*** ACCA P5 June 2018 Exam was.. Instant Poll and comments ***

Also btw I dont think that RI is applicable to Blue division, because it is a profit centre so that it should not have an appropriate Capital Employed to calculate for RI… I’m not sure if the Capital Employed figure that the question provided for Blue division included capital assets inside or not because if yes, then that figure is not appropriate to use…

@aleksandrasavcenko said:
In Q3 did somebody take in to account the fact that blue was closed for 3 months due to flood when calculating ROI?

I think for that one, it will be fairer to adjust capital employed for the 3 months that the factory was closed due to uncontrollable factor. I only argued that if the CE was to be adjusted, the Blue manager may have met the target ROI…

Q1 stumped me and i wasted alot of time trying to get my head around what measures would be good for the company, using the info given. Very poor time management on my part but was hard to answer part ii unless you had a good grasp on part i. Which i had practiced quite a few similar questions so not sure why i couldnt get my head around it.

Q2. Quite a few easy marks, but again felt i repeated myself on the use of RI/ROI. Mentioned that if RI was used the Green division would have accepted the investment dicision as the RI for the project was postive so good for division and good for Group.

Q3. Hadnt revised this subject so a definate no go for me.

Q4. Again a few easy marks to gain here if you knew about budgets. Also said incremental was good due to stable market however should be looking at cutting costs to maintain market share and improve profit margins, which isnt happening using the current budget system. Unfortunately due to my disaster of Q1 i didnt have time to do part b at all.

Definately a resit for me 🙁

So true

Edit: Double post, sorry! See below.

Q1

i) Evaluate the presentation of the report and the measures in use.

Or words to that effect.

I had a lot more to say about the presentation than the measures. It was a good report – informative but still concise, easy to read, well laid out etc.

I thought it was interesting that the measures went some way beyond measurement of performance against the mission. It was like a balanced scorecard report without the headings to distinguish between different perspectives.

I think I said the report was fit for its purpose. The mission itself was a bit lacking – become the biggest clothing retailer and deliver exceptional value to shareholders. It’s brief. I felt the measures were adequate for measuring performance against it.

ii) Suggest and justify 3 more measures to address key performance issues, using the data in appendix 1

I suppose the key issues were that shareholders were disappointed with declining dividends and that market share was slipping (4th largest to 5th).

I didn’t have measures to suggest in relation those concerns. I suggested they should be looking at measures of efficiency. I suggested 3 measures like revenue/ number of stores.

I think what i wrote was justified but I was starting to panic at this point. Probably missed a few easy marks.

iii) Advice about the use of value chain analysis in simplifying the supply chain

Or something like that. There wasn’t a lot of information about what they wanted to do with the analysis. Uncertainty about what the question meant made me panic further.

I took the supply chain reference to mean an assessment of how well supplier processes integrate with Chiven’s, and suggested some ways this might be improved.

iv) Discuss the development of big data and explain some risks and systems implications

Pretty fair question, and kind of them to put the three Vs in the scenario.

I gave a decent answer, explained what each term meant but should probably have related it back to the company a bit more, ie what use could they make of the information.

– Professional marks, up to 4.

I learnt this time round that you can get these by:

– writing report at the top
– providing to/ from/ date/ subject
– writing an introduction and heading it ‘Introduction’
– using headings for each new section.

I did all those things so would like to think I got all 4 marks.

Would like to ask whether if wrongly distribute of defect mistake and Symptoms will be given marks??

@sokty said:
Q3. Corporate failiure

A. Argenti A score
It is qualitative measure. Score of 47 indicated at risk of failure.
The model cover 3 areas:
– Defect:
+ Management defect:
– Autocratic CEO
– Override control by bidding during FD I’ll and everyone in leave
+ Accounting defect: No

– Mistakes:
+ High operational gearing 50%
+ Over trading: over use staff, long hours work
+ Failure of 1 big project: being sued by client and will result in big financial loss.

