Performance
Management (PM)
September/
December 2022
Examiner’s 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 those sitting the exam in the
future.
Contents
General comments .............................................................. 2
Section A ............................................................................. 2
Example 1 ........................................................................ 2
Example 2 ........................................................................ 3
Example 3 ........................................................................ 4
Example 4 ........................................................................ 5
Section B ............................................................................. 7
Question 1........................................................................ 8
Question 2........................................................................ 9
Question 3...................................................................... 10
Question 4...................................................................... 11
Question 5...................................................................... 12
Section C ........................................................................... 13
Question 1 – Wyeland Police Forces ........................... 13
Requirement (a) – 3 marks ............................................ 13
Requirement (b) – 17 marks .......................................... 14
Question 2 – Keytone Co ............................................... 16
Requirement (a) - 13 marks ........................................... 17
Requirement (b) – 3 marks ............................................ 20
Examiner’s
– PM
September/December 2022
Requirement
(c) –report
4 marks
............................................
21
1
General comments
This examiner’s report should be used in conjunction with the published
September/December 2022 sample exam which can be found on the ACCA Practice
Platform.
In this report, the examining team provide constructive guidance on how to answer
the questions whilst sharing their observations from the marking process,
highlighting the strengths and weaknesses of candidates who attempted these
questions. Future candidates can use this examiner’s report as part of their exam
preparation, attempting question practice on the ACCA Practice Platform, reviewing
the published answers alongside this report.
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 offer detailed
debriefs of selected questions from each section of the exam.
•
•
•
Section A objective test questions – we focus on four specific questions that
caused difficulty in the September/December 2022 sittings of the exam.
Section B objective test case questions – here we look at one case from
section B in detail.
Section C constructed response questions – here we provide commentary on
two questions, providing guidance on answering these questions and where
exam technique could be improved, including in the use of the CBE
functionality in answering these questions.
Section A
In this section we will look at FOUR Section A questions which proved to be
particularly difficult for candidates.
Example 1
Mouse Co has a current ratio of 1.6:1. Inventory represents 30% of its current
assets. Mouse Co has no positive cash balances but does have an overdraft.
If it sells half of its inventory for cash at a mark-up of 100% and uses the
proceeds to reduce its overdraft, what will its current ratio be (to two decimal
places)?
____________ :1
What does this test?
 The understanding of the current ratio
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What is the correct answer?
 The correct answer is 2.62
The first step in answering this question is to work out how the existing current ratio
of 1.6:1 has been calculated.
The current assets including inventory are 1.6, and the current liabilities are 1.
Inventory represents 30% of the current assets, so 1.6 x 30% = 0.48. Other current
assets are therefore 1.6 – 0.48 = 1.12.
The existing current ratio can therefore be show as:
((Inventory 0.48) + (other current assets 1.12))/(current liabilities 1) = 1.6:1
If half of the inventory is sold for a mark-up of 100%, 0.24 of the inventory is sold for
0.48. The cash received for the sale is used to reduce the overdraft, therefore this is
deducted from the current liabilities total of 1.
This means that after the sale, the current ratio will be:
((Inventory 0.48 - 0.24) + (other current assets 1.12))/(current liabilities 1 - 0.48) =
2.615, rounded to 2.62.
Example 2
Zul Co manufactures a single product, the Zoot, which is made from a mix of two
chemicals: A and B. The company accounts for environmental costs using
input/output analysis.
Chemical A costs $1,000 per tonne and chemical B costs $1,500 per tonne. Any
chemicals which are wasted in the production process must be disposed of at a cost
of $250 per tonne.
June's production run used 10 tonnes of chemical A and 50 tonnes of chemical B.
Total output of Zoot was 54 tonnes.
What is the environmental cost of June's production run?
Options:
A.
$7,000
B.
$1,500
C.
$8,500
D.
$10,000
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What does this test?
 The understanding of the input/output technique for accounting for environmental
costs
What is the correct answer?
 The correct answer is D. $10,000
First calculate the inputs:
Chemical A
Chemical B
Input (tonnes)
10
50
60
Cost per tonne
$1,000
$1,500
Total cost
$10,000
$75,000
$85,000
The total output was 54 tonnes, meaning that there was wastage of 6 tonnes (60 –
54).
The environmental cost includes the cost of the 6 tonnes wasted plus the cost of
disposing of the wasted 6 tonnes.
Cost of chemicals wasted
Cost of disposal
Total cost of wastage
((6/60) x 85,000)
(6 x $250)
$8,500
$1,500
$10,000
Distractors:
If $8,500 was selected, this answer did not account for the disposal cost.
