ACCA

Applied Skills

Performance
Management

Practice Questions
Compiled by: CA Dilli Ram Pokhrel

For exams in June 2021

 Managing information
1
Activity 1: Use of information systems in hotels

1 Required

For each of the following activities, suggest how an information system in a hotel may be used.

• Processing and recording transact

transactions

• Planning

• Control

• Decision-making

Activity 2: IT systems

The following statements have been made about IT systems:

(a) Employees should be able to change customer records if they notice an error or omission.

(b) Transmitted data should usually be encr

encrypted
ypted to prevent hackers gaining access to it.

Required

Which of the above statements is/are true?

  (a) only

  (b) only

  Neither (a) nor (b)

 Both (a) and (b)

Compiled by: CA Dilli Ram Pokhrel --@ CCA ACCA F5 Practice Questions
 Information systems and
data analytics

Activity 1: Classifying informatio

information

Hydra Co is s a bicycle retailer that has a significant presence in the South of Teeland. Each
retail outlet has a manager who is responsible for day to day operations and is supported
by an administrative assistant. All other staff at each location are involved in retailing
re
operations.

Required

How would information concerning the development of new services such as the
provision of car parts be classified?

  Strategic information
information

  Tactical information
information

  Operational information
information

 None of the above

above

Activity
ctivity 2: ERP benefits

1 Fix It Co is a chain of garages with eight branches and one warehouse that supplies spare parts
to the garages. Mechanics are assigned to a particular garage but can work in different locations.
As well as repairs, the company alalso
so carries out MOTs for which specialist testing equipment is
required.

Fix It Co has decided to implement an ERP system.

Required

What benefits could management hope to see following the implementation of the ERP system?

Compiled by: CA Dilli Ram Pokhrel --@ CCA ACCA F5 Practice Questions
 Activity 3: Big data analytics

BB Chocolat Co is a leading premium chocolate manufacturing company with a brand image built
on luxury. It has both retail outlets and an online shop and uses social media for marketing
purposes. It is worried about certain trends which encourage customers to avoid sugary foods due
to their propensity to cause obesity and, as such, is looking to cost control.

Required

What are the benefits of big data analytics for BB Chocolat Co in its focus on customer trends
and cost reduction?

Compiled by: CA Dilli Ram Pokhrel -@ CCA ACCA F5 Practice Questions

 Activity based costing

Illustration 1: Overhead absorption basis

Mars Co has two production departments, mixing and stirring, in which it makes a variety of
products.

Mixing Stirring

Direct labour hours 20,000 5,000

Direct machine hours 2,000 60,000

Required

Based on the above information, what are the most appropriate overhead absorption bases for
the mixing and stirring departments?

 Both departments’ OAR should be based on labour hours

 Both departments’ OAR should be based on machine hours
 The mixing department’s OAR should be based on labour hours and the stirring department’s
OAR should be based on machine hours
 The mixing department’s OAR should be based on machine hours and the stirring
department’s OAR should be based on labour hours

Illustration 2: Overhead absorption rates 1

Budgeted information for department A is as follows:

Department A

Budgeted overheads $40,000

Direct machine hours 2,000

Calculate the budgeted overhead absorption rate per machine hour for department A?

Budgeted OAR = $ per machine hour

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 Illustration 3: Under- and over-absorption

Co A has budgeted fixed production overheads of $20,000 and budgeted activity of 20,000 units.
Required

What would the under absorption be if actual overhead expenditure was $21,000 and exactly
20,000 units were produced?

Illustration 4: Absorption costing vs ABC

1 Suppose that Cooplan manufactures four products: W, X, Y and Z. Output and cost data for the
period just ended are as follows:
Output units Number of Material cost Direct labour Machine hours

production per unit hours per unit per unit

runs in the

period

W 10 2 20 1 1

X 10 2 80 3 3

Y 100 5 20 1 1

Z 100 5 80 3 3

14

Direct labour cost per hour: $5

Overhead costs $

Short-run variable costs 3,080

Set-up costs 10,920
Expediting and scheduling costs 9,100
Materials handling costs 7,700
30,800
Required

Prepare unit costs for each product using:

(a) Conventional absorption costing
(b) ABC
Assume that, in the traditional absorption costing system, overheads are absorbed at a direct
labour hour rate.

