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ATC Question Pack Answers On Performance Measurement

This document provides information on performance measurement for cost centers, profit centers, and investment centers. It defines key ratios used to measure efficiency, capacity utilization, production volume, gross profit margin, net profit margin, cost to sales ratio, return on capital employed, residual income, and asset turnover. Examples of calculations for these ratios are also provided using data on production hours, sales, costs, expenses, profits, assets, and liabilities. The document concludes with answers to practice questions on applying these performance measurement techniques.

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53 views

ATC Question Pack Answers On Performance Measurement

This document provides information on performance measurement for cost centers, profit centers, and investment centers. It defines key ratios used to measure efficiency, capacity utilization, production volume, gross profit margin, net profit margin, cost to sales ratio, return on capital employed, residual income, and asset turnover. Examples of calculations for these ratios are also provided using data on production hours, sales, costs, expenses, profits, assets, and liabilities. The document concludes with answers to practice questions on applying these performance measurement techniques.

Uploaded by

sramnarine1991
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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You are on page 1/ 6

Lecturer: Mr.

Sasenarine Ramnarine ACCA Paper: MA1

Perfomance Measurement

Performance Measures for Cost Centres


1. Efficiency Ratio = Standard hours for actual output/Actual hours worked X 100

2. Capacity Utilization Ratio = Actual hours worked/Budgeted hours X 100

3. Production Volume Ratio = Standard hours for actual output/budgeted hours X 100
OR
Efficiency Ratio X Capacity Utilization Ratio / 100

*Standard/Expected hours = Budgeted Hours/Budgeted Production Units X Actual Production Units

Performance Measures for Profit Centres

1. Gross Profit Margin = Gross Profit / Sales X 100

*Gross Profit = Sales - Cost of Sales

2. Net Profit Margin = Profit before Interest & Tax (PBIT)/ Sales X 100

*Net Profit = Gross Profit - Total Expenses

3. Cost to Sales Ratio = Total Cost/Sales X 100

Performance Measures for Investment Centres


1. Return on Capital Employed (ROCE) = Profit Before Interest & Tax / Capital Employed X 100

*Capital Employed = Total Assets - Current Liabilities OR Equity + Non - Current Liabilities

2. Residual Income (RI) = Profit Before Interest & Tax - Notional Interest ( Capital Employed X Cost of Capital) = $X

3. Asset Turnover = Sales/ Capital Employed (Normally expressed in Times)

Note: Profit Before Interest & Tax (PBIT) is also known as Operating Profit or Net Profit.
Note: Return on Capital Employed (ROCE) also calculated as follows = Asset Turnover x Net Profit Margin
Management Responsibility and Performance Measurement
ATC - Question Pack - Questions 4.1 to 4.17

Reminder:
1. Efficiency Ratio - In order to be efficient, must equal to 100%.
2. Capacity Utilisation Ratio - a Capacity Ratio of 100% or more means that more hours were spend in the factory than expecte
3. Production Volume Ratio - a Production Volume Ratio of 100% or more indicates that production has been higher than expe

Q 4.10 - Answer D
Standard hours for actual output
X = 1 hour x 2000 units = 2000
Y = 1.5 hours x 800 units = 1200
Z = 1.75 hours x 1400 units = 2450
Total = 5,650 hours

Q 4.11 - Answer A

Q 4.12 Answer B
Efficiency Ratio = Standard hours for actual output/Actual hours worked X 100
= 10800 hours / 11400 hours X 100
= 94.7%

Q 4.13 Answer C
Capacity Utilization Ratio = Actual hours worked/Budgeted hours X 100
= 11400 hours / 12000 hours X 100
= 95%

Q 4.14 Answer A
Production Volume Ratio = Standard hours for actual output/budgeted hours X 100
= 10800 hours / 12000 hours X 100
= 90%
Management Responsibility and Performance Measurement
ATC - Question Pack - Questions 4.1 to 4.17

Answers

Q 4.1 - Answer D

Q 4.2 - Answer C

Q 4.3 - Answer D

Q 4.4 - Answer A
Cost Per Unit = Cost / Level of Activity (units)

May = $51,068/150,200 units = $0.34


June =$67,821/183,300 units = $0.37
Increase = $0.34 - $0.37 = 0.03

Q 4.5 - Answer A
Gross Profit Margin
Gross Profit Margin = Gross Profit / Sales X 100
= 4250 / 125,500 X 100
= 16.67%

Gross Profit = Sales - Cost of Sales


= 25,500 - 21,250
= 4250

Q 4.6 - Answer B
With a Margin System Sales is always
100%

Sales 100% 2400


Less Cost of Sales 66.67% 1600
Gross Profit 33.33% 800
Less Expenses 680
Net Profit 120

Use the gross profit margin formula to


find sales.
Gross Profit Margin = Gross Profit / Sales X 100
33.33% = 800 / X X 100
X = 800 x 100/33.33
X = 2400
Net/Operating Profit Margin = Net Profit / Sales X 100
= 120 / 2400 X 100
= 5%

Q 4.7 Answer D $
Sales (Cash & Credit) 200,000
Less Cost of Sales 120,000
Gross Profit 80,000

Gross Profit Margin = Gross Profit / Sales X 100


= 80,000 / 200,000 X 100
= 40%

Q 4.8 Answer A
Sales (Cash & Credit) 200,000
Less Cost of Sales 120,000
Gross Profit 80,000
Less Expenses
Selling Cost 35,000
Administration Cost 25,000
Net Profit 20,000

Net/Operating Profit Margin = Net Profit / Sales X 100


= 20,000 / 200,000 X 100
= 10%

Q 4.9 Answer B
Use the gross profit margin formula to
find sales.
Gross Profit Margin = Gross Profit / Sales X 100
30% = 240,000 / X X 100
X = 240,000 x 100/30
X = 800,000

$
Gross Profit 240,000
Less Expenses 106,000
Net Profit 134,000

Net/Operating Profit Margin = Net Profit / Sales X 100


= 134,000 / 800,000 X 100
= 16.75%

Q 4.15 Answer C
Q 4.16 Answer C

Return on Capital Employed


Return on Capital Employed (ROCE) = Profit Before Interest & Tax / Capital Employed X 100
= 40,000 / 340,000 x 100
= 11.8%

*Capital Employed Working

Capital Employed = Total Assets - Current Liabilities OR Equity + Non - Current Liabilities

Total Assets
Non-Current Assets 300,000
Net Current Assets 40,000
Total Assets 340,000
Less Current Liabilites 0
Capital Employed 340,000

Q 4.17 Answer C
loyed X 100

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