DECEMBER 2004 - EXAMINERS' REPORT

PERFORMANCE MANAGEMENT

Firstly I would like to offer my congratulations to all those candidates who achieved a pass at this diet and my commiserations to those who did not. The examination consisted of Section A and Section B. Section A consisted of two compulsory questions of 40 and 20 marks respectively. Section B consisted of three optional questions of 20 marks each from which candidates were required to answer 2 questions. It was pleasing to note a far smaller number of candidates being unable to attempt four questions than in recent diets. It was also pleasing to see a much larger number of candidates providing good answers to every question they attempted and consequently achieving very high marks. Sadly, the examination revealed a large number of candidates who were inadequately prepared for the examination. The overall performance of candidates, however, was much better than in recent diets. The poor performance of many candidates was once again exacerbated by a clear failure to read carefully the content and requirements of questions. This contributed to the continuing poor performance on narrative questions. Well-prepared candidates invariably provided concise workings which arrived at the correct solutions to the computational parts of the examination paper. In stark contrast, poorly prepared candidates wasted valuable time producing pages of workings to arrive at incorrect solutions to relatively straightforward calculations. Often workings were difficult to follow. And a significant number of candidates continue to display their answers poorly, with a lack of clear labelling to indicate which questions are being attempted. Each question should be started on a new page and candidates must give more thought to the layout and organisation of their answers. Valuable time can be easily wasted, for example, by not tabulating the answer to Question 4.
Question 1

This 40-mark question tested candidates' ability to cope with various aspects of pricing policy including the calculation of profit using the profit maximisation model and the calculation of breakeven quantities. Candidates were also asked to explain different pricing strategies in the context of the scenario provided in the question. Many candidates were unable to provide correct answers to parts (a), (b) and(c). Those candidates who did provide correct answers to these parts invariably achieved very high marks from the question and generally answered most of the questions that comprised the examination paper very well indeed. Many candidates demonstrated initiative by preparing tabular solutions to parts (a) and (b) and consequently achieved high marks. Candidates' answers to part (d) revealed that a large number did not understand the terms "Endogenous" and "Exogenous" notwithstanding the fact that they are specifically mentioned in the "Study Guide". Nevertheless, candidates' answers to this part of the question were generally adequate and there were a significant number of very good answers. Candidates' answers to part (e) often showed little understanding of "Cost leadership" and "Niche marketing". Many candidates confused product differentiation with price differentiation. Again, the better candidates provided excellent answers which made good use of the scenario contained in the question. In part (f) of the question many candidates did not observe the specific requirement to explain the benefits and potential limitations of the use of SWOT analysis by the management of Alocin Plc and instead produced a SWOT analysis for the company. Furthermore, many candidates did not provide a brief comment with respect to the formulation of a pricing strategy for the "Cruiser". Question 2 required candidates to demonstrate an understanding of the principles of marginal costing and throughput accounting. It was pleasing to observe that there were a large number of correct solutions to part (a). However, it was rather alarming that a large number of candidates did not recognise the existence of a "limiting factor" and ranked the products by reference to their gross contribution. Similarly answers to part (b) were either very good or very poor. Well-prepared candidates provided correct solutions to part (c) whilst poorly prepared candidates, who clearly did not understand the principles of throughput accounting, wasted valuable time providing spurious calculations or repeating their answers to part (a). In keeping with answers to the preceding parts of the question, answers to part (d) were either very good or very poor.

Question 3 was divided into two parts. Part (a) concerned the contingency theory of management accounting whilst part (b) was concerned with business process re-engineering programmes. This question was generally the best-answered question on the paper. It was pleasing to see a large number of candidates achieving very high marks from their answers to part (a) of the question. Again, a number of candidates clearly did not have any knowledge of the contingency theory of management accounting which was disappointing given that this topic was the subject of a recent article in the Student Accountant. Answers to part (b) were generally of an acceptable standard and it was pleasing to see a large number of well-prepared candidates achieving very high marks. Weaker answers could have been improved by identifying that processes are made up of activities some of which may be non value-added and should therefore be eliminated. Question 4 was answered satisfactorily by a large number of candidates although only a small number provided correct solutions to parts (a)(i) and (a)(ii). Most candidates were able to earn most, if not all, of the maximum number of marks available in part (a)(i). A common mistake in part (a)(i) was to calculate and discount the cashflows for one year only. Some candidates made no attempt to provide an answer to part (a)(ii). Candidates' answers to part (a)(ii) were generally less than satisfactory. By way of contrast, a large number of candidates provided good answers to parts b(i) and (b)(ii), although the answers of many candidates were far too brief given the number of potential marks available. Question 5 was the least popular choice among the optional questions. It was pleasing to see a large number of good answers that achieved very high marks. However, inadequately prepared candidates provided poor answers and in such instances this question may well have been the "Court of last resort". Frequently candidates did not focus on the issue of responsibility but instead wrote in general terms about budgeting and setting targets. In particular, candidates' answers to part (a) showed a considerable "lack of focus" on the principle of "controllability" and its application in practice. In general, answers to part (b) demonstrated little "innovative" thought with regard to overcoming the difficulties in the practical application of the "controllability" principle. In part (c) a large number of candidates could not explain the "engineered approach" to setting financial targets within an organisation. Rather worrying was the fact that a significant minority suggested that the "engineered approach" involved "engineering" an outcome i.e. manipulating the results to achieve the desired outcome! Explanations regarding historical and negotiated approaches to setting financial targets were generally of an acceptable standard.