Management Accounting
2nd Year Examination

May 2013

Exam Paper, Solutions & Examiner’s Report

 
 
Management Accounting May 2013 2nd Year Paper

NOTES TO USERS ABOUT THESE SOLUTIONS

The solutions in this document are published by Accounting Technicians Ireland. They are intended to
provide guidance to students and their teachers regarding possible answers to questions in our
examinations.

Although they are published by us, we do not necessarily endorse these solutions or agree with the views
expressed by their authors.

There are often many possible approaches to the solution of questions in professional examinations. It
should not be assumed that the approach adopted in these solutions is the ideal or the one preferred by us.
Alternative answers will be marked on their own merits.

This publication is intended to serve as an educational aid. For this reason, the published solutions will
often be significantly longer than would be expected of a candidate in an examination. This will be
particularly the case where discursive answers are involved.

This publication is copyright 2013 and may not be reproduced without permission of Accounting
Technicians Ireland.

© Accounting Technicians Ireland,2013.

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Accounting Technicians Ireland 
 
2nd Year Examination:  Summer 2013 
Paper : MANAGEMENT ACCOUNTING 
 
Monday 20th May 2013 ‐ 2.30 p.m. to 5.30 p.m. 
 
 

INSTRUCTIONS TO CANDIDATES 
 
In  this  examination  paper  the  €/£  symbol  may  be  understood  and  used  by  candidates  in  Northern 
Ireland to indicate the UK pound sterling and the €/£ symbol may be understood by candidates in the 
Republic of Ireland to indicate the Euro.  
 
Answer FIVE questions.  
Answer all three questions in Section A.  Answer any two of the three questions in Section B. 
 
If more than the required number of questions is answered, then only the requisite number, in the order 
filed, will be corrected. 
 
Candidates should allocate their time carefully. 
 
All figures should be labeled, as appropriate, e.g. €/£’s, units etc. 
 
Answers should be illustrated with examples, where appropriate. 
 
Question 1 begins on Page 2 overleaf.   
   
 
 
Management Accounting May 2013 2nd Year Paper
 
SECTION A 
ANSWER ALL THREE QUESTIONS 
 
 
QUESTION 1 (Compulsory)

Phelim Co. produces two products, X and Y, both made from the same material. Until now, it has used traditional
absorption costing to allocate overheads to its products. The company is now considering an activity based costing
system. Information for the two products for the last year is as follows:

X Y
Production and sales volumes (units) 30,000 50,000
Selling price per unit €/£20 €/£30
Raw material usage (kg) per unit 4 6
Direct labour hours per unit 0·6 0·44
Machine hours per unit 1.0 1.4
Number of production set ups per annum 24 36
Number of purchase orders per annum 46 54
Number of deliveries to retailers per annum 20 25

The price for raw materials remained constant throughout the year at €/£2 per kg. Similarly, the direct labour cost for
the whole workforce was €/£15 per hour. The annual overhead costs were as follows:

€/£
Machine set up costs 30,000
Machine running costs 40,000
Ordering costs 45,000
Delivery costs 45,000
Total Overhead cost 160,000

Required:

(a) Calculate the full cost and profit per unit for products X and Y under traditional absorption costing, using
direct labour hours as the basis for absorption.
6 Marks

(b) Calculate the full cost and profit per unit for each product using activity based costing.
10 Marks

(c) Advise Phelim Co. on four benefits that may arise resulting from his business having a good employee
evaluation process in place.
4 Marks

Total: 20 Marks

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Management Accounting May 2013 2nd Year Paper
QUESTION 2 (Compulsory)

Canning Ltd. budgets to sell 3 products and has provided you with the following selling prices and variable costs:

Product Sales Selling Price Variable Cost per

Units per unit unit
€/£ €/£
Alpha 600,000 10 5
Beta 400,000 11 6
Gamma 1,000,000 6 3

Annual fixed costs are budgeted at €/£4,000,000.

Required:

(a) Calculate the total budgeted profit.

