ACCA APPROVED CONTENT PROVIDER ACCA Passcards Paper F5 Performance Management Passcards for exams up to June 2015 ACF5PC14.indd 1 30/05/2014 10:46 (000)ACF5PC_FP_RICOH_UK.qxp 5/28/2014 11:09 PM Page i Fundamentals Paper F5 Performance Management (000)ACF5PC_FP_RICOH_UK.qxp 5/28/2014 11:09 PM Page ii First edition 2007, Eighth edition June 2014 All rights reserved.No part of this publication may be reproduced, stored in a retrieval system or transmitted, in ISBN 9781 4727 1124 3 any form or by any means, electronic, mechanical, e ISBN 9781 4727 1180 9 photocopying, recording or otherwise, without the prior British Library Cataloguing-in-Publication Data written permission of BPP Learning Media. A catalogue record for this book is available from the © British Library BPPLearning Media Ltd Published by Printed in the UK by Ricoh 2014 BPPLearning Media Ltd, UK Limited BPP House, Aldine Place, Unit 2 142-144 Uxbridge Road, Wells Place London W12 8AA Merstham RH1 3LG www.bpp.com/learningmedia Your learning materials, published by BPPLearning Media Ltd, are printed on paper obtained from traceable sustainable sources. (000)ACF5PC_FP_RICOH_UK.qxp 5/28/2014 11:09 PM Page iii Preface Contents Welcome to BPP Learning Media’s ACCA Passcards for Paper F5 Performance Management. (cid:2) They focus on your examand save you time. (cid:2) They incorporate diagramsto kick start your memory. (cid:2) They follow the overall structure of the BPPStudy Texts, but BPP’s ACCA Passcards are not just a condensed book.Each card has been separately designed for clear presentation.Topics are self contained and can be grasped visually. (cid:2) ACCAPasscards are still just the right size for pockets, briefcases and bags. Run through the Passcardsas often as you can during your final revision period.The day before the exam, try to go through the Passcards again! You will then be well on your way to passing your exams. Good luck! Page iii (000)ACF5PC_FP_RICOH_UK.qxp 5/28/2014 11:09 PM Page iv Preface Contents Page Page 1 Costing 1 12 Planning and operational variances 99 2 Modern management accounting 13 Performance analysis and behavioural techniques 5 aspects 109 3 Cost volume profit (CVP) analysis 15 14 Performance management information systems 117 4 Limiting factor analysis 27 15 Sources of management information and 5 Pricing decisions 33 management reports 127 6 Short-term decisions 45 16 Performance measurement in private 7 Risk and uncertainty 51 sector organisations 133 8 Budgetary systems 63 17 Divisional performance and transfer 9 Quantitative analysis in budgeting 71 pricing 139 10 Budgeting and standard costing 79 18 Further aspects of performance management 145 11 Variance analysis 83 (001)ACF5PC_CH01.qxp 5/28/2014 11:28 PM Page 1 1: Costing Topic List You will have covered the basics of these costing methods in your earlier studies but you need to make sure you are familiar with the concepts and techniques so you can answer interpretation questions. Costing Absorption costing Absorption costing vs marginal costing (001)ACF5PC_CH01.qxp 5/28/2014 11:28 PM Page 2 Costing Absorption Absorption costing costing vs marginal costing Cost accounting A management information system which analyses past, present and future data to provide a bank of data for the management accountant to use. Costing The process of determining the cost of products, services or activities.Methods include absorption costing and process costing. (001)ACF5PC_CH01.qxp 5/28/2014 11:28 PM Page 3 Costing Absorption Absorption costing costing vs marginal costing What is absorption costing? Absorption costing is a method of sharing out overheads incurred amongst units produced. 1 Allocation 2 Apportionment 3 Absorption under/over-absorbed overhead Practical reasons for using absorption costing (cid:2) Inventory valuations (cid:2) Pricing decisions (cid:2) Establishing profitability of products Page 3 1: Costing (001)ACF5PC_CH01.qxp 5/28/2014 11:28 PM Page 4 Costing Absorption Absorption costing costing vs marginal costing Arguments in favour of absorption Arguments in favour of marginal costing costing (cid:2) It shows how an organisation’s cash flows and (cid:2) When sales fluctuate because of seasonality in profits are affected by changes in sales volumes sales demand but production is held constant, since contribution varies in direct proportion to absorption costing avoids large fluctations in profit. units sold. (cid:2) Marginal costing fails to recognise the importance (cid:2) By using absorption costing and setting a of working to full capacity and its effects on pricing production level greater than sales demand, profits decisions if cost plus method of pricing is used. can be manipulated. (cid:2) Prices based on marginal cost (minimum prices) (cid:2) Separating fixed and variable costs is vital for do not guarantee that contribution will cover fixed decision-making. costs. (cid:2) For short-run decisions in which fixed costs do not (cid:2) In the long run all costs are variable, and change (such as short-run tactical decisions absorption costing recognises these long-run seeking to make the best use of existing variable costs. resources), the decision rule is to choose the (cid:2) It is consistent with the requirements of accounting alternative which maximises contribution, fixed standards. costs being irrelevant. (002)ACF5PC_CH02.qxp 5/28/2014 11:28 PM Page 5 2: Modern management accounting techniques Topic List All five techniques covered are equally important and equally examinable.You need to develop a broad background in management accounting techniques. Activity based costing (ABC) In Section B in the exam, these topics may be the subject of a 10-mark question but not a 15-mark Target costing question.You should also expect them to feature in Life cycle costing Section A MCQs. Throughput accounting Environmental accounting