DO NOT OPEN THIS QUESTION PAPER UNTIL YOU ARE TOLD TO DO SO

The Chartered Institute of Management Accountants 2012

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Performance Pillar
P1 Performance Operations
Tuesday 28 February 2012

Instructions to candidates
You are allowed three hours to answer this question paper.
You are allowed 20 minutes reading time before the examination begins
during which you should read the question paper and, if you wish, highlight
and/or make notes on the question paper. However, you will not be allowed,
under any circumstances, to open the answer book and start writing or use
your calculator during this reading time.
You are strongly advised to carefully read ALL the question requirements
before attempting the question concerned (that is all parts and/or sub-
questions).
ALL answers must be written in the answer book. Answers written on the
question paper will not be submitted for marking.
You should show all workings as marks are available for the method you use.
ALL QUESTIONS ARE COMPULSORY.
Section A comprises 8 sub-questions and is on pages 2 to 5.
Section B comprises 6 sub-questions and is on pages 6 to 9.
Section C comprises 2 questions and is on pages 10 to 13.
Maths tables and formulae are provided on pages 15 to 18.
The list of verbs as published in the syllabus is given for reference on page
19.
Write your candidate number, the paper number and examination subject title
in the spaces provided on the front of the answer book. Also write your
contact ID and name in the space provided in the right hand margin and seal
to close.
Tick the appropriate boxes on the front of the answer book to indicate which
questions you have answered.


TURN OVER

Performance Operations 2 March 2012

SECTION A 20 MARKS

[You are advised to spend no longer than 36 minutes on this question.]
ANSWER ALL EIGHT SUB-QUESTIONS IN THIS SECTION



Instructions for answering Section A:

The answers to the eight sub-questions in Section A should ALL be written in your
answer book.

Your answers should be clearly numbered with the sub-question number then ruled
off, so that the markers know which sub-question you are answering. For multiple
choice questions, you need only write the sub-question number and the letter
of the answer option you have chosen. You do not need to start a new page for
each sub-question.

For sub-questions 1.6 to 1.8 you should show your workings as marks are available
for the method you use to answer these sub-questions.



Question One

1.1 A decision maker who makes decisions using the expected value criterion would be
classified as:

A Risk averse

B Risk seeking

C Risk neutral
D Risk spreading
(2 marks)


1.2 A companys management is considering investing in a project with an expected life of
4 years. It has a positive net present value of $180,000 when cash flows are
discounted at 8% per annum. The projects cash flows include a cash outflow of
$100,000 for each of the four years. No tax is payable on projects of this type.

The percentage increase in the annual cash outflow that would cause the companys
management to reject the project from a financial perspective is, to the nearest 0.1%:

A 54.3%
B 45.0%
C 55.6%
D 184.0%
(2 marks)

March 2012 3 Performance Operations

1.3 PT provides expert quality assurance services on a consultancy basis. The
management of the company is unsure whether to price the services it offers at the
Deluxe, High, Standard or Low fee level. There is uncertainty regarding the mix of staff
that would be available to provide each of the services. As the staff are on different pay
scales the mix of staff would affect the variable costs of each service.

The table below details the annual contribution earned from each of the possible
outcomes.

Staffing mix Fee level
Deluxe High Standard Low
X $135,000 $140,000 $137,500 $120,000
Y $150,000 $160,000 $165,000 $160,000
Z $165,000 $180,000 $192,500 $200,000

If PT applies the minimax regret criterion, the fee level it will choose is:

A Deluxe

B High

C Standard

D Low
(2 marks)















Section A continues on the next page










TURN OVER

Performance Operations 4 March 2012

The following data are given for sub-questions 1.4 and 1.5 below

FP is a retailer of office products. For one particular model of calculator there is an
annual demand of 26,000 units. Demand is predictable and spread evenly throughout
the year. Supplies are received 2 weeks after placing the order and no buffer inventory
is required.

The calculators cost $14 each. Ordering costs are $160 per order. The annual cost of
holding one calculator in inventory is estimated to be 10% of the purchase cost.

