P2 - Performance Management
P2 - Performance Management
P2 - Performance Management
P2 Performance Management
Performance Pillar
TURN OVER
SECTION A 50 MARKS
[You are advised to spend no longer than 18 minutes on each question in this
section.]
Required:
Calculate
(a)
the cumulative average time per batch for the first 64 batches
(b)
(2 marks)
th
(3 marks)
(c)
the average selling price of the final 1,000 units that will allow the
company to earn a total profit of $100,000 from the product
(5 marks)
(Total for Question One = 10 marks)
Performance Management
November 2011
Question Two
SF manufactures and sells a limited range of flat pack furniture. Due to the standardisation of
its products, SF uses a standard costing system to monitor its performance. At the start of
each financial year the company directors agree a set of standard costs for each of the
companys products. Monthly variance reports are discussed at each monthly board meeting.
A few months ago the Production Director attended a conference on World Class
Manufacturing and was very interested in a presentation on Kaizen Costing. The presenter
illustrated how the use of Kaizen Costing had enabled her company to reduce its unit
manufacturing costs by 20%.
Required:
(a)
(b)
Question Three
LCG was established in 1998 and manufactures a range of garden tables and chairs which it
makes from timber purchased from a number of suppliers.
The recently appointed Managing Director has expressed increasing concern about the
trends in falling sales volumes, rising costs and hence declining profits over the last two
years. There is general agreement amongst the managers of LCG that these trends are the
result of the increased intense competition that has emerged over the last two years. LCG
continues to have a reputation for high quality but this quality is now being matched by the
competition.
The competitors are taking LCGs share of the market by selling equivalent products at lower
prices. It is thought that in order to offer such low prices the production costs of the
competitors must be lower than LCGs.
Required:
Discuss how LCG could improve its sales volumes, costs and profits by using (i)
value analysis and (ii) functional cost analysis.
(Total for Question Three = 10 marks)
TURN OVER
November 2011
Performance Management
Question Four
WX, a consultancy company, is preparing its budgets for the year to 31 December 2012. The
directors of the company have stated that they would like to reduce the companys overdraft
to zero by 30 June 2012 and to have a positive cash balance of $145,000 by the end of the
year. In addition, the directors would like to achieve a 20% growth in sales revenue compared
to 2011 and a pre-tax profit of $180,000 for the year.
Required:
Illustrate the differences between feedforward control and feedback control
using the above information about WXs cash budget.
Question Five
An airline company has operated short haul passenger and cargo flights to various
destinations from a busy airport for several years. Its competitive advantage has been the fact
that it offers low ticket prices to passengers. It now faces increased competition on a number
of its routes.
The company currently monitors its performance using financial measures. These financial
measures have served it well in the past, but a new director has suggested that non-financial
measures may also be used to provide a better indication of overall performance. She has
suggested that the company should consider using the Balanced Scorecard.
Required:
(a)
Explain the concepts of the Balanced Scorecard and how it could be used
by the airline company.
(6 marks)
(b)
Explain TWO non-financial measures that the airline company could use
to monitor its performance.
(4 marks)
End of Section A
Section B starts on page 6
Performance Management
November 2011
TURN OVER
November 2011
Performance Management
SECTION B 50 MARKS
[You are advised to spend no longer than 45 minutes on each question in this section.]
Performance Management
November 2011
Required:
(a)
(b)
HY, the company that is to supply RFT with the components that are
required for this contract, is another company in the same group as RFT.
Each component is being transferred to RFT taking account of HYs
opportunity cost of the component. The variable cost that will be incurred
by HY is $28 per component.
Discuss the factors that would be considered by HY to determine the
opportunity cost of the component.
(5 marks)
(c)
When there is no external market for the item being supplied between
divisions of a company the transfer price is often based on the supplying
divisions cost.
(i)
(ii)
Explain how using standard costs rather than actual costs as the basis of
the transfer price would solve the problem identified in (i) above.
(4 marks)
(Total for Question Six = 25 marks)
TURN OVER
November 2011
Performance Management
Question Seven
SHG manufactures and installs heating systems for commercial customers. SHG commenced
trading in 1990. At first, all operations were confined to the northern region but since 2006
SHG has expanded its operations into the southern region. In May 2009 the directors of SHG
decided to adopt a divisionalised structure in order to facilitate better management control of
SHGs operations. SHG created two divisions, the Northern division and the Southern
division.
