Performance Management

F5 Performance Management

  • You can start your F5 exam by completing you knowledge module.
  • Knowledge Module

You’ll develop knowledge and skills in the application of management accounting techniques to quantitative and qualitative information for planning, decision-making, performance evaluation and control.

If you complete your knowledge module, you may start your skills module by selecting F5 exam.

To develop knowledge and skills in the application of management accounting techniques to quantitative and qualitative information for planning, decision-making, performance evaluation, and control.


On successful completion of this paper, candidates

should be able to:

A. Explain and apply cost accounting techniques

B. Select and appropriately apply decision-making techniques to facilitate business decisions and promote efficient and effective use of scarce business resources, appreciating the risks and uncertainty inherent in business and controlling those risks

C. Identify and apply appropriate budgeting techniques and methods for planning and control and use standard costing systems to measure and control business performance and to identify remedial action

D. Identify and discuss performance management information and measurement systems and assess the performance of an organisation from both a financial and nonfinancial viewpoint, appreciating the problems of controlling divisionalised businesses and the importance of allowing for external aspects



1. Activity based costing

a) Identify appropriate cost drivers under ABC.[1]

b) Calculate costs per driver and per unit using ABC.[2]

c) Compare ABC and traditional methods of

overhead absorption based on production

units, labour hours or machine hours.[2]

2. Target costing

a) Derive a target cost in manufacturing and

service industries.[2]

b) Explain the difficulties of using target costing in

service industries.[2]

c) Suggest how a target cost gap might be


3. Life-cycle costing

a) Identify the costs involved at different stages of

the life-cycle.[2]

b) Derive a life cycle cost in manufacturing and

service industries.[2]

c) Identify the benefits of life cycle costing.[2]

4. Throughput accounting

a) Discuss and apply the theory of constraints.[2]

b) Calculate and interpret a throughput

accounting ratio (TPAR).[2]

c) Suggest how a TPAR could be improved.[2]

d) Apply throughput accounting to a multi-product

decision-making problem.

5. Environmental accounting

a) Discuss the issues business face in the

management of environmental costs.[1]

b) Describe the different methods a business may

use to account for its environmental costs.[1]


1 Relevant cost analysis

a) Explain the concept of relevant costing.[2]

b) Identify and calculate relevant costs for a

specific decision situations from given data.[2]

c) Explain and apply the concept of opportunity


2. Cost volume profit analysis

a) Explain the nature of CVP analysis.[2]

b) Calculate and interpret the break-even point

and margin of safety.[2]

c) Calculate the contribution to sales ratio, in

single and multi-product situations, and

demonstrate an understanding of its use.[2]

d) Calculate target profit or revenue in single and

multi-product situations, and demonstrate an

understanding of its use.[2]

e) Prepare break even charts and profit volume

charts and interpret the information contained

within each, including multi-product


f) Discuss the limitations of CVP analysis for

planning and decision making.

3. Limiting factors

a) Identify limiting factors in a scarce resource

situation and select an appropriate technique.[2]

b) Determine the optimal production plan where

an organisation is restricted by a single limiting

factor, including within the context of “make”

or “buy” decisions.

c) Formulate and solve multiple scarce resource

problem both graphically and using

simultaneous equations as appropriate.[2]

d) Explain and calculate shadow prices (dual

prices) and discuss their implications on

decision-making and performance

management. [2]

e) Calculate slack and explain the implications of

the existence of slack for decision-making and

performance management.[2]

(Excluding simplex and sensitivity to changes

in objective functions)

4. Pricing decisions

a) Explain the factors that influence the pricing of

a product or service.[2]

b) Explain the price elasticity of demand.[1]

c) Derive and manipulate a straight line demand

equation. Derive an equation for the total cost

function(including volume-based discounts).[2]

d) Calculate the optimum selling price and

quantity for an organisation, equating marginal

cost and marginal revenue[2]

e) Evaluate a decision to increase production and

sales levels, considering incremental costs,

incremental revenues and other factors.[2]

f) Determine prices and output levels for profit

maximisation using the demand based

approach to pricing (both tabular and algebraic

methods) .[1]

g) Explain different price strategies, including: [2]

i) All forms of cost-plus

ii) Skimming

iii) Penetration

iv) Complementary product

v) Product-line

vi) Volume discounting

vii) Discrimination

viii) Relevant cost

h) Calculate a price from a given strategy using

cost-plus and relevant cost.

5. Make-or-buy and other short-term decisions

a) Explain the issues surrounding make vs. buy

and outsourcing decisions.[2]

b) Calculate and compare “make” costs with

“buy-in” costs.[2]

c) Compare in-house costs and outsource costs of

completing tasks and consider other issues

surrounding this decision.[2]

d) Apply relevant costing principles in situations

involving shut down, one-off contracts and the

further processing of joint products.[2]

6. Dealing with risk and uncertainty in decision making

a) Suggest research techniques to reduce

uncertainty e.g. Focus groups, market


b) Explain the use of simulation, expected values

and sensitivity.[1]

c) Apply expected values and sensitivity to

decision-making problems.[2]

d) Apply the techniques of maximax, maximin,

and minimax regret to decision-making

problems including the production of profit


e) Draw a decision tree and use it to solve a

multi-stage decision problem

f) Calculate the value of perfect and imperfect



1. Budgetary systems and types of budget

a) Explain how budgetary systems fit within the

performance hierarchy.[2]

b) Select and explain appropriate budgetary

systems for an organisation, including topdown,

bottom-up, rolling, zero-base, activitybase,

incremental and feed-forward control.

