ACCA F5 Performance Management Sample Study Note For exams in June2014 1 www.accaapc.com © Lesco Group Limited, April 2015 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of Lesco Group Limited. 2 www.accaapc.com Sample Note Content: Main study note content [Total Pages: 106] ...................................................... 4 Product Summary .......................................................................................... 5 Live online note sample plan ........................................................................... 6 Live online course timetable: ........................................................................... 7 Introduction to management accounting ......................................................... 10 Throughput accounting method ..................................................................... 15 Please note: This is just the sample study note extracted from the main study note in your tuition study [This tuition study note is consistent in basic/super/gold package]. There would be more chapters in the main study note covering the whole ACCA syllabus. You can also take a look at the content within the main study note below: 3 www.accaapc.com Main study note content [Total Pages: 106] 4 www.accaapc.com Product Summary content ACCA HD quality super tuition videos ACCA HD quality super revision videos ACCA HD quality coffee break videos recap ACCA Live online tuition(4sessions) ACCA Live online revision(14hours) ACCA Mock exams(with tutor mark) ACCA Tutor support ACCA Electronic study note ACCA Student online forum Pass Guarantee ACCA Final revision mock exam paper ACCA Super Live online session (2030hours) ACCA Super Live online revision (Super 3 days) ACCA 1V1 Career Advice ACCA Extra exam techniques demonstration Live online mentoring 5 www.accaapc.com Basic Super Gold package package Package Oxford Brookes BSc in Applied Accounting Live online note sample plan Live online tuition note plan for June2014 F5 Exam [Only for super / gold package (there would be a unique plan for gold package)] Live sessions: [2 hours/session---live online + recorded after class]: Live session1: costing methods: ABC Past exam question-pilot paper Q1 Triple Ltd Live session2: budgeting Past exam question-DEC2012 Q4 Live session3: standard costing system Past exam question-DEC2011 Q5 Live session4:: performance measurement Past exam question-June2012 Q5 Live revision note for June2014 F5 exam: [will be available since mid April 2014]:  Live revision1+2: [There would be a separate live revision note detailing all past exam questions with answers to go through] 6 www.accaapc.com Live online course timetable: Live session/revision for F4-P7 7 www.accaapc.com 8 www.accaapc.com *Please Note: This Timetable may be subjected to future changes. Kindly check regularly for any possible updates. 9 www.accaapc.com Introduction to management accounting Management accounting① is to provide useful information② in assisting management in the management activities③. Overview: If you want to open up a high fashion clothes manufacturing company in India so what you should do? Information required: internal & external -existing financial information? -company resources-staff? -government report/industry report Management activities: use the above information in: -Planning: Plan future activities, budget -Decision making: Whether to set up company and what further investment that company may try to make -Control: 10 www.accaapc.com Variance-Compare results of operation with expected(meet sales/ cost target?) ①Difference between Management accounting & Financial Accounting Idea: Management accounting is for the use of management to make decisions Financial accounting is used for paying taxes, borrowing money from bank or attracting investors. Management accounting Financial Accounting Use Internal External Format Adapted Strict Content Detailed Summary (reflect past and future) (reflect past) Information Financial+Non-financial Financial Time Depends Per year ② information 1, Difference between information and data -Data + meaning=information -If I give you data profit is $5,000 and you may think it’s good but what if I tell you that company has a sales revenue of $50m and you may think that $5,000 is too small so you decide not to invest in this company. -Without given context that $5,000 is just data(raw data) and you can’t make your decision whether to invest in this company unless you are given information, ie, incorporate the data with specific context(give some meaning to it.) 11 www.accaapc.com 2, How to assess whether this information is good? Accurate They should be accurate not too vague and if you’re given information that company has made profit this year but not told how much then it’s useless to help you make decisions. Cost efficient You should weigh the benefit you get after getting this information and the cost you have to pay. Complete If you are told that there’s a competitor emerging then you should need to obtain its price and skills they have mastered as well. User-focused Eg, a shop manager may wish to have a summary of the shop’s daily takings and a sales manager may want detailed customers details to complete their sales target. Relevant If you want to know the price that competitor is currently charging so any information provided about the history about the competitor may deem to be irrelevant. Authoritative The information should be reliable so if you are told that inflation rate this year is 5% so you need to check where is this information coming from, eg, from government report? Timely Ease of use Information must be produced in advance of the time when it’s needed. Eg, budgets need to be set in advance of a period in order to compare with actual performance as a benchmark. We need to make sure Information produced can be used by users, eg, easy language. 