ACCA APM Past Exam Rewritten - Q: Freuchie - Longer Case Q1

ACCA APM Past Exam Rewritten - Q: Freuchie - Longer Case Q1


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Exhibit 1 – Company information

Company Information

Freuchie Retail (Freuchie) is a family-owned business which sells a range of clothes from a chain of shops across Beeland. Freuchie’s mission is ‘to deliver returns to shareholders above the average for the retail sector by providing a superior customer experience from the appearance of the stores to the attractive range of clothes which are sold with enthusiasm’.

The board feels that performance has been poor compared to other similar retailers in the past five years. As a result, a new chief executive officer (CEO) was appointed a year ago and has spent this time conducting a fundamental review of the business. The review has identified a number of areas for improvement including those associated with performance reporting and management.

Exhibit 2 – Performance reporting: quantitative

2. Performance Reporting: Quantitative

The CEO is concerned that performance towards this mission and its subsidiary objectives are not being usefully discussed at board meetings. He believes that the fault lies in the board’s performance report for annual strategic review. Therefore, he wants you to do an assessment of the current performance report in two parts in light of his concern (see Appendix 1 for the most recent example). The first part of the assessment should consider the quantitative elements of the report and can include some discussion of improved indicators and also, more generally, should take into account what is best practice for reporting performance.

Exhibit 3 – Performance reporting: narrative

3. Performance Reporting: Narrative

The second part of the performance reporting assessment should be a review and rewrite of the current narrative commentary on the report. The CEO believes the current commentary is especially weak and wants a critical assessment of it, followed by an improved example based upon what you consider to be the crucial aspects of Freuchie’s performance. He stated that the improved example commentary should consist of no more than four points in order to focus attention on the key areas. You should include figures to illustrate the points you have included using the data given where it is available but some can be left blank to be filled in later if the underlying data is not available.

Exhibit 4 – Operational gearing and cost structure

4. Operational Gearing and Cost Structure

The CEO was at a business networking meeting recently where one speaker, a highly regarded management consultant, made a number of comments about fixed and variable costs, operational gearing, and the importance of these to the operation of a store. The CEO did not understand the presentation, complaining that there was too much jargon. He wants to understand what operational gearing is and how it relates to fixed and variable costs. Therefore, he wants a calculation of operational gearing for Freuchie using current data (Appendices 1 and 2) and an assessment of the implications of the result for Freuchie’s management.

Exhibit 5 – What gets measured, gets done

5. What Gets Measured, Gets Done

At the same business networking meeting, another CEO mentioned that she found the quote ‘What gets measured, gets done’ a useful starting point for thinking about the management implications of new performance indicators. She then used another list of jargon phrases that Freuchie’s CEO did not follow. As a result, the CEO wants an assessment of the problems that the quote identifies and also, how phrases such as ‘tunnel vision and sub-optimization’ might link to the quote. He wants illustrations from Freuchie’s business.

Exhibit 6 – Appendix 1 Freuchie Retail: Strategic Performance Report Year to 30 June 20X5

Budget 20X5

Actual 20X5

Actual 20X4

Costs and Profit as a % of Revenue

Change of Previous Year






Cost of Sales




Gross Profit






Staff Costs






Other Operating Costs

- Rent and Property Costs




- Marketing






- Head Office Costs










Operating Profit






Finance Costs




Group Profit Before Tax









Group Profit After Tax





Other Data:

- Number of Employees




- Dividend Per Share ($)




- Inventory Obsolescence/Loss Write-Downs ($m)




- Number of Stores





- Overall performance is satisfactory as the business has maintained its dividend.

- Revenue is up by 10.50% on the previous period.

- Gross margin has held at about 41%.

- Inventory write-downs were in line with the increased stock held at stores.

Exhibit 7 – Appendix 2 Freuchie – Additional Data

Cost of Sales Includes:

Budget 20X5

Actual 20X5

Actual 20X4

















Staff Costs:

The employees are all paid an annual salary as a fixed sum stated in their contract, except for a bonus pool of 1% of revenue which is divided up between the sales staff who exceed their target revenue.


It is now 1 September 20X5.

