f5-examreport-d15.pdf - Examiners report F5 Performance...

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Examiner’s report F5 Performance Management December 2015 Examiner’s report – F5 December 2015 1 General Comments There were two sections to the examination paper and all of the questions were compulsory. Section A consisted of 20 multiple choice questions (two marks each) which covered a broad range of syllabus topics. Section B had three shorter questions (worth 10 marks each) and two longer questions (worth 15 marks each). The Section B questions covered all of the key syllabus areas. The following paragraphs report on each section and focus on some of the key learning points. Specific Comments Section A It was pleasing to see that the majority of candidates attempted all of the questions. As usual, candidates preparing for the next examination of F5 are advised to carefully read the sample question discussed here and to carefully review how the correct answer was derived. The following question is reviewed with the aim of giving future candidates an indication of the types of questions asked, guidance on dealing with exam questions and to provide a technical debrief on relevant costing. Question To make a special order, labour will have to be transferred from the production of Product X, which earns a contribution of $24 per unit made. Each unit of Product X requires 0.5 hours of labour, which is paid at $24 per hour. The special order will require 100 hours of labour and 500 hours of machine time. The variable cost of running the machine is $30 per hour. What are the total relevant costs for labour and machine time that should be included in the cost of the special order? A $22,200 B $10,200 C $19,800 D $17,400 The answer to the question is A. This is calculated as follows:- Labour: direct cost = 100 x $24 = $2,400 Lost contribution = 100/0.5 x $24 = $4,800 Machine cost = 500 x $30 = $15,000 Total cost = $22,200 This type of relevant costing question usually causes a problem for candidates as it tests the concept of opportunity costs. The contribution from product X will be lost because of this special order. Consequently, the full cost of this lost contribution PLUS the direct labour cost must be included. The most common error which candidates make is excluding the direct labour cost as they think that this is irrelevant. It is relevant as it would have been charged to product X in arriving at product X’s contribution; therefore instead, it must be charged to the special contract. Candidates who had excluded the direct labour cost would have erroneously chosen option C, £19,800.
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Examiner’s report – F5 December 2015 2 Candidates who dealt with the labour cost correctly but then misread the number of machine hours incorrectly as 100 would have chosen option B ($2,400+$4,800+$3,000). Candidates who failed to include the lost contribution would have selected answer D ($2,400+$15,000).
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