Compiled by: CA Dilli Ram Pokhrel -@ CCA ACCA F5 Practice Questions

 Activity 1: Overhead absorption rates 2

Pumpkin Co provides you with the following budgeted information for its painting division.

Total overheads: $400,000.

Total budgeted direct labour hours: 3,200

Total budgeted machine hours: 10,000

1 Required
Calculate the budgeted fixed overhead absorption rate using a direct labour hours basis.

OAR = $ per direct labour hour

2 Required

Calculate the budgeted fixed overhead absorption rate using a machine hours basis.

OAR = $ per direct labour hour

3 The painting manager informs you that the painting division is highly automated and operates
with expensive machinery which is run whenever possible on a 24 hour a day, 7 days a week
basis.
Which of the two OARs calculated above would be the most appropriate for absorption?

 $40 per machine hour

 $125 per direct labour hour
4 At the end of the accounting period, the painting manager provides you with the following actual
data for the painting division:
Total overheads = $521,262
Total direct labour hours = 4,100
Total machine hours = 12,562
Calculate the amount of overheads over- or under-absorbed for the period using the basis
chosen in the previous question.

Activity 2: Absorption and marginal costing

1 A company makes and sells a single product. At the beginning of Period 1, there are no opening
inventories of the product, for which the variable production cost is $4 and the sales price is $6 per
unit. There are no variable selling costs. Fixed costs are $2,000 per period, of which $1,500 are
fixed production costs. Normal output is 1,500 units per period. In Period 1, sales were 1,200 units,
production was 1,500 units. In Period 2, sales were 1,700 units, production was 1,400 units.

Required

Prepare profit statements for each period and for the two periods in total using both absorption
costing and marginal costing.

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 Activity 3: Comparing absorption costing and ABC

Dodo Co manufactures three products, A, B and C. Data for the period just ended is as follows:

A B C

Output (units) 20,000 25,000 2,000

Sales price $ 20 20 20
Direct material cost $ 5 10 10
Labour hours/unit 2 1 1
Wages paid at $5/hr

Total production overheads for Dodo Co amount to $190,000.

1 Required

Calculate the profit per unit obtained on each product if production overheads are absorbed
based on labour hours (traditional absorption costing).

2 The following data is now also available:

$

Machining 55,000
Quality control and set up costs 90,000
Receiving 30,000
Packing 15,000
190,000

A B C

Output (units) 20,000 25,000 2,000

Cost driver data

Labour hours/unit 2 1 1
Machine hours/unit 2 2 2
No. of production runs 10 13 2
No. of component receipts 10 10 2
No. of customer orders 20 20 20
Required

Using ABC, show the cost and gross profit per unit for each product during the period and
contrast this with the profit calculated using absorption costing.

3 Required

What factors should be considered when comparing the results?

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 Activity 4: ABC

The following statements have been made about activity based costing.

(a) Implementation of ABC is unlikely to be cost effective when variable production costs are
a low proportion of total production costs.

(b) The cost driver for materials handling and despatch costs is likely to be the number of orders.

Required

Which of the above statements is/are true?

  (a) only

  (b) only

  Neither (a) nor (b)

 Both (a) and (b)

Activity 5: Cost drivers

Match the most appropriate cost driver to each cost.

Cost Cost driver

(a) Machine set up costs Number of production runs

(b) Machine operating costs Number of set-ups

(c) Materials handling and Number of machine hours

Dispatch

(d) Quality inspection Number of orders executed

Compiled by: CA Dilli Ram Pokhrel -@ CCA ACCA F5 Practice Questions

 Target costing

Illustration 1: Target costing and the target cost gap

1 Great Games, a manufacturer of computer games, is in the process of introducing a new game to
the market and has undertaken market research to find out about customers’ views on the value of
the product, as well as to obtain a comparison with competitors’ products. The results of this
research have been used to establish a target selling price of $60. This is the price that the
company thinks it will have to sell the product at to achieve the required sales volume.

Cost estimates have been prepared based on the proposed product specification.

