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Performance Management exam technique - decision making techniques - YouTube
Channel: unknown
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Hello my name's Jo and I'm a subject specialist from BPP
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I'm here today to talk to you about
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Performance Management for ACCA F5.
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We're going to be looking at how
the syllabus area section B could be
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examined, decision making techniques
specifically looking at part one
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of relevant costing.
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In the session then we'll be looking at
the knowledge that you require to
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attempt this section of the
examination,
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we shall also be having a look at the
best approach to take to these type of
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questions
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and then we're going to have a look at
how this would have worked
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in the December 2011
exam
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looking at question one
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and pulling out some of the points
from the examiner's report which could
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help you to achieve a better score
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if this topic were to be examined.
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So what kind of knowledge then and
how could this be tested?
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Relevant cost analysis then has split
into three areas
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so we could be asked to have a look at the
concept of relevant costing
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this is where the knowledge comes into
play and what relevant costing is
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actually all about,
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you could also be asked to identify and
calculate a relevant cost for a specific
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situation so
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this is very much application and taking
the information that is being provided in the
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scenario
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and making sure that you can sift through
it
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using that knowledge about what a relevant
cost actually is
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and you might also have to explain the
concepts of opportunity costs.
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It could link in then with the other
parts of the syllabus here
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and there could actually be some
application
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through some kind of make or buy,
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through outsourcing, through further
processing of joint costs or it could be
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linked into transfer pricing
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or as it was for December 2011
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looking at a one off contract
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and how much should be charged for this.
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So what is a relevant cost then?
It is essential that we understand the
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knowledge behind the concept
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before we actually start
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and what we need to be looking at then
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is making sure that we've got the
knowledge that we can apply to those
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situations and the scenario
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given to us in the exam.
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The examiner then commented in the 2011 December report
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that many students failed to
understand what relevant costing
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actually is all about
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so relevant costing then is a future
incremental cash flow
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so we're looking then at an amount of
expenditure which is going to actually
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occur
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in the future as opposed to a cost that
is historical, sunk, or something that
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we've already committed to
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and agreed to,
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it should be incremental, so it should go
up as a result of the decision
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to undertake the work,
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it might be that we have to pay overtime
to our staff above and beyond their
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additional wages
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or it might be that we have to recruit an additional person
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or buy some additional materials but
whatever it is it should be money that
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we weren't already planning to spend.
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It also needs to be a cash flow, so although as accountants we often used
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to be thinking about
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accounting estimates like depreciation
and profit
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these are not cash outflows
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what we're looking at then is whether or
not this would result
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in basically extra money being paid
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out of the bank account
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so would it show on the bank statement?
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That's what's going to make it a cash flow.
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How do we approach the questions then?
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Well we need to make sure then
that we work out the amount of time that
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we've got
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we're looking at 1.8 minutes per mark
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and you should break that down into the sub
requirements as well, so part A and part B
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as well.
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When we're looking at exam questions then we want to read the introduction only, get a
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feel for what the company is
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get yourself into the mindset of the scenario that you're looking at
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but don't read all of the detail
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because there's no point at the moment, it
doesn't matter what this company is up
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to in detail because you don't know what
you're going to be asked to do with that
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information, so once you've read the
introduction, read the requirement carefully
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highlight out any key words
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and make sure you pull out
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all of the requirements, so if you're asked for a
conclusion
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make sure you highlight that out as
well
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so that you don't forget to
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give that conclusion at the and of
your answer.
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Also
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once we know what we've got to do, we can
now go back to this scenario so we can
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go through this scenario in detail
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reading the information carefully
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and making notes.
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This is something that you could do during the reading time
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on a question like this, and we'll have a look at the detail on December 2011's
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questions shortly.
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Once you have realised then if you
need to do some kind of cost statement
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you need to set up a pro forma so you can slot the easy numbers in first
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and make sure at the end that you state
the minimum cost
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or give the conclusion
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to round off your answer
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following the detail and any workings
afterwards
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making sure that your answer is
professionally presented and easy
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for the marker to follow.
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So lets have a look then at question one
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from the December 2011 paper
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the telephone company,
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here you can see then that we've got the
requirement
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for part A
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and you would have had almost twenty five
minutes to do this
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it wouldn't have been a particularly
time pressured question
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as this topic doesn't tend to be time pressured
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so it might be that you would have been able to
save yourself some time to use on
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trickier aspects
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or more time-consuming aspects of your
paper,
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this question in my mind is an excellent
one for approaching during the reading
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time because you can have an answer drafted
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before the examination starts
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ready to write it up
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and then give you more time to work on the
other areas of the paper.
