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I ask any lady reading these questions, answers and tutorial notes to be patient with my occasional use of the masculine pronoun in referring to the manager, the member of staff, the planner, and any other dramatis personae of the text, which I have used simply for grammatical convenience. I have a personal view that all general terms used in life, such as man in the street, manning the office, manpower, man-made and so on should be de-masculinised as much as possible. This is not always easy when one is writing free-flowing text. Thank you. Tony Surridge
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The structure of the syllabus Intellectual levels Learning hours and education recognition Guide to exam structure Aim Main capabilities Relational diagram of main capabilities performance Rationale Study guide Approach to examining the syllabus Examination structure
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A B C D E F Strategic planning and control External influences on organisational performance Performance measurement systems and design Strategic performance measurement Performance evaluation and corporate failure Current developments and emerging issues in management
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Where shall I begin, please your majesty? he asked. Begin at the beginning, the king said gravely, and go on till you come to the end: then stop. Lewis Carroll Through the Looking-Glass
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In this e-publication we have included examination questions ranging across the period 2002 2011 and these will provide vital examination practice for you, at the level required. ACCA have changed the examination format from the June 2013 exam. The new format is as follows:
EXAMINATION STRUCTURE The examination will be a three hour paper in two sections: Section A Section A will contain one compulsory question comprising of 50 marks Section B In section B candidates will be asked to answer two from three questions comprising of 25 marks each Total 100 marks
The Paper P5 syllabus has not changed much at all, just the format of the questions. We have included the Pilot Paper (Questions and Answers) in this download publication (pages 495 515) but the quality of the question has not changed. It is worth noting that the Examiners Pilot Paper Questions have been taken from past examination questions anyway: Pilot Paper Question number Mackerel Contracting Albacore Chess Stores Pharmaceutical Technologies Co PLX Refinery Co 1 (page 495) 2 (page 503) 3 (page 508) 4 (page 512)
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Total 10,800
30 hours *
$1,450
(b)
Calculate the prices that Privmed would have charged in 2013 for: (i) (ii) A hip operation; A knee operation. (4 marks)
(c)
An activity based costing study recently discovered that the fixed overheads are determined by non operating time related activities. The study revealed the following data: Activity Consultations with potential patients X-rays Post-operative care Cost Driver Number of consultations Number of X-rays Days of care Hip 3,000 6,200 7,860 Knee 2,000 6,200 23,580 Fixed 0verheads $8,980,000 $1,800,000 $1,220,000
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Re-calculate the prices that would have been charged in 2013 for each knee and hip operation by using an activity based costing approach. (5 marks)
A A
(d)
Compare the results of your calculated prices in (b) and (c) and suggest with reasons what pricing decisions you would recommend to the hospital. (5 marks)
(e)
The Regional Public Health Authority is under pressure to reduce the length of its patients waiting lists for knee and hip operations. In an effort to improve the situation the area manager has approached Privmed and asked them to consider whether they would undertake some operations on a fee-paying basis. The approach is welcome, as the hospitals Theatre Manager would like to improve the utilisation of the facilities. Indeed, the hospital recently employed a consultant for a fee of $70,000 to assess the financial viability of undertaking public health authority operations at differing levels. The consultant concluded that contracting to undertake public health authority operations would also add to the administrative workload currently undertaken by the hospital e.g. billing and quality monitoring activities. It would be necessary to employ an additional clerk for $15,000 pa and additional variable administrative cost per operation would be $150 for a knee operation and $100 for a hip operation. If the hospital were to take on this work, it must also consider an additional requirement to keep 25% of its total operating capacity spare to meet the immediate needs of its special clients i.e. it cannot plan to use this proportion of its total capacity. The public health authority has approached the hospital and has proposed two alternative one-year contracts: Contract (1) The hospital would be required to perform an equal number of hip and knee operations during the next year that would utilise their remaining available spare capacity. The public health authority has agreed that the contract price should be composed of all the relevant incremental costs of the contract plus an 80% mark up. Contract (2) The hospital would be required to perform 1,500 knee operations. The public health authority will refund all the additional administrative costs resulting from the contract. The 1,500 additional knee operations would require the hospital to install a temporary operating theatre for a total cost of $500,000 with a two-year life. On completion of the contract, the hospital estimates that it could lease the temporary theatre during its second year with the following revenue estimates: 30% probability of earning $200,000 40% probability of earning $100,000 30% probability of earning $80,000 The public health authority is only prepared to pay $3,500,000 in addition to the refund of administrative costs for this one-year contract. Required: (i) Calculate the contract price and estimated financial benefit of Contract 1; (7 marks)
A A
(ii)
(3 marks)
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(f)
If either of the contracts were to be taken on, it would result in no capacity being available to meet an unexpected increase in demand from its private patients. Required: Explain the potential revenue consequences of such an event occurring and compile a list of information/data that you require to assess the financial consequences of the private patient demand unexpectedly rising to 80% of the total capacity during the contract year. (7 marks)
(g)
Suggest three broad areas of non-financial performance that the public health authority is likely to have to monitor as part of a contract involving knee and hip operations. Your answer should include specific variables that are to be monitored. (5 marks) (40 marks)
On the road to Mandalay Where the flying fishes play And the Dawn comes up like thunder out of China 'cross the bay On The Road To Mandalay Song sung by Lawrence Tibbett Lyrics by Rudyard Kipling, Music by Oley Speaks, 1907 On The Road To Mandalay Lawrence Tibbett From the Album The Song Is You
"Mandalay" is a famous poem by Rudyard Kipling that was first published in the collection Barrack-Room Ballads, and Other Verses, the first series, published in 1892. The Mandalay referred to in this poem was the sometime capital city of Burma.