Manufacturing cost $

Direct material 3.21

Direct labour 24.03

Direct machinery costs 1.12

Ordering and receiving 0.23

Quality assurance 4.60

Non-manufacturing costs

Marketing 8.15

Distribution 3.25

After-sales service 1.30

The target profit margin for the game is 30% of the target selling price.

Required

Calculate the target cost of the new game and the target cost gap.

Compiled by: CA Dilli Ram Pokhrel -@ CCA ACCA F5 Practice Questions

 Activity 1: Target costing

House it Co produces rabbit hutches. It is about to launch a new top of the range hutch which it
believes can be sold for $125. House it Co demands a margin of 25% on sales.

Cost information for the new hutch is as follows:

• Timber – The hutch needs 10 metres (m) of good quality planed timber. House it Co
can acquire this at a cost of $48.

2 2
• Felt roofing material – 2m are required. Roofing material costs $17.50 / m .

• Wire – 1m of wire is needed at a cost of $1.50 per metre.

• Labour – Labour is paid at a rate of $7 / hour.

• Variable overhead – These will be incurred at a rate of $1.50 per labour hour.

1 Required

What is the target cost of the rabbit hutch? (Give your answer to two decimal places.)

2 Required

What is the expected cost to make the hutch?

 $93.00

  $98.50

  $101.50

 $125.00

3 Required

Which TWO of the following options would be the most appropriate strategies for House it Co to
close the cost gap?

  Make the hutch smaller

 Raise the selling price



 Make the window bigger – increasing the proportion of wire and reducing the proportion of
 wood

  Use lower skilled labour for all elements of production

 Use lower quality timber to make the hutch

Compiled by: CA Dilli Ram Pokhrel -@ CCA ACCA F5 Practice Questions
Activity 2: Implementing target costing

The following statements have been made about target costing.

(a) It is more difficult to implement target costing in service industries compared to

manufacturing because of the lack of a tangible product.

(b) Target costing makes the business look at what competitors are offering at an early stage in the
new product development process.

Required

Which of the above statements is/are true?

 (a) only


 (b) only


 Neither (a) nor (b)



 Both (a) and (b)

Activity 3:Target cost gap

Which TWO of the following methods can be used to move a currently attainable cost closer to
target cost?

  Using standard components wherever possible

  Acquiring new, more efficient technology

  Making staff redundant

 Reducing the quality of the product in question

Compiled by: CA Dilli Ram Pokhrel -@ CCA ACCA F5 Practice Questions

 Life cycle costing

Illustration 1: Life cycle costing

1 Solaris specialises in the manufacture of solar panels. It is planning to introduce a new slimline solar
panel specially designed for small houses. Development of the new panel is to begin shortly, and
Solaris is in the process of determining the price of the panel. It expects the new product to have the
following costs:

Year 1 Year 2 Year 3 Year 4

Units 2,000 15,000 20,000 5,000

manufactured

and sold

$ $ $ $

R&D costs 1,900,000 100,000 _ _

Marketing costs 100,000 75,000 50,000 10,000

Production cost 500 450 400 450

per unit

Customer service 50 40 40 40

costs per unit

Disposal of 300,000

specialist

equipment

The Marketing Director believes that customers will be prepared to pay $500 for a solar panel but the
Financial Director believes this will not cover all the costs throughout the life cycle.

Required

Calculate the cost per unit looking at the whole life cycle and comment on the suggested price.

Compiled by: CA Dilli Ram Pokhrel -@ CCA ACCA F5 Practice Questions

 Activity 1: Life cycle cost per unit

X Co is in a high tech industry and is often first to market with new technological advances. It has
recently spent $500,000 designing and developing a new product. The new product is expected to
have a life of four years.

The anticipated performance of this product is as follows:

Year 1 Year 2 Year 3 Year 4

Sales volume 4,000 9,000 30,000 10,000

(units)

$ $ $ $

Marketing costs 1.2m 0.4m 0.1m 0.1m

Variable production cost

per unit 249 249 199 149

Customer service cost

per unit 100 100 60 75

Disposal costs 0.2m

Required

What is the expected life cycle cost per unit? $

Activity 2: When costs are determined

When are the bulk of a product’s life cycle costs normally determined?