1.4 The economic order quantity (EOQ) for this model of calculator will be:

A 2,438 units

B 771 units

C 67 units

D 2,060 units
(2 marks)


1.5 FP has decided not to use the EOQ and has decided to order 2,600 calculators each
time an order is placed. The total ordering and holding costs per annum will be:

A $5,240

B $19,800

C $208,014

D $3,420
(2 marks)


1.6 State THREE ways that an accepted bill of exchange can be used by the holder.

(3 marks)



1.7 A company is considering investing $50,000 in a project which will yield $5,670 per
annum in perpetuity. The companys cost of capital is 9% per annum.

Required:

Calculate the net present value of the project.
(3 marks)



March 2012 5 Performance Operations

1.8 PL currently earns an annual contribution of $2,880,000 from the sale of 90,000 units of
product B. Fixed costs are $800,000 per annum.

The management of PL is considering reducing the selling price per unit to $48. The
estimated levels of demand at the revised selling price and the probabilities of them
occurring are as follows:

Selling price of $48
Demand Probability
100,000 units 040
120,000 units 060

The estimated variable costs per unit at either of the higher levels of demand and the
probabilities of them occurring are as follows:

Variable cost (per unit) Probability
$21 025
$19 075
The level of demand and the variable cost per unit are independent of each other.

Required:
Calculate the probability that the profit will increase from its current level if the selling
price is reduced to $48.
(4 marks)


(Total for Section A = 20 marks)






Reminder
All answers to Section A must be written in your answer book.
Answers to Section A written on the question paper will not be submitted for
marking.




End of Section A. Section B begins on page 6





TURN OVER


Performance Operations 6 March 2012

SECTION B 30 MARKS
[You are advised to spend no longer than 9 minutes on each sub-question in this
section.]
ANSWER ALL SIX SUB-QUESTIONS. YOU SHOULD SHOW YOUR
WORKINGS AS MARKS ARE AVAILABLE FOR THE METHOD YOU USE.


Question Two

(a) JL is preparing its cash budget for the next three quarters. The following data have
been extracted from the operational budgets:


Sales revenue Quarter 1
Quarter 2
Quarter 3

$500,000
$450,000
$480,000

Direct material purchases Quarter 1
Quarter 2
Quarter 3

$138,000
$151,200
$115,600


Additional information is available as follows:

JL sells 20% of its goods for cash. Of the remaining sales value, 70% is received
within the same quarter as sale and 30% is received in the following quarter. It is
estimated that trade receivables will be $125,000 at the beginning of Quarter 1. No
bad debts are anticipated.

50% of payments for direct material purchases are made in the quarter of
purchase, with the remaining 50% in the quarter following purchase. It is estimated
that the amount owing for direct material purchases will be $60,000 at the
beginning of Quarter 1.

JL pays labour and overhead costs when they are incurred. It has been estimated
that labour and overhead costs in total will be $303,600 per quarter. This figure
includes depreciation of $19,600.

JL expects to repay a loan of $100,000 in Quarter 3.

The cash balance at the beginning of Quarter 1 is estimated to be $49,400 positive.

Required:

Prepare a cash budget for each of the THREE quarters.

(5 marks)


March 2012 7 Performance Operations


(b) Explain why sensitivity analysis is useful when dealing with uncertainty in project
appraisal.

(5 marks)



(c) TJ allows credit to customers provided that they have satisfactory trade references.
Customers however are exceeding credit terms and taking on average 55 days to pay.
In an effort to reduce the level of trade receivables, TJ is considering offering a 2%
discount to customers paying within 20 days.

Required:

(i) Calculate, to the nearest 01%, the effective annual interest rate to TJ of offering
this discount. You should assume a 365 day year and use compound interest
methodology.
(3 marks)

(ii) State TWO methods, other than asking for trade references, that TJ could use to
assess the credit worthiness of new customers.

(2 marks)

(Total for sub-question (c) = 5 marks)



(d) Environmental costs can be categorised as environmental internal failure costs and
environmental external failure costs.

Required:

Explain what is meant by both of these categories giving TWO examples of each type
of environmental cost.

