Test – 1
F5 - Performance Management
Answers
ACCA F5 Performance Management
1. Management accounting information is any information used by management to
plan and control the entity, so it can comprise non-financial (eg. Employee
numbers) as well as financial information, so I is true. It is used only by
management, so II is false. It is concerned with planning and with revenues, i.e.
much more than just cost control, so III is false. It is not legally required, so IV is
true. Thus I and IV are true, so option (a) is correct.
2. Cost accounting can be used to value inventory as long as the management
accounting system can deliver full absorption costing valuations, so I is false.
Management accounts are not legally required, so II is false. There is no set
format for management accounts, so III is true. IV is the essence of management
accounting so is immediately true. Thus III and IV are true, so option (d) is
correct.
3. (d) Department 1 appears to undertake primarily machine-based work, therefore
a machine-hour rate would be most appropriate.
$27,000/45,000 = $0.60 per machine hour.
Therefore the correct answer is (d).
Option (a) is not the most appropriate because it is not time-based, and most
items of overhead expenditure tend to increase with time.
Option (b) and (c) are not the most appropriate because labour activity is
relatively insignificant in department 1, compared with machine activity.
4. (c) Department 2 appears to be labour-intensive therefore a direct labour-hour
rate would be most appropriate.
$18,000/25,000 = $0.72 per direct labour hour.
Option (b) is based on labour therefore it could be suitable. However differential
wage rates exist and this could lead to inequitable overhead absorption.
Option (d) is not suitable because machine activity is not significant in
department 2.
5. (a) Statement I is correct because a constant unit absorption rate is used
throughout the period. Statement II is correct because ‘actual’ overhead costs,
based on actual overhead expenditure and actual activity for the period, cannot
be determined until after the end of the period. Statement III is incorrect because
under/over absorption of overheads is caused by the use of predetermined
overhead absorption rates.
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ACCA F5 Performance Management
6. (a)
Contribution per unit
Contribution for month
Less fixed costs incurred
Marginal costing profit
= $30 – $(6.00 + 7.50 + 2.50)
= $14
= $14 X 5,200 units
= $72,800
= $27,400
---------= $45,400
----------
If you selected option (b) you calculated the profit on the actual sales at $9 per
unit. This utilises a unit rate for fixed overhead which is not valid under marginal
costing.
If you selected option (c) you used the correct method but you based your
calculations on the units produced rather than the units sold.
If you selected option (d) you calculated the correct contribution but you forgot to
deduct the fixed overhead.
7. (d)
$
Sales (5,200 at $30)
Materials (5,200 at $6)
Labour (5,200 at $7.50)
Variable overhead (5,200 at $2.50)
Total variable cost
Fixed overhead ($5 X 5,200)
Over-absorbed overhead (*)
$
156,000
31,200
39,000
13,000
-------(83,200)
(26,000)
1,600
-------48,400
--------
Absorption costing profit
*working
Overhead absorbed (5,800 X $5)
Overhead incurred
$
29,000
27,400
-------1,600
--------
Over-absorbed overhead
If you selected option (a) you calculated all the figures correctly but you
subtracted the over-absorbed overhead instead of adding it to profit.
Option (b) is the marginal costing profit.
If you selected option (c) you calculated the profit on the actual sales at $9 per
unit, and forgot to adjust for the over-absorbed overhead.
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ACCA F5 Performance Management
8. (c) Order processing costs = $1,573,000/325,000 orders = $4.84 order
Transport costs = $2,631,200/1,495,000 km = $1.76 per km
Customer cost = (138 X $4.84) + (122 X 138 X $1.76) = $30,299.28
9. (d) None of the statements is correct.
10. (c)
Cost description
Purchase order
processing
Production run set up
Machine running
Cost
amount
$
450,000
180,000
640,000
Cost
driver
Activity
level
Purchase
orders
Production
runs
Machine
hours
Cost
30
$
2,250
450
400
1
400
32,000
20
750
15,000
-------17,650
-------35.30
Cost per batch =
Cost per unit=
Product
activity
6,000
Overhead
allocation
rate (OAR)
$
75
17,650/500=
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