  At the design/development stage

  When the product is introduced to the market

  When the product is in its growth stage

 On disposal

Compiled by: CA Dilli Ram Pokhrel -@ CCA ACCA F5 Practice Questions

Activity 3: Calculating life cycle costs

Which of the following items would be included in the calculation of the life cycle costs of a
product?

(a) Planning and concept design costs

(b) Preliminary and detailed design costs

(c) Testing costs

(d) Production costs

(e) Distribution and customer service costs

(b), (c) and (d)

(a), (c) and (d)

(d) only

All of them

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 Throughput accounting

Activity 1: Bottleneck

A company passes its products through four production processes and is currently operating at
optimal capacity. The following data is available:

Process Loading Washing Drying Labelling

Time per unit 3 mins 6 mins 1.5 mins 2 mins

Process Loading Washing Drying Labelling

Machine hours available 800 1,000 450 450

Required

Which process is the bottleneck?

 Loading
 Washing
 Drying
 Labelling

Activity 2: TPAR

Each unit of Product B requires four machine hours. Machine time is the bottleneck resource with
only 650 machine hours available per week.

Product B is sold for $120 per unit and has a direct material cost of $35 per unit. Total factory
costs are $13,000 per week.

Required

What is the TPAR for Product B (to two decimal places)?

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 Activity 3: Bottleneck and TPAR

MN Co manufactures automated industrial trolleys. Each trolley sells for $2,000 and the material
cost per unit is $600. Labour and variable overhead are $5,500 and $8,000 per week respectively.
Fixed production costs are $450,000 per year and marketing and administrative costs are $265,000
per year.

The trolleys are made on three different machines. Machine X makes the four frame panels
required for each trolley. Its maximum output is 180 frame panels per week. Machine X is old and
unreliable and it breaks down from time to time. It is estimated that 20 hours of production are lost
per month. Machine Y can manufacture parts for 52 trolleys per week and machine Z, which is old
but reasonably reliable, can process and assemble 30 trolleys per week.

The company has recently introduced a just-in-time (JIT) system and it is company policy to hold
little work in progress and no finished goods inventory from week to week. The company operates a
40-hour week, 48 weeks a year.

1 Which is the bottleneck machine?

  Machine X

  Machine Y

  Machine Z

 All of the machines

2 What is the throughput accounting ratio (TPAR)?

 1.84
 3.11
 6.67
 7.03

Activity 4: Improving TPAR

In the theory of constraints and throughput accounting, which THREE of the following
actions may be used to improve a throughput accounting ratio?

  Increase selling price

  Decrease selling price

  Buy cheaper materials

 Reduce time spent on the bottleneck machine


 Increase time spent on the bottleneck machine

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Activity 5: Capacity and TPAR

Teeth Co is a private cosmetic dental surgery offering two types of teeth whitening procedures: A and
B.

Both procedures are carried out by one of three dentists. The surgery also has two receptionists and
three dental nurses.

Every patient is first seen by the receptionist, who books them in and completes the paperwork; next by the
dentist, who applies the treatment; then finally a dental nurse, who rinses the treatment off. The average
length of time spent with each member of staff is as follows:

Treatment A Treatment B

Hours Hours

Receptionist 0.15 0.25

Dentist 1.25 2.4

Dental nurse 0.5 0.5

The surgery is open for eight hours each day for five days per week. It closes for two weeks each
year. Staff salaries per employee are as follows:

Receptionist $25,000

Dentist $70,000

Dental Nurse $30,000

The cost of the products used for procedure A is $40 and $74 for procedure B. Other surgery costs
amount to $200,000 each year.

Teeth Co charges $270 for procedure A and $365 for procedure B.

The dentists’ time has been correctly identified as the bottleneck activity.