(5 marks)







Section B continues on the next page










TURN OVER

Performance Operations 8 March 2012

(e) The following details have been extracted from KLs budget:

Selling price per unit $140
Variable production costs per unit $45
Fixed production costs per unit $32

The budgeted fixed production cost per unit was based on a normal capacity of 11,000
units per month.

Actual details for the months of January and February are given below:

January February
Production volume (units) 10,000 11,500
Sales volume (units) 9,800 11,200
Selling price per unit $135 $140
Variable production cost per unit $45 $45
Total fixed production costs $350,000 $340,000

There was no closing inventory at the end of December.

Required:

(i) Calculate the actual profit for January and February using absorption costing.
You should assume that any under / over absorption of fixed overheads is
debited / credited to the Income Statement each month.
(3 marks)

(ii) The actual profit figure for the month of January using marginal costing was
$532,000.

Explain, using appropriate calculations, why there is a difference between the
actual profit figures for January using marginal costing and using absorption
costing.

(2 marks)

(Total for sub-question (e) = 5 marks)



March 2012 9 Performance Operations

(f) KY makes several products including Product W. KY is considering adopting an activity-
based approach for setting its budget. The companys production activities, budgeted
activity costs and cost drivers for next year are given below:



Activity $ Cost driver Cost driver
quantity
Set-up costs 200,000 No. of set-ups 800

Inspection/quality control 120,000 No. of quality tests 400

Stores receiving 252,000 No. of purchase requisitions

1,800


Machines are reset after each batch. Quality tests are carried out after every second
batch.

The budgeted data for Product W for next year are:

Direct materials $250 per unit
Direct labour 003 hours per unit @ $18 per hour
Batch size 150 units
Number of purchase requisitions 80
Budgeted production 15,000 units



Required:

Calculate, using activity-based costing, the budgeted total production cost per unit for
Product W.

(5 marks)



(Total for Section B = 30 marks)







End of Section B. Section C begins on the next page







TURN OVER

Performance Operations 10 March 2012

SECTION C 50 MARKS

[You are advised to spend no longer than 45 minutes on each question in this
section.]

ANSWER BOTH QUESTIONS IN THIS SECTION. EACH QUESTION IS
WORTH 25 MARKS. YOU SHOULD SHOW YOUR WORKINGS AS MARKS
ARE AVAILABLE FOR THE METHOD YOU USE.


Question Three

HR is a paint manufacturer that produces a range of paints which it sells to trade and retail
outlets.

The standard material cost for 100 litres of white paint is given below:


Raw Material Volume
(litres)
Standard cost per
litre
Standard cost
$ $
A 28 140 39.20
B 27 120 32.40
C 8 365 29.20
D 260 42

109.20
105 210.00

During February, HR produced 7,800 litres of white paint using the following raw materials:

Raw Material Volume Actual cost per litre
(litres) $
A 2,800 150
B 2,700 130
C 1,000 400
D 250 1,900
8,400
There was no opening or closing inventory of raw materials.
Required:

(a) Prepare a statement that reconciles the standard material cost to the
actual material cost for February. Your statement should include the
individual material price variances, the individual material mix variances
and the total material yield variance.
(10 marks)

(b) State THREE factors that a company would need to consider before
deciding whether to investigate a variance.
(3 marks)
March 2012 11 Performance Operations


(c) HR uses skilled staff to operate the machinery that converts the raw materials for the
paint into the finished product. The standard direct labour hours for each 100 litres of
white paint produced are as follows:
8 direct labour hours at $24 per hour
During February, 640 direct labour hours were worked at a total cost of $16,500.
It has now been realised that a new wage rate of $26 per hour had been agreed with
the workers.


Required:

(i) Calculate the labour rate planning variance for February.
(2 marks)

(ii) Calculate the operational labour rate variance and the operational labour
efficiency variance for February.
(4 marks)

(d) Explain the importance of separating variances into their planning and
operational components.

You should use the figures calculated in part (c) to illustrate your answer.