3, where does information come from? Internal: wage rate; production rate; sales volumes. External: government report; industry statistics. Inflation rate; industry report. 12 www.accaapc.com 4, How to sample information? If you want to launch a new product then how to determine customers are satisfied with your product you are going to launch? Well we need to select samples from the populations and ask them whether they are satisfied with the new products are hoping that they represent the whole population. Approaches to sample: Random sampling: Sample items at random and make sure that every item would have an equal chance being sampled. Systematic sampling: random sample first and sample at interval later. Stratified sampling: stratified group first and then random sampling later. 13 www.accaapc.com ③management activities Once we’ve looked at how to generate into information we now need to know where do we use these information for and by. Where: The information should be used to management activities Planning (budget); [regularly] Decision making; (launch new products/enter into new market) [any time] Control(variance analysis) [regularly] By: The information should be used by different level of management within the business. Strategic level (directors and senior management; more than 1year) Tactical Level (divisional/departmental manager; somewhere between 1month1year) Operational Level (team leader; factory supervisor; daily/weekly) To achieve better control over the organization, companies would always divide themselves up into different centers. Cost Center: Break group costs into different areas like in products line; managers; location; region; location; department; Revenue Center: Break group revenue into different areas like in products line; managers; location; region; location; department. Eg, Sales department. Profit Center: senior management here will control both revenue and costs in order to maximize profit. Usually this would be divisions within organization. Investment Center: they are not only responsible for control over revenue and costs but also for some capital. This would be done by quite senior persons within business usually. 14 www.accaapc.com Throughput accounting method In the past most business only focuses on increasing the individual process efficiency without considering if one process slows down then other processes will slow down as well. If one process slows down then the inventory will be piled up, workers are idled but still gets paid and these will increase the overall costs to the organization. Throughput accounting underpins the idea that inventory should be eliminated during the process of the production. It is not just focusing on individual process but rather focus on the factory as a whole. As mentioned before one process slows down which will make other processes slow down as well and this is called bottle neck. So how to increase the overall output and profit for the organization given bottle neck exist in the organization? 15 www.accaapc.com Well this introduces “throughput accounting” method. ‘throughput’ is the rate at which the system generates money through sales So we can calculate “throughput accounting raio(TPAR)” and say: If TPAR=1 then the business is not making or losing money(break even); If TPAR>1 then the business is making money and If TPAR<1 then the business is losing money. But how can we calculate “TPAR” ? TPAR= Return/factory hour (W1) Cost /factory hour (W2) W1: return/factory hour=sales price/unit-direct material cost/unit Factory hours per unit(bottleneck hrs) W2: cost/factory hour= Total factory costs Total factory hours 16 www.accaapc.com Note: Throughput accounting is very similar like marginal costing because you can see the calculation of TPAR, return/factory hour is similar to contribution/hour. Before we move on we would like to see the difference between marginal costing and throughput accounting. Marginal costing Variable costs Direct material Throughput accounting Direct material only Direct labour Variable overhead Fixed costs Contribution 17 www.accaapc.com Costs don’t vary with activity levels Called “total factory cists”. Sales-variable costs Sales-direct material costs Direct labour costs+all overheads Q Through ltd Through ltd has 2 production departments: assembly and finishing department. It makes 2 products: A&B. Through ltd operates a JIT manufacturing system. Processing capabilities are shown below: Processing time in hours Assembly Finishing Product A 0.5 0.75 Product B 0.5 1 Hours available 12,000hours 12,000hours Factory overhead and direct labour expense for the period is $180,000. Cost data is as follows: Product A Product B Unit sales price $20 $15 Direct material costs/unit $11 $9 Required: 1, identify the bottleneck process. 2, calculate TPAR for each product. 3, interpret the TPAR and suggest how Through ltd can improve the TPAR. 18 www.accaapc.com