EXAMINATION : INTERMEDIATE LEVEL

SUBJECT : PERFORMANCE MANAGEMENT

CODE : B5

EXAMINATION DATE : WEDNESDAY, 23RD AUGUST, 2023

TIME ALLOWED : THREE HOURS (9.00 A.M. – 12.00 NOON)

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GENERAL INSTRUCTIONS

1. There are TWO Sections in this paper. Sections A and B which comprise a total
of SIX questions.

2. Answer question ONE in Section A

3. Answer ANY FOUR questions in Section B.

4. In total answer FIVE questions.

5. Marks are shown at the end of each question.

6. Show clearly all your workings in respective answers where applicable.

7. State clearly any assumptions made in your answers.

8. Graph papers will be provided, where applicable.

9. This question paper comprises 6 printed pages.

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SECTION A
Compulsory Question
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QUESTION 1
Mambo Leo Plc. is a group of companies with an interest in manufacturing and packing of
soft drinks. The company has been successful in the last decade, but the market has now
become competitive due to entrance of new firms into the soft drinks industry. The
manufacturing section is dealing with Mambo juice, Mambo drinking water, and Mambo
Ice Cream. Mambo Leo Plc. has decided to launch a new product line Mambo Cola to
compete effectively with the existing ones. The company has commissioned market
research to establish possible demand for the Mambo Cola and the information below has
been obtained. If the price is set at TZS.425, demand is expected to be 100,000 cola, at
TZS.500 it will be 73,000 cola and at TZS.600 it will be 42,000 cola. Variable costs are
estimated at TZS.170, TZS.210 and TZS.260 respectively. A decision needs to be made on
what price to charge.

REQUIRED:

(a) Produce a table showing the expected contribution for each of the nine possible
outcomes for Mambo Cola. (4 marks)

(b) Use the information in the scenario to illustrate the implication of maximax,
maximin and minimax regret decision. (Show all calculations) (6 marks)

(c) Explain the use of “expected values” and suggest how Mambo Leo Plc. could make
use of this technique. (4 marks)

(d) Explain briefly any four (4) factors influencing pricing decisions. (6 marks)
(Total: 20 marks)

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SECTION B
There are FIVE questions. Answer ANY FOUR questions
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QUESTION 2
Makompyuta Ltd manufactures and sells computer peripherals to several retail outlets
throughout the country. Ambokile is the manager of the printers division. The company’s
two largest-selling printers are PRIN1 and PRIN2.

The manufacturing cost of each printer is calculated using Makompyutas Activity Based
Costing (ABC) system. Makompyuta has one direct manufacturing cost category (direct
materials) and the following five (5) indirect manufacturing cost pools:

S/N Activity Cost driver Cost

1 Materials handling Number of parts TZS.1,200 per part
2 Assembly management Hours of assembly time TZS.40,000 per hour of
assembly time
3 Machine insertion of parts Number of machine inserted parts TZS.700 per inserted part
per machine inserted parts
4 Manual insertion of parts Number of manually inserted parts TZS.2,100 per manually
inserted part
5 Quality testing per testing Hours of quality testing time TZS.25,000 per testing hour

Product characteristics of PRIN1 and PRIN2 are as follows:

Details PRIN1 PRIN2
Direct materials costs (TZS.) 407,500 292,100
Number of parts 85 46
Hours of assembly time 3.2 1.9
Number of machine-inserted parts 48 31
Number of manually inserted parts 36 15
Hours of quality testing time 1.4 1.1

A foreign competitor has introduced products very similar of PRIN1 and PRIN2. Given
the announced selling price of the competitor, Ambokile has to restructure the costing and
pricing to maintain Makompyuta’s market share and profits. Ambokile estimates PRIN1
to be manufactured at a cost of approximately TZS.680,000 and PRIN2 to be manufactured
at a cost of approximately TZS.390,000. He calls a meeting of product designers and
manufacturing personnel at the printer division. They all agreed with the TZS.680,000 and
TZS.390,000 target costs for designed versions of PRIN1 and PRIN2 respectively. Product
designers examine the alternative ways of designing printers with comparable performance
but lower costs. They come up with the following modified designs for PRIN1 and PRIN2
(PRIN1 Mod and PRIN2 Mod):
Details PRIN1-Mod PRIN2-Mod
Direct materials costs (TZS.) 381,200 263,100
Number of parts 71 39
Hours of assembly time 2.1 1.6
Number of machine-inserted parts 59 29
Number of manually inserted parts 12 10
Hours of quality testing time 1.2 0.9

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REQUIRED:
(a) Calculate the Present Costs of Product PRIN1 and PRIN2 using Activity Based
Costing (ABC) system. (6 marks)
(b) Compute the manufacturing costs of PRIN1 Mod and PRIN2 Mod using ABC
system. (6 marks)
(c) Show how the costs calculated in (b) above compare with the target costs and
recommend way-forward. (2 marks)
(d) Explain the usefulness of target costing in performance management. (6 marks)
(Total: 20 marks)

QUESTION 3
(a) Upon completion of your session on flexible budgets in your B5 review classes,
one experienced cost accountant comes up with a remark, “flexible budgeting is
merely a means developed by accountants to camouflage inefficiencies in cost
management.”