If $1,500 was selected, this answer did not account for the costs of the wasted
output.
If $7,000 was selected, this incorrectly deducted the disposal cost from the cost.
Example 3
Research has shown that variance analysis is less relevant in the modern
environment of just-in-time production (JIT) and total quality management (TQM).
A company's production manager has made the following statements:
(1)
A JIT system relies on long-term contracts with suppliers and so the material
price variance is less relevant
(2)
The main focus of TQM is quality, while the main focus of variance analysis is
cost reduction
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Indicate, by clicking on the relevant boxes in the table below, whether each of
the manager's statements support the research findings.
What does this test?
 The understanding of standard costing at its relevance in the modern
environment
What is the correct answer?
 The correct answer is Statement 1: YES, Statement 2: YES
Statement 1: Under a JIT system, a company relies on good relationships with its
suppliers. Ensuring deliveries from suppliers are obtained when required and of the
quality required is critical to the success of a JIT system. Companies will therefore
not shop around for cheaper supplies on a regular basis and will experience stable
material prices, meaning that the material price variance is less relevant. This
statement is correct.
Statement 2: The focus of TQM is quality, getting things right first time and
continuous improvement. This is at odds with standard costing and variance analysis
where the focus is on cost reduction, with no consideration of quality. This statement
is correct.
Example 4
The frequency of a management report's preparation can be varied to increase the
completeness of the information provided.
The following diagram shows how the costs and benefits of the information provided
by the management report vary at four different levels of completeness.
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Identify, by clicking on the graph, the optimum percentage of completeness for
the report.
What does this test?
 The cost benefit considerations when generating internal information
What is the correct answer?
 The correct answer is anywhere within the red box
This is a hot spot question which requires the candidate to click on the correct area
of the diagram provided.
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When producing information, it is important to consider the costs involved in
producing the information against the benefits which will be derived from the
information in order to ensure that the net benefit is maximised.
The diagram has two lines, one showing the costs of producing the information and
the other showing the benefits of the information. The percentages of completeness
are shown on the x axis and the $ cost and benefit is shown on the y axis.
The net benefit of the information will occur when the positive gap between the
benefits and costs is maximised. From the diagram, it can be seen that this will occur
at 50% completeness.
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Section B
In this section we will look in detail at a case covering pricing decisions from syllabus
area C – Decision-making techniques.
Skulpt Co
Skulpt Co is a manufacturer of electronic goods. One electronic device it produces,
and sells is the GSA. There are between 30 to 50 other suppliers of similar, but not
identical, devices in Skulpt Co’s markets. Each producer enjoys varying levels of
customer and brand loyalty.
The current selling price for the GSA is $250 and Skulpt Co's directors are
considering a reduction in price to $230. Market research commissioned by the
company has suggested that the price elasticity of demand for the GSA is 1.25.
The same market research suggests that the price (P) schedule and marginal
revenue (MR) schedule for the GSA in its current markets are as follows:
P=
MR =
450 - 0.2Q
450 - 0.4Q
Production and selling costs for one GSA are as follows:
Cost per unit
($)
Variable production cost
Variable selling and distribution cost
Fixed production cost
Fixed selling and distribution cost
30
24
40
18
112
New customer order
A new customer, LOK Co, has approached Skulpt Co with a bespoke, one-off order
of 5,000 units of the GSA. The units will be produced in Skulpt Co’s factory along
with all of its usual production and delivered to LOK Co using Skulpt Co’s usual
distribution channels. The order is considered bespoke as LOK Co has requested
some additional finishing in the production process which will generate an extra
production cost of $6 per unit. The units must also be delivered using a special
packaging costing $2 per unit. The special packaging will be paid for and supplied by
LOK Co.
The variable production cost of the GSA includes the current purchase price of $7
per unit for an electronic chip. As the GSA is a popular product the chips are in
constant use and Skulpt Co has sufficient inventory of these chips to satisfy LOK
Co’s order. The chips in inventory were purchased several months ago at a
discounted rate of $5 each.
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A mark-up of 20% is usually added for all one-off orders.
New market
Skulpt Co wants to sell to the country of Harekish which now allows the sale of the
GSA, following a change in its laws. Skulpt Co's objectives are to:
•
•
Set a minimum acceptable price which is most likely to discourage new
entrants; and
Shorten the initial period of the product life cycle in Harekish to reach the
growth and maturity stages quickly.