3 Marks
(b) Calculate the contribution / sales ratio for each product.
3 Marks
(c) Calculate the breakeven sales volume per product in total.
5 Marks
(d) How many units of each product and in total would Canning Ltd need to sell to earn a total profit of
€/£6,000,000?
4 Marks

(e) Management are deciding whether or not to spend an extra €/£400,000 on advertising and sales promotion of
Product Alpha. It is considering reducing its selling price to €/£9 per unit, resulting in expected sales of
800,000 units. Advise whether or not it is financially worth while spending €/£400,000 on the advertising and
sales promotion.
5 Marks

Total: 20 Marks

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Management Accounting May 2013 2nd Year Paper
QUESTION 3 (Compulsory)

Hayes Ltd. produces and sells one product only. The standard cost and selling price for one unit is as follows:
€/£
Direct material – 10 kilograms at €/£15 per kg 150
Direct wages – 5 hours at €/£8 per hour 40
Variable cost 190

Selling price 300

The budgeted fixed production overhead cost is €/£45,000 and sales of 750 units were budgeted. Hayes Ltd uses a
marginal costing system.

During April 2013 the actual results were as follows:

€/£
Sales 700 units @ €/£320 224,000

Direct materials: 7,500 Kg 111,750

Direct wages 3,400 hours 27,880

Fixed production overhead 37,000

––––––––
Total Costs 176,630
––––––––
Profit 47,370

Note: Hayes Ltd. does not hold any inventories.

Required:
(a) Calculate the following variances:
i. Sales price;
ii. Sales volume;
iii. Material price;
iv. Material usage;
v. Labour rate;
vi. Labour efficiency;
vii. Fixed overhead expenditure;
viii. Fixed overhead volume.

10 Marks
(b) Outline two possible reasons for each of the material usage and labour rate variances calculated in part (a)
above.
4 Marks

(c) Briefly list and explain three benefits and three limitations of a standard costing system.
6 Marks

Total: 20 Marks

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Management Accounting May 2013 2nd Year Paper
SECTION B
ANSWER TWO OUT OF THE FOLLOWING THREE QUESTIONS

QUESTION 4

‘Over time or over a specific range of activity, some costs tend to be unaffected by the level of output, whereas others
will change as output changes’.

Required:

(a) Briefly explain, with the aid of an example, each of the following three cost classifications:

i. Variable cost;
ii. Fixed cost;
iii. Mixed cost (Semi variable / semi fixed cost).
6 Marks

(b) The following information has been supplied for Cunningham Ltd., a manufacturing company based in
Athlone;

Activity
Production (units) 40,000 80,000
Sales (units) 36,000 68,000

Costs €/£ €/£

Direct Material 100,000 200,000
Administration 60,000 60,000
Factory Overhead 340,000 400,000
Production Labour 360,000 560,000
Selling and Distribution 58,000 74,000

Prepare a table summarising the variable cost per unit and total fixed cost for each of the five cost headings
above.
10 Marks

(c) Using your answer to part (b) calculate the total estimated cost for an activity level of production of 60,000
units and sales of 46,000 units
4 Marks

Total: 20 Marks

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Management Accounting May 2013 2nd Year Paper

QUESTION 5

Kenny Ltd. makes three products, A, B and C, of which unit costs, machine hours and selling prices are as follows:
Product A Product B Product C
Machine hours per unit 10 12 14
Labour hours per unit 1.2 0.8 0.4

€/£ €/£ €/£

Direct materials @ €/£0.50 per kg 7 6 5
Direct wages @ €/£7.50 per hour 9 6 3
Variable overheads 3 3 3
––– ––– –––
Variable cost per unit 19 15 11
Selling price per unit 25 20 15
––– ––– –––
Contribution per unit 6 5 4
––– ––– –––

Sales demand for the period is limited as follows.

Units
Product A 4,000
Product B 6,000
Product C 6,000

Mattie Kenny, the CEO of Kenny Ltd. has stated “the supply of materials and machine capacity in any period is
unlimited. However there is a scarce resource in that direct labour hours are limited to 5,000 hours for the period and it
is company policy to produce a minimum of 1,000 units of Product A”.

Required:

(a) Assuming there is no limiting factor, calculate the maximum achievable contribution.
4 Marks

(b) Indicate the production levels that should be adopted for the three products in order to maximise contribution,
and state the maximum contribution achievable in the period.
12 Marks

(c) Advise Mattie Kenny as to any four ways that may help to overcome the direct labour constraint that exists
within Kenny Ltd.
4 Marks

Total: 20 Marks

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Management Accounting May 2013 2nd Year Paper
QUESTION 6

‘The budgeting process is an important feature of effective management performance’.

Required:

(a) Outline and briefly explain five benefits of budgeting.

