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Paper P3 Management Accounting Performance Strategy Post Exam Guide September 2011 Exam General Comments Overall, performance

ce was good. Well-prepared candidates were capable of obtaining clear passes. Weaker candidates tended to avoid the requirements of the question, either through a failure to grasp what was required or as an attempt to obtain marks for repetition of memorised facts and information. Generally, where candidates did not achieve a pass, the main problems were a failure to apply their knowledge to the scenario and missing out parts of the questions. When information is given in the scenario candidates are expected to use it to illustrate the main issues in their answer. It is very important that all parts of the syllabus are revised, there is less choice now so only one question can be missed out. Also the financial risk part of the syllabus is 35%. This means that Question 1 will contain some financial risk. Many candidates missed out these parts of question 1. Using the reading time wisely can be of huge benefit; candidates should always plan their answers and ensure they read the questions carefully before starting the paper. Candidates who answer the specific question asked could achieve high marks. Candidates waste valuable time if they fail to be specific in their answer, as only the points which answer the question will get marks. Question 1 was answered reasonably in parts. Parts (a) and (c) were not answered well. Question 2 was about value streams and lean management accounting and was the least popular of the optional questions. It was however answered well by many candidates. Question 3 was about economy, efficiency and effectiveness audits. Generally candidates did not know what effectiveness was. Question 4 was about financial risks and was done reasonably well; in fact the calculations were done well by most candidates which was heartening. Note that the attached marking scheme often makes more marks available than indicated on the question paper. This reflects the fact that questions at this level can often be approached in more than one way and that there is no single perfect answer. In applying this marking scheme, marks are always restricted to the total offered by the question and so there is no advantage to be gained from over-developing the answer to one question at the expense of another that may appear more difficult.

The Chartered Institute of Management Accountants

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Paper P3 Management Accounting Performance Strategy Post Exam Guide September 2011 Exam SECTION A 50 MARKS ANSWER THIS QUESTION

Question 1

(a)
(i)

F plcs directors are concerned about the risks to F plcs reputation arising from moving production to West Africa. Use CIMAs Risk Management Cycle to evaluate FOUR possible risks to F plcs reputation. (8 marks) Recommend appropriate actions to manage those risks. (8 marks) (Total for part (a) = 16 marks)

(ii)

(b)

Advise the board of F plc on the control procedures that should be established over the development and running of the food technology courses that will be provided by the West African colleges for F plc. Your answer should consider the following areas: Governance Staffing Support facilities Course content (10 marks)

(c)

Advise the board on the controls necessary during the development and implementation of the changes to the inventory management system. (12 marks)

(d)

Evaluate both the currency and the non-currency risks associated with each of the two loan packages for the financing of the West African factory. (12 marks) (Total for Question One = 50 marks)

The Chartered Institute of Management Accountants

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Paper P3 Management Accounting Performance Strategy Post Exam Guide September 2011 Exam

Rationale This question is based on both the common pre-seen scenario and the unseen scenario. It draws on themes that have been discussed in the context of outsourcing and foreign direct investment. It also draws upon some of the environmental debates that have affected companies in the food business. Part (a) draws mainly on Section B of the syllabus (Risk and Internal Control). This part asks for the application of the CIMA risk management cycle to a significant overseas investment that will have the effect of exporting jobs from the home country. The focus is on the entitys reputation. This has been a common issue facing many successful businesses. The scenario raises questions of human resourcing, corporate social responsibility and press relations. Part (b) also draws mainly on Section B of the syllabus (Risk and Internal Control), but focuses more on dealing with risks rather than their identification. The question deals with the quality control over college courses. It is to be hoped that most CIMA candidates will have some familiarity with formal tuition for both their CIMA classes and any courses taken prior to CIMA and so they should be able to draw on those experiences. Failing that, the scenario deals with the provision of an important service and the need to ensure that the service provider delivers appropriate support. Part (c) draws on section E (Risk and Control in Information Systems). The entity plans to make a significant change to its business model and it requires major changes to the information system in order to support that. Those changes must be implemented and tested thoroughly and, ideally, in such a way that operations are not disrupted when the new factory is opened and the inventory management process changes. Part (d) focuses on section D (Management of Financial Risk). It asks candidates to consider the risks associated with two alternative funding strategies, one of which will offer security against government interference and expropriation. Candidates are expected to identify both the financial and non-financial risks and to deal with both.

Suggested Approach Part (a)(i) asks for a discussion of the risks using the framework provided by CIMAs Risk Management Cycle and part (a)(ii) requires a response to those risks. The expectation is that a practical set of suggestions will be provided, using a certain amount of common sense. Part (b) may well be familiar ground to many candidates who have taken an interest in the management of any courses taken. Regardless of that, it should be clear that F plc needs to ensure that the college courses are working properly. There are certain fairly visible signs that can be studied, such as the qualifications and experience of the teaching staff. Part (c) is a relatively straightforward discussion of a new information system. Answers should reflect the importance and sensitivity of the system because of the potential costs and scope for bad publicity. Part (d) requires the application of some fairly straightforward material on currency risk to a specific scenario.