Question 1
Which of the following factors is LEAST likely to be considered by Skulpt Co
when setting its prices in its home market?
Options:
A.
Customer demand
B.
Manufacturing costs
C.
Competitors’ prices
D.
Currency in its home market
Options:
 The correct answer is D: Currency in its home market
The question asks about setting the price in the home market, and which of the
factors would have the LEAST impact.
There are no currency issues to consider if we are only looking only at the home
market. This is the least likely to concern the company when setting the price in the
home country.
Distractors:
Customer demand – This is driven largely by price and so would be a key factor in
setting the price.
Manufacturing Costs – Businesses must cover their costs in the long run so costs
are also a key factor in setting prices.
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Competitors' prices – In this market although the products are not identical, any large
deviations in prices between competitors will see some customers move to the
cheaper products when they are similar. This is therefore also a key factor.
Question 2
Which of the following statements about the price elasticity of demand for the
GSA is true?
Options:
A.
Its demand is price elastic and revenue will increase if the price is decreased to
$230
B.
Its demand is price elastic and revenue will decrease if the price is decreased
to $230
C.
Its demand is price inelastic and revenue will increase if the price is decreased
to $230
D.
Its demand is price inelastic and revenue will decrease if the price is decreased
to $230
 The correct answer is A: Its demand is price elastic and revenue will increase
if the price is decreased to $230
If demand is price elastic the percentage of units demanded changes at a greater
rate than the price per unit. If the price goes down the number of units sold
(demanded) goes up by a greater amount, so the revenue will increase:
This can be proved by comparing the revenue earned at the current price of $250
and the revenue earned at the lower price of $230.
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Current price = $250
Price schedule:
P = $250:
Rearrange and solve for Q:
Revenue at P = $250 and Q = 1,000:
P=450-0.2Q
250=450-0.2Q
0.2Q=450-250
0.2Q=200
Q=1,000
1,000x250 = $250,000
Reduced price = $230
Price schedule:
P = $230:
Rearrange and solve for Q:
Revenue at P = $230 and Q = 1,100:
P=450-0.2Q
230=450-0.2Q
0.2Q=450-230
0.2Q=220
Q=1,100
1,100x230 = $253,000
Reducing the price from $250 to $230 will lead to an increase in revenue from
$250,000 to $253,000.
Question 3
What is the profit-maximising price for the GSA (to the nearest whole $)?
$___________
 The correct answer is $252
Profit is maximised when marginal revenue (MR) = marginal cost (MC).
In questions like this, we can substitute variable cost for marginal cost. Variable
costs are those that vary with the level of production. From the data given, total
variable costs = $30 + $24 = $54.
Marginal revenue (MR)
Marginal cost (MC)
Equate MR = MC
Rearrange and solve for Q:
Use Q = 990 in price equation
Solve for P
450-0.4Q
54
54=450-0.4Q
0.4Q=450-54
0.4Q=396
Q=990
P = 450-(0.2 x 990)
P = 252
P = $252 = Profit maximising price
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Question 4
What is the minimum price per unit which could be set by Skulpt Co in respect
of LOK Co’s order of the GSA (to the nearest whole $)?
$ ____________
 The correct answer is $60
A minimum price requirement relates to relevant cost. Relevant costs are future
incremental costs which will only be incurred if the contract for LOK Co is fulfilled.
In this question, the best approach is to go through each cost given and decide
whether or not it is relevant to the one-off order for LOK Co.
In terms of the production and selling costs, the full cost per unit of one GSA is $112,
but the only relevant costs are the variable production costs ($30) and the variable
selling and distribution costs ($24). The total fixed production and fixed selling and
distribution costs will not change as a result of the LOK Co order.
Considering the other costs, the LOK Co order requires extra finishing which will
generate additional production costs of $6 per unit. This is a relevant cost as it would
not be incurred if the LOK Co order is not fulfilled.
The $2 required for the additional packaging will be paid for and supplied by LOK Co
so should not be included in the minimum price to be charged by Skulpt Co.
The electronic chip cost of $7 is included in the variable cost of $30 so should not be
double counted.
The mark-up of 20% should not be included in the calculation of the minimum price.
The minimum price for the LOK Co order is therefore (30 + 24 + 6) = $60.
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Question 5
Which TWO of the following pricing strategies are most appropriate for Skulpt
Co in order to achieve its objectives in relation to selling the GSA in Harekish?
Options:
A.
Transfer pricing
B.
Market skimming
C.
Market penetration
D.
