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ACCA – PM
Performance Management
September 2023 to June 2024
Progress Test

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Question
General Comments Exam Technique Comments
Number
ACCA PROGRESS TEST

Performance
Management

PM
September 2023 to June 2024

Time allowed
Reading and planning: 10 minutes
Writing: 3 hours

Answer ALL questions.

Do not open this paper until instructed by the supervisor.

This question paper must not be removed from the examination hall.

Kaplan Publishing/Kaplan Financial

PM : PE R F OR MAN CE MA NA GE ME N T

© Kaplan Financial Limited, 2023

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storage and retrieval system, without prior permission from Kaplan Publishing.

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FORMULAE
Regression analysis
y = a + bx

Learning curve
Y = axb
Where y = cumulative average time per unit to produce × units
a = the time taken for the first unit of output
x = the cumulative number of units produced
b = the index of learning (log LR/log2)
LR = the learning rate as a decimal
Demand curve
P = a − bQ
Change in price
b=
Change in quantity
a = price when Q = 0
MR = a – 2bQ

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SECTION A

ALL 15 questions are compulsory and MUST be attempted

Each question is worth 2 marks

1 The following statements have been made about activity-based costing (ABC):

(1) ABC is an alternative costing system to traditional overhead absorption costing.

(2) ABC gives a more realistic picture of cost behaviour.
Which of the above statements is/are true?
A (1) only
B (2) only
C Neither (1) nor (2)
D Both (1) and (2)

2 MB manufactures a product that requires 3.75 hours per unit of machining time. Machine
time is a bottleneck resource, because there is a limited number of machines.

There are just seven machines, and each is available for up to 15 hours each day, five days a
week. The product has a selling price of $100 per unit, a direct material cost of $40 per unit,
a direct labour cost of $10 per unit and a factory overhead cost of $30 per unit. These costs
are based on a weekly production and sales volume of 140 units.
What is the throughput accounting ratio?
A 0.67
B 1.50
C 1.67
D 5.33

3 The following statements have been made about environmental internal failure costs:

(1) They are borne exclusively by the organisation.

(2) The aim in incurring them is to determine whether adverse impacts are being created
and whether environmental standards and internal policies are being complied with.
Which of the above statements is/are true?
A (1) only
B (2) only
C Neither (1) nor (2)
D Both (1) and (2)

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4 Z sells PCs that it purchases through a regional distributor. An extract from its budget for the
4-week period ended 28 March 2014 shows that it planned to sell 600 PCs at a unit price of
$500, which would give a contribution to sales ratio of 25%.

Actual sales were 642 PCs at an average selling price of $465. The actual contribution to sales
ratio averaged 20%.
What is the sales price variance (to the nearest $1)?
A $22,470 (F)
B $1,470 (A)
C $1,470 (F)
D $22,470 (A)

5 Z sells PCs that it purchases through a regional distributor. An extract from its budget for the
4-week period ended 28 March 2014 shows that it planned to sell 600 PCs at a unit price of
$500, which would give a contribution to sales ratio of 25%.

Actual sales were 642 PCs at an average selling price of $465. The actual contribution to sales
ratio averaged 20%.
What is the sales volume contribution variance (to the nearest $1) was:
A $5,050 (F)
B $5,150 (F)
C $5,250 (F)
D $5,350 (F)

6 A chemical flavouring, product C, is made by mixing together two materials. The standard
cost of a batch is as follows:

Material Kg per batch $ per kg $ per batch

L 300 1.30 390
H 500 2.82 1,410
–––– –––––
Input per batch 800 1,800

10% standard loss 80

––––
Output per batch 720
––––
For batch no. 1247, material input was 250.5 kg of L and 669.5 kg of H. Output from the batch
was 810 kg of product C.
What is the total material yield variance for the batch?
A $45 (A)
B $45 (F)
C $143.64 (A)
D $143.64 (F)

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7 Z Co has just started manufacturing product A. The prototype took 5 hours to complete and
the next 7 units of Product A took 19.565 hours.

What is the learning rate for Product A?