The following information is available:
1. Net assets of SHG as at 31 May were as follows:
Division
Non-current
assets (net book
value)
Net current
assets
Net assets
Non-current
assets acquired
in year
2011
Northern
Southern
$m
$m
78.75
146.25
2010
Northern
Southern
$m
$m
72.45
134.55
2009
Northern
Southern
$m
$m
70.00
130.00
47.25
87.75
46.55
86.45
42.00
78.00
126.00
15.05
234.00
27.95
119.00
10.50
221.00
19.50
112.00
208.00
Notes:
There were no disposals of non-current assets during the above periods.
Depreciation is charged at 10% per annum on a reducing balance basis in respect of all noncurrent assets held at the end of the year.
2. For the years ended 31 May 2010 and 2011, turnover and operating cashflows were as
follows:
Division
Turnover:
Northern
Southern
Operating cash flows:
Northern
Southern
2011
$m
2010
$m
168
240
148
220
42
60
37
55
3. Each division has a target return on capital employed (ROCE) of 20% on average capital
employed throughout each year. The managers of both divisions are entitled to receive
an annual bonus under a management incentive scheme if the target rate of ROCE is
achieved for their division.
NOTE: Ignore Taxation and Inflation
Performance Management
November 2011
Required:
(a)
(i)
(ii)
Calculate (1) the asset turnover and (2) the profit/sales % achieved by
each division during the years ended 31 May 2010 and 31 May 2011.
(iii)
(4 marks)
(4 marks)
(b)
SHG realises that its present performance reporting system does not highlight quality
costs. The reports contain the information below, but the directors require this to be
reported in an appropriate format.
The following information is available in respect of the year ended 31 May 2011:
1. Production data:
Units requiring rework
Units requiring warranty repair service
Design engineering hours
Inspection hours (manufacturing)
1,500
1,800
66,000
216,000
2. Cost data:
$
75
40
3,000
200
240
3,200
3. Staff training costs amounted to $150,000 and additional product testing costs were
$49,000.
4. The marketing director has estimated that sales of 1,400 units were lost as a result of
bad publicity in trade journals. The average contribution per heating system unit is
estimated at $6,000.
Required:
Prepare a cost of quality report for SHG that shows its costs of quality (using
appropriate headings) for the year ended 31 May 2011.
(10 marks)
(Total for Question Seven = 25 marks)
Performance Management
Performance Management
10
November 2011
Periods
(n)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
1%
0.990
0.980
0.971
0.961
0.951
0.942
0.933
0.923
0.914
0.905
0.896
0.887
0.879
0.870
0.861
0.853
0.844
0.836
0.828
0.820
2%
0.980
0.961
0.942
0.924
0.906
0.888
0.871
0.853
0.837
0.820
0.804
0.788
0.773
0.758
0.743
0.728
0.714
0.700
0.686
0.673
3%
0.971
0.943
0.915
0.888
0.863
0.837
0.813
0.789
0.766
0.744
0.722
0.701
0.681
0.661
0.642
0.623
0.605
0.587
0.570
0.554
4%
0.962
0.925
0.889
0.855
0.822
0.790
0.760
0.731
0.703
0.676
0.650
0.625
0.601
0.577
0.555
0.534
0.513
0.494
0.475
0.456
7%
0.935
0.873
0.816
0.763
0.713
0.666
0.623
0.582
0.544
0.508
0.475
0.444
0.415
0.388
0.362
0.339
0.317
0.296
0.277
0.258
8%
0.926
0.857
0.794
0.735
0.681
0.630
0.583
