ACCA F5 Performance Management - 2010 - Study text - Emile Woolf Publishing
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ACCA
F5 Study Text
Performance Management
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ACCA
Paper
F5
Performance
management
Publishing
Publishing
Welcome to Emile Woolf‘s study text for
Paper F5 Performance management which is:
Written by tutors
Comprehensive but concise
In simple English
Used around the world by Emile Woolf Colleges including
China, Russia and the UK
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CharteredCertifiedAccountants.
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Paper F5
Performancemanagement
c
Contents
Page
Syllabus and study guide 1
Formulae 9
Chapter 1: Activity-based costing 11
Chapter 2: Other costing systems 31
Chapter 3: Limiting factors and linear programming 61
Chapter 4: Pricing decisions 85
Chapter 5: Relevant costs and short-term decisions 115
Chapter 6: Decision-making with risk and uncertainty 135
Chapter 7: Budgeting 153
Chapter 8: Quantitative analysis in budgeting 185
Chapter 9: Standard costing 225
Chapter 10: Basic variance analysis 239
Chapter 11: Advanced variance analysis 281
Chapter 12: The scope of performance measurement 309
Chapter 13: Divisional performance 341
Chapter 14: Transfer pricing 359
Chapter 15: Performance analysis in not for profit organisations
and the public sector 383
Chapter 16: Performance measurement: external considerations and
behavioural aspects 393
Practice questions 403
Answers 449
Index 529
iv
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© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 1
Paper F5
Performancemanagement
S
Syllabus and study guide
Aim
To develop knowledge and skills in the application of management accounting
techniques to quantitative and qualitative information, for planning, decision-
making, performance evaluation and control.
Main capabilities
After completing this examination paper, students should be able to:
A Explain, apply and evaluate cost accounting techniques
B Select and appropriately apply decision-making techniques to evaluate
business choices and promote efficient and effective use of scarce business
resources, appreciating the risks and uncertainty inherent in business and
resolving those risks
C Apply budgeting techniques and evaluate alternative methods of budgeting,
planning and control
D Use standard costing systems to measure and control business performance
and to identify remedial action
E Assess the performance of a business from both a financial and non-financial
viewpoint, appreciating the problems of controlling divisionalised businesses
and the importance of allowing for external aspects.
Rationale
This syllabus builds on the knowledge introduced in the Management Accounting
syllabus from the Knowledge module. It also prepares candidates for more
specialist capabilities which are covered in the Advanced Performance Management
paper.
The syllabus begins by introducing more specialised management accounting
topics. There is a little knowledge assumed from the Management Accounting
paper – primarily overhead treatments. The objective here is to ensure candidates
have a broader background in Management Accounting techniques.
Paper F5: Performance management
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The syllabus then considers decision-making. Candidates need to appreciate the
problems surrounding scarce resource, pricing and make or buy decisions and how
this relates to the assessment of performance. Risk and uncertainty are a factor of
real life decisions, candidates need to understand risk and be able to apply some
basic methods to help resolve the risks inherent in decision-making.
Budgeting is an important aspect of many accountants’ lives. The syllabus explores
different budgeting techniques and the problems inherent in them. The behavioural
aspects of budgeting are important for accountants to understand and the syllabus
includes consideration of the way individuals react to a budget.
Standard costing and variances are then built on. All the variances examined in the
Management Accounting paper are examinable here. The new topics are mix and
yield variances and planning and operational variances. Again the link is made to
performance management. It is important for accountants to be able to interpret the
numbers that they calculate and ask what they mean in the context of performance.
The syllabus concludes with performance measurement and control. This is a major
area of the syllabus. Accountants need to understand how a business should be
managed and controlled. They should appreciate the importance of both financial
and non-financial performance measures in management. They should also
appreciate the difficulties in assessing performance in divisionalised businesses and
the problems caused by failing to consider external influences on performance. This
section leads directly to the Advanced Performance Management syllabus at the
higher level.