– Symptoms:
+ Decreasing ratio: not known, only high gearing
+ Frozen salary: no
+ Decreasing morales: yes, as staff work long hours and some leave.

B. How to improve:
– Change fixed salary to variable salary to avoid dismissal, so low gearing
– Convince staff to staff and go through tough situations together.

C. Problem of Argenti model:
– not suitable for service provider like LP.

* I don’t have much time for Q3 at all. So this is what I could answer.

Wish I pass!

Hiya,

Q1 i wrote about how the revenue for 2017 was not split by product line and hence chiven cannot assess the performance of each product line.

Costs and how there was no mention of these hence difficult to assess whether costs are increasing or decreasing

Market growth- how the company needs to assess their performance against the performance of the industry

Absolute profit figures for comparability

Non financial info that shows no link to financial like number of accidents- are they claims to this- what is the point of this info.

Part b) got totally lost there wrote on measures of profitability, costs and how the company can measure web sales as this is a future plan

D) big data to assess trends however the information system needs to be able to store this data, analyst tools (software needed) and analysts hired to convert the data to info. All these are costly. Also have to be careful that the reader does not have an overload of info.

Q2)a the measures should be different as some costs are uncontrollable and the div manager’s performance should not be based on these like overhead costs.

The manager will make decisions based on self interest instead of for the division. E.g. greens rejected project

B) messed up with the calculation. Just did a simple np/cap employed

Roi does not take in to account economic conditions ( which would affect profit) blue was in a politically unstable economy.

It does not take in to account the 3 months that blue were shut for

Different accounting policies in both countries affecting capital employed

Short term thinking and not going for projects with high investment so the divisional managers 15% target is met.

C) RI is an absolute measure so can’t help comparison *** not sure

3)define argenti and how a score over 25 is considered failure.

Defects- passive board, autocratic CEO, FD not available and no interim in his place

Management mistakes- operational gearing is high which mean fixed costs are high. The board’s decision of reducing staff would have solved this but would staff agree to be seasonal?

Big project with no oversight of costs by a FD. – agreed to a fixed fee. Bid made when board was away.

Overtrading- overuse of resources, hours

Symptoms of failure- staff leaving, low morale, litigation(the financial effect is yet to be determined)

B) individual performance targets for employees to motivate them

C) argenti is based on companies in the manufacturing sector in the 1960’s in the u.s.

Our company has

1) a different economy
2) is in a different industry
3) is based in an economy 50 years on

Therefore argenti is not appropriate and should be paired with a quantitative model..

Has anyone n down anything along the lines of the above??

This is my final paper and iv got all my fingers crossed.

^Was just about to say that sounds more like Altman’s lol

I just realised that even though I know evaluate means weigh both the good and bad, the word usefulness in 3c made me think they only wanted benefits for some reason. Whoops..

@sokty said:
Anyway, how was Q4? What is it about? I just look at the marks and notice only 2 questions there, so not dare to do since may not be able to break down requirements.

Can anyone give me some answers to that?

Q4 was a question about evaluating the budget setting process at a manufacturing company. I wrote it’s correct to use incremental budget as external environment is not rapidly changing + criticise not planning more challenging targets and monitor external environment.
Part b was about finishing analysis of material variance, wrote they need to break it down by purchase volume and price variance + planning and operational variance but wasn’t sure how to do this.
Question also asked to give brief analysis of other variances like labour rate and efficiency and recommend improvement to avoid this. I had to keep this quite brief as I was running out of time.

I think thats where i struggled with Q1, trying to find something bigger than it was actually asking for. Not sure if i even wrote about the simple presentation issues in the end.
Yes results 16th July.
Good luck everyone.

Overall I don’t know how to feel about this exam.

Nonetheless here are my answers to the questions.

