EXAMINATION : INTERMEDIATE LEVEL

SUBJECT : PERFORMANCE MANAGEMENT

CODE : B5

EXAMINATION DATE : FRIDAY, 5TH MAY, 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 7 printed pages.

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SECTION A
Compulsory Question
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QUESTION 1

A firm produces five (5) different products from a single raw material. Raw material is
available in abundance at TZS.6 per kg. The labour rate is TZS.8 per hour for all products.
The plant capacity is 21,000 labour hours for the budget period. Production facilities can
produce the products: Factory overhead is TZS.8 per hour, comprising TZS.5.60 per hour
fixed overhead and TZS.2.40 per hour as variable overhead. The selling commission is 10%
of the product price. Below are given information of the company about their activities.

Product Market Selling price Labour hours Raw Material

demand TZS. (per unit) Required (per unit
(Units) in grams)
A 4,000 32.00 1.00 700
B 3,600 30.00 0.80 500
C 4,500 48.00 1.50 1,500
D 6,000 36.00 1.10 1,300
E 5,000 44.00 1.40 1,500

REQUIRED:

(a) Suggest a suitable sales mix which will maximize the company’s profit and
determine profit that will be earned at selected sales mix. (10 marks)

(b) Assume in above situation that, 3,500 hours of overtime working is possible. This
will result in additional fixed overhead of TZS.20,000, a doubling of labour rates and
a 50% increase in variable overheads. Evaluate the impact of overtime working on
profitability of a company. (5 marks)

(c) In different investment the investors are needed to make analysis among different
alternatives available for them to select the best alternative among all. During the
process a number of models and tools are used to come up with a conclusion.

REQUIRED:

In view of the assertation above, with examples explain the following costs as used in
decision making process:
(i) Sunk costs (2 marks)
(ii) Differential (incremental) costs (2 marks)
(iii) Committed costs (1 mark)
(Total: 20 marks)

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SECTION B
There are FIVE questions. Answer ANY FOUR questions
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QUESTION 2
Mazabe Limited manufactures and sells a consumer product Zebo. Relevant information
relating to the year ended 31st October, 2021 is as hereunder:

Raw material per unit 5 kgs at TZS.600 per kg

Actual labour time per unit (same as budgeted) 4 hours at TZS.750 per hour
Actual machine hours per unit (same as budgeted) 3 hours
Variable production overheads TZS.150 per machine hour
Fixed production overheads TZS.60 million
Annual sales 19,000 units
Annual production 18,000 units
Selling and administration overheads (70% fixed) TZS.100 million
Salient features of the business plan for the year ended 31st October 2022 are as hereunder:
(i) Sale is budgeted at 21,000 units at the rate of TZS.11,000 per unit.
(ii) Cost of raw material is budgeted to increase by 4%
(iii) A quality control consultant will be hired to check the quality of raw material. It will
help improve the quality of material produced and reduce raw material usage by 5%.
Payment will be made to consultant at TZS.20 per kg.
(iv) The management has negotiated a new agreement with labour union whereby wages
would be increased by 10%. The following measures have been planned to improve the
efficiency:
• 30% of the savings in labour cost would be paid as bonus.
• A training consultant will be hired at a cost of TZS.3,000,000 per annum to
improve the working capabilities of the workers.
• On account of the above measures, it is estimated that labour time will be reduced
by 15%.
(v) Variable production overheads will increase by 5%.
(vi) Fixed production overheads are expected to increase at the rate of 8% on account of
inflation. Fixed overheads are allocated on the basis of machine hours.
(vii) The company has a policy of maintaining closing stock at 5% of sales. In order to avoid
stock-outs, closing stock would now be maintained at 10% of sales. The closing stocks
are valued on FIFO basis.

REQUIRED:
(a) Prepare a budgeted profit or loss statement for the year ended 31st October 2022
under variable and absorption costing methods. (14 marks)
(b) Reconcile the profit worked out under the two methods. (3 marks)
(c) Explain briefly the relative strength of variable costing as compared to absorption
costing approaches. (3 marks)
(Total: 20 marks)

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QUESTION 3

(a) Malendez Transport (MT) is a transport company that has recently won a five-year
government contract to provide rail transport services. The company appointed a new
Director to take responsibility for the government contract. She has worked in
various positions in other rail transport companies for a number of years. She has put
together a team of managers by recruiting some of her former colleagues and some of
MT’s current managers.

The contract stipulates that the company should prepare detailed budgets for its first
year of operations to show how it intends to meet the various operating targets that
are stated in the contract. The new Director is undecided about whether she should
prepare the budget herself or whether she should involve her management team,
including the newly recruited managers, in the process.

REQUIRED:

Prepare a report, addressed to the new Director that discusses advantages and
disadvantages of participative budgeting and make appropriate recommendations.
(6 marks)

(b) You have been given the following data from the production and sales and billing
departments of Hashim Manufacturing Company for a yearly period:

TZS.
Fixed costs
Wages and salaries 950,000,000
Rent, rates and taxes 660,000,000
Depreciation 740,000,000
Sundry administration costs 650,000,000

Semi-variable costs (at 50%) of capacity)

Maintenance and repairs 350,000,000
Indirect labour 790,000,000
Sales department salaries 380,000,000
Sundry administration salaries 280,000,000

Variable cost (at 50% of capacity)

Materials 2,170,000,000
Labour 2,040,000,000
Other variable costs 790,000,000

Your analysis of costs from data for several years reveals that the fixed costs remain
constant at all levels of production; semi-variable costs remain constant between 45%
and 65% of capacity, increasing by 10% between 65% and 80% capacity and 20%
between 80% and 100% capacity.