(6 marks)
(Total for Question Three = 25 marks)









Section C continues on the next page












TURN OVER

Performance Operations 12 March 2012

Question Four

MGC is a private golf club that has seen a reduction in its membership over the past few
years. In an attempt to attract new members and retain existing members, the golf club
committee is considering building a golf driving range and an indoor swimming pool.

The project would require an initial expenditure of $600,000. The club has agreed to sell the
driving range and swimming pool for $30,000 at the end of 5 years. The expenditure will
qualify for tax depreciation.

The committee commissioned a market research survey at a cost of $40,000. The survey
estimated the increase in members from current levels as a result of the project. The results
were as follows:

Increase in
members
Probability
1,000 030
700 050
500 020

It is believed that the number of members will remain the same for the life of the project. The
contribution earned on membership fees received will be 55% of fee revenue in all years.

The following operating costs and revenues are expected for each year of the project. Their
values for Year 1 are:

Membership fee income $800 per member (payable at the end of each year)
Project specific overheads $120,000 (this figure does not include depreciation)

An inflation rate of 4% per annum will apply to these revenues and costs from Year 2 and for
the remainder of the project.

The clubs accountants have provided the following information:

Tax depreciation: 25% reducing balance per annum with a balancing adjustment in the
year of disposal.

Taxation rate: 30% of taxable profits. Half of the tax is payable in the year in which it
arises, the balance is paid in the following year.

Any losses resulting from this investment can be set against profits made by the
companys other business activities.

The club uses a post-tax money cost of capital of 12% per annum to evaluate projects of this
type.


March 2012 13 Performance Operations

Required:
(a)

(i) Evaluate the proposed expansion from a financial perspective. You
should use net present value as the basis of your evaluation and show
your workings in $000.

(12 marks)

(ii) Explain TWO non-financial factors that the club should consider before
making a final decision.
(4 marks)

(b) Calculate the internal rate of return (IRR) of the project.
(4 marks)
(c)

(i) Calculate MGCs real cost of capital.
(2 marks)

(ii) Explain the way in which the real cost of capital may be used to calculate
the net present value of a project when the cash flows are subject to
inflation. Your answer should consider the potential difficulties in using this
method when taxation is involved in the project appraisal.

(3 marks)
(Total for Question Four = 25 marks)





(Total for Section C = 50 marks)






End of question paper
Maths tables and formulae are on pages 15 to 18

Performance Operations 14 March 2012
























This page is blank
March 2012 15 Performance Operations

PRESENT VALUE TABLE

Present value of $1, that is ( )
n
r

+ 1

where r = interest rate; n = number of periods until
payment or receipt.

Periods
(n)
Interest rates (r)
1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909
2 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 0.842 0.826
3 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.751
4 0.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 0.708 0.683
5 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.621
6 0.942 0.888 0.837 0.790 0.746 0.705 0.666 0.630 0.596 0.564
7 0.933 0.871 0.813 0.760 0.711 0.665 0.623 0.583 0.547 0.513
8 0.923 0.853 0.789 0.731 0.677 0.627 0.582 0.540 0.502 0.467
9 0.914 0.837 0.766 0.703 0.645 0.592 0.544 0.500 0.460 0.424
10 0.905 0.820 0.744 0.676 0.614 0.558 0.508 0.463 0.422 0.386
11 0.896 0.804 0.722 0.650 0.585 0.527 0.475 0.429 0.388 0.350
12 0.887 0.788 0.701 0.625 0.557 0.497 0.444 0.397 0.356 0.319
13 0.879 0.773 0.681 0.601 0.530 0.469 0.415 0.368 0.326 0.290
14 0.870 0.758 0.661 0.577 0.505 0.442 0.388 0.340 0.299 0.263
15 0.861 0.743 0.642 0.555 0.481 0.417 0.362 0.315 0.275 0.239
16 0.853 0.728 0.623 0.534 0.458 0.394 0.339 0.292 0.252 0.218
17 0.844 0.714 0.605 0.513 0.436 0.371 0.317 0.270 0.231 0.198
18 0.836 0.700 0.587 0.494 0.416 0.350 0.296 0.250 0.212 0.180
19 0.828 0.686 0.570 0.475 0.396 0.331 0.277 0.232 0.194 0.164
20 0.820 0.673 0.554 0.456 0.377 0.312 0.258 0.215 0.178 0.149