Write a report to the chief executive officer (CEO) of Freuchie to respond to his instructions for work on the following areas:

(i) Current performance reporting: quantitative (17 marks)

(ii) Current performance reporting: narrative (10 marks)

(iii) The calculation of operational gearing and its implications (8 marks)

(iv) The quote ‘What gets measured, gets done’ (5 marks)

Professional marks will be awarded for the demonstration of skill in communication, analysis and evaluation, scepticism and commercial acumen in your answer. (10 marks)

(Total: 50 marks)



To: The board of Fruechie Retail (Frueuchie)

From: An Accountant

Date: Sept 20X5

Subject: Performance reporting and management issues at Freuchie


This report evaluates both the quantitative and narrative aspects of the current performance report used by the board for strategic review. Next, the meaning and calculation of operational gearing are discussed for Freuchie as are the implications of the results. Finally, the quote ‘What gets measured, gets done’ is discussed, along with certain other pieces of jargon with illustrations from the situation at Freuchie.

(i) – Refer to Chapter 6 Knowledge (Performance Reports for Management)

1. Relevance to Objectives (Up to 5 marks):

  • Addresses Business Objectives (1 mark): The primary aim of Freuchie is to provide shareholder returns above the retail sector average. However, the report lacks clarity in measuring this objective against sector averages.
  • Measurement of Core Objectives (1 mark): The report partly addresses the shareholder returns through dividend payments but omits share value measurements, making it challenging to gauge total shareholder return.
  • Comparison to Industry Benchmarks (1 mark): There's no comparative analysis of Freuchie's performance against the broader retail sector's average, inhibiting strategic positioning.
  • Supporting Strategies Examination (2 marks): The strategies to achieve superior customer experience — store appearance, clothing range, and enthusiastic selling — are vaguely represented in the report, not allowing a clear insight into their execution.

2. Data Completeness and Appropriateness (Up to 7 marks):

  • Appropriate Information for Decision-making (1 mark): The report seems to be an assortment of internally-generated financial data. It lacks important external metrics which the board would need for decision-making.
  • Key Performance Indicators (1 mark): While revenue growth is highlighted, it doesn't account for the influx from newly opened stores. This misrepresentation can skew KPI interpretations.
  • Data Adjusted for Variables (1 mark): The sales data hasn't been normalized to factor in the newly added stores, leading to a misleading representation of organic growth.
  • Capital Usage and ROI (2 marks): The report misses out on representing the capital employed and the subsequent returns. This omission is critical for understanding the financial health and profitability of the venture.
  • Proper Segmentation (1 mark): The current representation fails to segregate the performance of the new stores from the existing ones, which is essential for a granular analysis.
  • Core Information for Decisions (1 mark): It lacks non-financial KPIs, such as customer experience metrics, which would offer a holistic view of the brand's health.

3. Presentation Quality (Up to 5 marks):

  • Clarity and Usability (1 mark): While the initial table is clear, much of the data presented is overly detailed or irrelevant to the mission, leading to potential information fatigue.
  • Variances Highlighted (1 mark): The report provides both budget and actuals but lacks variance insights, which are essential for performance assessments.
  • Relevance to Objectives (2 marks): The presented data does not seem directly tied to the firm's objectives, making it challenging to derive actionable insights.
  • Data Overload (1 mark): The board is presented with a deluge of internal data, which may overshadow critical external environmental insights.

4. Comparative Analysis (Up to 4 marks):

  • Trend Analysis (1 mark): The report showcases only the current year against the previous, limiting the depth of a multi-year trend analysis.
  • Competitor Performance (1 mark): There's an absence of any comparative analysis with competitors, hindering competitive positioning insights.
  • Data Against External Measures (2 marks): The report lacks a juxtaposition against external benchmarks like industry averages or competitor metrics, vital for strategic planning.

(ii) Narrative Assessment of Performance Reporting:

1. Clarity and Relevance (Total: 5 marks):

  • Evaluation of the Current Commentary (3 marks):

The narrative in the report doesn't adequately substantiate if the business is on track to meet its mission.

The focus on dividends without elaborating on total returns to shareholders or a clear statement on their capital's return is a significant oversight. Furthermore, there's only an indirect reference to subsidiary strategies via revenue growth, which is tied to sales enthusiasm.

