BPP House 142-144 Uxbridge Road London W12 8AA United Kingdom T 0845 075 1100 (UK) T +44 (0)20 8740 2211 (Overseas) E Learningmedia@bpp.com bpp.com/learningmedia • A user-friendly format for easy navigation • Exam focus points describing what the examining team will want you to • Regular Fast Forward summaries emphasising the key points in each chapter • Questions and quick quizzes to test your understanding • A practice question bank containing exam- standard questions with answers • A full index • All you need in one book For exams up to June 2015 Contact us In addition to ACCA examining team reviewed material you get: Study Text Paper F5 Performance Management This ACCA Study Text for Paper F5 Performance Management has been comprehensively reviewed by the ACCA examining team This review guarantees appropriate depth and breadth of content and comprehensive syllabus coverage Performance Management BPP Learning Media is dedicated to supporting aspiring business professionals with top-quality learning material as they study for demanding professional exams, often whilst working full time BPP Learning Media’s commitment to student success is shown by our record of quality, innovation and market leadership in paper-based and e-learning materials BPP Learning Media’s study materials are written by professionally qualified specialists who know from personal experience the importance of top-quality materials for exam success ACCA F5 ACCA approved content provider ACCA APPROVED CONTENT PROVIDER ACCA Approved Study Text Paper F5 Performance Management Study Text for exams up to June 2015 Free access to our Exam Success site Look inside June 2014 £32.00 ACF5ST14 (HO).indd 1-3 27/05/2014 17:41 S T U D Y PAPER F5 PERFORMANCE MANAGEMENT BPP Learning Media is an ACCA Approved Learning Partner – content This means we work closely with ACCA to ensure this Study Text contains the information you need to pass your exam In this Study Text which has been reviewed by the ACCA examination team we:  Highlight the most important elements in the syllabus and the key skills you will need  Signpost how each chapter links to the syllabus and the study guide  Provide lots of exam focus points demonstrating what is expected of you in the exam  Emphasise key points in regular fast forward summaries  Test your knowledge in quick quizzes  Examine your understanding in our practice question bank  Reference all the important topics in our full index BPP's Practice & Revision Kit and i-Pass products also support this paper FOR EXAMS IN DECEMBER 2014 AND JUNE 2015 T E X T First edition 2007 Seventh edition June 2014 ISBN 9781 4727 1080 (Previous ISBN 9781 4453 9647 7) e-ISBN 9781 4453 6734 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library 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 BPP Learning Media Ltd We are grateful to the Association of Chartered Certified Accountants for permission to reproduce past examination questions The suggested solutions in the practice answer bank have been prepared by BPP Learning Media Ltd, unless otherwise stated Published by BPP Learning Media Ltd BPP House, Aldine Place London W12 8AA www.bpp.com/learningmedia Printed in the United Kingdom by Polestar Wheatons Hennock Road Marsh Barton Exeter EX2 8RP Your learning materials, published by BPP Learning Media Ltd, are printed on paper obtained from traceable sustainable sources © BPP Learning Media Ltd 2014 ii Contents Page Introduction Helping you to pass Studying F5 The exam paper Syllabus and Study Guide v vii viii ix Part A Specialist cost and management accounting techniques 2a 2b 2c 2d 2e Costing Activity based costing Target costing Life cycle costing Throughput accounting Environmental accounting 21 33 41 51 67 Part B Decision-making techniques Cost volume profit (CVP) analysis Limiting factor analysis Pricing decisions Short-term decisions Risk and uncertainty 79 101 125 161 181 Part C Budgeting and control 10 11 12 13 Budgetary systems Quantitative analysis in budgeting Budgeting and standard costing Variance analysis Planning and operational variances Performance analysis and behavioural aspects 215 243 263 283 307 323 Part D Performance measurement and control 14 15 16 17 18 Performance management information systems Sources of management information and management reports Performance measurement in private sector organisations Divisional performance and transfer pricing Further aspects of performance management Practice question bank Practice answer bank Index 341 359 377 407 429 445 467 509 Review form Contents iii A note about copyright Dear Customer What does the little © mean and why does it matter? 