General Comments - CIMA docs/P1Nov09peg.pdfPaper P1 – Management Accounting – Performance Evaluation Post Exam Guide November 2009 Exam General Comments The overall result on this

Paper P1 – Management Accounting – Performance Evaluation Post Exam Guide

November 2009 Exam General Comments The overall result on this paper was a significant improvement on previous November sittings. Well prepared candidates gained high marks. Marks gained on the ten multiple-choice questions and on the seven shorter-form calculation questions that made up Section A (question 1) of the paper were, once again, particularly good. It was pleasing to see that many candidates had a good grasp of materials mix and yield variance calculations (1.12 and 1.13), activity based costing (1.14) and the evaluation of further processing (1.16). At the same time it was surprising that many candidates were unable to calculate the total material variance (1.11), to apportion joint process costs based on sales values (1.15) or to calculate break even (1.17). The performance on question 1 provided a good foundation for many candidates to go on to achieve a pass on this paper. This was particularly the case as average marks gained in each of the other questions (in Sections B and C) were an improvement on recent examination sittings. Higher marks than previously were gained on the narrative parts of question 2 (Section B). In Section C, question 3 was chosen by the vast majority of candidates and high average marks were gained for the variance calculations. There was very little evidence of time pressure or of poor time management. Sometimes the workings provided in answer to the calculation questions were unnecessarily lengthy and repetitive. However adequate workings to calculation questions are always required (apart from the multiple choice questions), for the benefit of markers as well as candidates. Once again lack of preparation seemed to be the primary reason for candidate failure. Furthermore candidates must read the requirements of each question carefully and then answer the specific question asked. Failure to do this was particularly evident in answers to question 3, parts (a) and (d). Candidates should also try to structure their narrative answers more effectively.

© The Chartered Institute of Management Accountants Page 1


November 2009 Exam Section A – 40 marks

Question 1.1 The amount of work achievable in an hour, at standard efficiency levels, is A an ideal standard.

B the direct labour usage per hour.

C a standard hour.

D the direct labour efficiency variance.

(2 marks)

The answer is C

Question 1.2 When the “dual price” method of transfer pricing is used, the receiving division is charged for the transfers at A marginal cost.

B marginal cost plus a mark-up.

C full cost.

D full cost plus a mark-up. (2 marks)

The answer is A



November 2009 Exam

Question 1.3 The following facts are taken from the budget of a company:

Profit is 30% of revenue The C/S (Contribution/Sales) ratio is 55% Fixed costs are £50,000

Given the above facts, the budgeted revenue is A £150,000

B £166,667

C £200,000

D £275,000 (2 marks)

The answer is C

Workings Fixed costs are 25% of revenue. Therefore revenue = £50,000/0·25 = £200,000



November 2009 Exam

The following data are given for sub-questions 1.4 and 1.5 below A company uses standard absorption costing. Details from the previous period were:

Budget Actual Selling price per unit $25·00 $24·00 Variable costs per unit $14·00 $13·00 Output and sales 50,000 units 52,000 units Total fixed costs $250,000 $286,000

Question 1.4 The sales price variance was A $52,000 adverse

B $50,000 adverse

C $50,000 favourable

D $52,000 favourable

(2 marks)

The answer is A

Workings

52,000 * ($24-$25) adverse

Question 1.5 The sales volume profit variance was A $26,000 adverse

B $12,000 favourable

C $22,000 favourable

D $26,000 favourable (2 marks)

The answer is B

Workings Standard profit per unit = $6. Volume variance = $6*(52,000 – 50,000) favourable



November 2009 Exam

Question 1.6 The production volume ratio for a company was 90%. Which statement will always be true? A Budgeted hours were less than actual hours.

B Budgeted output was less than actual output.

C Standard hours output were less than budgeted hours.

D Standard hours output were less than actual hours worked. (2 marks)

The answer is C

Question 1.7 A company used marginal costing to calculate the profit for the previous period as $435,000. The opening and closing inventories for that period were 15,000 units and 10,000 units respectively. If the company had used absorption costing for that period the fixed production overhead absorption rate would have been $8 per unit. The profit using absorption costing would have been A $475,000 B $435,000

C $355,000

D $395,000

(2 marks)

The answer is D

Workings Inventory has reduced by 5,000 units. Absorption costing profit will be lower than marginal costing profit by $8 * 5,000



November 2009 Exam

Question 1.8 Which of the following statements about just-in-time (JIT) are true?