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 Sales at various levels are:
Level TZS.
50% capacity 10,000,000,000
60% capacity 12,000,000,000
75% capacity 15,000,000,000
90% capacity 18,000,000,000
100% capacity 20,000,000,000

REQUIRED:

(i) Prepare a flexible budget for the year and forecast the profits at 60%, 75%, 90%
and 100% capacity. (11 marks)
(ii) Comment on the usefulness of flexible budget to the management of Hashimu
Manufacturing Company. (3 marks)
(Total: 20 marks)

QUESTION 4

Tukio Ltd manufactures a single product and has provided you with the following
information:

Budgeted data:
Budget item TZS.
Direct materials 400,000,000
Direct labour 400,000,000
Variable overheads 80,000,000
Fixed overheads 200,000,000
Sales (10,000 units) 1,350,000,000
No opening or closing stock

Variances resulting from operations during the period are provided in the table below:

Favourable Adverse
(TZS.) (TZS.)
Material price variance 66,000,000
Materials usage variance 10,000,000
Labour rate variance 6,800,000
Labour efficiency variance 12,000,000
Idle time variance 8,000,000
Variable overheads efficiency variance 2,400,000
Variable overheads expenditure variance 6,400,000
Fixed overheads efficiency variance 6,000,000
Fixed overheads capacity variance 34,000,000
Fixed overheads expenditure variance 16,000,000
Sales price variance 40,000,000
Sales margin volume variance 54,000,000

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REQUIRED:
(a) Prepare the standard cost sheet for the product. (4 marks)
(b) Prepare a statement showing total standard cost for actual output. (4 marks)
(c) Prepare the actual cost sheet for the period. (4 marks)
(d) Prepare a statement reconciling budgeted profit with the actual profit for the period.
8 marks)
(Total: 20 marks)

QUESTION 5
(a) Msema Kweli Limited have two division known as Valve Division and Pump
Division. Valve division engages in manufacturing and sales of standard valve while
the Pump Division make uses of this valve in one of its pumps. The Pump Division is
currently purchasing 10,000 valves per year from an overseas supplier at a cost of
TZS.2,900 per valve. The following information related with the production of
standard valve:

Capacity in units 100,000

Selling price to outside customers TZS.3,000
Variable costs per unit TZS.1,600
Fixed costs per unit (based on capacity) TZS.900

REQUIRED:
(i) Assume that the Valve Division has ample idle capacity to handle all the
Pump Division’s needs. What is the acceptable range, if any for the transfer
price between the two divisions? (3 marks)

(ii) Assume that the Valve Division is selling all the valves that it produces to
outside customers. What is the acceptable range, if any, for the transfer price
between the two divisions? (3 marks)

(iii) Assume again that the Valve Division is selling all of the valves that it
produces to outside customers. Also, assume that TZS.300 in variable
expenses can be avoided on transfers within the company, due to reduced
selling costs. What is the acceptable range, if any, for the transfer price
between the two divisions? (3 marks)

(b) Divisionalization is the end result of the divisionalized organizational structures

which stresses itself on giving the divisional manager’s independence to make
decision that affect their division performance.

REQUIRED:
Discuss any two (2) factors for successful divisionalization. (4 marks)
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(c) Zote Penda (ZP) enterprises have two major divisions, Mini supermarket division and
fleet division. Fleet division runs the buses on Iringa – Morogoro route.
The following is an extract from the final account of the Fleet Division for the
proceeding financial year.
The value of the fleet business having eight buses is TZS.66,000,000 less
accumulated depreciation, and net operating profit is TZS.19,800,000. One bus
purchased three years ago at the cost of TZS.15,000,000 was not performing
effectively because it was involved in the accident a year after it was purchased.
Although the damage was minor, the division manager suggested that the bus shall be
scrapped in spite of the fact that it earned a profit of TZS.600,000 in the year.
Depreciation is at the rate of 20% per annum on straight line method.
REQUIRED:
Evaluate the effect of the Division Manager’s proposal on the performance of the
fleet division, if the Return on Investment (RoI) is used to measure performance of
the divisions. (4 marks)
(d) Explain how can the concept of “benchmarking” be used to improve the performance
of a typical organization. (3 marks)
(Total: 20 marks)

QUESTION 6

(a) Differentiate between “Contribution Margin” and “Gross Margin” as performance

management concepts.” (3 marks)
(b) Explain how managers use Cost Profit Volume (CPV) analysis to make decision and
cope with uncertainty or changes in underlying assumptions. (5 marks)

(c) Budget refers to a plan quantified in monetary terms, prepared and approved prior to a
defined period of time usually showing planned income to be generated and/or
expenditure to be incurred during that period and the capital to be employed to attain a
given objective. Budgeting refers to the act of preparing budgets. There are number of
pre-requisites for the successful budgeting at all levels in an organization.

REQUIRED:

Explain any four (4) conditions necessary for effective budgeting. (4 marks)

(d) Evaluate any four (4) benefits of life cycle costing in an organization. (4 marks)

(e) Comment on whether the management of a company should relax whenever has
favourable variances and only investigate whenever the company experiences adverse
variances. (4 marks)
(Total: 20 marks)
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