Question No 24:
Explain why non-financial performance measures are important in the service sector?
The modern service sector is extremely competitive and as a consequence if a business is to succeed it needs to ensure that it is both efficient and that is satisfies the needs of its guests. Financial performance is important but this is described as a "lagging measure" in that it reports on what has happened. Failing to meet targets can mean that profits are not achieved and that inadequate current returns are obtained. However, short term action to improve current financial performance might, in the long term, be at the expense of the company's interests. This is why modern thinking suggests that non-financial measures may be more appropriate in assessing performance. Non-financial "leading" measures indicate how well the company is doing things that can lead to future profits.
Thursday, 27 August 2015
Cima P2 Exam Questions 25
Question No 25:
Explain why non-financial performance measures are important in the service sector.
The modern service sector is extremely competitive and as a consequence if a business is to succeed it needs to ensure that it is both efficient and that is satisfies the needs of its guests. Financial performance is important but this is described as a "lagging measure" in that it reports on what has happened. Failing to meet targets can mean that profits are not achieved and that inadequate current returns are obtained. However, short term action to improve current financial performance might, in the long term, be at the expense of the company's interests. This is why modern thinking suggests that non-financial measures may be more appropriate in assessing performance. Non-financial "leading" measures indicate how well the company is doing things that can lead to future profits.
Explain why non-financial performance measures are important in the service sector.
The modern service sector is extremely competitive and as a consequence if a business is to succeed it needs to ensure that it is both efficient and that is satisfies the needs of its guests. Financial performance is important but this is described as a "lagging measure" in that it reports on what has happened. Failing to meet targets can mean that profits are not achieved and that inadequate current returns are obtained. However, short term action to improve current financial performance might, in the long term, be at the expense of the company's interests. This is why modern thinking suggests that non-financial measures may be more appropriate in assessing performance. Non-financial "leading" measures indicate how well the company is doing things that can lead to future profits.
Thursday, 20 August 2015
Cima P2 Exam Questions 23
Question No 23:
Explain, the importance of calculating planning and operational variances for responsibility centers.
The market size is not within the control of the sales manager and therefore variances caused by changes in the market size would be regarded as planning variances. However, variances caused by changes in the selling prices and consequently the selling price variances and market shares would be within the control of the sales manager and treated as operating variances. The market size variance compares the original and revised market sizes. This is unchanged for DVD players so the only variance that occurs relates to the Blu-ray players and is: 500 players x $95 = $47,500 F It is important to make this distinction because as can be seen from the scenario the measurement of the manager's performance is distorted if the revised market size is ignored. The favorable volume variance of $19,000 referred to in the sales manager's e-mail is made up of two elements, one of which, the market size, is a planning variance which is outside their control. It is this that has caused the overall volume variance to be favorable, and thus the manager is not responsible for the overall favorable performance
Explain, the importance of calculating planning and operational variances for responsibility centers.
The market size is not within the control of the sales manager and therefore variances caused by changes in the market size would be regarded as planning variances. However, variances caused by changes in the selling prices and consequently the selling price variances and market shares would be within the control of the sales manager and treated as operating variances. The market size variance compares the original and revised market sizes. This is unchanged for DVD players so the only variance that occurs relates to the Blu-ray players and is: 500 players x $95 = $47,500 F It is important to make this distinction because as can be seen from the scenario the measurement of the manager's performance is distorted if the revised market size is ignored. The favorable volume variance of $19,000 referred to in the sales manager's e-mail is made up of two elements, one of which, the market size, is a planning variance which is outside their control. It is this that has caused the overall volume variance to be favorable, and thus the manager is not responsible for the overall favorable performance
Wednesday, 12 August 2015
Cima P2 Exam Questions 22
Question No 22:
What is the differences between Target Costing and Kaizen Costing?
One of differences is that Target Costing applies before production commences whereas Kaizen Costing applies once production has commenced. Another difference is that although both Target Costing and Kaizen Costing involve making changes to improve results, Target Costing looks at making significant changes in order to reduce the expected cost until it reaches the Target Cost necessary to achieve the Target Profit from the given selling price. Kaizen Costing deals with making a number of further small improvements as a result of involving everyone in the process.
What is the differences between Target Costing and Kaizen Costing?
One of differences is that Target Costing applies before production commences whereas Kaizen Costing applies once production has commenced. Another difference is that although both Target Costing and Kaizen Costing involve making changes to improve results, Target Costing looks at making significant changes in order to reduce the expected cost until it reaches the Target Cost necessary to achieve the Target Profit from the given selling price. Kaizen Costing deals with making a number of further small improvements as a result of involving everyone in the process.
Thursday, 6 August 2015
Cima P2 Exam Questions 21
Questions No 21:
Explain how JYT could use Kaizen Costing to improve its future performance?