A 58%

B 70%
C 79%
D 85%

8 The following statements have been made about incremental budgeting:

(1) It can be defined as a system of budgetary planning and control that measures the
additional costs that are incurred when there are unplanned extra units of activity.
(2) Incremental budgets review and, if necessary, revise the budget for the next quarter
to ensure that budgets remain relevant for the remainder of the accounting period.
Which of the above statements is/are true?
A (1) only
B (2) only
C Neither (1) nor (2)
D Both (1) and (2)

9 Which TWO of the following statements about forecasting based on simple linear
regression are correct?

A It can account for the effect of multiple independent variables

B It assumes that historical data is a reliable guide to the future
C It is not suitable when the variables show strong negative correlation
D Cost forecasts using extrapolation are less accurate than those using

10 BVB designs and builds custom-made yachts for wealthy individuals. It is considering the
launch of a customer extranet.

Which ONE of the following is the most likely consequence of this for BVB?
A Increased visibility in the market
B Improved market segmentation and analysis
C Increased customer service
D Improved security of company information

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11 The following are measures gathered in the context of a balanced scorecard approach to the
provision of management information:

(i) Training days per employee

(ii) Percentage of revenue generated by new products and services
(iii) Labour turnover rate
Which of the following measures might be appropriate for monitoring the innovation and
learning perspective?
A (i), (ii) and (iii)
B (i) and (iii) only
C (ii) only
D (ii) and (iii) only

12 Beauty Insiders Ltd sells cosmetics, and operates a customer loyalty card and online forum
where customers can leave product reviews. To date, it has not made use of the data that it
collects, and so its CEO recently attended a conference on big data where speakers talked
about the potential for big data to improve organisations’ operations through converting
unstructured data into useful information.

Which ONE of the following statements regarding the use of big data at Beauty Insiders Ltd
is correct?
A Big data analytics can improve Beauty Insiders Ltd’s operational performance.
B It is unlikely that there would be any unstructured data available to Beauty Insiders
Ltd.
C There is too much big data available to Beauty Insiders Ltd to be useful.
D The use of loyalty card data cannot help with decisions on which cosmetics Beauty
Insiders Ltd should hold in inventory.

13 A division of a company has capital employed of $2m and its return on capital is 12%. It is
considering a new project requiring capital of $500,000 and is expected to yield profits of
$90,000 per annum. The company’s interest rate is 10%.

If the new project is accepted, what will the residual income of the division?
A $40,000
B $80,000
C $30,000
D $330,000

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14 The following statements have been made management control reports:

(1) Reports should not include information about uncontrollable items.

(2) Only encryption can be used to ensure the security of highly confidential information.
Which of the above statements is/are true?
A (1) only
B (2) only
C Both (1) and (2)
D Neither (1) nor (2)

15 The following statements have been made about Transaction Processing Systems (TPS):

(1) TPS systems support structured decisions at operational and management control
levels.
(2) The failure of TPS systems can stop business from operating, as organisations rely
heavily on them.
Which of the above statements is/are true?
A (1) only
B (2) only
C Both (1) and (2)
D Neither (1) nor (2)

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SECTION B

All 15 questions are compulsory and MUST be attempted.

Each question is worth 2 marks.

The following scenario relates to questions 16–20

MOC makes and sells an executive game for two distinct markets in which it currently has a
monopoly. The fixed costs of production per month are $20,000, and variable costs per unit
produced, and sold, are $40. The monthly sales can be thought of as Q, where Q = Q1 + Q2, with Q1
and Q2 denoting monthly sales in their respective markets. Detailed market research has revealed
the demand functions in the markets to be as follows, with prices shown as P1 and P2:
Market 1: P1 = 55 − 0.05Q1
Market 2: P2 = 200 − 0.2Q2
The management accountant believes there should be price discrimination; the price is currently
$50 per game in either market.

16 What is the optimum price to charge in Market 1 to the nearest cent?

$ .

17 What is the optimum quantity to produce in Market 2?

_____________ units

18 The following statements have been made about price discrimination:

(1) Price discrimination should be used if a business wishes to discourage new entrants
into a market.
(2) Price discrimination can be difficult to implement in practice, because it relies for
success upon the continued existence of certain market conditions.
Which of the above statements is/are true?
A (1) only
B (2) only
C Neither (1) nor (2)
D Both (1) and (2)

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19 Some of MOC’s competitors are thinking of entering markets 1 and 2, and adopt a
penetration pricing strategy.

Which of the following statements is/are true?

(1) MOC may be forced to use going rate pricing to match the competitors’ prices in order
to remain competitive.
(2) Competition in these markets will drive down profit margin for all organisations and
probably drive MOC out of business.