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(a)
Current utilisation = 07 x 10,800 = 7,560 Hours spent on knee operations = 1,270 x 36 = 4,572 Hours spent on hip operations = 7,560 4,572 = 2,988 No of hip operations = 2,988/3 = 996 Total variable costs = $15,036,780 $12,000,000 = Less variable costs of hip operation On private patients (996 x $1,450) $3,036,780
$1,444,200 = Variable cost of knee operations $1,592,580 Therefore the variable cost of one knee operation on a private patient: = $1,592,580/1,270 = $1,254
(b)
(i) and (ii) Hip $ 1,450 4,500 5,950 595 6,545 Knee $ 1,254 5,400 6,654 6654 7,3194
** workings $12,000,000/8,000 hours = $1,500 hourly overhead absorption rate Hip = 3 hours x 1,500 = $4,500 Knee = 36 hours x 1,500 = $5,400 (c) Consulting (3:2) X-ray (1:1) Post operative care (1:3) Hip 5,388,000 900,000 305,000 6,593,000 996 6,6195 1,450 6,6195 8,0695 807 8,8765 Knee 3,592,000 = 900,000 915,000 5,407,000 1,270 4,2575 1,254 4,2575 5,5115 551.1 6,0626 Total 8,980,000 1,800,000 1,220,000 12,000,000
no of operations = Overhead per operation Variable cost Fixed Overhead Total cost per operation +10% mark-up Price
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Q
(d) The traditional pricing method based on operating hours does not consider the activities that drive costs. The activity based information identifies the causes or drivers of costs. The costs arising from the performance of hip operations exceed the current prices being charged for them each hip operation makes a loss. On the other hand, the price charged for a knee operation is far in excess of the costs arising from the operation. Indeed, the hospital may be losing some knee patient business because their prices are far above their costs and may possibly be set at an uncompetitive level. The hospital would need to consider the general market environment before making a final decision, but on the information currently available, they should lower the price of their knee operations and increase the price of the hip operations. (i) Contract 1 Available capacity Total 70% used 25% (kept spare) Hours 10,800 (7,560) (270) Available for contract 2,970 The number of knee and hip operations possible can be solved by formulating `simultaneous equations and then solving them. 2,970 k = = 3h + 36k h h = hip k= knee
(e)
Therefore 450 knee and 450 hip operations are possible Hip 450 x (1,450 + 100) = Knee 450 x (1,254 + 150) = Total Variable Costs + Clerks salary Total attributable cost $ 697,500 631,800 = 1,329,300 15,000 = 1,344,300
The mark up is 80% of the net attributable cost = Contract Price = 1,344,300 x 18 = $2,419,740 Net benefit = 1,075,440 N.B. The $70,000 consultancy fee should be ignored in the calculation it is a sunk cost and is not attributable to this contract.
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$ Variable cost of 1,500 knee operations x $1,254 Property Revenue in year 2 0.3 x 200,000 = 60,000 04 x 100,000 = 40,000 03 x 80,000 = 24,000 500,000
$ 1,881,000
(124,000) 376,000
Net attributable cost Contract price Attributable costs Net financial benefit (f) Potential revenue consequences: 3,500,000 2,257,000 1,243,000
376,000 2,257,000
loss of alternative revenues from private patients who cannot be treated within the contract period turning away private patients during the contract period may have adverse long-term consequences loss of goodwill and they go elsewhere in future a satisfactory service to the public health authority may result in a contract extension, providing long-term guaranteed revenues the increase in demand that cannot be met may provide the opportunity to raise/renegotiate future prices and hence revenues with the public health authority
The financial consequences are essentially concerned with identifying the opportunity costs of not being able to meet the increase in private patient demand when it rises from 70% to 80% of capacity. Information/data is required to provide estimates : lost patient numbers type of operations not carried out lost revenues the associated costs that have been avoided the long-term consequences of lost goodwill arising from turning away patients will any switching take place between public health and private patients how significant? Revenue and cost consequences? what it is the probability of the 80% utilisation ratio being maintained permanent? what are the operational and financial consequences of expanding capacity in both the short and the long term?