(i) Machines should be grouped by product or component instead of by type of work performed. (ii) JIT is a ‘push’ system. (iii) Employees must be highly proficient at one task to ensure evenness of the production flow. (iv) JIT purchasing should be based on large frequent deliveries against bulk contracts. (v) Preventative maintenance is an important aspect of production.

A (i) and (v)

B (ii), (iii) and (v)

C (i) and (iv)

D (ii), (iii) and (iv) (2 marks)

The answer is A

Question 1.9

The manager of a division is considering a new project. The project is expected to increase the division’s annual net profit by $153,900, but it will cause net current assets to rise by $810,000. The manager’s performance is evaluated against a target Return on Investment. The target is 18%. However the use of Residual Income is being considered. The cost of capital for the division is 16%. Would the manager adopt the project if the performance measure was either (i) Return on Investment (ROI) or (ii) Residual Income (RI)? (i) ROI (ii) RI

A

Yes Yes

B

Yes No

C

No Yes

D

No No

(2 marks)

The answer is A****



November 2009 Exam

Question 1.10

Records from previous periods show the following relationship between machine hours and maintenance costs:

Machine hours Maintenance costs 14,000 $26,800

9,800 $21,760 8,000 $19,600 15,400 $28,480

The estimated maintenance costs for 12,000 machine hours are: A $22,200

B $23,000

C $24,400

D $26,600 (2 marks)

The answer is C

Workings Variable cost per hour = $(28,480 – 19,600)/ (15,400 – 8,000) = $1·20 per hour Fixed cost = $28,480 – (15,400 * 1·20) = $10,000 Maintenance cost for 12,000 hours = $10,000 + (12,000 * 1·20) = $24,400



November 2009 Exam

The following data are given for sub-questions 1.11, 1.12 and 1.13 below A company manufactures a fertiliser by mixing three liquids (X, Y and Z) together. There is an expected loss of 20% of the total liquids input to the process. The budgeted output for April was 1,000 litres of fertiliser. The standard cost card for one litre of fertiliser is shown below:

Standard cost per litre

Liquid Litres Cost per litre £X 0·60 £10 6·00Y 0·40 £8 3.20Z 0·25 £4 1·00 1·25 10·20

The actual output for April was 1,200 litres of fertiliser from 1,400 litres input. Details were:

X: 650 litres at a total cost of £7,000 Y: 470 litres at a total cost of £4,000 Z: 280 litres at a total cost of £1,400

There were no opening or closing inventories of the three liquids or the fertiliser.

Question 1.11 Calculate the total material variance.

(2 marks)

Workings Standard input needed for the actual output = (720 x £10) + (480 x £8) + (300 x £4) = £12,240 Total variance = Standard cost of output – actual cost = £12,240 - £12,400 = £160 adverse

Question 1.12 Calculate the material mix variance.

(3 marks)

Workings Actual quantity input in standard mix = (672 x £10) + (448 x £8) + (280 x £4) = £11,424 Actual quantity input in actual mix = (650 x £10) + (470 x £8) + (280 x £4) = £11,380 Mix variance = £11,424 – £11,380 = £44 favourable



November 2009 Exam

Question 1.13 Calculate the material yield variance.

(3 marks)

Workings Yield variance = £12,240 - £11,424 = £816 favourable

Question 1.14

A company uses activity based costing. Details of the budgeted production overheads for next year for the whole company are given in the table below.

Activity cost Cos t driver drivers is isitions

duction s set ups

pool t Cos Number of cost Inventory acquisition £1,200,000 Purchase requ itions 4,000 requPro £2,500,000 Production run et ups 10,000

The company manufactures many types of product. Information for two of the products, X and Y, is as follows:

X Y Prime cost per unit £5·00 £7·50 Budgeted output 2,400 units 3,000 units Total purchase requisitions 4 requisitions 8 requisitions Units per production run 400 units 1,000 units

Calculate, for X and for Y, the total production cost per unit.

(4 marks)



November 2009 Exam

Workings

Cost driver rate Purchase requisitions: £300 per requisition Production run set ups: £250 per set up

Inventory acquisition overheads Cost per unit for X = 4 * £300/2,400 = £0·50 Cost per unit for Y = 8 * £300/3,000 = £0·80 Production overheads Cost per unit for X = (2,400/400) * £250/2,400 = £0·625 Cost per unit for Y = (3,000/1,000) * £250/3,000 = £0·25 Total production cost per unit

X Y £ £ Prime cost 5·000 7·50Acquisition overheads 0·500 0·80Production overheads 0·625 0·25Total production cost 6·125 8·55



November 2009 Exam

The following data are given for sub-questions 1.15, 1.16 and 1.17 below

Three products (D, E and F) are produced simultaneously in a common process. The joint costs of the common process are $27,000. The products can either be sold at the split off point of the common process or they can be separately processed further and then sold. The further processing costs of each product are fixed and are specific to each of the products.

