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M A ‐FMA: MANA GEME NT A CCO UN TIN G

Required:
(a) For the following variances, state whether it is true or false that the variance stated
above could be caused by better quality ingredients being purchased for the pies:

True False
(i) Sales volume (1 mark)
(ii) Materials price (1 mark)
(iii) Labour rate (1 mark)
(iv) Materials usage (1 mark)
(v) Sales price (1 mark)

(b) What should the title be in Gap 1? (1 mark)

(c) Using the following information, calculate the variable overhead expenditure and

ub
efficiency variances, and state if they are favourable or adverse.
Actual production was 1,500 units which were completed in 3,620 hours at a variable
overhead cost of $11,000.
lH
The budget was that each pie would take 2.5 hours to make and the variable overhead
absorption rate would be $3 per hour. (4 marks)
ia
Variable overhead expenditure variance $
Variable overhead efficiency variance $
er

(Total: 10 marks)
at

PERFORMANCE MEASUREMENT
M

462 Tel Co manufactures televisions and sells them to large retailers. Due to high staff turnover,
no liquidity ratios have been calculated for the year ahead.
A

The bank is concerned about the forecast increase in Tel Co’s overdraft to $40,500 at
30 November 20X4, and has suggested that the ratios be calculated. The following forecast
information is available for the year ended 30 November 20X4:

$
Revenue 343,275
Cost of sales 284,000
Purchases 275,000
Closing Inventory 35,000
Receivables 37,400
Payables 35,410

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Required:
(a) For Tel Co for the year ended 30 November 20X2 calculate:
(i) The inventory holding period (to the nearest day) (1.5 marks)

days

(ii) The receivables collection period (to the nearest day) (1.5 marks)

days

(iii) The payables period (to the nearest day) (1.5 marks)

days

(iv) The current ratio (to 3 decimal places) (1.5 marks)

days

(b) Tel Co’s quick ratio is 0.49.

ub
If they sell half of their inventory to pay off part of the bank overdraft, what will
happen to their quick ratio?
A Stay the same
lH
B Increase
C Decrease (2 marks)
ia
(c) In an attempt to improve their liquidity position, Tel Co is considering offering an early
settlement discount to its customers.
er

Complete the following sentences by selecting the correct options:

Offering prompt payment discounts to customers should [increase/decrease] the time
at

taken to recover debts. However, it will also [increase/reduce] the total cash received.
(2 marks)
M

(Total: 10 marks)
A

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463 Drive Co is a diverse business, one division of which runs a courier business using a fleet of
small vans. The following information has been produced by the manager of the division for
the year ended 30 June 20X4:

Revenue $500,000
Gross profit $120,000
Operating profit $50,000
Loan (8% per year) $60,000
Asset turnover 4

Required:
(a) Using the information provided, calculate (to 2 decimal places):
(i) Interest cover (1.5 marks)

ub
(ii) Return on capital employed (2.5 marks)

lH %

(ii) Gearing (2 marks)

%
ia
(b) The manager of the courier division is retiring this year and his bonus is being paid
based on the ROCE percentage of the division.
er

Which TWO of the following actions could the manager of the courier division have
taken in order to improve his bonus?
at

A Delay repairs to the fleet of vans.

B Understate the closing inventory of fuel held in the depot.
M

C Include all the revenue for an uncompleted new contract.

D Overstate the allowance for receivables (2 marks)
A

(c) The management of Drive Co would like to introduce some more operational measures
for performance evaluation.
Which of the following measures would be most useful?
A Cost per tonne mile
B Cost per driver hour
C Van idle time percentage
D Driver idle time percentage (2 marks)
(Total: 10 marks)

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464 Mal Co currently sells 25 styles of sports watches. The market has remained static with an
overall revenue of $50 million.