A (1) only
B (2) only
C Neither (1) nor (2)
D Both (1) and (2)

20 MOC is thinking of leaving markets 1 and 2 and entering overseas markets 3 and 4. In market
3, it would initially charge low prices so as to gain rapid market share while demand is
relatively elastic. In market 4, it would initially charge high prices so as to earn maximum
profits while demand is relatively inelastic.

Which price strategy would MOC use in each market?

A Penetration pricing in market 3 and price skimming in market 4
B Price discrimination in market 3 and penetration pricing in market 4
C Price skimming in market 3 and penetration pricing in market 4
D Price skimming in market 3 and price discrimination in market 4

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The following scenario relates to questions 21–25

JAY Manufacturing operates a marginal costing system and budgets to make and sells 10,000 units
of a single product every period.
The standard cost and revenue per unit are as follows:
$
Selling price 400
Direct material A 5 kg at $25 per kg 125
Direct material B 3 kg at $22 per kg 66
Direct labour 3 hours at $10 per hour 30
Variable overheads 3 hours at $7 per hour 21
––––
Standard contribution 158
––––
The mix of materials can be varied and therefore the material usage variance can be sub-divided
into mix and yield variances.
For the period under review, the actual results were as follows:
Production and sales 9,000 units
$
Sales revenue 4,455,000
Material cost A – 35,000 kg 910,000
B – 50,000 kg 1,050,000
Labour cost 30,000 hours 385,000
Variable overhead 230,000

21 What is the material mix variance?

A $36,250 F
B $36,250 A
C $54,375 F
D $54,375 A

22 What is the material yield variance?

A $203,125 F
B $203, 125 A
C $310,375 F
D $310,375 A

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23 What is the sales volume variance?

A $158,000 F
B $158,000 A
C $855,000 F
D $855,000 A
Additional information
The general market prices at the time of purchase for material A and material B were $21 per kg
and $19 per kg respectively. There were no opening or closing inventories during the period.

24 What is the operational price variance for Material A?

A $81,000 A
B $175,000 F
C $175,000 A
D $180,000 A

25 What is the operational price variance for Material B?

A $81,000 A
B $100,000 A
C $175,000 A
D $180,000 A

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The following scenario relates to questions 26–30

Solid Ltd has been asked to provide a quotation for an engineering project that will take one year
to complete. An analysis of the project has already been completed and the following resource
requirements have been identified:
A specialised machine will be required for a total of 10 weeks. It can be hired in from a reputable
supplier, who would guarantee its availability when it is required, for $2,500 per week. The
machinery has a running cost of $720 per week. This cost is incurred by the user of the machine. It
is company policy to depreciate non-current assets by 25% per year on a reducing balance basis.
The company has already incurred expenditure of $25,000 in analysing the resource requirements
of the project.

26 What is the relevant cost of hiring and running the machine for the engineering project to
the nearest $?

$ .
Additional information
Skilled labour would be required for a total of 9,000 hours during the year. The labour required
could be recruited at an hourly rate of $12. Alternatively some of the employees currently working
on other projects within the company could be transferred to this project. Their hourly rate is
$10 per hour. If these existing employees were to be transferred to this project then they would
need to be replaced on their existing project work. Replacements for their existing project work
would cost $11 per hour.

27 What is the relevant cost of skilled labour to the nearest $?

$ .
Additional information
The project would need to be supervised and it is estimated that there would be a total of 500 hours
of supervision required during the year. One of the existing supervisors could undertake this work,
but if they did so they would have to work a total of 300 hours overtime during the year to carry
out the supervision on this project as well as their existing duties. The supervisor earns a salary of
$50,000 per year for working 2,000 hours and is not paid for overtime work. If this project goes
ahead the supervisor will be paid a bonus of $500, which would not be paid if the project is not
undertaken.

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28 What is the relevant cost of supervision?

A $0
B $500
C $50,000
D $50,500
Additional information
The direct materials required for the project are Materials A and B. With regards to Material A, the
total amount required for the project would have to be purchased at a cost of $15,000.
The total amount of Material B required would be 10,000 square metres. The company purchased
25,000 square metres of this material for a project two years ago at a total cost of $100,000. The
earlier project used 20,000 square metres of the material and the remainder is currently held in
inventory. The company does not foresee any other use for this material in the future and could
sell it for $2 per square metre. The current purchase price of the material is $5 per square metre.