Selling prices per kg Product Monthly

output Monthly further

processing costs At split off

point After further processing

D 2,000 kg $4,500 $4·25 $7·25 E 3,000 kg $5,000 $3·00 $4·20 F 4,000 kg $8,000 $5·00 $7·50

Question 1.15 Calculate, using the sales value method, the value of the joint costs that would be apportioned to each of the three products.

(2 marks)

Workings The joint costs would be split in the ratio 8,500:9,000:20,000

Product Output At split off Revenue Joint costs D 2,000 kg $4.25 $8,500 $6,120 E 3,000 kg $3.00 $9,000 $6,480 F 4,000 kg $5.00 $20,000 $14,400 $37,500 $27,000

Question 1.16

Explain using appropriate calculations which, if any, of the three products should be processed further.

(3 marks)

Workings Need to compare incremental revenue with incremental cost.

D: 2,000*($7·25 – $4·25) is more than $4,500. Therefore process further. E: 3,000*($4·20 - $3·00) is less than $5,000. Therefore do not process further. F: 4,000*($7·50 - $5·00) is more than $8,000. Therefore process further.



November 2009 Exam

Question 1.17

The method of further processing Product F has now been changed so that the further processing costs for Product F become monthly fixed costs of $6,000 and variable costs of $0·50 per kg. Calculate the monthly breakeven volume of the new process for Product F.

(3 marks)

Workings Break even point = fixed costs/contribution per kg Fixed costs = $6,000 Contribution = increase in selling price – variable processing cost = $(2·50 – 0·50) Break even =$(6,000/2·00) = 3,000 kg



November 2009 Exam Section B – 30 marks ANSWER ALL SIX SUB-QUESTIONS. EACH SUB-QUESTION IS WORTH 5 MARKS

Question 2(a) (a) Discuss three problems that could occur as a result of using Return on Investment to evaluate the

performance of managers.

(5 marks)

Rationale (a) covers learning outcome D(v) Discuss the likely behavioural consequences of the use of

performance metrics in managing cost, profit and investment centres. Suggested Approach Discuss each of three problems that could occur with the use of ROI as a performance measure Marking Guide

Marks

Up to 2 marks for each problem Max 5 Examiner’s Comments It was clear that candidates knew what ROI is but often had difficulty in thinking of the problems of using it as a performance measure. However, many appreciated that it may result in dysfunctional behaviour, for example lack of investment in order to maintain the ratio. Common Errors incorrect focus on the merits of other investment centre financial performance measures incorrect focus on non-financial performance measures repetition of an identified problem



November 2009 Exam

Question 2(b) (b) Explain three reasons why a performance measurement system based solely on financial measures

may not be effective in evaluating the long term performance of companies.

(5 marks)

Rationale (b) covers learning outcome C(xii) Discuss the role of non-financial performance indicators and

compare and contrast traditional approaches to budgeting with recommendations based on the ‘balanced scorecard’.

Suggested Approach Explain each of three reasons why a performance measurement system based solely on financial

measures may be ineffective Marking Guide

Marks

Up to 2 marks for each reason Max 5 Examiner’s Comments Many candidates focused entirely on the merits of non-financial performance measures and/or a balanced scorecard. Common Error failure to consider the limitations of financial measures



November 2009 Exam

Question 2(c) (c) (i) State three requirements that a transfer pricing system should satisfy.

(3 marks)

(ii) Explain how to calculate the minimum and maximum limits within which a transfer price should be set in order to motivate divisional managers.

(2 marks)

(Total for (c) =5 marks)

Rationale (c) covers learning outcome D(vii) Identify the likely consequences of different approaches to transfer

pricing for divisional decision making, divisional and group profitability, the motivation of divisional management and the autonomy of individual divisions

Suggested Approach In (i), state three requirements that a transfer pricing system should satisfy In (ii), explain the basis for establishing the minimum and maximum transfer price limits Marking Guide

Marks

(i) 1 mark for each requirement 3 (ii) 1 mark for each of minimum and maximum 2 Examiner’s Comments Some candidates provided only a simple list of requirements in answer to (i). 'State' requires candidates to 'express fully the details of' as indicated in the definition of verbs set out at the back of the examination paper. Common Errors lack of detail in answer to (i) in (ii), confusion over the minimum and maximum limits or failure to make clear which was minimum

and which was maximum no consideration of opportunity cost



November 2009 Exam

Question 2(d)

(d)

(i) Discuss how the use of a balanced scorecard could have helped to avoid the customer complaint issues.