5 Marks
(b) Provide a brief overview of the budgeting process.
6 Marks
(c) Explain each of the following approaches to budgeting;

i. Activity based budgeting;

ii. Zero based budgeting;
iii. Rolling budgets.
9 Marks

Total 20 Marks

 
 

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Management Accounting May 2013 2nd Year Paper

2nd Year Examination: May 2013

Management Accounting

Suggested Solutions

Students please note: These are suggested solutions only; alternative answers may also be deemed to be correct and
will be marked on their own merits.

Solution 1

(a)
Product X Product Y Marks Allocated
€ €
Selling Price 20.00 30.00 1 Mark

Direct Material 8.00 12.00 1 Mark

Direct Labour 9.00 6.60 1 Mark
Overhead (working 1) 2.40 1.76 1 Mark
Cost 19.40 20.36

Profit 0.60 9.64 1 Mark

(b)
Product X Product Y
€ €
Selling Price 20.00 30.00

Direct Material 8.00 12.00

Direct Labour 9.00 6.60 2 Marks
Overhead (working 2) 2.16 1.91 2 Marks
Cost 19.16 20.51

Profit 0.84 9.49 2 Marks

(c)
Four potential benefits from a good employee evaluation process would include;
• Improved morale
• Reduction in labour turnover
• Increased productivity
• Reduced friction and frustration
• Enhanced communication between management and subordinates
• Instil a higher level of accountability for performance

(Other reasonable benefits also acceptable)

Marks Allocated
1 Mark per benefit (Max of 4 benefits)

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Management Accounting May 2013 2nd Year Paper

Working 1 Marks Allocated

OAR = €160,000 / 40,000 €4 per labour hour 1 Mark

X= €4 x 0.60 = €2.40 per unit
Y= €4 x 0.44 = €1.76 per unit

Working 2

Activity Cost Driver Rates Product X Product Y

€ € €
Set Up 500 per set up 12,000 18,000 1 Mark
Machine running 0.40 per machine hr 12,000 28,000 1 Mark
Ordering 450 per order 20,700 24,300 1 Mark
Delivery 1,000 per delivery 20,000 25,000 1 Mark
Total 64,700 95,300
Per unit 2.16 1.91

Solution 2

(a)
Alpha Beta Gamma

€ € €
Selling Price 10 11 6
Variable Cost 5 6 3
Contribution per unit 5 5 3 1 Mark
Contribution 3m 2m 3m

€
Total Contribution 8m 1 Mark
Fixed Cost 4m
Profit 4m 1 Mark

(b)
Alpha Beta Gamma
C/S % 50% 45.45% 50% 3 Marks

(c)

Weighted Average CPU = €8m / 2m units = €4 per unit

BEP Fixed cost / Weighted Average CPU = €4m / €4 = 1m units

Marks Allocated
BEP Formula: 1 Mark
Weighted Average CPU: 2 Marks
BEP: 2 Marks

(d)

(Fixed Cost + Target Profit) / Weighted Average CPU

(€4 million + €6 million) / €4 = 2.5m units

Marks Allocated
Formula: 2 Marks
Sales to achieve target profit: 2 Marks

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Management Accounting May 2013 2nd Year Paper
(e) €m Marks Allocated

Original Contribution of Alpha 3.00 1 Mark

Revised Contribution of Alpha 3.20 1 Mark
Increase in Contribution 0.20
Increase in Fixed Cost 0.40 1 Mark
Decrease in Profit 0.20 1 Mark

Therefore spending the extra €400,000 on advertising is not financially worthwhile. 1 Mark

Solution 3

(a)

€
i ( €320 -€300) x 700 14,000 fav
ii (700 – 750) x €110 5,500 adv
iii €111,750 – (7,500 x €15) 750 fav
iv (7,500 kg – 7,000 kg) x €15 7,500 adv
v €27,880 – (3,400 hrs x €8) 680 adv
vi (3,400 hrs – 3,500 hrs) x €8 800 fav
vii €37,000 - €45,000 8,000 fav
Following the Examination, and in consultation with the External Examiner, it was decided to mark students on
the best seven (out of eight) variances. A maximum of 10 marks still applied. These marks were allocated as 1.5
marks per variance, up to a maximum of 10 marks. Thus any candidate with seven correct answers would have
received 6 x 1.5 marks (= 9) plus 1 mark to arrive at the maximum allowed.
 