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Please note the e-products are sold on a single user licence basis: we not supply ‘unlock’ codes to people who have bought them second-hand And what about outside the UK? BPP Learning Media strives to make our materials available at prices students can afford by local printing arrangements, pricing policies and partnerships which are clearly listed on our website A tiny minority ignore this and indulge in criminal activity by illegally photocopying our material or supporting organisations that If they act illegally and unethically in one area, can you really trust them? iv Helping you to pass BPP Learning Media – Approved Learning Partner - content As ACCA’s Approved Learning Partner – content, BPP Learning Media gives you the opportunity to use study materials reviewed by the ACCA examination team By incorporating the examination team’s comments and suggestions regarding the depth and breadth of syllabus coverage, the BPP Learning Media Study Text provides excellent, ACCA-approved support for your studies The PER alert Before you can qualify as an ACCA member, you not only have to pass all your exams but also fulfil a three year practical experience requirement (PER) To help you to recognise areas of the syllabus that you might be able to apply in the workplace to achieve different performance objectives, we have introduced the ‘PER alert’ feature You will find this feature throughout the Study Text to remind you that what you are learning to pass your ACCA exams is equally useful to the fulfilment of the PER requirement Your achievement of the PER should now be recorded in your on-line My Experience record Tackling studying Studying can be a daunting prospect, particularly when you have lots of other commitments The different features of the text, the purposes of which are explained fully on the Chapter features page, will help you whilst studying and improve your chances of exam success Developing exam awareness Our Texts are completely focused on helping you pass your exam Our advice on Studying F5 outlines the content of the paper, the necessary skills you are expected to be able to demonstrate and any brought forward knowledge you are expected to have Exam focus points are included within the chapters to highlight when and how specific topics were examined, or how they might be examined in the future Using the Syllabus and Study Guide You can find the syllabus and Study Guide on pages x – xviii of this Study Text Testing what you can Testing yourself helps you develop the skills you need to pass the exam and also confirms that you can recall what you have learnt We include Questions – lots of them – both within chapters and in the Practice Question Bank, as well as Quick Quizzes at the end of each chapter to test your knowledge of the chapter content Introduction v Chapter features Each chapter contains a number of helpful features to guide you through each topic Topic list Topic list Syllabus reference What you will be studying in this chapter and the relevant section numbers, together with ACCA syllabus references Introduction Puts the chapter content in the context of the syllabus as a whole Study Guide Links the chapter content with ACCA guidance Exam Guide Highlights how examinable the chapter content is likely to be and the ways in which it could be examined Knowledge brought forward from earlier studies What you are assumed to know from previous studies/exams FAST FORWARD Summarises the content of main chapter headings, allowing you to preview and review each section easily Examples Demonstrate how to apply key knowledge and techniques Key terms Definitions of important concepts that can often earn you easy marks in exams Exam focus points When and how specific topics were examined, or how they may be examined in the future Formula to learn Formulae that are not given in the exam but which have to be learnt Gives you a useful indication of syllabus areas that closely relate to performance objectives in your Practical Experience Requirement (PER) vi Introduction Question Gives you essential practice of techniques covered in the chapter Case Study Real world examples of theories and techniques Chapter Roundup A full list of the Fast Forwards included in the chapter, providing an easy source of review Quick Quiz A quick test of your knowledge of the main topics in the chapter Practice Question Bank Found at the back of the Study Text with more comprehensive chapter questions Cross referenced for easy navigation Studying F5 The F5 exam requires candidates to be able to apply management accounting techniques in business environments The key question you need to be able to answer is 'what does it all actually mean?' Modern technology is capable of producing vast amounts of management accounting information but it has to be used to help managers to make good decisions and manage effectively The emphasis in this paper is therefore on practical elements and application to the real world The exam does not set out to trick you: the paper will be fair What F5 is about The aim of this syllabus is to develop knowledge and skills in the application of management accounting techniques It covers a number of specialist techniques, decision making, budgeting and standard costing, concluding with how business performance should be managed and controlled F5 is the middle paper in the management accounting section of the qualification structure F2 concerns just techniques and P5 thinks strategically and considers environmental factors F5 requires you to be able to apply techniques and think about their impact on the organisation What skills are required?  