(3 marks)

(ii) List four performance measures which could be used to monitor customer satisfaction. (2 marks)

(Total for (d) = 5 marks)

Rationale (d) covers learning outcome C(xii) Discuss the role of non-financial performance indicators and

compare and contrast traditional approaches to budgeting with recommendations based on the ‘balanced scorecard’.

Suggested Approach In (i):

- recognise the customer perspective as one of the aspects of the balanced scorecard; - discuss how this should result in a focus on the key success factors relating to customers; - demonstrate appreciation of links with other balanced scorecard perspectives.

In (ii), list four performance measures Marking Guide

Marks

(i) 1 mark each for customer perspective, focus on key success factors and outcome of such focus

3

(ii) ½ mark for each relevant performance measure 2 Examiner’s Comments This part was answered reasonably well with many candidates appreciating the link between the customer perspective and other balanced scorecard perspectives regarding the impact on customer complaints. Common Errors in (i), no development of the customer perspective to identify key success factors and the impact on

organisational processes in (ii), failure to provide measures, with many candidates referring in a very general way to 'customer

surveys'



November 2009 Exam

Question 2(e) (e) A new company, which manufactures only one type of product, had the following budget for its first

year of business:

Production and sales 2,000 units

$ Revenue 100,000Variable production costs 30,000Variable selling and administration costs 6,000Fixed production overheads 40,000Fixed selling and administration costs 10,000Profit 14,000

The actual results for the year showed that 1,800 units were produced but only 1,700 units were sold. These were sold at the budgeted selling price. The fixed production overheads were $39,000. All of the other costs behaved as expected. Calculate:

(i) the under or over absorbed fixed production overheads (ii) the actual profit for the year using absorption costing (iii) the actual profit for the year using marginal costing

(5 marks)

Rationale (e) covers learning outcome A(ii) Apply marginal and absorption costing approaches in job, batch and

process environments. Suggested Approach In (i):

calculate the predetermined production overhead absorption rate; calculate the under absorbed overhead as the difference between the actual overhead expenditure and the overhead absorbed by the actual production.

In (ii), calculate the absorption costing profit In (iii), calculate the marginal costing profit Marking Guide

Marks

(i) 1 mark each for absorption rate and under absorption

2

(ii) absorption costing profit 2 (iii) marginal costing profit 1 Examiner’s Comments This part, especially (ii) and (iii), was not answered well. Many candidates were unable to calculate profit using either absorption costing or marginal costing, although a number understood the link between the two profit figures using the difference in inventory valuation.



November 2009 Exam

Common Errors calculating the overhead absorption rate incorrectly in (i), calculating the over/under absorption as the difference between actual overheads incurred and

budgeted overhead or else the difference between actual overheads incurred and the overheads absorbed by sales units, rather than by production units

in (i), confusion between over absorption and under absorption in (ii), demonstrating confusion regarding the treatment of fixed production overheads and the

over/under absorption calculated in answer to (i) in (ii) and (iii), deducting the cost of goods produced in the period from the sales revenue



November 2009 Exam

Question 2(f) (f) A company manufactures a product by using three sequential processes. The output of Process 1 is

transferred to Process 2. At the start of Process 2 materials are added to the base units. The base units with the added materials are then converted to be finished in Process 3.

Details of Process 2 for the previous period were:

Base units transferred in: 2,000 base units which cost £5·49 each Cost of materials added: £28,500 Conversion costs: £17,376 (all of which are variable)

There was no opening inventory in Process 2 at the start of the period. The closing inventory was 150 base units together with the added materials. The closing inventory was 40% converted, and 1,700 units were transferred to Process 3.

The company expects that 5% of all inputs will result in defective units. Defective units are identified at the end of the process and can be sold for £2·26 each.

Calculate the total value of the 1,700 units transferred to Process 3.

(5 marks)

Rationale (f) covers learning outcome A(iii) Prepare ledger accounts according to context: marginal or absorption

based in job, batch or process environments, including work-in-progress and related accounts such as production overhead control account and abnormal loss account.

