Examiner s report - ACCA Global

Examiner's report

Performance Management (PM)

July 2020

The examining team share their observations from the marking process to highlight strengths and weaknesses in candidates' performance, and to offer constructive advice for future candidates. This report should be used in conjunction with the published March/June 2020 sample exam. Due to the COVID-19 pandemic, the June 2020 exam was postponed and sat in July 2020. This report labelled July 2020 refers to this exam.

General comments

The Performance Management (PM) exam is offered as a computer-based exam (CBE). The model of delivery for the CBE exam means that candidates do not all receive the same set of questions. In this report, the examining team share their observations from the marking process to highlight strengths and weaknesses in candidates' performance, and to offer constructive advice for future candidates.

? Section A objective test questions ? we focus on two specific questions that caused difficulty in this sitting of the exam.

? Section B objective test case questions ? here we look at the key challenge areas for this section in the exam.

? Section C constructed response questions - here we provide commentary around some of the main themes that have affected candidates' performance in this section of the exam, identifying common knowledge gaps and offering guidance on where exam technique could be improved, including in the use of the CBE functionality in answering these questions.

Section A

Here are TWO Section A questions which proved to be particularly difficult for candidates.

Example 1

Which of the following statements is NOT true about a sales mix variance? Options:

A. If actual sales revenues from two products are in the same ratio as the budgeted sales revenues there is no measurable sales mix variance

B. If all products have the same budgeted margin there is no measurable sales mix variance C. If actual sales volumes are in the same ratio as the budgeted sales volumes there is no

measurable sales mix variance D. If the actual sales volumes of all products are 10% above the budgeted sales volumes, there

is no measurable sales mix variance

Examiner's report ? PM July 2020

What does this test?

The understanding of the sales mix variance.

What is the correct answer?

The correct answer is A.

The first thing to notice about this question is that it asks which of the four options is NOT true. The best way to answer this type of question is to go through all of the options and identify the three statements which are true ? the remaining one false and is the correct answer.

This question relies on knowledge of the sales mix variance. The sales mix variance is calculated as the difference between the actual quantities sold in the actual mix and the actual quantities sold in the standard mix, multiplied by the standard margin.

To have a measurable sales mix variance, the standard margins of the products must be different, and the actual proportions of units sold have to be different from the standard proportions.

If all products have the same budgeted margin there is no measurable sales mix variance, therefore option B is true.

If actual sales volumes are in the same ratio as the budgeted sales volumes, there is no measurable sales mix variance, therefore option C is true.

If the actual sales volumes of all products are 10% above the budgeted sales volumes, there is no measurable sales mix variance. Here, there is no change in the proportion of units sold, therefore there is no sales mix variance. Option D is true.

Option A is not true as it talks about sales revenues and not sales units. Sales mix variance is based on the difference in sales volume as a result of changes in the proportions of each product sold, not the sales revenue. The proportion of sales revenue can stay the same, but this can hide a change in the volume of units sold. Option A is the correct answer.

Example 2 Lauda Co has two divisions with the following results in the table below:

Sales revenue Variable costs Contribution Divisional fixed costs

Division A $ million 1,000 400 600 650

Division B $ million 1,240 500 740 600

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Allocated Head Office costs Divisional net loss

50

150

(100)

(10)

If a division is shut down, then Lauda Co will avoid all the division's specific costs and half of the Head Office costs allocated to the division.

What will be the revised total divisional net loss if Lauda Co chooses to shut down Division A?

$ ____________ million

What does this test? Relevant costs in a shut down decision What is the correct answer? The correct answer is $35m. Go through each of the figures in Division A and decide how they will be affected if the division is shut down.

Lost revenue Saved variable costs Saved divisional fixed costs Saved allocated Head Office costs (50%) Overall saving

Division A $ million (1,000) 400 650 25 75

The current total divisional net loss is $110m ($100m + $10m). If Division A is shut down there will be an overall saving of $75m, therefore the revised total divisional net loss will be $110m - $75m = $35m.