29 What is the relevant cost of material B?

A $0
B $25,000
C $35,000
D $50,000

30 Which TWO of the following statements relating to relevant cost concepts in decision
making are correct?

(1) Materials can never have an opportunity cost whereas labour can.
(2) The annual depreciation charge is not a relevant cost.
(3) Fixed costs would have a relevant cost element if a decision causes a change in their
total expenditure.
(4) Materials already held in inventory never contribute to relevant cost.

A (1) and (3)

B (1) and (4)
C (2) and (3)
D (3) and (4)

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SECTION C

Both questions are compulsory and MUST be attempted

31 SCRUM
Scrum Ltd produces two products, the Webb and the Ellis. Budgeted data relating to these
products on a per unit basis for August 2016 are as follows:
Webb Ellis
Selling price $150 $100
Materials $80 $30
Salesmen’s commission $30 $20
Each unit of product incurs costs of machining and assembly. The total capacity available in
August 2016 is budgeted to be 700 hours of machining and 1,000 hours of assembly, the cost
of this capacity being fixed at $7,000 and $10,000 respectively for the month, whatever the
level of usage made of it. The number of hours required in each of these departments to
complete one unit of output is as follows:
Webb Ellis
Machining 1 hour 2 hours
Assembly 2.5 hours 2 hours
In the market Scrum operates in, selling prices are fixed by European Union directives. The
permitted output of either product in August is 400 units (i.e. Scrum Ltd may produce a
maximum of 800 units of product). At the present controlled selling prices, the demand for
the products exceeds this considerably.
The graph on the following page has been correctly drawn.

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SCRUM LTD
Ellis units

500
2.5W + 2E = 1,000

D
400 E = 400

300
W = 400

200

100
W + 2E = 700

C Webb units

0
100 200 300 400 500 600 700 800

Required:
(a) Calculate Scrum’s optimal production plan for August 2016, and the profit earned.
(10 marks)
(b) Calculate the shadow price of an extra hour of machining, and the shadow price of
an extra hour of assembly. In each case, assume that the capacity of the other
department is not altered and the maximum output continues to apply. (6 marks)
An external contractor has offered to supply an extra 100 machine hours provided that they
are paid double the normal rate of $10 per machine hour, at $20 per machine hour.
Required:
(c) Briefly discuss whether Scrum should accept the offer of additional machine hours
at double the normal rate. (4 marks)
(Total: 20 marks)

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32 BWEALTH
BWealth Ltd provides a fee-based, high quality financial planning and personalised
investment service to ‘high net worth’ retired individuals, as well as to trusts, charities and
small businesses.
BWealth employees work to enhance the income of the business’ long-term investors. The
industry BWealth operates in is becoming more and more competitive. The Managing
Partner feels that promotion of new investment products to BWealth’s clients would be likely
to upset their generally conservative nature and, as a result, the business has been managed
with similar products for the last couple of years.
The last two years of financial results are shown below:
20X6 20X5
Turnover ($000) 1,001 950
Net profit ($000) 198 190
Average debtor/trade receivables days
(industry average 20 days) 19 days 21 days
Average cash balances ($000) 20 19
BWealth operates in a country where the average rate of inflation is around 3% per annum.

Required:
(a) Assess the financial performance of BWealth using the information given above.
(7 marks)
During the early part of 20X5, BWealth employed a newly qualified management accountant.
They quickly became concerned about the potential performance of the business, and to
investigate their concerns, they started to gather data to measure some non-financial
measures of success. The data they have gathered is shown below:
Internal Business Processes
20X6 20X5
Error rates in jobs done 15% 9%
Average job completion time 7 weeks 9 weeks
Customer Knowledge
20X6 20X5
Number of customers 1,210 1,432
Average fee levels ($) 549 450
Market Share 12% 19%
Learning and Growth
20X6 20X5
Percentage of revenue from non-core work 4% 5%
Industry average of the proportion of revenue
from non-core work in similar practices 30% 25%
Employee retention rate. 60% 80%

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Notes
1 Error rates measure the number of jobs with mistakes made by staff as a proportion
of the number of clients serviced.
2 Core work is defined as being investment management. Non-core work is defined
primarily as estate planning and retail banking. Non-core work is traditionally high
margin work.

Required:
(b) Briefly explain why non-financial information is likely to give a better indication of
the likely future success of the business than the financial information given in a).
(3 marks)
(c) Assess the performance of the business with comments on all non-financial aspects
separately, as well as a concluding comment on the overall performance of the
business. (10 marks)
(Total: 20 marks)

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