0.540
0.500
0.463
0.429
0.397
0.368
0.340
0.315
0.292
0.270
0.250
0.232
0.215
9%
0.917
0.842
0.772
0.708
0.650
0.596
0.547
0.502
0.460
0.422
0.388
0.356
0.326
0.299
0.275
0.252
0.231
0.212
0.194
0.178
10%
0.909
0.826
0.751
0.683
0.621
0.564
0.513
0.467
0.424
0.386
0.350
0.319
0.290
0.263
0.239
0.218
0.198
0.180
0.164
0.149
Periods
(n)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
11%
0.901
0.812
0.731
0.659
0.593
0.535
0.482
0.434
0.391
0.352
0.317
0.286
0.258
0.232
0.209
0.188
0.170
0.153
0.138
0.124
12%
0.893
0.797
0.712
0.636
0.567
0.507
0.452
0.404
0.361
0.322
0.287
0.257
0.229
0.205
0.183
0.163
0.146
0.130
0.116
0.104
13%
0.885
0.783
0.693
0.613
0.543
0.480
0.425
0.376
0.333
0.295
0.261
0.231
0.204
0.181
0.160
0.141
0.125
0.111
0.098
0.087
14%
0.877
0.769
0.675
0.592
0.519
0.456
0.400
0.351
0.308
0.270
0.237
0.208
0.182
0.160
0.140
0.123
0.108
0.095
0.083
0.073
17%
0.855
0.731
0.624
0.534
0.456
0.390
0.333
0.285
0.243
0.208
0.178
0.152
0.130
0.111
0.095
0.081
0.069
0.059
0.051
0.043
18%
0.847
0.718
0.609
0.516
0.437
0.370
0.314
0.266
0.225
0.191
0.162
0.137
0.116
0.099
0.084
0.071
0.060
0.051
0.043
0.037
19%
0.840
0.706
0.593
0.499
0.419
0.352
0.296
0.249
0.209
0.176
0.148
0.124
0.104
0.088
0.079
0.062
0.052
0.044
0.037
0.031
20%
0.833
0.694
0.579
0.482
0.402
0.335
0.279
0.233
0.194
0.162
0.135
0.112
0.093
0.078
0.065
0.054
0.045
0.038
0.031
0.026
November 2011
11
Performance Management
Periods
(n)
1
2
3
4
5
1 (1+ r ) n
r
1%
0.990
1.970
2.941
3.902
4.853
2%
0.980
1.942
2.884
3.808
4.713
3%
0.971
1.913
2.829
3.717
4.580
4%
0.962
1.886
2.775
3.630
4.452
7%
0.935
1.808
2.624
3.387
4.100
8%
0.926
1.783
2.577
3.312
3.993
9%
0.917
1.759
2.531
3.240
3.890
10%
0.909
1.736
2.487
3.170
3.791
6
7
8
9
10
5.795
6.728
7.652
8.566
9.471
5.601
6.472
7.325
8.162
8.983
5.417
6.230
7.020
7.786
8.530
5.242
6.002
6.733
7.435
8.111
5.076
5.786
6.463
7.108
7.722
4.917
5.582
6.210
6.802
7.360
4.767
5.389
5.971
6.515
7.024
4.623
5.206
5.747
6.247
6.710
4.486
5.033
5.535
5.995
6.418
4.355
4.868
5.335
5.759
6.145
11
12
13
14
15
10.368
11.255
12.134
13.004
13.865
9.787
10.575
11.348
12.106
12.849
9.253
9.954
10.635
11.296
11.938
8.760
9.385
9.986
10.563
11.118
8.306
8.863
9.394
9.899
10.380
7.887
8.384
8.853
9.295
9.712
7.499
7.943
8.358
8.745
9.108
7.139
7.536
7.904
8.244
8.559
6.805
7.161
7.487
7.786
8.061
6.495
6.814
7.103
7.367
7.606
16
17
18
19
20
14.718
15.562
16.398
17.226
18.046
13.578
14.292
14.992
15.679
16.351
12.561
13.166
13.754
14.324
14.878
11.652
12.166
12.659
13.134
13.590
10.838
11.274
11.690
12.085
12.462
10.106
10.477
10.828
11.158
11.470
9.447
9.763
10.059
10.336
10.594
8.851
9.122
9.372
9.604
9.818
8.313
8.544
8.756
8.950
9.129
7.824
8.022
8.201
8.365
8.514
Periods
(n)
1
2
3
4
5
11%
0.901
1.713
2.444
3.102
3.696
12%
0.893
1.690
2.402
3.037
3.605
13%
0.885
1.668
2.361
2.974
3.517
14%
0.877
1.647
2.322
2.914
3.433
17%
0.855
1.585
2.210
2.743
3.199
18%
0.847
1.566
2.174
2.690
3.127
19%
0.840
1.547
2.140
2.639
3.058
20%
0.833
1.528
2.106
2.589
2.991
6
7
8
9
10
4.231
4.712
5.146
5.537
5.889
4.111
4.564
4.968
5.328
5.650
3.998
4.423
4.799
5.132
5.426
3.889
4.288
4.639
4.946
5.216
3.784
4.160
4.487
4.772
5.019
3.685
4.039
4.344
4.607