The Chartered Institute of Management Accountants

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Paper P3 Management Accounting Performance Strategy Post Exam Guide September 2011 Exam

Marking Guide (a)(i) 1 mark per reasonable point; to a maximum of 4 for each of the bullet points. (a)(ii) 1 mark per reasonable point (upside and downside). (b) 1 mark per reasonable point: Governance Staffing Support facilities Course content

Marks Max 8 marks Max 8 marks

5 marks 5 marks 5 marks 5 marks Max 10 marks

(c) 1 mark per reasonable point: System design and specification Programming and documentation Testing Training

4 marks 2 marks 6 marks 1 mark Max 12 marks

(d) 1 mark per reasonable point: currency and non-currency up to 8 marks each Max 12 marks Maximum mark awarded 50 marks

Examiners Comments This question was done reasonably in parts but some parts were poor. Candidates did not seem to have read the question properly. In part (a) and part (c) it was clear that candidates had only skimmed through the question and had not read what was asked for. This unfortunately meant that these candidates got low marks. Part (b) was done quite well and part (d) was done reasonably. It is important that candidates answer what is asked, in part (a) it was expected that some reference would be made to the CIMA risk management cycle. If there was no mention of it then low marks were awarded. Part (c) was asking about the development and implementation of the IT system for managing inventory not asking for a list of issues to be considered in managing the actual inventory itself. Common Errors The main errors were in parts (a) and (c). In part (a) many candidates did not mention CIMAs risk management system at all. The question quite clearly asked for this to be discussed. Another problem was that many candidates ignored that the question asked about reputation risk and discussed many other risks which achieved no marks. In part (c) some candidates discussed problems with the existing system and some discussed the problems of physically dealing with inventory rather than the development and implementation of an IT system. The question was very clear so it was disappointing that some candidates did not answer what was asked. Part (d) the answers to this part were very mixed. The answers on currency risk were reasonable but the answers on non-currency risks were weaker. Some candidates had learned about financial risk and produced good answers but others gave very weak answers. It would be useful to candidates to learn this area of the syllabus as it will always be a part of question 1 and an optional question as well.

The Chartered Institute of Management Accountants

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Paper P3 Management Accounting Performance Strategy Post Exam Guide September 2011 Exam

SECTION B 50 MARKS ANSWER TWO QUESTIONS ONLY

Question 2

(a)
(i) Advise Hs board on the differences between managing value streams and managing departmental profits. (5 marks) Recommend, stating reasons, the changes that H should make to its management accounting systems and policies in order to improve the management of the value streams. (10 marks) (Total for part (a) = 15 marks)

(ii)

(b)

Advise Hs directors on the difficulties that are likely to be associated with implementing the changes that a move towards lean management accounting will create. Your advice should include recommendations as to how those difficulties might best be dealt with. (10 marks) (Total for Question Two = 25 marks)

Rationale This question draws mainly on section A (Management Control Systems). An entity has been unwittingly stifling itself because its heavy reliance on traditional management accounting practices has led to dysfunctional behaviour. The entity has been exploring lean management accounting and lean manufacturing techniques in order to explore ways to remedy matters. Part (a)(i) of the question sets the scene by asking candidates to consider the implications of a shift from creating value for the enterprise as opposed to maximising departmental profits. Part (a)(ii) builds on this by asking candidates to suggest changes to the reporting system in order to facilitate that changed mindset. Part (b) asks about the manner in which this change should be introduced, given that any change in the measurement of performance will create stresses and pressures and so the associated uncertainty may be quite harmful. Suggested Approach The most important thing about part (a) is the ability to relate management accounting systems to the commercial priorities associated with running a professional practice. Part (b) asks for consideration of the motivational aspects of changing a management accounting system.

The Chartered Institute of Management Accountants

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Paper P3 Management Accounting Performance Strategy Post Exam Guide September 2011 Exam

Marking Guide (a)(i) 1 mark per reasonable point (a)(ii) 1 mark per reasonable point: Marginal costing Overhead apportionment Client focus Media budget

Marks Max 5 marks

Max 4 marks Max 5 marks Max 5 marks Max 3 marks Max 10 marks Max 10 marks

(b) 1 mark per reasonable point Could include discussion between departments, uncertainty about new procedures, resistance to change etc. Maximum mark awarded Examiners Comments

25 marks

This question was the least popular of the optional question but was done very well by most of the candidates who chose it. Most candidates discussed value streams very well and were clear about the difference between adding value and profits. Part (c) was done well with most candidates giving good answers about the problems of change within organisations. Common Errors Although many candidates gave excellent answers to this question some candidates did not seem to know there was a difference between managing profits and managing value streams. Very few candidates mentioned overheads or changing to marginal costing or ABC. That was really one of the main points of the question so that was a little disappointing.