Or the following method may be used – Marks Allocated remain the same as above

i. Sales Price Variance

Units €
700 should have sold for (700 x €300) 210,000
700units actually sold for (700 x €320) 224,000
Variance 14,000A

ii. Sales Volume Variance

Budgeted sales units 750

Actual sales units 700
50A
X Standard contribution per unit €110
Variance €5,500A

iii. Material Price Variance

€
7,500 kg should have cost (7,500 x €15) 112,500
7,500kg actuallycost 111,750
Variance 750F

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Management Accounting May 2013 2nd Year Paper
iv. Material Usage Variance

Units €
700 should have used (700 x 10kg) 7,000 kg
700 units actually used 7,500 kg
500A
X Standard cost per kg of material €15
Variance €7,500A
 
 
 
v. Labour rate Variance

€
3,400 hours should have cost (3,400 x €8) 27,200
3,400 hours actuallycost 27,880
Variance 680A

vi. Labour efficiency Variance

700 units should have taken (700 x 5 hrs) 3,500 hrs

700 units did take 3,400 hrs
100 hrs F
X standard direct labour cost per hour €8
Variance €800F

vii. Fixed Overhead expenditure Variance

€
Budgeted Fixed Overhead 45,000
Actual Fixed Overhead 37,000
Variance 8,000 F

(b)

Material Usage
1. Material was of an inferior quality than expected. As such there was a higher proportion of the material wasted
than was expected.
2. There was a change in product design which resulted in greater usage of material than originally expected.

Labour Rate
1. A higher skilled worker was employed than was originally expected.
2. During the period there was a general increase in wage rates which was not envisaged when preparing the
standard specifications.

(Note: Other reasonable reasons are acceptable)

Marks Allocated
2 x reasons: 2 Marks Each
Total: 4 Marks

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Management Accounting May 2013 2nd Year Paper
(c)

Benefits of standard costing

1. Standards that are viewed as reasonable by employees can promote economy and efficiency. They provide
benchmarks that individuals can use to judge their own performance.
2. Standard costs can simplify bookkeeping. Instead of recording actual costs for each job, the standard costs for
materials, labour and overheads can be charged to jobs.
3. The use of standard costs is a key element in a management by exception approach. If costs remain within
standards managers can focus on other issues. When costs are significantly outside standards managers are
alerted that there may be problems requiring attention. This approach allows managers to focus on important
issues.

Limitations of standard costing

1. If the standard is unattainable then the employees may feel that there is no point in trying to reach it. This may
have a negative impact on productivity and employee morale.
2. There may be a tendency to emphasise meeting the standard to the exclusion of other important objectives
such as maintaining and improving quality, on time delivery and customer satisfaction.
3. Good accounting information is useful when it is timely; variance reports may take long to produce – a fact
that decreases its value and reliability. In addition to variance reports, setting and implementing performance
standards can use significant staff and other resources, such as time.

(Note: Other reasonable benefits and limitations are acceptable)

Marks Allocated
3 benefits: 1 mark each
3 limitations: 1 mark each
Total: 6 Marks

Solution 4

(a)

Variable cost - is a cost that varies as the level of activity changes. Material cost would be an example of a
variable cost – the more of a product that is produced the more material that would be required.

Fixed cost - is a cost that remains the same irrespective of the level of activity. The cost of renting a
building would be classified as a fixed cost. The rent would be paid periodically and would not vary with the level of
activity.

Mixed cost - is a cost that is partly fixed and partly variable. The remuneration package of a sales
representative would be an example of a mixed cost. The basic salary of the sales representative is the fixed element
and any sales commission paid would depend on the volume of sales achieved, hence, the variable element.

Marks Allocated
Explanation of each: 1 mark Each
Illustration of each: 1 mark Each
Total: 6 Marks

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Management Accounting May 2013 2nd Year Paper
(b)

Variable cost per unit Fixed cost Working Marks Allocated

€ €
Direct Material 2.50 0 1 1 Mark
Administration 0 60,000 1 Mark
Factory Overhead 1.50 280,000 2 2 Marks
Production Labour 5.00 160,000 3 2 Marks
Selling & Distribution 0.50 40,000 4 2 Marks
9.50 540,000