Periods
(n)
Interest rates (r)
11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833
2 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.718 0.706 0.694
3 0.731 0.712 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579
4 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516 0.499 0.482
5 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402
6 0.535 0.507 0.480 0.456 0.432 0.410 0.390 0.370 0.352 0.335
7 0.482 0.452 0.425 0.400 0.376 0.354 0.333 0.314 0.296 0.279
8 0.434 0.404 0.376 0.351 0.327 0.305 0.285 0.266 0.249 0.233
9 0.391 0.361 0.333 0.308 0.284 0.263 0.243 0.225 0.209 0.194
10 0.352 0.322 0.295 0.270 0.247 0.227 0.208 0.191 0.176 0.162
11 0.317 0.287 0.261 0.237 0.215 0.195 0.178 0.162 0.148 0.135
12 0.286 0.257 0.231 0.208 0.187 0.168 0.152 0.137 0.124 0.112
13 0.258 0.229 0.204 0.182 0.163 0.145 0.130 0.116 0.104 0.093
14 0.232 0.205 0.181 0.160 0.141 0.125 0.111 0.099 0.088 0.078
15 0.209 0.183 0.160 0.140 0.123 0.108 0.095 0.084 0.079 0.065
16 0.188 0.163 0.141 0.123 0.107 0.093 0.081 0.071 0.062 0.054
17 0.170 0.146 0.125 0.108 0.093 0.080 0.069 0.060 0.052 0.045
18 0.153 0.130 0.111 0.095 0.081 0.069 0.059 0.051 0.044 0.038
19 0.138 0.116 0.098 0.083 0.070 0.060 0.051 0.043 0.037 0.031
20 0.124 0.104 0.087 0.073 0.061 0.051 0.043 0.037 0.031 0.026


Performance Operations 16 March 2012

Cumulative present value of $1 per annum, Receivable or Payable at the end of each year for n
years
r
r
n
+ ) (1 1


Periods
(n)
Interest rates (r)
1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909
2 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736
3 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487
4 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170
5 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791
6 5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355
7 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868
8 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335
9 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759
10 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145
11 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495
12 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814
13 12.134 11.348 10.635 9.986 9.394 8.853 8.358 7.904 7.487 7.103
14 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367
15 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.061 7.606
16 14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.313 7.824
17 15.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.022
18 16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.201
19 17.226 15.679 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365
20 18.046 16.351 14.878 13.590 12.462 11.470 10.594 9.818 9.129 8.514

Periods
(n)
Interest rates (r)
11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833
2 1.713 1.690 1.668 1.647 1.626 1.605 1.585 1.566 1.547 1.528
3 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106
4 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589
5 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991
6 4.231 4.111 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326
7 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605
8 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837
9 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031
10 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192
11 6.207 5.938 5.687 5.453 5.234 5.029 4.836 4.656 4.486 4.327
12 6.492 6.194 5.918 5.660 5.421 5.197 4.988 7.793 4.611 4.439
13 6.750 6.424 6.122 5.842 5.583 5.342 5.118 4.910 4.715 4.533
14 6.982 6.628 6.302 6.002 5.724 5.468 5.229 5.008 4.802 4.611
15 7.191 6.811 6.462 6.142 5.847 5.575 5.324 5.092 4.876 4.675
16 7.379 6.974 6.604 6.265 5.954 5.668 5.405 5.162 4.938 4.730
17 7.549 7.120 6.729 6.373 6.047 5.749 5.475 5.222 4.990 4.775
18 7.702 7.250 6.840 6.467 6.128 5.818 5.534 5.273 5.033 4.812
19 7.839 7.366 6.938 6.550 6.198 5.877 5.584 5.316 5.070 4.843
20 7.963 7.469 7.025 6.623 6.259 5.929 5.628 5.353 5.101 4.870
March 2012 17 Performance Operations

FORMULAE
PROBABILITY

A B = A or B. A B = A and B (overlap).
P(B | A) = probability of B, given A.