Kaizen Costing is a system that is used once production has commenced. Kaizen means improvement and it is applied by continually striving to improve. However, Kaizen does not look for large significant improvements; instead it is based around making small improvements continuously. It is a group effort in which everyone is involved. It should become part of every employee's daily routine to constantly look for ways to improve the workflow within the organization. Kaizen is based around a continuous circle of Plan, Do, Check, Act. Plan refers to the need to set a target for improvement as without a benchmark success cannot be measured. Do refers to the implementation of the plan. Check is the determination of whether the plan improved the process. Act means standardize the improved procedure so that it can be repeated.
Explain how JYT could use Kaizen Costing to improve its future performance?
Kaizen Costing is a system that is used once production has commenced. Kaizen means improvement and it is applied by continually striving to improve. However, Kaizen does not look for large significant improvements; instead it is based around making small improvements continuously. It is a group effort in which everyone is involved. It should become part of every employee's daily routine to constantly look for ways to improve the workflow within the organization. Kaizen is based around a continuous circle of Plan, Do, Check, Act. Plan refers to the need to set a target for improvement as without a benchmark success cannot be measured. Do refers to the implementation of the plan. Check is the determination of whether the plan improved the process. Act means standardize the improved procedure so that it can be repeated.
Thursday, 30 July 2015
Cima P2 Exam Question No 20
Question No 20:
Explain how JYT could use Target Costing
Target Costing is a system that is used when the company is unable to dictate the selling price of its products and (like JYT) is forced to accept the market price of the item it is planning to market. Once the specification of the product has been completed, then the company determines the price that the market is prepared to pay for its product. This may be discovered by market research or by considering the prices of similar items that are already available. The company then subtracts its profit target from this price to determine its cost target. If the expected product costs already meet the target cost over the life cycle of the product, taking account of any cost reductions that may occur, for example due to the benefits of the learning and experience curves, then production commences. However, it is more likely that at this initial stage the expected product costs exceed the target costs and as a result major product / process changes are made in order to achieve the target cost. If it is not possible to achieve the target cost by making these changes then the product is abandoned.
Explain how JYT could use Target Costing
Target Costing is a system that is used when the company is unable to dictate the selling price of its products and (like JYT) is forced to accept the market price of the item it is planning to market. Once the specification of the product has been completed, then the company determines the price that the market is prepared to pay for its product. This may be discovered by market research or by considering the prices of similar items that are already available. The company then subtracts its profit target from this price to determine its cost target. If the expected product costs already meet the target cost over the life cycle of the product, taking account of any cost reductions that may occur, for example due to the benefits of the learning and experience curves, then production commences. However, it is more likely that at this initial stage the expected product costs exceed the target costs and as a result major product / process changes are made in order to achieve the target cost. If it is not possible to achieve the target cost by making these changes then the product is abandoned.
Wednesday, 29 July 2015
Cima P2 Exam Question No 19
Question No 19:
Explain the likely changes that will occur in the unit selling prices AND in the unit production costs, compared to the preceding stage.
Unit selling prices
These are likely to be reducing for a number of reasons:
The product will become less unique as competitors use reverse engineering to introduce their versions of the product
PT may wish to discourage competitors from entering the market by lowering the price and thereby lowering the unit profitability
The price needs to be lowered so that the product becomes attractive to customers in different market segments thus increasing demand to achieve growth in sales volume.
Unit production costs
These are likely to reduce for a number of reasons:
Direct materials are being bought in larger quantities and therefore PT may be able to negotiate better prices from its suppliers thus causing unit material costs to reduce
Direct labour costs may be reducing if the product is labor intensive due to the effects of the learning and experience curves
Other variable overhead costs may be reducing as larger batch sizes reduce the cost of each unit
Fixed production costs are being shared by a greater number of units.
Explain the likely changes that will occur in the unit selling prices AND in the unit production costs, compared to the preceding stage.
Unit selling prices
These are likely to be reducing for a number of reasons:
The product will become less unique as competitors use reverse engineering to introduce their versions of the product
PT may wish to discourage competitors from entering the market by lowering the price and thereby lowering the unit profitability
The price needs to be lowered so that the product becomes attractive to customers in different market segments thus increasing demand to achieve growth in sales volume.
Unit production costs
These are likely to reduce for a number of reasons:
Direct materials are being bought in larger quantities and therefore PT may be able to negotiate better prices from its suppliers thus causing unit material costs to reduce
Direct labour costs may be reducing if the product is labor intensive due to the effects of the learning and experience curves
Other variable overhead costs may be reducing as larger batch sizes reduce the cost of each unit
Fixed production costs are being shared by a greater number of units.
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