Syllabus
A Specialist cost and management accounting techniques
1 Activity based costing
2 Target costing
3 Life cycle costing
4 Backflush accounting
5 Throughput accounting
B Decision-making techniques
1 Multi-limiting factors and the use of linear programming and shadow
pricing
2 Pricing decisions
3 Make-or-buy and outsourcing decisions
4 Dealing with risk and uncertainty in decision- making
C Budgeting
1 Objectives
2 Budgetary systems
3 Types of budgets
4 Quantitative analysis in budgeting
5 Behavioural aspects of budgeting
Syllabus and study guide
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 3
D Standard costing and variances analysis
1 Budgeting and standard costing
2 Basic variances and operating statements
3 Material mix and yield variances
4 Planning and operational variances
5 Behavioural aspects of standard costing
E Performance measurement and control
1 The scope of performance measurement
2 Divisional performance and transfer pricing
3 Performance analysis in not-for-profit organisations and the public
sector
4 External considerations and behavioural aspects
Approach to examining the syllabus
Paper F5, Performance Management, seeks to examine candidates’ understanding of
how to manage the performance of a business.
The paper builds on the knowledge acquired in Paper F2, Management Accounting
and prepares those candidates who will decide to go on to study Paper P5,
Advanced Performance Management at the Professional level
Examination structure
The examination will contain four compulsory, 25 marks questions. There will be
calculation and discursive elements to the paper. Generally the paper will seek to
draw questions from as many of the syllabus sections as possible.
Study guide
Thisstudyguideprovidesmoredetailedguidanceonthesyllabus.Youshoulduse
thisasthebasisofyourstudies.
A Specialist cost and management accounting techniques
1 Activity based costing
(a) Identify appropriate cost drivers under ABC.
(b) Calculate costs per driver and per unit using ABC.
(c) Compare ABC and traditional methods of overhead absorption
based on production units, labour hours or machine hours.
(d) Explain the implications of switching to ABC for pricing, sales
strategy, performance management and decision-making.
2 Target costing
(a) Derive a target cost in manufacturing and service industries.
(b) Explain the difficulties of using target costing in service industries.
Paper F5: Performance management
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(c) Explain the implications of using target costing on pricing, cost
control and performance management.
(d) Suggest how a target cost gap might be closed.
3 Life cycle costing
(a) Identify the costs involved at different stages of the life cycle.
(b) Explain the implications of life cycle costing on pricing,
performance management and decision-making.
4 Backflush accounting
(a) Describe the process of backflush accounting and contrast with
traditional process accounting.
(b) Explain the implications of backflush accounting on performance
management and the control of a manufacturing process.
(c) Identify the benefits of the introduction of backflush accounting.
(d) Evaluate the decision to switch to backflush accounting from
traditional process control.
5 Throughput accounting
(a) Calculate and interpret a throughput accounting ratio (TPAR).
(b) Suggest how a TPAR could be improved.
(c) Apply throughput accounting to a multi-product decision-making
problem.
B Decision-making techniques
1 Multi-limiting factors and the use of linear programming and
shadow pricing
(a) Select an appropriate technique in a scarce resource situation.
(b) Formulate and solve a multiple scarce resource problem both
graphically and using simultaneous equations as appropriate.
(c) Explain and calculate shadow prices (dual prices) and discuss
their implications on decision-making and performance
management.
(d) Calculate slack and explain the implications of the existence of
slack for decision-making and performance management.
(Excluding simplex and sensitivity to changes in objective
functions)
2 Pricing decisions
(a) Explain the factors that influence the pricing of a product or
service.
(b) Explain the price elasticity of demand.
(c) Derive and manipulate a straight line demand equation. Derive an
equation for the total cost function (including volume-based
discounts).
(d) Evaluate a decision to increase production and sales levels
considering incremental costs, incremental revenues and other
factors.