c) Describe the information used in budget

systems and the sources of the information


d) Indicate the usefulness and problems with

different budget types (including fixed, flexible,

zero-based, activity- based, incremental,

rolling, top-down, bottom up, master,


e) Prepare flexed budgets, rolling budgets and

activity based budgets.[2]

f) Explain the beyond budgeting model, including

the benefits and problems that may be faced if

it is adopted in an organisation. [2]

g) Discuss the issues surrounding setting the

difficulty level for a budget.[2]

h) Explain the benefits and difficulties of the

participation of employees in the negotiation of


i) Explain the difficulties of changing a budgetary

system or type of budget used.[2]

j) Explain how budget systems can deal with

uncertainty in the environment.[2]

2. Quantitative analysis in budgeting

a) Analyse fixed and variable cost elements from

total cost data using high/low method.

b) Estimate the learning rate and learning effect[2]

c) Apply the learning curve to a budgetary

problem, including calculations on steady

states [2]

d) Discuss the reservations with the learning


e) Apply expected values and explain the

problems and benefits.[2]

f) Explain the benefits and dangers inherent in

using spreadsheets in budgeting. [2]

3. Standard costing

a) Explain the use of standard costs.[2]

b) Outline the methods used to derive standard

costs and discuss the different types of cost


c) Explain and illustrate the importance of flexing

budgets in performance management.[2]

d) Explain and apply the principle of

controllability in the performance management


4. Material mix and yield variances

a) Calculate, identify the cause of, and explain

material mix and yield variances.[2]

b) Explain the wider issues involved in changing

material mix e.g. cost, quality and performance

measurement issues.[2]

c) Identify and explain the relationship of the

material usage variance with the material mix

and yield variances.[2]

d) Suggest and justify alternative methods of

controlling production processes.[2]

5. Sales mix and quantity variances

a) Calculate, identify the cause of, and explain

sales mix and quantity variances.[2]

b) Identify and explain the relationship of the

sales volume variances with the sales mix and

quantity variances.[2]

6. Planning and operational variances

a) Calculate a revised budget.[2]

b) Identify and explain those factors that could

and could not be allowed to revise an original


c) Calculate, identify the cause of and explain

planning and operational variances for:

i) sales, including market size and market


ii) materials;

iii) labour, including the effect of the learning


d) Explain and discuss the manipulation issues involved in revising budgets.

7. Performance analysis

a) Analyse and evaluate past performance using

the results of variance analysis.[2]

b) Use variance analysis to assess how future

performance of an organisation or business can

be improved.[2]

c) Identify the factors which influence


d) Discuss the effect that variances have on staff

motivation and action.[2]

e) Describe the dysfunctional nature of some

variances in the modern environment of JIT

and TQM.[2]

f) Discuss the behavioural problems resulting

from using standard costs in rapidly changing



1. Performance management information systems

a) Identify the accounting information

requirements and describe the different types

of information systems used for strategic

planning, management control and operational

control and decision-making. [2]

b) Define and identify the main characteristics of

transaction processing systems; management

information systems; executive information

systems; and enterprise resource planning


c) Define and discuss the merits of, and potential

problems with, open and closed systems with

regard to the needs of performance


2. Sources of management information

a) Identify the principal internal and external

sources of management accounting


b) Demonstrate how these principal sources of

management information might be used for

control purposes. [2]

c) Identify and discuss the direct data capture

and process costs of management accounting

information. [2]

d) Identify and discuss the indirect costs of

producing information.[2]

e) Discuss the limitations of using externally

generated information.[2]

3. Management reports

a) Discuss the principal controls required in

generating and distributing internal


b) Discuss the procedures that may be necessary

to ensure security of highly confidential

information that is not for external


4. Performance analysis in private sector organisations

a) Describe, calculate and interpret financial

performance indicators (FPIs) for profitability,

liquidity and risk in both manufacturing and

service businesses. Suggest methods to

improve these measures.[2]

b) Describe, calculate and interpret non-financial

performance indicators (NFPIs) and suggest

methods to improve the performance


c) Analyse past performance and suggest ways for

improving financial and non-financial


d) Explain the causes and problems created by

short-termism and financial manipulation of

results and suggest methods to

encourage a long term view.[2]

e) Explain and interpret the Balanced

Scorecard, and the Building Block model

proposed by Fitzgerald and Moon.

f) Discuss the difficulties of target setting in

qualitative areas.

5. Divisional performance and transfer pricing

a) Explain and illustrate the basis for setting a

transfer price using variable cost, full cost and

the principles behind allowing for intermediate


b) Explain how transfer prices can distort the

performance assessment of divisions and

decisions made.[2]

c) Explain the meaning of, and calculate, Return

on Investment (ROI) and Residual Income (RI),

and discuss their shortcomings.[2]

d) Compare divisional performance and recognise

the problems of doing so

6. Performance analysis in not for profit

organisations and the public sector

a) Comment on the problems of having nonquantifiable

objectives in performance


b) Comment on the problems of having multiple

objectives in this sector. [2]

c) Explain how performance could be measured in

this sector [2]

d) Outline Value for Money (VFM) as a public

sector objective.[1]

e) Describe, calculate and interpret non-financial

performance indicators (NFPIs) and suggest

methods to improve the performance


f) Discuss the difficulties of target setting in

qualitative areas.[2]

g) Analyse past performance and suggest ways for

improving financial and non-financial


h) Explain the causes and problems created by

short-termism and financial manipulation of

results and suggest methods to

encourage a long term view.

7. External considerations and behavioural


a) Explain the need to allow for external

considerations in performance management,

including stakeholders, market conditions and

allowance for competitors.[2]

b) Suggest ways in which external considerations

could be allowed for in performance


c) Interpret performance in the light of external


d) Identify and explain the behaviour aspects of

performance management

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