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So we had to prepare a cost statement, the
requirement was very clear that that's
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what we needed to do
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so it wouldn't have been sufficient
to just give an amount
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and we were told to use relevant costing principles, there was a big hint as to
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the area of the syllabus needed
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and we had to show the minimum cost
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so we've got two things to do so far:
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prepare the statement
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and produce the minimum cost,
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then we're asked to make detailed notes
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showing how each cost has been arrived
at
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and explaining why they've been included
or excluded.
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The examiner here is being very very
generous in the wording of the question
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the words 'detailed' and 'explaining' are in
capital letters so drawing out their
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importance to you, hopefully you'll have appreciated then
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that its going to be insufficient to just say
relevant or not relevant
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in the notes, because we're asked for detailed
explanations very very clearly.
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It would have been insufficient
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to just do the numbers here, if you'd excluded the discussion
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that would have been at the detriment of your answer
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because eight out of the fourteen marks going
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were for discussion
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were for the explanation and the why you've done
something.
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So you know why you're doing it otherwise
you wouldn't be doing it in the first place
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all you've got to do here is communicate
to the marker that you know why and it
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wasn't just a lucky guess to leave something
out
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or you didn't leave it out because you didn't have a clue what to do with it
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and it was very clear that you should also
provide the explanation
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for things that you excluded, so as I've said a very generous requirement in
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the way that it was worded
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and unfortunately in the examiners
report
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it didn't seem to be that students had accepted this gift very generously.
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The explanation then must say
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more than that it's relevant or not
relevant
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so remember to say why something is
relevant
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so lets have a look then at the requirement and the scenario that we were given for
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telephone company
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and see then how we could have actually
annotated this during the reading time
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to give us those points ready to write
up once the examination actually started
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and make good progress during those
first few minutes of the exam.
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So we're told then that we're hopeful of
future business
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that's more relevant for part B, so we'll come back to that one in a minute
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but we're told then in part one
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that something has already happened, so the salesmen have already been to visit
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as soon as something is in the past
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it's a sunk cost, we're not going to recover that money
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if this doesn't go ahead
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so we need to make it clear in our
explanation then
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that we've excluded this because it's
something
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which has happened in the past and won't be recovered even if we're unable
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to win the work.
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The next requirement then, the next
note then was quite detailed
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and it was here then
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that many students I think probably
thought 'oh I know a little bit about
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loss contribution
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and I need to make sure I include that'
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you needed to read all the way through though
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to actually appreciate
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that it wasn't that this work
was not going to go ahead it's just that
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it was going to be delayed
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so we're looking here then at
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the penalty for delay
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rather than loss contribution.
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It's very important here that you
read the information detailed
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and make sure that you think about it
in the context of this particular
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question
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rather then trying to learn
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what happens every time.
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The technical adviser then is at full
capacity
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and so is going to have to work overtime, so we'll need to do a calculation
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for that overtime
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and explain that it's because we're going to
have to pay them over and above
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their additional wages.
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Note 4 then when we're looking at
the independent contractor
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again in the examiners report it was
highlighted here that it was more to do
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with students ability to read and think calmly in the exam
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rather than
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to do with technical knowledge.
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It says very clearly then
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that the contractor is not employed by
the telephone company
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and will be paid directly by push
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this then means that we don't need to
include it
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but we do remember need to include
the explanation as to why we have
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excluded it.
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We're told then that the trainer is
going to go to the company and deliver
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this training
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they'd guaranteed this salary then of fifteen
hundred pounds
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which is a committed cost
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so we're not going to try and apportion
part of that salary
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because we're going to be paying our trainer
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whether he's sat
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in the office doing nothing
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or whether he's out doing this training,
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the increment comes then
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from the fact that we are paying him
some commission
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the days that he spends at client sites
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and it's that amount that we need to
make sure we include but we need to give
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the justification for not including
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any of the the fifteen hundred.
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The handsets then
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we're given information about the current cost of these
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and also
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the historical cost
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it was a great disappointment that lots
of students actually
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chose to use the historical cost here
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we're not told and it's never
very likely
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that you can ring someone up and ask for a
refund
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because you've decided not to use it so
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what you've paid for it is completely irrelevant
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it's what you're going to have to pay to replace
it
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for something which is in continual use.
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The computerised system then, the 'Swipe 2'
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also caused some problems
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with things like this then you need to
consider what your options are and then
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think about the cost of those
different options
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so undoubtedly we had the option to go out
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and buy a brand new 'Swipe 2' for
ten thousand eight hundred dollars
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but also then
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we had this option of modifying the one
that we've already got,
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the cost then of the one that we've got is
irrelevant
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it's the fact
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that we would be unable to sell it for three
thousand dollars if we decide to use it
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so we're forgoing those scrap proceeds,
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they would have come into our business
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but if we decide to use it we're forgoing that so therefore it is a cash flow,
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it is irrelevant.