Rules of Addition
If A and B are mutually exclusive: P(A B) = P(A) + P(B)
If A and B are not mutually exclusive: P(A B) = P(A) + P(B) P(A B)


Rules of Multiplication
If A and B are independent:: P(A B) = P(A) * P(B)
If A and B are not independent: P(A B) = P(A) * P(B | A)

E(X) = (probability * payoff)



DESCRIPTIVE STATISTICS

Arithmetic Mean
n
x
x

=
f
fx
x

= (frequency distribution)

Standard Deviation
n
x x
SD
2
) (
=
2
2
x
f
fx
SD

= (frequency distribution)

INDEX NUMBERS

Price relative = 100 * P1/P0 Quantity relative = 100 * Q1/Q0

Price: 100 x
w
P
P
w
o
1

|
|
.
|

\
|



Quantity: 100 x
1
w
Q
Q
w
o

|
|
.
|

\
|



TIME SERIES

Additive Model
Series = Trend + Seasonal + Random

Multiplicative Model
Series = Trend * Seasonal * Random

Performance Operations 18 March 2012

FINANCIAL MATHEMATICS

Compound Interest (Values and Sums)
Future Value S, of a sum of X, invested for n periods, compounded at r% interest
S = X[1 + r]
n


Annuity
Present value of an annuity of $1 per annum receivable or payable for n years, commencing in one
year, discounted at r% per annum:

PV =
(
(

n
r
r
] 1 [
1
1
1


Perpetuity
Present value of $1 per annum, payable or receivable in perpetuity, commencing in one year,
discounted at r% per annum:
PV =
r
1



LEARNING CURVE

Yx = aX
b
where:
Yx = the cumulative average time per unit to produce X units;
a = the time required to produce the first unit of output;
X = the cumulative number of units;
b = the index of learning.

The exponent b is defined as the log of the learning curve improvement rate divided by log 2.

INVENTORY MANAGEMENT

Economic Order Quantity
EOQ =
h
o
C
D 2C

where: Co = cost of placing an order
Ch = cost of holding one unit in inventory for one year
D = annual demand


March 2012 19 Performance Operations

LIST OF VERBS USED IN THE QUESTION REQUIREMENTS
A list of the learning objectives and verbs that appear in the syllabus and in the question requirements for
each question in this paper.

It is important that you answer the question according to the definition of the verb.
LEARNING OBJECTIVE VERBS USED DEFINITION
Level 1 - KNOWLEDGE

What you are expected to know. List Make a list of
State Express, fully or clearly, the details/facts of
Define Give the exact meaning of
Level 2 - COMPREHENSION

What you are expected to understand. Describe Communicate the key features
Distinguish Highlight the differences between
Explain Make clear or intelligible/State the meaning or
purpose of
Identify Recognise, establish or select after
consideration
Illustrate Use an example to describe or explain
something
Level 3 - APPLICATION

How you are expected to apply your knowledge. Apply
Calculate
Put to practical use
Ascertain or reckon mathematically
Demonstrate Prove with certainty or to exhibit by
practical means
Prepare Make or get ready for use
Reconcile Make or prove consistent/compatible
Solve Find an answer to
Tabulate Arrange in a table
Level 4 - ANALYSIS

How are you expected to analyse the detail of
what you have learned.
Analyse
Categorise
Examine in detail the structure of
Place into a defined class or division
Compare and contrast Show the similarities and/or differences
between
Construct Build up or compile
Discuss Examine in detail by argument
Interpret
Prioritise
Translate into intelligible or familiar terms
Place in order of priority or sequence for action
Produce Create or bring into existence
Level 5 - EVALUATION

How are you expected to use your learning to
evaluate, make decisions or recommendations.

Advise
Evaluate
Recommend
Counsel, inform or notify
Appraise or assess the value of
Advise on a course of action




Performance Operations 20 March 2012

Performance Pillar
Operational Level Paper
P1 Performance Operations
March 2012