Mal Co is always trying to bring out new designs and colours to try and increase market share
or at least maintain it. In order to not fall behind their competitors, Mal Co tries to bring new
products to the market quickly. Therefore Mal Co undertakes market research one year, and
the results of that market research are incorporated in the new styles/colours that are
launched the next year.
Historically, Mal Co have measured their performance by looking for an increase in the
revenue and net profit figures and ensuring that there is cash in the bank. A new financial
manager has been appointed who is keen to increase the range of performance measures
used by Mal Co.
The following data is available:

Year ended 31 October 20X3 Year ended 31 October 20X4

Revenue $5.75 million $6 million

ub
Number of styles 22 25
Net profit $345,000 $348,000
Market research costs $200,000 $150,000
lH
Required:
(a) Calculate:
ia
(i) Net profit percentage for 20X4 (to 1 decimal place) (1.5 marks)
er

(ii) Market share for 20X4 (to 1 decimal place) (1.5 marks)
at

%
M

(iii) Increase in revenue (to 2 decimal places) (1.5 marks)

%
A

(iv) Revenue per style of watch for 20X4 (to the nearest whole $) (1.5 marks)

(v) Increase in sales per $ of market research (to 2 decimal places) (2 marks)

(b) Mal Co are considering setting up another division selling expensive watches. The two
divisions would be run as profit centres, with head office costs being allocated to each
division. Managers’ bonuses will be dependent on the divisions meeting their targets.
Targets that are being considered are:
(i) Gross profit percentage
(ii) Contribution
(iii) Net profit for the division
(iv) Return on capital employed

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Which of the targets should be used to assess the performance of the divisional
manager and provide motivation?
A (iv) only
B (i) and (ii) only
C (iii) and (iv) only
D All of them (2 marks)
(Total: 10 marks)

465 Grub Co is a fast food restaurant. Historically they have always relied upon financial measures
of performance, concentrating on ratios such as the number of burgers sold and the profit
made per burger sold.

Grub Co is now considering implementing a balanced scorecard approach.

Required:

ub
(a) Complete the following statements about the balanced scorecard approach,
choosing from the options available:
Before a balanced scorecard approach can be considered, an organisation needs to
lH
first have (gap1). The balanced scorecard approach focuses on (gap 2)
Gap 1
A key performance indicator’s agreed with management
ia

B a mission statement
er

C operational plans in place (1 mark)

Gap 2
at

A short term improvements for the business.

B the long term success of the business. (1 mark)
M

(b) For each of the following measures, state if they are measuring the financial,
customer, internal, or learning perspective of Grub Co’s balanced scorecard:
A

Financial Customer Internal Learning

perspective
Profit made per burger
Time taken from the customer
ordering food to food being passed
to the customer
Percentage of employees with higher
level food hygiene certificates
Percentage of burgers cooked but
not sold as they are inedible
(4 marks)

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 SE CTIO N B ‐TYPE QUE STI ONS : S EC T I O N 2

(c) The following explanation of benchmarking is incomplete:

There are four types of benchmarking, being (gap 1), competitive, functional and
strategic. Comparing the results of Grub Co with McDonalds would be a form of (gap 2)
benchmarking
State the words that fill the gaps. (2 marks)
(d) Select the option that has the steps in a systematic benchmarking exercise in the
correct order:
A analysis→ planning→ action→ review
B review→ planning→ ac on→ analysis
C planning→ analysis→ ac on→ review
D analysis→ ac on→ review→ planning (2 marks)
(Total: 10 marks)

466 The directors of Donny Co are reviewing the performance of two of its divisions. The following

ub
information is available for the year ending 31 March 2009.
South division North division
lH $000 $000
Sales 50,000 3,200
Operating profit 700 840
ia
Capital employed 3,500 4,000
er

Cost of capital 12% 12%

South division is a food retailer that sells low priced food from a number of stores that are
at

rented on short‐term contracts. North division sells luxury motor vehicles, which it
manufactures in a fully automated production plant.
M

Required:
Calculate the following performance measures for the two divisions (to 1 decimal place):
A

South division North division

(a) Return on capital employed (2 marks)
(b) Return on sales (2 marks)
(c) Asset turnover (3 marks)
(d) Residual income (3 marks)

(Total: 10 marks)

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467 During a period, the actual hours worked by the employees of SCRMA totalled 31,630.
Budgeted hours were 29,470 hours. The standard hours for the work totalled 30,502.
(a) Calculate the production volume ratio (to 1 decimal place) (1 mark)

(b) Calculate the efficiency ratio (to 1 decimal place) (1 mark)

(c) Calculate the capacity ratio (to 1 decimal place) (1 mark)

SCRMA has 2 divisions with the following information:

Division A of SCRMA has been offered a project costing $100,000 and giving returns of
$20,000. The company's cost of capital is 15%. Divisional performance is judged on ROI and
the ROI related bonus is sufficiently high to influence the managers' behaviour. Without the

ub
project Division A has the following details:
Division A
$
Profit 90,000
lH
Capital employed 300,000
ia
ROI 30%
(d) What decision will be made by management of the division if they act in the best
er

interests of their division (and in the best interest of their bonus)? (3 marks)

Invest Do not invest

at

Decision
M

(e) What should the managers do if they act in the best interests of the company as a
whole? (1 mark)
A

Invest Do not invest

Decision
One of SCRMA’s investment centres has net assets of $800,000, and made profits
before interest of $160,000. The notional cost of capital is 12%. An opportunity has
arisen to invest in a new project costing $100,000 that would make profits of $15,000
each year.
(f) What would be the residual income with the investment (to nearest $)? (2 marks)

(g) Would the investment centre manager wish to undertake the investment? (1 marks)

Invest Do not invest

Decision

(Total: 10 marks)

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468 NFS hospital is located in a country where healthcare is free, as the taxpayers fund the
hospitals which are owned by the government. Two years ago management reviewed all
aspects of hospital operations and instigated a number of measures aimed at improving
performance and overall ‘value for money’ for the local community.
 To reduce the number of complaints
 To reduce the number of existing patients
 To reduce the cost per patient
The following data have been provided:
Year 1 Year 2
Total patients 8,800 9,100
of which – new 1,300 700
of which – existing 7,600 8,400
Complaints 560 565
Total cost $14.08m $14.287m

ub
(a) What proportion of total patients are new in year 2 (to 2 decimal places)? (1 mark)

%
lH
(b) What is the percentage change in existing patients from year 1 to year 2 (to 2 decimal
places)? (1 mark)

%
ia

(c) Which TWO of the following statements regarding NFS’s performance are true?
er

A NFS has failed to succeed in meeting any of its goals

B NFS’s cost per patient in Year 1 was $1,600
at

C NFS’s number of complaints per patient in Year 2 was 0.062

D NFS’s total cost has increased by 3.4% (2 marks)
M

(d) Select the correct term to complete the following sentences:

A NFS’s number of complaints has increased/decreased and its number of
A

complaints per patient has increased/decreased.

B NFS’s total cost has increased/decreased and its cost per patient has
increased/decreased.
C NFS’s number of new patients has increased/decreased and its number of
existing patients has increased/decreased. (3 marks)

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Value for money can be assessed using the three Es. The three Es are:
 Efficiency
 Economy
 Effectiveness
NFS hospital has set the following performance goals:
 To maximise the bed occupancy rate
 To minimise patient waiting times
 To reduce the total staff cost while maintaining the level of service.
(e) Match the goals to whether they relate to efficiency, effectiveness or economy.

Efficiency To maximise the bed occupancy rate

Economy To minimise patient waiting times
Effectiveness To reduce the total staff cost while

ub
maintaining the level of service
(3 marks)
lH (Total: 10 marks)
ia
er
at
M
A

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A C C A MA 18: Fi n an c i al p e rf o rman c e me as u res 109

Multi task questions

1 OLDTED
Oldted has just published its financial statements for the year ended 31 August. The figures for this
year are shown with comparatives for last year.
Current year Previous year
Statement of financial position $000 $000 $000 $000
Non-current assets 29,100 28,780
Current assets
Inventories 11,410 9,580
Receivables 1,260 1,100
Cash 320 450
12,990 11,130
42,090 39,910
Equity 23,500 21,320
Non-current liabilities
Loan 9,860 10,810
Current liabilities
Trade payables 8,130 7,240
Taxation 600 540
8,730 7,780
42,090 39,910
Statement of profit or loss $000 $000
Revenue 32,200 29,220
Cost of sales (25,410) (22,860)
Gross profit 6,790 6,360
Other operating expenses (3,200) (3,150)
Profit before interest and tax 3,590 3,210
Finance cost (810) (690)
Profit before tax 2,780 2,520
Taxation (600) (540)
Profit after tax 2,180 1,980

Required:
(a) Calculate the % change in gross profit, to the nearest 0.1%.

% (1 mark)
(b) Calculate the return on capital employed for this year, to the nearest 0.1%.

% (1 mark)
(c) Calculate the return on capital employed for last year, to the nearest 0.1%.

