Question 2
This question focussed on various aspects of process costing. It involved a product that passed through two processes - one where losses were incurred but there was no work in progress and the second where there were no losses but both opening and closing work in progress occurred.
Part (a) required the preparation of a process account where a normal loss and an abnormal gain were involved. Candidates generally performed very well and there were many correct answers provided.
Common errors in part (a) included:
Putting a value against the normal loss - the question clearly stated that the normal loss had no realisable value.
Crediting the abnormal gain to the process account.
Failure to provide an answer in a recognisable account format.
Part (b) - for five marks - required the valuation of completed production and the closing work in progress in the second process. In complete contrast to part (a), this was poorly done by the majority of candidates and in a significant number of cases it was not even attempted. Common errors included:
Failure to recognise that the way in which the information was presented meant that the First in First Out (FIFO) method of valuation needed to be applied.
Failure to appreciate that no equivalent unit calculations were necessary for material as all the material was input at the start of the previous process. The cost per unit that had been calculated for the previous process could be used in the valuations without adjustment. Only a cost per equivalent unit for conversion in the second process needed to be calculated and applied.
Part (c) - the written part for two marks - required candidates to explain how the disposal costs associated with a normal loss would have been recorded in the first process account. This was not well answered with the majority of candidates stating that they would be credited to the process account.
Question 3
This was a question involving linear programming for 9 marks. It was clear that candidates seemed to have been anticipating a question on this subject by the fact that they tackled it first in their answer books. On the other hand some candidates were not expecting a linear programming question and made little or no attempt to answer it. Those who made a proper attempt at this question generally provided quite good answers.
Part (a) required candidates to set out the constraints and objective function in a suitable form. Errors from weaker candidates included:
Stating the objective function in terms of total revenue rather than total contribution.
Producing constraints that muddled either kilograms or hours with values within them.
Failing to indicate the non-negative constraints.
Some candidates even tried to apply regression analysis to this question.
Part (b) required the determination of an optimal production plan in units. Both diagrammatic and calculation approaches were accepted in doing this. However, very few candidates produced the correct answer as they assumed that the optimal plan involved a combination of the two products corresponding with the intersection of the two constraint lines. The optimal plan was in fact to produce only product Y and no units of product X.
Question 4
This question examined standard costing and variances. In part (a) the requirement was to produce a statement that reconciled the standard cost of actual production with the actual cost and highlighted the total variances for the three cost elements involved. This part of the question was well answered although many candidates only calculated the three variances and did not go on to produce the reconciliation statement. Common errors included:
Failure to indicate clearly whether each variance was favourable or adverse. Candidates should realise that simply bracketing some variances and not others does not clearly indicate this.
Producing variances that compared actual costs with the budgeted costs.
Part (b), which was not answered well, required candidates to break the total fixed production overhead cost variance they had calculated in part (a) into two sub variances. This involved the calculation of an expenditure and a volume variance. Common errors included:
Having two variances that did not net back to the total variance already calculated in part (a).
Having an expenditure variance which was the same as the total variance calculated in part (a).
Having an adverse volume variance where clearly the information given in the question indicated a favourable situation (actual production was higher than that budgeted).
Incorrectly labelling the sub variances calculated.
Trying to calculate capacity and efficiency variances where there was insufficient information available to do so. In any case, these would produce a subdivision of the volume variance and not the total variance.
Part (c) required an explanation of how and why the variances calculated in part (a) under standard absorption costing would be different if standard marginal costing had been in use. No calculations were required. Many candidates correctly stated that the direct materials and direct labour variances would be unchanged but were much more vague about the fixed production overhead variance. Common errors included:
Stating that there would be no fixed production overhead variance under marginal costing.
Writing, at length, about how the profit calculated under the two costing principles could be different. This was irrelevant to the question asked and received no credit.
Ignoring the part of the requirement that asked for an explanation of why any variances would be different.
Question 5
This was an 8 mark question about absorption costing techniques. Part (a) was very straightforward and involved the calculation of two absorption rates. This was well answered by the vast majority of candidates. Common errors included:
Showing the answers as simply two values rather than as rates per machine hour or per direct labour hour, as appropriate.
Showing the rates as being ’per unit’.
Part (b) required candidates to use the rates calculated in part (a) to build up the total production cost of one unit. This was not answered well by many candidates. Previous examination questions had shown that candidates are quite good at calculating absorption rates but weak in applying them. This view was confirmed again by this time. Common errors included:
Failure to appreciate that the prime cost of the product given in the question went into the build-up of the total cost without adjustment.
Ignoring the overhead costs in cost centre W in the build-up of total cost.
Incorrectly calculating the amount of absorption where there was an hourly rate but the amount of time the product took to manufacture in cost centre T was less than an hour.
Failure to show a total production cost figure for one unit, as required.
Part (c) - the written part of this question for three marks - required an explanation of why service cost centre costs need to be reapportioned to production cost centres and an identification of which method of reapportionment fully recognises the work that service cost centres do for each other. Most candidates were able to identify the correct method of reapportionment although some referred to absorption methods rather than apportionment methods. The explanation as to why the reapportionment was necessary was often very vague. Answers were often quite long and often missed the key points.