Absence of specifics on store aesthetics, clothing range, and the appeal of items offered is a missed opportunity for clarity. For instance, the gross margin difference between years (from 40.8% to 40.6%) should be explicitly mentioned, not implied.

  • Relevance of Content (2 marks): The ending note on inventory write-downs seems misplaced. It doesn't tie back directly to the company's primary mission nor holds significant weight in terms of year-on-year change or overall impact.

2. Recommendation for Improvement (Total: 5 marks):

  • Improved Commentary Focus (1 mark): Given the mandate of focusing on a maximum of four areas, the narrative should be concise and zero in on the most pivotal aspects of the business performance. The proposed areas are: Dividend and profits, revenue growth and store performance, clothing range performance, and salesforce enthusiasm.
  • Proposed New Commentary (4 marks):
    • Dividend and Profits (1 mark): RetailX's overall performance is commendable. Even though the business has retained its dividend, there's room for improvement as profits linger at a meager 0.2% of revenue.
    • Revenue Growth and Store Performance (1 mark): A 10.5% revenue surge from the last period, mainly due to new store acquisitions, is noteworthy. However, a consistent revenue per store ($15.2m) indicates the need for enhancing the in-store customer experience.
    • Clothing Range Performance (1 mark): An impressive X% of our clothing line met the set gross margin objectives, showcasing the potential of our product range.
    • Salesforce Enthusiasm (1 mark): Our sales team's vigor is evident with X% achieving bonuses for surpassing their targets, a metric that underscores the importance of motivated personnel.

Overall, it's essential for RetailX's narrative to align more closely with its mission and key performance areas. A sharper focus, accompanied by relevant figures, can significantly enhance the clarity and relevance of the performance report.

(iii) Operational Gearing and Cost Structures:

Commentary on the General Meaning of Operational Gearing (3 marks):

Operational gearing is a metric that gauges the business risk associated with how shifts in sales volumes might influence profit declines, especially when fixed costs aren't adequately covered. A higher ratio signifies increased risk.

Essentially, it's defined as the ratio of contribution to operating profit, where contribution is the difference between revenue and variable costs. If the contribution is substantial but the operating profit remains low, as evidenced by Freuchie, it suggests that fixed costs are only marginally met.

This situation makes the company susceptible to potential losses with even slight revenue reductions, as seen in 20X4. Precise measurement of operational gearing is challenging since most costs have both fixed and variable components. In our analysis, costs have been distinctly classified based on their predominant behavior.

Calculations (5 marks):

Budget 20X5

Actual 20X5

Actual 20X4





Cost of Sales




Adjusted for:

- Other fixed costs noted




- Variable element of staff costs








Operational Gearing = Contribution/PBIT




Breakdown of the Adjustments (in relation to marks):

  • Revenue - Variable Costs (1 mark): This is depicted by the contribution row, which is revenue minus cost of sales and adjustments.
  • Variable - Excludes Other Operating Costs (1 mark): The adjustments account for the fixed costs including rent, property costs, marketing, head office costs, and more.
  • Variable - Excludes Insurance, Utilities, and Depreciation (1 mark): These costs, even though they fluctuate with the number of stores, do not usually vary based on revenue per store and are thus treated as fixed.
  • Handling Staff Costs Correctly (1 mark): Staff costs are largely fixed; however, the variable component like bonuses has been isolated and accounted for in the calculations.
  • Operational Gearing (1 mark): This is the ratio of the contribution to PBIT, depicted in the final row of the table.

Commentary on Results (2 marks):

Freuchie's results highlight the inherent risks associated with high fixed costs. The comparison between this year's and the previous year's data underscores the sensitivity of the company's profitability to revenue fluctuations.

A mere 10.5% change in revenue transitioned Freuchie from a loss-making venture to a profitable one, also amplifying the operating profit. Such financial behavior typifies Freuchie as a high-risk business, prone to volatile financial outcomes.

(iv) What gets measured, gets done

Tutorial note: Refer to Chapter 1 Knowledge Framework.