Suggested Approach Calculate the normal loss units, abnormal loss units and the income from the normal loss Calculate the equivalent units separately for each of base units, added materials and conversion costs Calculate the cost per equivalent unit for each element Value the output using the total production cost per unit Marking Guide

Marks

1 mark each for abnormal loss units and value of normal loss 2 Equivalent units 1 Cost per unit and valuation 2 Examiner’s Comments This part was answered reasonably well overall, although a number of candidates did not attempt it. Most candidates who did answer this part were able to calculate the abnormal loss and then go on to calculate and apply equivalent units fairly well. Common Errors calculating the same equivalent units for all elements of cost and thus a single cost per unit not valuing the normal loss at saleable value or, having valued it, not adjusting for it in the

calculation of cost per unit failing to consider the cost of the base units



November 2009 Exam

Section C – 30 marks ANSWER ONE OF THE TWO QUESTIONS

Question 3(a) Explain, for each of the three costs in the above table, possible reasons for the cost/volume relationships.

(6 marks)

Rationale (a) covers learning outcome C(iii) Calculate projected revenues and costs based on product/service

volumes, pricing strategies and cost structures Suggested Approach Identify the cost behaviour pattern for each cost type Explain a possible reason for each pattern Marking Guide

Marks

Up to 2 marks for a reason for each cost type 6 Examiner’s Comments Answers to this part were very mixed with many candidates failing to read the question requirements carefully. Common Errors providing general explanations of cost/volume relationships for the three types of cost without any

reference to the specific cost behaviour patterns demonstrated in the table of figures provided explaining the specific cost behaviour pattern in each case but not possible reason(s) for it on variable costs, if candidates explained a possible reason for the initial unit cost reductions they

frequently failed to do so for the subsequent increases on stepped-fixed costs, some of the reasons suggested were implausible for the two equal steps

demonstrated in the table of figures on head office costs, the vast majority of candidates failed to appreciate how, in a multi-product

business, head office costs would be apportioned to individual products on an arbitrary basis



November 2009 Exam

Question 3(b) Produce a statement that reconciles the standard and actual total costs for the previous period’s output and shows the variances in as much detail as possible.

(11 marks)

Rationale (b) covers learning outcome B(iii) Prepare and discuss a report which reconciles budget and actual

profit using absorption and/or marginal costing principles Suggested Approach Calculate the unit standard cost and the total standard production cost of output Calculate each cost variance in turn Produce a statement that uses the cost variances to reconcile the total standard production cost of

output with the total actual production cost incurred Marking Guide

Marks

Standard cost for each element of materials, labour and overheads 3 Total standard production cost of output and total actual production cost (1 mark for each) 2 Cost variances (1 mark for each) 6 Examiner’s Comments This part was generally answered fairly well with candidates able to calculate most of the production cost variances, especially for direct materials and direct labour. Common Errors inability to reconcile the costs because of failure to calculate the flexed budget cost allowance confusion over the calculation and labelling of the fixed production overhead variances in an

absorption costing system calculation of the total material and the total labour variances as the materials price variance and

the labour rate variance respectively poor labelling of variances generally, sometimes making it unclear which variance was being

calculated use of incorrect variance signs (adverse/favourable) for the direction of the variances, especially

with the fixed production overhead variances



November 2009 Exam

Question 3(c)

It has now been realised that the standard price of the direct materials used to manufacture Product Y in the previous period should have been $2·10 per kg.

(i) Calculate the direct materials planning variance.

(ii) Calculate the operational direct materials price and usage variances.

(4 marks)

Rationale (c) covers learning outcome B(iv) Calculate and explain planning and operational variances Suggested Approach Calculate the direct materials planning variance Calculate the direct materials operational price variance Calculate the direct materials operational usage variance Marking Guide

Marks

Direct materials planning variance 2 Direct materials operational price variance 1 Direct materials operational usage variance 1 Examiner’s Comments Many candidates demonstrated familiarity with planning and operational variances. Common Errors using actual or budgeted materials quantities, rather than the standard materials content of the

actual output, in the calculation of the planning variance providing incorrect signs (adverse/favourable) for the direction of the variances not using the revised standard materials price to value the operational variances



November 2009 Exam

Question 3(d)

The company is reviewing how it reports results to its managers. Explain, using examples, the key points that should be considered when reporting responsibility centre results to managers.

(9 marks)

Rationale (d) covers learning outcome D(iii) Prepare revenue and cost information in appropriate formats for profit

and investment centre managers, taking due account of cost variability, attributable costs, controllable costs and identification of appropriate measures of profit centre ‘contribution’.