You are expected to have a core of management accounting knowledge from Paper F2  To deal with the multiple choice questions, you will need to demonstrate understanding of the subject across the entire syllabus  For the longer questions, you will be required to carry out calculations, with clear workings and a logical structure  You will be required to interpret data  You will be required to explain management accounting techniques and discuss whether they are appropriate for a particular organisation  You must be able to apply your skills in a practical context How to improve your chances of passing  There is no choice in this paper, all questions have to be answered You must therefore study the entire syllabus, there are no short-cuts  You should then practise extensively on examination-style questions Practice will improve your ability to answer questions well, and should enable you to answer them more quickly BPP's Practice and Revision Kit contains questions on all areas of the syllabus  Keep an eye out for articles as the examination team will use Student Accountant to communicate with students  Read journals etc to pick up on ways in which real organisations apply management accounting and think about your own organisation if that is relevant Brought forward knowledge You will need a good working knowledge of basic management accounting from Paper F2 Chapter of this Study Text revises elements of costing, and further revision material is provided in other chapters, such as those on CVP analysis and variance analysis If you struggle with the examples and questions used to revise this knowledge, you should go back and revisit your previous work The examination team will assume you know this material and it may form part of an exam question Introduction vii The exam paper and exam formulae Format of the paper From December 2014, the exam is a three-hour paper divided into two sections Section A consists of 20 multiple choice questions of two marks each Section B consists of three questions of 10 marks each and two questions of 15 marks each All questions are compulsory In Section B, answers to the questions will require a mixture of calculations and discussion You also have 15 minutes for reading and planning The exam will cover as much of the syllabus as possible Exam formulae Set out below are the formulae you will be given in the exam If you are not sure what the symbols mean, or how the formulae are used, you should refer to the appropriate chapter in this Study Text Chapter in Study Text Demand curve P = a – bQ b = a = price when Q = change in price change in quantity MR = a – 2bQ Learning curve Y = axb Where viii Introduction Y a x b LR = cumulative average time per unit to produce x units = the time taken for the first unit of output = the cumulative number of units = the index of learning (log LR/log 2) = the learning rate as a decimal Syllabus and Study Guide The F5 syllabus and study guide can be found below Introduction ix Notes Notes Notes Notes Notes Notes Notes Notes Notes Notes Notes Notes Notes Review Form – Paper F5 Performance Management (6/14) Please help us to ensure that the ACCA learning materials we produce remain as accurate and user-friendly as possible We cannot promise to answer every submission we receive, but we promise that it will be read and taken into account when we update this Study Text Name: Address: How have you used this Text? 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[...]... this Study Text looks at specialist cost and management accounting techniques This chapter serves as a revision of concepts you should have covered in your previous studies In the following chapter we will be looking at more complex techniques, so it is important that you are familiar with the key concepts and terminology in this chapter 3 Exam guide This chapter serves as an introduction to your study ...S T U D Y PAPER F5 PERFORMANCE MANAGEMENT BPP Learning Media is an ACCA Approved Learning Partner – content This means we work closely with ACCA to ensure this Study Text contains the information... pass BPP Learning Media – Approved Learning Partner - content As ACCA s Approved Learning Partner – content, BPP Learning Media gives you the opportunity to use study materials reviewed by the ACCA. .. breadth of syllabus coverage, the BPP Learning Media Study Text provides excellent, ACCA- approved support for your studies The PER alert Before you can qualify as an ACCA member, you not only have