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(g) Non-financial Performance Indicators: they will be concerned with ensuring that the operations are being carried out according to an agreed schedule of activity. This may be undertaken by comparing the cumulative running totals of scheduled operations with actual numbers Surgical Quality the health authority will wish to monitor the quality of the surgery. This may involve monitoring post operative treatments, the health of the patients before and after the operation, and the number of fatalities Non-Medical Service Quality this could involve monitoring any non-medical areas of service provision, e.g. patients attitudes towards the quality of food supplied, the manner in which they were received at the reception or the information provided to concerned relatives.
English saying: A golden key can open any door Meaning: Money opens any door. Origin This notion must be as old as money itself. The first person who is known to have written it down is the English playwright John Lyly, in Euphues and his England, 1580: Who is so ignorant that knoweth not, gold be a key for euery locke, chieflye with his Ladye. The proverb was the basis of the 1969 British comedy The Magic Christian, in which characters played by Peter Sellars and Ringo Starr use large amounts of money to bribe people to humiliate themselves by doing things completely out of character.
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Examiners Report
You might find it useful to know what the Examiner reported about the quality of answers for this scenario. Many candidates provided good overall solutions to this question and obtained more than 20 marks. Parts (a), (b) and (c) resulted in high marks for most candidates and many candidates obtained the maximum of 13 marks available for these sections. In Part (d) most candidates made reasonable comparisons between the results obtained in Parts (b) and (c). Part (e) was generally well answered although many candidates failed to recognise that the consultant fee paid by the hospital was a sunk cost and therefore not attributable to the contract. Other common errors in Part (e)(i) included incorrect calculation of the total number of operations that could be performed and the non-inclusion of attributable cost of employing an additional clerk. In Part (e)(ii) many candidates did not include the variable cost of performing knee operations that they had calculated in Part (a) of the question. The answers to Part (f) were disappointing. Many candidates did not provide any answer whatsoever to Part (f), and those answers provided were generally disappointing, being much too superficial, given that 7 marks were available. The majority of candidates provided reasonable comments on non-financial performance indicators which were the subject of Part (g).
Mr. Right's coming, but he's in Africa, and he's walking Oprah Winfrey Oprah Winfrey (born Orpah Gail Winfrey; January 29, 1954) is an American media proprietor, talk show host, actress, producer, and philanthropist. Winfrey is best known for her self-titled, multi-award-winning talk show, which has become the highest-rated program of its kind in history and was nationally syndicated from 1986 to 2011. She has been ranked the richest African-American of the 20th century, the greatest black philanthropist in American history,and was for a time the world's only black billionaire.She is also, according to some assessments, the most influential woman in the world.
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The following TWO screens provide links to the technical articles which are appropriate for ACCA Paper P5. The articles are hyperlinked simply click and go!
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Reward schemes for employees and management 03 Jan 2013 A major part of performance management involves managing employees and managers, as their performance will have a major effect on the performance of the organisation as a whole. This article looks at how reward schemes can be used to influence the behaviour of employees Benchmarking 01 Sep 2012 Many governments around the world have undertaken reforms aimed at making public sector organisations more accountable. One of the key features of these reform programmes has been the increasing use of performance measures like benchmarking, where one organisation compares its performance in a specific area with another - the benchmark - to identify areas for improvement The Performance Prism 02 Feb 2012 The Performance Prism has been described as a second generation performance management framework. In this article, we find out why its authors consider it a necessary replacement for established performance models like the balanced scorecard and performance pyramid Economic value added versus profit-based measures of performance - pt 2 26 Jul 2011 In the second part of his article on Economic Value Added (EVA), Nick Ryan focuses on how to interpret the calculated EVA and its use as both an organisational and divisional performance measure Economic value added versus profit-based measures of performance 12 Jul 2011 In the first part of two articles, Nick Ryan looks at an alternative performance measurement system, Economic Value Added - or EVA - which has gained widespread use among companies such as Siemens, Coca Cola and Herman Miller The risks of uncertainty - part 2 01 Oct 2009 In this article on the risks of uncertainty, we build upon the basics of risk and uncertainty addressed in the first article published in the first part to examine more advanced aspects of incorporating risk into decision making Transfer pricing 01 Oct 2009 Transfer prices are almost inevitably needed whenever a business is divided into more than one department or division Not-for-profit organisations - part 2 01 Oct 2009 The second part of the article takes a specific and deeper look at charities, which are one of the more important types of not-for-profit organisations Not-for-profit organisations - part 1 01 Sep 2009 The first part of the article broadly describes the generic characteristics of not-for-profit organisations The risks of uncertainty - part 1 01 Apr 2009 This article considers the concepts of risk and uncertainty will be introduced together with the use of probabilities in calculating both expected values and measures of dispersion
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Accounting and organisational cultures 18 Nov 2008 Graham Morgan describes the Financial Control Culture and the Excellence/Service Culture and the type of performance contracts associated with both Business failure 07 Jul 2008 Michael Pogue, assessor for Paper P5, discusses the various failure prediction models Defining managers' information requirements 01 Aug 2006 Jim Stone describes how critical success factors are used Business strategy and performance models 01 Apr 2006 This article provides a brief overview of three models to assist accountants in the determination of business strategy and in the appraisal of business performance
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