The Chartered Institute of Management Accountants

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Paper P3 Management Accounting Performance Strategy Post Exam Guide September 2011 Exam

Question 3

(a)

Recommend, giving reasons, the matters that the town councils internal audit department should study in order to evaluate the economy and efficiency of the beach cleaning activities. Your answer should include advice on how to obtain the necessary data and information. (10 marks)

(b)

Recommend, giving reasons, the matters that the town councils internal audit department should study in order to evaluate the effectiveness of the beach cleaning activities. Your answer should include advice on how to obtain the necessary data and information. (10 marks)

(c)

Explain why it is easier to investigate the economy and efficiency rather than the effectiveness of the cleaning activities. (5 marks) (Total for Question Three = 25 marks)

Rationale This question draws mainly on section C (Review and Audit of Control Systems). It relates to value for money audit in a local government setting. This is an important aspect of the syllabus. The question provides sufficient lead for candidates to consider the manner in which economy and efficiency and also effectiveness audits may be carried out and also asks for some discussion of their relative difficulty. Quite apart from the importance of value for money audit in itself, this question tests transferrable skills such as the ability to identify relevant performance measures that are appropriate to any management accounting scenario.

Suggested Approach The most important thing about parts (a) and (b) is the ability to identify meaningful performance measures. Part (c) requires some thought about the conflicts that can arise in measuring different aspects of performance.

The Chartered Institute of Management Accountants

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Paper P3 Management Accounting Performance Strategy Post Exam Guide September 2011 Exam

Marking Guide (a) 1 mark per reasonable point. Points must relate to economy and efficiency. Could include: Costs of other services , costs of other towns, costs of labour and machinery, time taken etc (b) 1 mark per reasonable point. Points must relate to effectiveness. Could include: How clean is the beach, any injuries, any complaints etc (c) 1 mark per reasonable point Maximum mark awarded Examiners Comments This question was not done very well.

Marks Max 10 marks

Max 10 marks

Max 5 marks 25 marks

Candidates managed to give reasonable answers to part (a) but did less well on parts (b) and (c). This area requires some revision as it was clear that candidates did not really understand effectiveness. In general candidates had a good understanding of economy and efficiency which was good. They did not seem to understand the difference between efficiency and effectiveness and many of the answers given in part (a) included effectiveness. Common Errors This question was not done particularly well. Candidates did not seem to understand what effectiveness was in the context of an audit. Candidates did not seem to have enough knowledge to be able to suggest answers for part (b). The question was quite popular but was generally not well answered.

The Chartered Institute of Management Accountants

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Paper P3 Management Accounting Performance Strategy Post Exam Guide September 2011 Exam

Question 4

(a)
(i) Construct the transactions that K would have to undertake in order to create a money market hedge. Your answer should include calculations of all relevant figures, ignoring transaction costs. (5 marks) Advise K on the costs that are likely to be associated with this hedge and also the risks that will be involved. (8 marks)

(ii)

(b)
(i) Evaluate the suggestion that K should pay the P$2m immediately. Your evaluation should consider the risks and also the costs of doing so. (7 marks) (ii) Explain whether the manufacturer would be likely to accept payment of GBP1m in GBP, payable when the contract is signed instead of the current agreement. (5 marks) (Total for Question Four = 25 marks)

Rationale This question draws mainly on section D (Management of Financial Risk). It presents a situation in which an entity has to make a future payment in a foreign currency that cannot be purchased in advance using forward contracts or any of the traditional financial instruments. It is, however, possible to construct a money market hedge. The question raises important questions about the management of foreign currency exposures. The future payment can be fixed, but at what risk? Does a transaction or linked series of transactions that prevents currency risk make commercial sense? Does passing the risks to another party make sense?

Suggested Approach Part (a) requires the preparation of some simple calculations and the description of the transactions associated with creating a money market hedge. Part (b) requires the ability to link currency management to wider commercial considerations.

The Chartered Institute of Management Accountants

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Paper P3 Management Accounting Performance Strategy Post Exam Guide September 2011 Exam

Marking Guide (a)(i) calculation (a)(ii) 1 mark per reasonable point Could include: High fees, compliance , risks etc (b)(i) 1 mark per reasonable point Could include: Risks, bank charges, fixed costs etc. (b)(ii) 1 mark per reasonable point Could include: Risks passed to vendor, vendor may speculate etc Maximum mark awarded Examiners Comments

Max 5 marks

Max 8 marks

Max 7 marks

Max 5 marks 25 marks

Parts of this question were done well. Part (a) was done well by many candidates. The calculation was done very well which was excellent. Part (b) was done badly. This area of financial risk still requires revision by candidates. It is 35% of the paper and yet candidates still do the question when they know very little about the subject. Common Errors Part (a) was done quite well so no common errors to report. Part (b) was poor. Many candidates failed to come up with any reasonable points. Revision of this topic is required. Candidates do not appear to have sufficient knowledge of this topic so cannot demonstrate understanding or apply knowledge to any situation.

The Chartered Institute of Management Accountants

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