  1. Attention on Priority (1 mark):
    • Central Idea: Metrics guide the allocation of company resources, making measured areas a focal point.
    • Freuchie Context: If Freuchie continuously measures inventory losses, it indicates that inventory management is a priority, which could lead to decisions like limiting the clothing range.
  2. Behavioral Influence (1 mark):
    • Central Idea: The measurement criteria can dictate the behavior of employees, especially if their evaluations or rewards are based on these metrics.
    • Freuchie Context: If Freuchie focuses on revenue and dividends in its performance evaluations, this may inadvertently result in staff neglecting other crucial aspects like profit margins.
  3. Accountability (1 mark):
    • Central Idea: What gets measured holds someone accountable because the performance against those metrics is visible.
    • Freuchie Context: Without metrics on individual store profitability, there's a lack of accountability for store managers regarding the performance of their individual stores.
  4. Continuous Improvement (1 mark):
    • Central Idea: By measuring regularly, companies can spot trends and adjust strategies accordingly.
    • Freuchie Context: If Freuchie were to track trends in store appearance and clothing range attractiveness, they might make continuous improvements in these areas.
  5. Impact of Wrong Metrics (1 mark):
    • Central Idea: Incorrect metrics can misdirect resources and focus.
    • Freuchie Context: Over-monitoring inventory losses might detract from the main goal of having diverse and attractive clothing collections.
  6. Limitations of Over-Focusing (1 mark):
    • Central Idea: Relying heavily on a few metrics can lead to neglecting others.
    • Freuchie Context: Concentrating solely on revenue might lead to overlooking other important metrics like customer satisfaction or store aesthetics.
  7. Tunnel Vision (1 mark):
    • Central Idea: Overemphasis on specific metrics can lead to tunnel vision, where broader goals are overlooked.
    • Freuchie Context: Focusing only on measurable aspects might misalign with Freuchie's broader objectives like overall profitability or customer satisfaction.
  8. Relevance of Balanced Approach (1 mark):
    • Central Idea: While measurement is essential, a holistic view is equally important.
    • Freuchie Context: Freuchie's management should ensure a balance between measured outcomes and broader business goals for overall growth.

Marking scheme:




Maximum Marks

(i) Performance Report Assessment

Aim of performance report

1 mark


Breaking down mission

Up to 3 marks (e.g., identify priority of objectives, pick out strategies, comment on connections)


Assessment of whether report meets mission

Up to 11 marks (e.g., clear statement of inadequacy for mission, addressing each of the elements of the mission, information for relevant decision-making by the board)


Other points

Up to 5 marks (e.g., answering where growth is coming from, lack of information on capital for return on capital for shareholders, liquidity given poor profits, data overload, general presentation)


(ii) Commentary Assessment

Comments on existing commentary

Up to 5 marks (e.g., achieving its mission, measurement of three subsidiary strategies, relevance and accuracy of points made)


Proposed new commentary

1 mark for observing the requirement to have a max of four points and up to 4 marks for considering each point individually


(iii) Operational Gearing Assessment

Commentary on the general meaning of operational gearing

Up to 3 marks



1 mark each for:

- Revenue minus variable costs

- Variable costs (excludes other operating costs)

- Variable costs (excludes insurance, utilities, and depreciation)

- Handling staff costs correctly

- Operational gearing

Commentary on results

Up to 2 marks


(iv) General Assessment

1 mark per point

1 per point

Professional Marks


  • Report format and structure: Use of headings/sub-headings and introduction
  • Style, language, and clarity: Appropriate tone of report response, presentation of calculations, appropriate use of CBE tools, easy to follow and understand
  • Effectiveness of communication: Content of the report is relevant and tailored to the question scenario
  • Adherence to the CEO’s specific request to include no more than four points in the re-written narrative commentary.


Analysis and Evaluation

  • Appropriate use of the data in appendix 1 to adequately assess the quantitative elements being reported on and to support discussion on improved indicators
  • Appropriate use of data in both appendices to calculate the operational gearing and to support assessment of the implications of the result
  • Balanced and reasoned assessment of the current performance report
  • Problems of "What gets measured, gets done" and the link of the two phrases to the quote clearly illustrated with examples



  • Recognition of the failings of the current performance report
  • Demonstration of the ability to challenge the usefulness of the quote 'What gets measured, gets done'


Commercial Acumen

  • Effective use of examples drawn from the scenario information and other practical considerations related to the context to illustrate the points being made throughout the report.
  • Recommendation of improved indicators and example commentary that are practical and plausible in the context of the company situation.




Categories: : Advanced Performance Management (APM)