Relevant cost pricing
E.
Price discrimination by product version
F.
Complementary product pricing
 The correct answer is C. Market penetration and D. Relevant cost pricing
Skulpt Co’s objectives are to discourage new entrants and shorten the initial period
of the product life cycle.
Market penetration pricing involves setting an initially low price in order to grow the
customer base quickly. This would allow Skulpt Co to shorten the initial period of the
product life cycle and reach the growth and maturity stages quickly.
Using a relevant costing approach would result in arriving at the minimum price for
the GSA which would fit with objective of setting a minimum acceptable price to
discourage new entrants.
Market skimming involves setting an initially hight price which can be lowered at a
later stage. This would not assist Skulpt Co in meeting its objectives.
Skulpt Co is following a price discrimination strategy but based on location rather
than product version.
Transfer pricing and complementary product pricing are not suitable for Skulpt Co's
objectives.
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Section C
In this section we will look in detail at TWO constructed response questions from
different syllabus areas. The full questions and solutions have been published and
are available on the ACCA Practice Platform.
Question 1 – Wyeland Police Forces
This question is from the Performance measurement and control area of the syllabus
(section E), specifically focussing on performance appraisal in a Not-For-Profit (NFP)
organisation using the 3E’s – Economy, Efficiency and Effectiveness.
The question relates to the country of Wyeland and three of its regions. The
Government of Wyeland intends to cut the funding for police forces. Information
regarding the objectives and performance data are given for the police forces in the
three regions.
There are two requirements – a knowledge-based explanation of the 3E’s, followed
by a traditional performance assessment question.
Looking at the two parts in more detail.
Requirement (a) – 3 marks
(a) Explain the terms economy, efficiency and effectiveness (3Es) in a value
for money context.
This should be a straightforward requirement. The 3Es have been regularly
examined in recent years, and it should come as no surprise to see questions such
as this. Unfortunately, many answers to this requirement were not detailed enough to
score well. A common example of this was explanations of economy only mentioning
low costs – without also explaining the need to maintain acceptable quality. This
does not cover the ‘Value for Money’ aspect of the requirement – costs can easily be
reduced, but this does not necessarily provide value.
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Some candidates provided examples to aid their explanation, and this approach was
more successful. It is also a good revision technique as remembering real-world
examples is usually easier than learning textbook definitions.
Requirement (b) – 17 marks
(b) Using the 3Es headings in the template provided, assess the
performance of each of the Northern, Central and Southern police forces in
Wyeland for the year ended 30 June 20X8.
Note: There are 5 marks available for calculations and 12 marks available for
discussion.
This should have been a familiar requirement – performance assessment questions
are a staple of the Performance Management syllabus, and questions such as this
asking for use of a particular framework are very common.
As the headings required to answer this question were given in the template, the
structure of the response should be obvious – for each heading (Economy, Efficiency
and Effectiveness), candidates should choose appropriate performance measures
and discuss each regions’ performance based on these.
The most important skill on questions such as this is to use the scenario to
determine what measures are important to the organisation. This will come in the
form of commentary on previous performance or targets, as well as any figures
given. Usually, the measures given will require further work to allow meaningful
comparison, which is why calculation marks are available.
A very common reason that candidates do not score well on this type of question is
that not enough, or irrelevant, calculations are performed. This report will focus on
the best way to identify what to calculate.
Looking at this question, there are three regions, so each calculation will need to be
performed three times. As a rough guide, small calculations tend to pick up 0.5
marks each – the most common example of this is a percentage change. Doing the
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same thing three times is unlikely to pick up only 0.5 marks, so 1 mark per set of
three calculations is a good estimate. Looking at previously published exam
questions should help with this sort of judgement.
Many candidates only presented one or two calculations. This had two effects –
obviously, calculation marks were low, but this also gave them less to talk about in
their discussion, making marks hard to award. This shows how important it is to read
the scenario carefully to identify possible calculations.
Reading the scenario, the key highlights are:
•
•
•
•
A budget cut of 3% - this will have a big effect on Economy, as well as
Efficiency.
Three objectives given – it is essential that we use these to judge
performance.
National target of 50% of crimes solved within a year – again this is crucial – it
is expected that this is measured.
Table of performance measures – we need to use this to choose our
calculations.
It is worth stressing again that the measures cannot (effectively) be used on their
own. There is absolutely no point saying that Northern has performed better than
Central and Southern because it has solved more crimes. Using absolute measures
such as this a very common error and does not give meaningful discussion – and
does not score any calculation marks. It is very hard to make a point worth a mark if
you are comparing things which are not really comparable.
