the chancellor of the university, who leads its executive board, has asked the head administrator to undertake an exercise to benchmark GUs administration departments against the other two large universities in the country, AU and

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