% (1 mark)
(d) Calculate the asset turnover for this year to 2 decimal places.

(1 mark)
(e) Calculate the asset turnover for last year to 2 decimal places.

(1 mark)

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(f) Calculate the inventory turnover for this year.

(1 mark)
(g) Calculate in days the change in the inventory period between this year and last year.

days (2 marks)

The directors of Oldted are concerned about the level of inventory holding and ordering costs.
(h) Which ONE of the following would be a way of minimising the total of these costs?
 More frequent inventory counts
 Use of the Economic Order Quantity model
 Making more use of supplier discounts
 Increasing buffer inventory levels (2 marks)

(10 marks)

2 LOXWOOD FOODS
Loxwood Foods is a food manufacturing and distribution based on a model of autonomous profit
making divisions.
In the year that has just ended Loxwood’s Ready Meals division made an operating profit of $1.5m. Its
non-current assets were $6.5m and it had net current assets of $1m.
Up to now, the Ready Meals division has only offered a limited selection of vegetarian meals. As
however these have been the division’s biggest revenue earner over the last two years, Loxwood’s
board wants the division to make a significant investment to expand the range very significantly. To do
this, the division will need to invest an additional $1.5m in non-current assets and an additional $0.8m
in net current assets. The expanded range is forecast to make an additional $0.45m profit for the
Ready Meals division. Loxwood uses a cost of capital of 9% to appraise the performance of its
divisions.
Required:
(a) Calculate the return on investment for the Ready Meals division for last year, to the nearest 0.1%.

% (1.5 marks)
(b) Calculate the forecast return on investment for the Ready Meals division if the expansion takes
place, to the nearest 0.1%.

% (1.5 marks)
(c) Calculate the residual income for the Ready Meals division for last year.

$ m (1.5 marks)

(d) Calculate the forecast residual income for the Ready Meals division if the expansion takes place.

$ m (1.5 marks)

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A C C A MA 18: Fi n an c i al p e rf o rman c e me as u res 111

(e) Which two of the following would be disadvantages of using the Residual Income (RI) approach
to appraise the performance of the Ready Meals division?
 RI could increase every year because assets are getting older, even though profits may
remain static or fall.
 RI cannot easily be used to compare the performance of divisions of different sizes.
 RI is inflexible, since a single cost of capital has to be used to compare every division.
 RI does not provide a clear indicator that prompts managers to undertake profitable
investments. (2 marks)
The Managing Director of the Ready Meals division has commented that she believes that Loxwood
will have to offer the new range at the same prices that competitors are offering similar products.
Given that she wishes to maintain the same profit margin on the new meals as on the current
vegetarian meals, Loxwood will have to find ways to limit the costs of these products.
(f) This approach to costing is known as:
 Activity-based costing
 Process costing
 Target costing
 Job costing (2 marks)

(10 marks)

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Performance reports
10 Which of the following performance measures is most likely to be reported because of
government regulations?
 CO2 emissions
 Growth in customer numbers
 Cash flow
 Staff turnover

Multi task questions

1 FUZZY LIMITED
The Finance Director of Fuzzy Limited is concerned about the performance of its Western division. He
has the following information available for last year.
$000
Revenue 18,000
Operating profit 5,500
Capital employed 80,000
Number of employees at start of year 46
Number of employees at end of year 44
Average number of employees 45
Number of staff leaving during the period 11
Budgeted employee hours 50,000 hours
Actual hours worked 49,500 hours
Standard hours produced 49,700 hours
The division’s imputed charge for the purpose of calculating performance is 10%.
Required:
(a) Calculate the return on investment in % to 2 decimal places.

% (1 mark)

(b) Calculate the residual income.

$ (1 mark)
(c) Calculate the labour turnover ratio in % to 2 decimal places.

% (1 mark)
(d) Calculate the labour efficiency ratio in % to 2 decimal places.

% (1 mark)

(e) Calculate the labour capacity ratio in % to 2 decimal places.

% (1 mark)

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(f) Calculate the labour activity ratio in % to 2 decimal places.

% (1 mark)
(g) State which of the following are advantages of the Return on Investment measure of divisional
performance.