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So it's the three thousand plus the
modification costs and you can see that
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that actually comes in lower
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and you'd need to explain how you considered the different options
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and why you'd chosen
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the three thousand rather than their
current market price.
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Finally then we need to think about the
meters of cable
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that are needed for the system
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and we're told that it's used frequently, this is a very typical
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requirement for any type of relevant
costing
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it's frequently used
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so therefore it's the replacement cost
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and when you see words like 'frequently used' it's replacement cost words
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that should be triggering
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and then you just need to read the
detail to make sure that there aren't any added
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complications
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or
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interesting points in the scenario that you needed to actually consider.
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Then finally we're given some
information
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which I think is there to try and get
you to try and apportion those costs but
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it may have been needed
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in part nine.
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So as I'm going through then
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I've made those notes, what I'm doing then is setting up a proforma
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which will look something like this
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where you've got all the different
items listed down
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it makes good sense to write them in the same order as which they appear in the
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question paper,
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you probably want to leave a space
between each line
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so that if you've missed something out you
can easily slot it in on one of the
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vacant lines
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and add it in rather than having to try
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and slot it into a very small
gap,
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remember this will help with the presentation of your exam
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and then you can reference it to the
detailed notes afterwards.
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So in here then
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note one would be about the
demonstration and the lunch
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and I would be able to write underneath
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that this was a sunk cost because the
expenditure had already occurred and it
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wouldn't be reclaimed if the work were not to be won, if the contract was not
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to be won.
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Then you can total it all up
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and give the value of
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the cost and then you can explain
that this is the minimum price of the job,
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hopefully then when your script comes to be marked
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somebody would be able to glance down when marking it
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see that you've got the total right
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and award you the marks for the calculation
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and then read through your notes
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and give you the marks for the explanation, scoring you hopefully
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fourteen,
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or nearly close to that
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marks available.
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What you want to make sure then is that it's well referenced so that if you have made
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an error on one of the items
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that it's easy for someone to
understand
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and you lose the minimum number of marks
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possible.
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In part B then, this is also going to be
discussion, there are no more
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calculations to undertake here
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reinforcing then that this exam is
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about discussion
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as much as it is about numbers,
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explain the relevant costing principles
then that you've used
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and also what the implications are
of using these,
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so the implications of the minimum price.
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Explaining the relevant
costing principles then, was all
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about taking that knowledge from one of the earlier slides about a future
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incremental cash flow
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and explaining what that is all about.
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The implications then
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are much more applications skills
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where you're thinking about what it means
here,
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well we've got an amount then which is
a minimum cost
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but it doesn't include any mark up, it isn't
going to see T company
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making any profits
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so we might need to add in an element for
that.
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There are also fixed costs which are
not incremental which have not been
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considered
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and you can also talk about some of the
commercial aspects of this, so thinking
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about the fact then that you may be setting a
precedent for a lower price in the
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future.
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You wouldn't have needed to include all
of these points in order to score
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the six marks, you just need to make sure
that you use the marking guide as an
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indication
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of how much to write
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so we'll be looking at six marks
then so we need to make six well
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explained points.
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When you're making a point remember to
make the point, to explain it and then apply
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it back to the scenario
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so for example in this question our point
was then that it might be that it leads to
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an expectation of lower prices in the
future, or low prices in the future
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then we need to explain that this might
be difficult when their
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tendering for future work and the need
to cover their costs, and all of their costs and to
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make a profit and then application, we are told here that they're hopeful in the scenario of
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winning future contracts, so therefore it's very relevant here because we want to
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make sure then that the price that we quote will give us access to
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this company, but also sustainable in terms of getting future work from them.
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If you'd like more practice then on this area you can have a look at
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December 2009,
question 5, Stay Clean and June
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2009, Bits and Pieces
question.
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These then are similar types of questions
so in Bits and Pieces then you're looking
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at the incremental costs versus the
incremental benefit of Sunday trading
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and in Stay Clean the decision is
whether or not to cease
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production now or in twelve months time
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so the scenarios then are always going to be
different
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but the skills then
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and the knowledge are going to be very
very similar.
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These questions then and the examiner's reports can be downloaded from the
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ACCA website, good luck with your
exam and remember to practice lots
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of questions before the exam so that you
get into the mindset of the examiner from
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the past papers and are prepared for what could come your way in the exam.
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