What is required is relative measures – either percentages or something per
something else (per means divided by when calculating). We can also look at the
objectives and targets to try and establish what works:
Reduce rates of crime – crime rates mean how much crime there is per person.
This information is given – number of crimes reported, and population size, making
this calculation relatively easy.
Identify offenders and bring them to justice – this would be to do with solving
crimes. Again, just looking at the absolute numbers will not help. The target of 50%
should help here – we need to know what percentage of crimes were solved within a
year, so crimes solved/crimes reported.
We could also look at how well each police force’s resources have been used – it
would be easier to solve crimes with a larger police force, so another valid
calculation would be crimes solved per employee.
Provide the best possible protection and support for individuals and
communities - we are looking at the population again here – providing more police
means giving more support, so number of police per population member makes the
most sense.
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Just by looking at the targets and matching the information provided, there are four
calculations available. This would give plenty to talk about and score a very strong
passing grade. The other clue was the 3% reduction in budget – the total cost per
region is given but again we need relative figures, cost per population member or
cost per employee would be good measures of cost control.
Once the calculations have been identified and performed, the discussion should
follow from there. Discussion points must be allocated to the correct 3E category, but
this should not provide as much of a challenge as identifying what needs to be
calculated.
The full solution can be found on the ACCA Practice Platform. It is worth reviewing
the published answers alongside this report to see how the calculations are used.
Remember that the suggested solution makes more points than a candidate under
exam pressure would be expected to come up with, but it’s worth noting how the
points use the calculations. The points made add value to the discussion rather than
just saying ‘this is good’ or ‘this is bad’. Use of the information in the scenario is key
to picking up discussion marks.
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Question 2 – Keytone Co
This question is from the Decision making techniques area of the syllabus (section
C), specifically focussing on dealing with risk and uncertainty in decision-making.
Keytone Co is a manufacturing company that has recently developed a new product
and it is attempting to work out the optimum production plan for the product.
Information regarding the potential levels of demand and the associated probabilities
are given, together with selling prices and costs for different levels of production and
sales demand.
The question asked candidates to construct a payoff table based on differing levels
of sales demand and production volumes, then to make a decision on the production
level based on expected values. The question then asked for the maximum fee that
the company would pay for perfect information. The final area of the question was to
discuss whether expected values was appropriate in this circumstance given the
scenario, and if there were any more appropriate alternative decision-making
techniques.
Looking at each part in detail:
Requirement (a) – 13 marks
(a) Construct a payoff table to show all the possible profit outcomes and
recommend the level of production Keytone Co should choose based on
expected values.
This was a technical question which needed a methodical approach to the numbers.
There were three possible levels of production and demand (3,000, 3,500 and
4,000), meaning nine possible profit outcomes.
Candidates should have split the costs into those that were variable and stepped
based on production, variable based on sales demand, together with sales prices
which were variable based upon sales demand.
The most common issue was that candidates did not consider the question
thoroughly enough and failed to categorise which costs or prices changed as a result
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of demand or production. For example, most candidates were comfortable with the
variable costs of production increasing as the production increased, however, there
were also selling and distribution costs which would vary based upon sales demand
and not because of production. It was a common error that candidates categorised
these selling and distribution costs as variable costs of production.
Another common issue with candidate’s solutions was that there was a lack of
recognition that if production was more than the demand, the production costs would
still be incurred at the production volume of units, but the revenue for the same
volume of production would not be realised.
As the scenario was fairly short with all information laid out in tables, it should have
been straightforward to have identified that there were nine possible profit outcomes.
The possible outcomes were as follows:
Demand at 3,000 units and production at 3,000, 3,500 and 4,000 units
Demand at 3,500 units and production at 3,000, 3,500 and 4,000 units
Demand at 4,000 units and production at 3,000, 3,500 and 4,000 units
Candidates needed to take their time before starting the calculations, using the
information in the requirements which clearly stated that a payoff table was required,
this would have ensured there would have been structure within candidate’s
answers. Care needed to be taken to understand using the scenario, especially
when there are cash flows that are related to different factors.
Candidates who did not put the information in a payoff table largely failed to
recognise that there were nine potential outcomes for the profit, many only identified
the three potential outcomes, when the demand was the same as the production
volume.
This led to some correct calculations of the basic figures such as variable costs and
sales prices. Where the calculations for these three profit outcomes were correct,
there was the potential to award marks even if the final figure was incorrect (for
example if a variable cost per unit of production was incorrectly calculated but the
volume and price was correct).
