Advanced Performance Management - ACCA Global

1 The Association of Chartered Certified AccountantsProfessional Level Options ModuleAdvanced Performance ManagementSeptember/December 2017 Sample QuestionsTime allowed: 3 hours 15 minutesThis question paper is divided into two sections:Section A This ONE question is compulsory and MUST be attemptedSection B TWO questions ONLY to be attemptedPresent Value and Annuity Tables are on pages 12 and NOT open this question paper until instructed by the question paper must not be removed from the examination P52 This is a blank question paper begins on page [ A This ONE question is compulsory and MUST be attempted1 Thyme Engine Products (Thyme) manufactures jet aircraft engines for the commercial aircraft market. This is a worldwide business although Thyme s production and development are all based in the country of Beeland.]

2 Thyme is a listed company and its stated overall objective is to be a world-class jet engine manufacturer trusted by our customers to deliver excellent products . Its promise to its shareholders is that it will maximise their returns. The strategy to achieve this is to use world-class engineering to design engines and high quality production and customer service in order to drive profitable growth. Thyme s share price has recently suffered as a result of the failure of a new engine design which led to large cash losses and a difficulty in obtaining new financing. There has also been a bribery scandal involving a senior manager and one of its key customers. As a result, a new chief executive officer (CEO) has been employed and she has begun a major review of systems at Thyme.

3 The first area which the CEO wants to examine is the information given to the board for strategic decision-making in both the planning and controlling of the business. The government of Beeland has been encouraging information sharing between businesses and has recently sponsored awards for Management accounting. The winner of the engineering sector has produced a sample dashboard template (with dummy figures) for an annual review and this is given in Appendix 1. The CEO realised that the winner had a very similar overall objective and strategies to Thyme and wants to know what it is about this dashboard that helped it win the award. She does not want a new dashboard for Thyme at this stage but there may be some useful, specific comments to make about the contents of the dashboard given Thyme s recent problems.

4 The CEO has also recently been reading about integrated reporting and in the light of this review of the dashboard, the CEO has also asked for your views on how integrated reporting might impact on the type of information prepared by the company s Management accountants. As high quality engineering products lie at the heart of Thyme s competitive advantage, there has been a total quality Management (TQM) approach to the Management of all resources and relationships throughout the business. Thyme currently has a project under consideration to develop a new simple jet engine which would compete in the crowded market for small corporate jets. In order to compete in this market, it is believed that a target costing approach to this new engine would be beneficial.

5 The CEO wants you to calculate the target cost gap for the new engine using the data in Appendix 2. Next, she wants to know how the use of target costing would fit within the existing TQM approach for this new engine. The new engine project has further raised the profile of quality as a broad issue at Thyme and the CEO wants your advice on the costs associated with quality. She needs to know the cost of each of the four categories of quality costs. She has gathered data in Appendix 3 for this exercise. She is happy that she has identified that prevention costs are complete but is worried that some of the possible costs for the other three categories are missing and needs suggestions of cost areas to be examined to identify these missing items. Finally, she needs advice on the relative importance to Thyme of each of the four categories.

6 Required: Write a report to the CEO of Thyme to: (i) Evaluate why the dashboard in Appendix 1 was award winning, as requested by the CEO. (15 marks) (ii) Explain broadly the role of the Management accountant in providing information for integrated reporting. (6 marks) (iii) Calculate the target cost gap for the new engine (using the data in Appendix 2) and assess how the use of this target cost will fit within the TQM approach. (12 marks) (iv) Categorise and calculate the costs of quality at Thyme (given in Appendix 3). Suggest cost areas to be examined as required by the CEO, and evaluate the relative importance of each category to Thyme. (13 marks) Professional marks will be awarded for the format, style and structure of the discussion of your answer.

7 (4 marks) (50 marks)4 Appendix 1 Award winning Performance dashboard Report for the year to June 2017 Budget variance Growth Budget 2015 2016 2017 2017 2016 to 2017 2018 Financial Revenue ($m) 10,652 11,213 11,500 234F 2 6% 11,776 Operating profit margin 16 2% 16 8% 17 2% 0 2 percentage 0 4 percentage 17 2% points F points EVA 746 774 815 48F 5 3% 803 Total shareholder return 6 5% 6 8% 11 1% 4 5 percentage 4 3 percentage 7 5%

8 Points F points Design Class leading products in: fuel efficiency 3 3 3 0 3 noise levels 2 2 3 1F 3 chemical emissions 1 2 3 1F

9 3 Manufacturing Percentage of orders right first time 92 0% 92 4% 93 7% 0 7 percentage 93 0% points F Delivery Deliveries on time 88 0% 89 9% 88 2% 0 2 percentage 88 0% points F Market share (as percentage of market leader) 33 0% 35 2% 38 1% 1 1 percentage 39 0% points F Commentary: The revenue growth of the business remains strong above the average growth for the sector of 1 5%.

10 EVA is positive and growing indicating increased shareholder wealth. Healthy and continuing growth in market share reflects an increased number of class-leading products and improvements in right on time service to customers. There have been no major new business risks arising during the period while market volume growth continues as [ Appendix 2 New jet engine $ 000/engine Competitor price 2,500 Raw materials 200 Subcomponents bought in 600 Skilled labour 625 General labour 125 Production overheads 275 Planned profit margin 15% Notes: 1. Design and development has cost $120m and the engine is expected to sell approximately 1,200 units over its lifetime. 2. Sales and marketing costs are expected to be approximately 20% of the selling price. 3.]