1 What is the capacity of the bottleneck activity?

 Treatment A: 1,600 and Treatment B: 833
 Treatment A: 1,600 and Treatment B: 2,500
 Treatment A: 4,800 and Treatment B: 2,500
 Treatment A: 4,800 and Treatment B: 4,800

2 The surgery calculated the cost per hour to be $91.67. What is the throughput accounting ratio
(TPAR) for both treatments?
 Treatment A: 2.01 and Treatment B 1.32
 Treatment A: 2.01 and Treatment B 3.98
 Treatment A: 2.95 and Treatment B 1.32
 Treatment A: 2.95 and Treatment B 3.98

3 Which THREE of the following activities could the surgery use to improve the TPAR?
 Increase the time spent by the bottleneck activity on each treatment
 Identify ways to reduce the material costs for the treatments
 Increase the level of inventory to prevent stock-outs
 Increase the productivity of the receptionists

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  Improve the control of the surgery’s total operating expenses
 Apply an increase to the selling price of the services

4 What would be the effect on the bottleneck if the surgery employed another dentist?
 The dentists’ time would be the bottleneck for treatment A only.
 The dentists’ time would be the bottleneck for treatment B only.
 The dentists’ time will remain the bottleneck for both treatments.
 There will no longer be a bottleneck.

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 7 management accounting
Environmental

Activity 1: Environmental budget cost

Raxo plc is a multinational organisation, manufacturing chemicals for use in the agricultural
industry.

Required

Which of the following environmental costs should NOT be included in an environmental

cost budget?

 Cost of disposal of unused raw materials

 Cost of fines for environmental contamination
 Cost of disposal of chemical packaging
 Cost of using pollution-prevention methods and technology

Activity 2: Environmental costs

Which of the following is an example of an environmental external failure cost?

 Maintaining pollution equipment

 Decontaminating land
 Recycling scrap
 Record keeping

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 Skills checkpoint
Skill activity
The following scenario relates to Questions 1 to 5.

Triple Co makes three types of gold watch: the Diva (D), the Classic (C) and the Poser (P). A traditional
absorption costing system is used at present, although an activity-based costing (ABC) system is being
considered. Details of the product lines for a typical period are:

Hours per unit Materials Production

Labour hours Machine hours Cost per unit Units

$
Product D 0.5 1.5 20 750
Product C 1.5 1 15 1,250
Product P 1 3 10 7,000

Direct labour costs $6 per hour and production overheads are absorbed on a machine hour basis.

The overhead absorption rate for the period is $28 per machine hour.

Total production overheads are $654,500 and further analysis shows that the total production
overheads can be divided as follows:

Costs relating to machinery 20

Costs relating to materials handling 15

The following total activity volumes are associated with each product line for the period as a

whole:

Number of movements of materials

Product D 12
Product C 21
Product P 87
120

(a) What is the cost per unit for Product D using the current absorption costing system?* Give your
answer to two decimal places. (2 marks)

$ per unit

* This is a FIB question, and so it is important you insert your answer to two decimal places (as
stated). A calculation of the cost per unit under absorption costing is required. This is brought
forward knowledge from ACCA Management Accounting.

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(b) What is the total amount of machining overhead that would be allocated to Product C for the
period using ABC?*(2 marks)

• $7,000

• $23,375

• $23,800

• $35,000

* This is an MCQ requiring one correct answer to be selected. A calculation of overhead cost using ABC
is required. Remember that the distracters (incorrect answers) are numbers that you will obtain if you
make a particular mistake. Do not look at the options until you have finished the calculation as it is
possible that a “part finished calculation” is one of the incorrect distracters.

(c) What is the overhead assigned to Product D in respect of materials handling using ABC?* Give
your answer to the nearest hundred $. (2 marks)

* This is another FIB question and you need to enter your answer to the nearest hundred $.

(d) Triple Co is attempting to identify the correct cost driver for a cost pool called quality control. Using
the drop down list below, which would be the correct cost driver to use?*(2 marks)

Select... ‚

Number of units produced

Number of inspections

Labour hours

Number of machine set ups

* This is drop down list question. Like an MCQ, you need to select one correct answer.

(e) If Triple Co decides to adopt ABC, which of the following is a disadvantage that Triple Co
may encounter as a result of this decision*?(2 marks)

• ABC can only be applied to production overheads.

• The cost per unit may not be as accurate as it was under traditional absorption costing.

• The benefits obtained from ABC might not justify the costs.

• It will not provide much insight into what drives overhead costs. (Total = 10 marks)

* This is another MCQ and you need to correctly select one disadvantage of adopting ABC.

Compiled by: CA Dilli Ram Pokhrel -@ CCA ACCA F5 Practice Questions