A3 INSTITUTE OF PROFESSIONAL STUDIES

DAR ES SALAAM

ACCA PROGRAMME MID SEMESTER EXAMINATION

F5 PERFORMANCE MANAGEMENT

INSTRUCTIONS: (i) There are THREE questions in this paper attempt all. (ii) Do not write/ draw anything on the question paper (iii) Please use legible handwriting (iv) Cellular phones are not allowed in the examination room (v) ACCA examination rules and regulations apply

Question one Melns limited currently uses traditional absorption costing, absorbing the overheads on a machine hour basis. They are now considering using Activity Based Costing. Details of the four products and relevant information are given below for one period. Product Output in units Cost per unit Direct material Direct Labour Machine Hours per Unit P 120 $ 40 28 4 Q 100 $ 50 21 3 R 80 $ 30 14 2 S 120 $ 60 21 3

The four units are similar and are usually produced in production runs of 20 units and sold in batches of 10 units. The production overhead is currently absorbed using a machine hour rate and the total of the production overhead for the period has been analyzed as follows $ 10,430 5,250 3,600 2,100 4,620

Machine department costs Set up costs Stores receiving Inspection/quality control Material handling and dispatch

You have ascertained that the cost drivers to be used are as listed below for the overhead costs shown: Cost Set up costs stores receiving Inspections/quality control Materials handling and dispatch Cost driver Number of production runs requisitions raised Number of productions runs Orders executed

The number of requisitions raised in the stores was 20 for each product and the number of orders executed was 42, each order being for a batch of 10 of a product. You are required to; a) Calculate the cost per unit for each product if all overheads costs are absorbed on a machine hour basis. b) Calculate the total costs for each product using activity based costing. Question Two Joker club specializes in the provision of exercise and dietary advice to clients. The service is provided on the residential basis and clients stay for whatever number of days suits their needs. Budgeted estimates for the year ending 31 December 2010 are as follows:

(i) The maximum capacity of the centre is 50 clients per day for 350 days in the year. (ii) Clients will be invoiced at a fee per day. The budgeted occupancy level will vary with the client fee level per day and is estimated at different percentages of maximum capacity as follows: Occupancy as percentage of maximum capacity
90% 75% 60%

Client fee per day

180 200 220

Occupancy level
High Medium Low

(iii) Variable costs are also estimated at one of three levels per client day. The high, most likely and low levels per client day are $95, $85 and $70 respectively. The range of cost level reflects only the possible effect of purchase prices of goods and services. You are required to; a) Prepare a summary which shows the budgeted contribution earned by Joker Club for the year ended 31 December 2010 for each of the nine possible outcomes. b) State the client fee strategy for the year to 31 December 2010 which will result from the use of each of the following decision rules: i. Maximax ii. Maximin iii. Minimax regret. c) The probabilities of variable cost level occurring at the high, most likely and low levels provided in the question are estimated as 0.1, 0.6, and 0.3 respectively. Using the information available, determine the client fee strategy which will be chosen where maximization of expected value of contribution is used as a decision basis.

Question Three Zohan plc. makes a product using two materials, A and B, in the production process. A system of standard costing and variance analysis is in operation. The standard material requirement per kg of mixed output is 60% material A at $30 per kg and 40% material B at $45 per kg, with a standard yield of 90%. The following information has been gathered for the three months January to March: Februar January y March 810 765 900 540 360 32,400 480 360 31,560 700 360 38,60 0

Output achieved (kg) Actual Material Input: - A (kg) - B (kg) Actual material cost (A&B) $

The actual price per kg of material B throughout the January to March period was $45. Required: a) Prepare material variance summaries for each of January, February, and March which include Yield and mix variances in total plus usage and price variance for each material and in total. b) Prepare comments for management on each variance including variance trend. c) Discuss the relevance of the variances calculated above in the light of the following additional information: The company has an agreement to purchase 360kg of material B each month and the perishable nature of material means that it must be used in the month of purchase and additional supply in excess of 360 tons per month are not available.

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