Yes No
Divisional managers have to consider the costs of financing their  
divisions.
Divisional managers avoid dysfunctional decision-making.  
It is directly related to net present value.  
It means that managers will select projects with positive net  
present values.
It relates size of income to size of investment.  
It is an absolute measure of performance.  
It helps in comparing performance of managers who control  
divisions of different sizes.
It is easily understood by managers.  

(2 marks)
(h) Which TWO of the following reasons could explain adverse results for measurement of labour
efficiency?
 The rate of staff turnover was higher than budgeted.
 Errors were made when allocating time to jobs during planning.
 Idle time that was built into the budget was incurred at the expected level.
 There was an increase in wage rates. (2 marks)

(10 marks)

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2 BROADBRIDGE CLINICS LTD

Broadbridge Clinics Ltd is a private healthcare provider, offering rest and recuperation to patients
recovering from serious operations. Its clinics are open 365 days a year.
The following data was included in the company’s annual report last year.
Statement of profit or loss
$000
Revenue 3,940
Operating profit 1,356
Taxation (340)
Profit after tax 1,016

Statement of financial position summary

$000
Assets 8,765
Equity 8,345
Current liabilities 420
Staff average numbers (full-time equivalents)
Doctors 12
Nurses 38
Administration staff 7
Other staff 15
Other statistics
Number of patients 1,250
Average length of stay (nights) 20
Average number of beds 90
Required:
Calculate the following ratios and other statistics for Broadbridge Clinics.
(a) Return on capital employed to the nearest %.

% (1 mark)
(b) Net profit percentage to the nearest %.

% (1 mark)

(c) Operating profit per patient night to the nearest $.

$ (2 marks)
(d) Percentage occupation of beds to the nearest %.

% (2 marks)
(e) Revenue per member of the medical staff to the nearest $000.

$ (1 mark)

(f) Operating profit per employee to the nearest $000.

$ (1 mark)

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The Managing Director of the clinics has been concerned by complaints of the lack of flexibility in the
services provided to patients by the clinics.
(g) Which TWO of the following are indications of the flexibility of service delivery by the clinics?
 Speed of delivery of care to patients
 Number of available beds
 Staff turnover
 Care plans tailored to individual patients (2 marks)

(10 marks)

3 SYDNEY DARWIN LIMITED

The directors of Sydney Darwin Limited are worried about the company’s annual financial situation.
Sydney Darwin’s bank has expressed concern about the length of time that it has maintained an
overdraft and has asked Sydney Darwin’s directors to reduce the overdraft significantly over the next
six months. The bank is also concerned about Sydney Darwin’s ability to pay its finance costs and repay
its bank loan.
Sydney Darwin has just published its accounts for the most recent accounting year.
Statement of financial position $000 $000
Non-current assets 26,100
Current assets
Inventories 3,410
Receivables 2,340
5,750
31,850
Equity 18,800
Non-current liabilities
Bank loan 8,100
Current liabilities
Bank overdraft 950
Trade payables 3,900
Taxation 100
4,950
31,850

Statement of profit or loss $000

Revenue 38,200
Cost of sales (31,450)
Gross profit 6,750
Other operating expenses (5,550)
Profit before interest and tax 1,200
Finance cost (800)
Profit before tax 400
Taxation (100)
Profit after tax 300

Required:
Calculate the following ratios for Sydney Darwin Limited.
(a) Interest cover

(1 mark)

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(b) Gearing, using total capital for comparison, to the nearest %.

% (1 mark)
(c) Current ratio to 2 decimal places.

(1 mark)

(d) Quick ratio to 2 decimal places.

(1 mark)

Sydney Darwin’s directors wish to understand what these calculations mean.

(e) Which ratio gives the best indication of Sydney Darwin’s ability to pay its finance costs?
 Interest cover
 Gearing
 Current ratio
 Quick ratio (2 marks)
(f) Which ratio gives the best indication of Sydney Darwin’s ability to raise money quickly to reduce
its overdraft?
 Interest cover
 Gearing
 Current ratio
 Quick ratio (2 marks)
The Managing Director of Sydney Darwin Limited believes that the company’s management needs to
carry out a fundamental review of all the company’s operations, in order to find effective ways of
reducing costs. He believes that the company needs to have a completely fresh look at the procedures
it carries out, without being influenced by what it currently does.
(g) This approach to cost management is known as:
 Total quality management
 Activity-based costing
 Target costing
 Business process re-engineering (2 marks)

(10 marks)

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