4.833
3.589
3.922
4.207
4.451
4.659
3.498
3.812
4.078
4.303
4.494
3.410
3.706
3.954
4.163
4.339
3.326
3.605
3.837
4.031
4.192
11
12
13
14
15
6.207
6.492
6.750
6.982
7.191
5.938
6.194
6.424
6.628
6.811
5.687
5.918
6.122
6.302
6.462
5.453
5.660
5.842
6.002
6.142
5.234
5.421
5.583
5.724
5.847
5.029
5.197
5.342
5.468
5.575
4.836
4.988
5.118
5.229
5.324
4.656
7.793
4.910
5.008
5.092
4.486
4.611
4.715
4.802
4.876
4.327
4.439
4.533
4.611
4.675
16
17
18
19
20
7.379
7.549
7.702
7.839
7.963
6.974
7.120
7.250
7.366
7.469
6.604
6.729
6.840
6.938
7.025
6.265
6.373
6.467
6.550
6.623
5.954
6.047
6.128
6.198
6.259
5.668
5.749
5.818
5.877
5.929
5.405
5.475
5.534
5.584
5.628
5.162
5.222
5.273
5.316
5.353
4.938
4.990
5.033
5.070
5.101
4.730
4.775
4.812
4.843
4.870
Performance Management
12
November 2011
FORMULAE
PROBABILITY
A B = A or B.
A B = A and B (overlap).
P(B | A) = probability of B, given A.
Rules of Addition
If A and B are mutually exclusive:
If A and B are not mutually exclusive:
Rules of Multiplication
If A and B are independent:
If A and B are not independent:
DESCRIPTIVE STATISTICS
Arithmetic Mean
x =
x
n
x=
fx
f
(frequency distribution)
Standard Deviation
SD =
( x x ) 2
n
SD =
fx 2
x 2 (frequency distribution)
f
INDEX NUMBERS
Price relative = 100 * P1/P0
Price:
Quantity:
P
w 1
Po
w
x 100
Q
w 1
Qo x 100
w
TIME SERIES
Additive Model
Series = Trend + Seasonal + Random
Multiplicative Model
Series = Trend * Seasonal * Random
November 2011
13
Performance Management
FINANCIAL MATHEMATICS
Compound Interest (Values and Sums)
Future Value S, of a sum of X, invested for n periods, compounded at r% interest
n
S = X[1 + r]
Annuity
Present value of an annuity of 1 per annum receivable or payable for n years, commencing in one
year, discounted at r% per annum:
PV =
1
1
1
r [1 + r ] n
Perpetuity
Present value of 1 per annum, payable or receivable in perpetuity, commencing in one year,
discounted at r% per annum:
PV =
1
r
LEARNING CURVE
b
Yx = aX
where:
Yx = the cumulative average time per unit to produce X units;
a = the time required to produce the first unit of output;
X = the cumulative number of units;
b = the index of learning.
The exponent b is defined as the log of the learning curve improvement rate divided by log 2.
INVENTORY MANAGEMENT
Economic Order Quantity
2C o D
EOQ =
Ch
where:
Co
Ch
D
=
=
=
Performance Management
14
November 2011
Level 2 - COMPREHENSION
What you are expected to understand.
VERBS USED
DEFINITION
List
State
Define
Make a list of
Express, fully or clearly, the details/facts of
Give the exact meaning of
Describe
Distinguish
Explain
Identify
Illustrate
Level 3 - APPLICATION
How you are expected to apply your knowledge.
Apply
Calculate
Demonstrate
Prepare
Reconcile
Solve
Tabulate
Level 4 - ANALYSIS
How are you expected to analyse the detail of
what you have learned.
Level 5 - EVALUATION
How are you expected to use your learning to
evaluate, make decisions or recommendations.
November 2011
Analyse
Categorise
Compare and contrast
Construct
Discuss
Interpret
Prioritise
Produce
Advise
Evaluate
Recommend
15
Performance Management
Performance Pillar
P2 Performance Management
November 2011
Performance Management
16
November 2011