Part one of question 1 I started off by dissecting the mission statement into two. My response to that one question one was based on how well the performance measures related to the mission statement and how user-friendly the performance report was and the layout of the report .I managed to mention a few points on how the report did a good job in showing the revenue by division and also for the segmenting it by men women and children. I further spoke About the use of percentages to show operating profit margin and also suggested that the same should be done with regards to revenue. In addition to this I also commend the report on having comparative figures that’s allowing for easy comparison to prior years.

In terms of the performance measures I identified two sets of performance measures relating to the mission statement. The first part was with regards to providing exceptional shareholder value where the performance measures were earnings per share and dividends per share. As the question asked to critique the performance report I gave my opinion on the benefits and disadvantages of the performance measures in relation to the mission.

For performance measures relating to being the largest retailer in the country i identified return on capital employed, Market share and EVA. The same applies to these measures as I gave my opinion on how well they relate to the mission statement.

Part two of question one I identified three performance measures the first being revenue per square metre. My justification for selecting this measure was purely based on efficient allocation of resources and to see whether the organisation was making the most of floor space. My second and third recommended measures were to do with the strategies from the text with regards to increasing their online presence and increasing the use of technology. So my Measures were number of sales made online in relation to total sales and number of innovative awards received during the year.

Part three of the question was with regards to the value chain and supply chain. I simply spoke about how the value chain will create linkages that will assist the supply chain becoming more efficient and therefore reduce waste: I went on to talk about the benefits of having linkages and how primary acativities are supported by secondary activities and how this will benefit the supply chain.

The part on big data I simply defined the three v’s and I just waffled on this question as I was running out of time and had to simply move onto the next question.

I expect between 25/30 on this question.

With my options I selected question two and question four as I honestly did not prepare myself well on the Argenti score model.

For question two, It asked whether divisions and divisional managers should be assessed using different performance measures. I spoke of how the use of ROI as a measure of divisional managers performance will lead to dysfunctional behaviour and therefore mean that divisions are not performing to their full potential which would in hindsight affect the organisations performance. I also mentioned a few other points which I can’t recall at the moment .

Part B required an assessment as to whether the managers of green and blue should receive the annual bonus. I identified green as an investment centre and blue as a profit centre. When computing the ROI, for Green I did not include the allocate fixed head office costs and was able to compute an ROI of 15.3%. For blue I did not include the depreciation and the head office costs because the depreciation is to do with the investment centre and cannot be controlled by the blue, I was able to come up with an ROI of 14%. However as the note stated that the capital employed included capitalised research and development I took this into consideration and mention that under IFRS such capitalisation would not be acceptable . Therefore I suggested that if the capitalised R&D were removed the ROI would be above 15% and therefore blue should receive a bonus. I also took the closure of blue for Three months into consideration. Furthermore we were asked to assess the usefulness of using ROI as a divisional performance measure. I said that the use of ROI is not a good idea and related it to the rejection of the project by green and computed the ROI and the residual income to show that under ROI it is below the 15% target but with residual income it is increasing shareholder wealth. Thus meaning that projects will be rejected by divisions solely based on ROI target not taking into consideration the interests of the organisation.

Part C required the advantages of using residual income as a divisional pefomace measure. This was a pretty straightforward question I managed to mention 4 to 5 advantages.

Question four had two parts to it. Part A of the question was with regards to incremental budgeting. I spoke of how this was the correct choice of budgeting as the environment was fairly stable
with no changes expected in the future. However I did mention that the volatility in the energy market may require the need for rolling budgets.

Part B was tricky and I did not have enough time left. Identified causes of variances for labour being to do with cheap labour due to fixed contracts as stated in the text ( increment of 1% every 5 years) and for the labour efficiency spoke about the strike which may have caused more labour hours to be used than required.

For the materials variance, which was adverse, spoke about increase in material costs and a further increase in cost due to a delay in purchases being made.

Recommendations were along the lines of initiating fixed contracts with more than one supplier so as to hedge changes in prices.

I know my response is detailed. But please give me your thoughts.

Wish you all the best.