ACCA F5 Performance Management 2011. Study text

567 Pages·2.656 MB·English

PPuubblliisshhiinngg
F5 Study Text
Performance Management
ACCA

Paper
A

C
F5
C

A

Performance
management

Welcome to Emile Woolf‘s study text for

Paper F5 Performance management which is:

(cid:132) Written by tutors
(cid:132) Comprehensive but concise

(cid:132) In simple English

(cid:132) Used around the world by Emile Woolf Colleges
including China, Russia and the UK

PPuubblliisshhiinngg
Second edition published by  
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© Emile Woolf Publishing Limited, February 2011 

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Acknowledgements 
The syllabus and study guide are reproduced by kind permission of the Association of 
Chartered Certified Accountants. 

ii © Emile Woolf Publishing Limited
Paper F5

Performance management
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Contents

Page
Syllabus and study guide v
Formulae xv

Chapter 1: Activity-based costing 1
Chapter 2: Other costing systems 21
Chapter 3: Relevant costs analysis 49
Chapter 4: Cost – Volume – Profit analysis 59
Chapter 5: Limiting factors and linear programming 75
Chapter 6: Pricing decisions 99
Chapter 7: Make or buy and other short term decisions 129
Chapter 8: Decision-making with risk and uncertainty 141
Chapter 9: Budgeting 163
Chapter 10: Quantitative analysis in budgeting 195
Chapter 11: Standard costing 235
Chapter 12: Basic variance analysis 249
Chapter 13: Advanced variance analysis 293
Chapter 14: The scope of performance measurement 325
Chapter 15: Divisional performance 357
Chapter 16: Transfer pricing 375
Chapter 17: Performance analysis in not for profit organisations
and the public sector 399
Chapter 18: Performance measurement: external considerations and
behavioural aspects 409
Practice questions 419
Answers 465
Index 543
© Emile Woolf Publishing Limited iii
iv © Emile Woolf Publishing Limited
Paper F5

Performance management
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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 and apply cost accounting techniques
B Select and appropriately apply
Decision making techniques to facilitate business decisions and promote
efficient and effective use of scarce business resources, appreciating the risks
and uncertainty inherent in business and controlling those risks
C Identify and apply appropriate budgeting techniques and methods for
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
© Emile Woolf Publishing Limited v
Paper F5: Performance management
Rationale
The syllabus for Paper F5, Performance Management, builds on the knowledge
gained in Paper F2, Management Accounting. It also prepares candidates for more
specialist capabilities which are covered in P5 Advanced Performance Management.

The syllabus begins by introducing more specialised management accounting
topics. There is some knowledge assumed from Paper F2 – primarily overhead
treatments. The objective here is to ensure candidates have a broader background
in management accounting techniques.

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 and 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
Paper F2 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. Accountants 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 Paper P5.
Syllabus
A Specialist cost and management accounting techniques
1 Activity based costing
2 Target costing
3 Life cycle costing
4 Throughput accounting
5 Environmental accounting

B Decision-making techniques
1 Relevant cost analysis
vi © Emile Woolf Publishing Limited
Syllabus and study guide
2 Cost volume analysis
3 Limiting factors
4 Pricing decisions
5 Make-or-buy and other short-term decisions
6 Dealing with risk and uncertainty in decision- making

C Budgeting
1 Objectives
2 Budgetary systems
3 Types of budget
4 Quantitative analysis in budgeting
5 Behavioural aspects of budgeting

D Standard costing and variances analysis
1 Budgeting and standard costing
2 Basic variances and operating statements
3 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 choose to study Paper P5, Advanced
Performance Management, at the Professional level
Examination structure
The syllabus is assessed by a three-hour paper-based examination.
The examination will contain five compulsory 20-mark questions. There will be
calculation and discursive elements to the paper with the balance being broadly in
line with the pilot paper. The pilot paper contains questions from four of the five
syllabus sections. Generally, the paper will seek to draw questions from as many of
the syllabus sections as possible.
© Emile Woolf Publishing Limited vii
Paper F5: Performance management
Study guide
This study guide provides more detailed guidance on the syllabus. You should use 
this as the basis of your studies. 

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.
(c) 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) Derive a life cycle cost in manufacturing and service industries.
c) Identify the benefits of life cycle costing.

4 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.

5 Environmental accounting
a) Discuss the issues business face in the management of
environmental costs.
b) Describe the different methods a business may use to account for
its environmental costs.

B Decision-making techniques
1 Relevant cost analysis
a) Explain the concept of relevant costing.
b) Identify and calculate relevant costs for a specific decision
situations from given data.
c) Explain and apply the concept of opportunity costs.
viii © Emile Woolf Publishing Limited