It is important to read the requirements of the question carefully. A common mistake was to give the answer as $75m, which showed that candidates did not fully read the requirements.

Section B

Section B tests candidates' knowledge on a number of topics in more detail than section A, with three case questions containing five two-mark objective test questions. The range of topics covered in the July 2020 examination was:

? Learning curve

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? Activity based costing ? Relevant costing ? CVP analysis ? Mix and yield variance ? Target costing

A few key points that came out of section B were:

? Read the case scenario and requirements very carefully. This goes for the whole exam, but any objective test question is `all or nothing' ? if a candidate misreads the requirement or misses a vital piece of information from the scenario and get the answer incorrect, they score zero for that question.

? Close reading is also important for identifying the instructions in the question on how to round answers. Please take care with Fill in the Blank questions which have rounding instructions as candidates should ensure that the answer input meets those rules. See Example 1 under Section A above.

? Cover the whole syllabus. The list above should highlight this ? PM has a large syllabus which can seem daunting, but it is essential to have a broad knowledge. If, for example, a section B OT case covering variances comes up and a candidate hasn't covered this in their studies, the 10 marks available are left to chance.

? Be able to apply knowledge of theories/techniques to the scenario given, as in the OT case questions these areas will often be examined in the context of the case. It is important that candidates are able to apply the logic of a concept or theory to a problem and so they need to understand the method and why they are doing the calculations and not just focus on how to do the calculations.

Section C

Candidates were presented with questions drawn from the areas of:

- Performance management - Variance analysis and budgeting - Pricing

Budgeting and variance analysis

There were three questions covering this subject area in the July exam diet. The first of these was focussed more upon the completion and interpretation of budgetary control statements and therefore examining the total variances that are recorded in such statements. The second was focussed on variance calculation and interpretation in the context of material prices and quantities. The third focussed on activity-based budgeting. Useful published articles covering these topics can be found on the ACCA's website through the following links:



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As regards the first of these questions involving variances and budgetary control statements, candidates tend to either know what is needed, and use the spreadsheet effectively to produce accurate calculations, or have little idea how to complete it.

- For those that find themselves somewhere in the middle, common errors on the numbers often include: - Not being able to deal with any semi-variable or stepped fixed costs. - Not providing signage for their variances. - Not providing workings or using the formulae in the spreadsheet to show the calculation thus losing potential marks.

When it comes to the written parts of such questions, a common problem is still that candidates answer the question that they think they are being asked rather than what they are actually being asked.

Regarding mix and yield variances, questions on this area could be similar to the published September/December 2018 question, `Kappa Co', although the written elements could focus on a variety of topics, including assessing actual performance using mix and yield variances.

Candidates should note that when they are asked to explain what, for example, a mix variance is, they must mention how the variance is valued i.e. at standard cost. It is not enough to simply restate the quantities in the formula. `Explain' means more than just restate a formula as well, even if the explanation required is only brief.

As is often the case in variance questions, the most common error in the calculations is failing to flex the standard quantities to the actual production level. This always occurs on questions which examine quantity type variances. The whole basis of variance analysis relies on assessing managers for costs which they can control. Therefore, it is never useful to compare any costs to what the costs would have been if the original production levels had remained the same as budgeted. Such calculations provide no insight on performance.

The third question on this area covered activity-based budgeting. It was a balance of some straight-forward knowledge requirements testing activity-based budgeting and some basic calculations. It was really good to see that candidates' performance in this area has really improved dramatically, performing particularly well on the interpretive part of this question. Candidates that are less comfortable with this area should note that using activities as a basis for budgeting is very similar, easier really, than using them for costing. Instead of working out individual product costs, questions of this nature could focus on calculating production requirements and comparing these to the resources available. For example, a question might ask candidates to calculate the number of machine set-ups that are possible each week within a business and then compare this to the number required to produce a particular number of each product each week.

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