REQUIRED:

Comment on the statement, clearly showing the role of flexible budgeting in cost
management and control. (8 marks)

(b) The budgeted Income Statement for Zayumba Company Limited (ZACOL) for the
year 2021 is presented below:

Details TZS.‘000’
Sales revenue 930,000
Cost of sales 558,000
Gross profit 372,000
Total expenses 225,000
Net profit 147,000

Notes:
(i) Monthly sales in each quarter are the same. The sales for January is
TZS.50,000,000 and this will remain unchanged up to when it will increase
by TZS.20,000,000 from April and remain unchanged for the remaining two
months in the quarter. Third quarter monthly sales will be TZS.90,000,000
each while those of the fourth quarter is TZS.100,000,000 each.
(ii) 20% of all sales are on cash basis, 40% of the monthly sales are paid in the
month after sales, and the balance is paid the second month after sales. No
bad debt is expected.
(iii) The monthly cost of sales represents 60% of the current month’s sales.
Inventory is kept at 60% of the following month’s cost of sales. All purchases
are paid in full after one month.
(iv) Included in the expenses is a depreciation of TZS.87,000,000. The monthly
expenses paid as and when incurred is TZS.10,000,000. This is fixed in
January but increased by 20% effective in April.

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 REQUIRED:
Prepare the Cash Budget of Zayumba Company Limited (ZACOL) for the second
quarter of the year, showing the cash balance for each month in the quarter.
(12 marks)
(Total: 20 marks)
QUESTION 4
Mbwewe Chemical Limited (MBWEWE) operates in chemical production industry. The
information relating to standard material cost of a chemical mixture is provided below:
• 4 tonnes of material X at TZS.20,000 per tonne.
• 6 tonnes of material Y at TZS.30,000 per tonne.
The standard yield is 90% of input.

Data relating to a just completed period provide that 9.1 tonnes of output were produced at
the following cost:
• 4.5 tonnes of material X at TZS.15,000 per tonne.
• 5.5 tonnes of material Y at TZS.34,000 per tonne.

REQUIRED:
(a) Calculate the following variances:
(i) Material price variance. (3 marks)
(ii) Material usage variance. (3 marks)
(iii) Material mix variance (4 marks)
(iv) Material yield variance (4 marks)

(b) Explain the relevance of planning and operational variances in performance

management. (6 marks)
Total: 20 marks)

QUESTION 5
Tayari electronics is facing stiff competition from imported goods. Its operating income
margin has been declining steadily for the past several years. The company has been forced
to lower prices so that it can maintain its market share. The operating results for the past
three years are as follows:

Details 2020 2021 2022

Sales (TZS.) 1,000,000,000 950,000,000 900,000,000
Operating income (TZS.) 120,000,000 104,500,000 94,500,000
Average operating assets (TZS.) 1,500,000,000 1,500,000,000 1,500,000,000

For the coming year, Tayari’s Managing Director (MD) plans to install a Just In Time (JIT)
purchasing and manufacturing system. She estimates that inventories will be reduced by
70% during the first year of operation producing a 20% reduction in the average operating
assets of the company, which would otherwise remain unchanged without the JIT system.
She also estimates that sales and operating income will be restored to year 2020 levels
because of simultaneous reduction in operating expenses and selling prices. Lower selling
price will allow Tayari to expand its market share.

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REQUIRED:
(a) Compute the Return On Investment (ROI), Profit Margin and Assets Turnover for
each of the years 2020, 2021 and 2022. (4 marks)

(b) Suppose that in the year 2023 the sales and operating income are achieved as
expected, but inventories remained at the same level as in 2022, compute ROI,
Profit Margin and Assets Turnover. Explain the change in ROI compared to 2022
level. (6 marks)

(c) Suppose that the sales and net operating income for 2023 remained the same as in
2022 but inventory reductions were achieved as projected, compute ROI, Profit
Margin and Assets Turnover. Explain the change in ROI compared to 2022 level.
(4 marks)

(d) Assume that all the expectations for 2023 were realized. Compute ROI, Profit
Margin and Assets Turnover. Explain the change in ROI compared to 2022 level.
(6 marks)
(Total: 20 marks)

QUESTION 6

(a) Explain the arguments for the use of “traditional absorption costing” rather than
“marginal costing” for profit reporting and inventory valuation. (4 marks)

(b) “Calculation of variances in standard costing is not an end in itself, but a means to
an end.” Discuss. (6 marks)

(c) Differentiate between the “Balanced Scorecard” and “Traditional Approach” of

performance measurement in a typical organization. (5 marks)

(d) Mchili operates a grocery shop located within a few meters from the premises of
Yunia manufacturers, and having learnt that you are a management accountant, he
has asked you to clarify how the use of Cost-Volume-Profit (CVP) analysis can
come in handy in his business.

REQUIRED:

(i) Explain the application of CVP analysis to a street grocery operator.

(1 mark)
(ii) Explain any four (4) assumptions of which the model operates.
(4 marks)
(Total: 20 marks)

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