Another common error was considering that the sales and distribution cost was
related to the number of produced units and not to the number of sold units. Meaning
an incorrect treatment of this cost as it was treated as a variable production cost,
when in actual fact it was a variable sales cost.
The correct approach (linked to the payoff table):
Correctly identifying that there would be nine possible profit outcomes and displaying
this in a table with sales demand on one axis and production on the other. The table
should show all three possible sales demand volumes with all three possible
production volumes.
The following steps should have been followed:
•
Relating the sales volume to the sales price and ensuring that the sales and
distribution costs were deducted from this.
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•
Ensuring that the change in sales price for any volume above 3,500 units from
$35 to $33 was taken account of.
•
Calculating the production costs at the three different levels of production.
•
Calculation the stepped costs for the three different levels of production.
•
Completing the payoff table with sales (less sales and distribution costs) less
all the costs of production at the possible production volumes (not the sales
volumes), ensuring that if production was greater than demand that sales
could not be increased beyond the demand, or that if demand was lower than
production that the sales could also not be increased beyond what had been
produced.
When approaching a question requiring any calculations, it is important to lay work
out in a logical manner, this means that there is a trail available for someone to
follow whilst marking. There are marks available for the process, not just the correct
numbers. Candidates that have calculated figures on their calculators and then input
this number straight into the spreadsheet usually have low scores if there has been
one mistake as there is no way for the marker to work out how the calculation came
about.
As mentioned earlier, pausing and spending a couple of minutes at the start to truly
absorb the question and requirements can focus attention and improve scores
significantly.
The second part of the requirement was to recommend the level of production based
on expected values.
The correct approach (linked to the expected values):
To answer this part of the requirement, candidates had to identify that the sales
volume was the variable that had estimated probabilities associated with it, and
therefore had to calculate the expected profit for each of the three different sales
volumes and decide on the highest expected value of the three.
Some candidates ignored this part of the requirement with no further calculations, or
calculated the expected values based on production volumes and not on the sales
demand.
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Requirement (b) – 3 marks
(b) Calculate the maximum fee which Keytone Co would be prepared to pay the
market research company for the information about actual demand levels.
To be able to score well on this requirement candidates were expected to show the
process that they would follow, even in if their numbers from part (a) had been
incorrect.
To calculate the value of perfect information candidates had to calculate a further
expected value (EV) for when the sales demand matched the production volume (as
this would result in the greatest profit at each sales demand as there would have
been no excess production and no lost sales (due to lack of demand)). The
difference between this expected value and the expected value calculated in (a) is
the amount Keytone Co would be prepared to pay for perfect information.
If candidates displayed this approach, it would have been clear that they understood
how to calculate the fee that Keytone Co would have been willing to pay for this
information based on the increase in the expected values.
Where there were calculations to show that the candidate was able to complete this
process then credit was awarded, even if candidates had only calculated the three
profit figures in part (a).
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Requirement (c) – 4 marks
(c) Briefly discuss whether it is appropriate for the managing director to use
expected values as a basis for making the decision about the production level
of Protein Power and explain ONE alternative decision criterion which might
be more useful.
To earn good marks here candidates were expected to identify when expected
values would be appropriate and why they would or would not be appropriate here.
Parts (a) and (b) were not needed to be able to answer part (c) where relatively easy
marks could have been obtained.
Expected values are suitable when the decision maker is risk neutral, however the
scenario states that the managing director is risk adverse, so therefore expected
values would not be appropriate.
As this requirement was worth four marks and there was only one alternative
decision criterion to explain, candidates should be able to recognise that there would
have been more than just one example of when expected values are appropriate and
if it was appropriate in this situation. This also meant that reading the scenario in full
would have helped.
If candidates listed when expected values were appropriate without relating this to
the question, then they were not answering the question set.
As only one alternative decision-making criterion was requested, only one was
required, but there was also a need for an explanation of the criterion. Stating it
alone would not have been sufficient to gain marks.
The quality of answers offered here showed that candidates either spent too long on
the calculations in (a) or did not read the scenario again to pull out anything which
would help them identify if expected values were appropriate. This highlighted that
candidates did not take time to appreciate what the requirement was asking them to
explain. It was recognised that some candidates answered the question that they
thought they were being asked, rather than what they were actually being asked.
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In questions like this, candidates should always read the requirements before the
scenario, so they are aware of what is expected, and this helps in forming a plan of
how they are going to answer the question.
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