Suggested Approach

Explain factors to consider in the reporting of responsibility centre results Provide an example of each factor

Marking Guide

Marks

Up to 2 marks for explanation of each factor + 1 mark for each example Max 9 Examiner’s Comments Many candidates demonstrated that they had not read the question requirement carefully. Answers frequently commented on the results rather than discussing the general factors to consider in reporting. Common Errors focusing on the possible reasons for each of the variances discussing the factors influencing whether to investigate the possible causes of the variances providing detailed descriptions of cost, profit and investment centres failing to provide examples to illustrate the key points made



November 2009 Exam

Question 4(a)

Identify the effect and then calculate the result of each of the independent changes on the items shown in the table below. Reproduce the table in your answer book and insert the figures that would appear for the items in the revised draft income statements and draft balance sheets as a result of the independent changes (i), (ii) and (iii).

(i) (ii) (iii)

Operating profit Inventory Receivables Cash Payables

(11 marks)

Rationale (a) covers learning outcome C(iv) Evaluate projected performance by calculating key metrics including

profitability, liquidity and asset turnover ratios Suggested Approach For each of the three independent changes, calculate the effect of the change (if any) on the five

income statement/balance sheet items Calculate each of the income statement/balance sheet items for each independent change Marking Guide

Marks

½ mark for each unchanged figure 4 1 mark for each revised figure 7 Examiner’s Comments Answers to this part were very varied from the relatively few candidates who chose this question. High marks were nevertheless gained by a reasonable proportion of the candidates attempting it. Common Errors stating the effect (+ or -) rather than the result (the revised income statement/balance sheet figure)

and leaving the answer blank where there was no change in (i), failing to recognise that the inventory change would occur on 1 January 2010 and thus would

impact cash, not payables, on the balance sheet at 31 December 2010 in (i), believing that a change in inventory would affect operating profit in (ii), making no attempt to demonstrate the impact of an increase in receivables days in (ii), believing that operating profit would be affected in (iii), believing that a 5% reduction in selling prices would lead to a 5% reduction in profit in (iii), believing that the impact on profit and receivables would be the same absolute figure



November 2009 Exam

Question 4(b)

(i) Calculate the current break even point (in £000). (ii) Calculate the break even point in (£000) if the supplier’s offer is accepted. (iii) Discuss the advantages and disadvantages of this offer to the retail company.

(10 marks)

Rationale (b) covers learning outcome C(vii) Calculate the consequences of “what if” scenarios and evaluate their

impact on master profit and loss account and balance sheet. Suggested Approach In (i), calculate the current contribution, C/S ratio, and break even point In (ii), calculate the revised contribution, C/S ratio and break even point In (iii), discuss both the advantages and the disadvantages of the supplier's offer Marking Guide

Marks

In (i), 1 mark for each of contribution, C/S ratio and break even point 3 In (ii), 1 mark for each of contribution, C/S ratio and break even point 3 In (iii), 1 mark for each advantage/disadvantage Max 4 Examiner’s Comments Answers to both the calculation and the narrative parts were generally poor. Common Errors believing that fixed costs represent the break even point preparing profit statements with no attempt at break even calculations failing to calculate fixed costs and/or the contribution to sales ratio, especially in answer to (ii) making a minimal attempt at discussing the advantages/disadvantages in (iii), or no attempt at all


Paper P1 – Management Accounting – Performance Evaluation Post Exam Guide November 2009 Exam


Question 4(c)

Explain why the Beyond Budgeting model may be more appropriate than traditional budgeting in an organisation that has adopted Total Quality Management.

(9 marks)

Rationale (c) covers learning outcome C(xiv) Evaluate the criticisms of budgeting particularly from the advocates of techniques that are ‘beyond budgeting’ Suggested Approach Explain the concept and process implications of 'beyond budgeting' Contrast beyond budgeting with traditional budgeting Consider the implications for budgeting in a TQM environment Marking Guide

Marks

Up to 2 marks for description of beyond budgeting, description of total quality management and for each comparison/link

Max 9

Examiner’s Comments Candidates demonstrated little knowledge of beyond budgeting and answers to this part were frequently very brief or it was not attempted at all. Common Errors providing discussion that was largely limited to how traditional budgeting works demonstrating poor knowledge of the concept of beyond budgeting or of its characteristics and

implications failing to provide links between beyond budgeting and a TQM environment failing to contrast beyond budgeting with traditional budgeting

Documents

General Comments - CIMA docs/P1Nov09peg.pdfPaper P1 – Management Accounting – Performance Evaluation Post Exam Guide November 2009 Exam General Comments The overall result on this