Workings
1. €100,000 / 40,000 €2.50 per unit

2. VC €60,000 / 40,000 =€1.50 per unit

FC €340,000 – (40,000 x €1.50) = €280,000

3. VC €200,000 / 40,000 = €5 per unit

FC €360,000 – (40,000 x €5) = €160,000

4. VC €16,000 / 32,000 = €0.50 per unit

FC €58,000 – (36,000 x €0.50) = €40,000

Marks Allocated
Variable Cost Per Unit: 1 Mark
Total Fixed Cost: 1 Mark

(c)
Cost Marks Allocated
€
Direct Material 60,000 x €2.50 150,000 ½ Mark
Administration 60,000 ½ Mark
Factory Overhead (60,000 x €1.50) + €280,000 370,000 1 Mark
Production Labour (60,000 x €5) + €160,000 460,000 1 Mark
Selling & Distribution (46,000 x €0.50) + €40,000 63,000 1 Mark
1,103,000

Solution 5

(a)
€
Product A 4,000 x €6 24,000 1 Mark
Product B 6,000 x €5 30,000 1 Mark
Product C 6,000 x €4 24,000 1 Mark
Total Contribution 78,000 1 Mark

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Management Accounting May 2013 2nd Year Paper
(b)

A B C
CPU (€) 6.00 5.00 4.00
Lab hours per unit 1.20 0.80 0.40
Cont per Lab Hr (€) 5.00 6.25 10.00 3 Marks
Rank 3 2 1 1 Mark

Total hrs Available 5,000

Hrs committed to A 1,200 (1,000 units x 1.2 per unit) 1 Mark
Hours remaining 3,800

Production Plan
Production Hours
Product C 6,000 units 6,000 x 0.4 hrs per unit 2,400 hrs 1 Mark
Product B 1,750 units 1,750 x 0.8 hrs per unit 1,400 hrs 1 Mark
Product A 1,000 units 1,000 x 1.2 hrs per unit 1,200 hrs 1 Mark
8,750 units 5,000 hrs

Contribution
€
Product A 1,000 x €6 6,000 1 Mark
Product B 1,750 x €5 8,750 1 Mark
Product C 6,000 x €4 24,000 1 Mark
38,750 1 Mark

(c)
1. Some of the work that cannot be carried out in-house due to the constraint could be subcontracted out.
2. Some lower level workers could be re trained and they could then work on these products.
3. A recruitment campaign could be launched and new workers could be sourced.
4. Productivity and efficiency could be improved to reduce the time required per unit.

(Note: Other reasonable suggestions are acceptable)

Marks Allocated
Any four reasonable suggestions: 1 Mark Each
Total: 4 Marks

Solution 6

(a)

There are many advantages to using budgets. The use of budgets:

• provide a method of allocating and using resources within the organisation

• help to monitor and control operations
• promote forward thinking
• show employees an overall picture of the direction of the organisation which can motivate staff
• help to co-ordinate different departments and align them towards shared objectives
• provide a framework for delegation.
(Note: Other reasonable suggestions are acceptable)

Marks Allocated
Any five benefits: 1 Mark Each
Total: 5 Marks

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Management Accounting May 2013 2nd Year Paper
(b)
The budgeting process normally follows a set structure as follows;
• Form a budget committee
• Establish a budget administration system
• Set the budget period
• Set budget guidelines
• Prepare initial budgets
• Negotiate, review and approve
• Budget revision

(each needs to be briefly explained to get full marks)

 
Marks Allocated
Any six points: 1 Mark Each
Total: 6 Marks

(c)
Activity Based Budgeting is a method of budgeting in which the activities that incur costs in every functional area of
an organisation are recorded and their relationships are defined and analyzed. Activity based budgeting stands in
contrast to traditional, cost-based budgeting practices in which a prior period's budget is simply adjusted to account for
inflation or revenue growth. As such, ABB provides opportunities to align activities with objectives, streamline costs
and improve business practices.

A rolling budget is one that is revised at regular intervals by adding a new budget period to the full budget as each
budget period expires. A budget for one year, for example, could have a new quarter added to it as each quarter expires.

In this way, the budget will continue to look one year forward. Cash budgets are often prepared on a continuous basis.

Advantages of rolling budgets

• The budgeting process should be more accurate
• Much better information upon which to appraise the performance of management
• The budget will be much more ‘relevant’ by the end of the traditional budgeting period

Disadvantages of rolling budgets

• More costly and time consuming
• An increase in budgeting work may lead to less control of the actual results

Zero based budgetingis an alternative approach that is sometimes used particularly in government and not for profit
sectors of the economy. Under zero based budgeting managers are required to justify all budgeted expenditures, not just
changes in the budget from the previous year. The base line is zero rather than last year's budget.

Zero based budgeting approach requires considerable documentation. In addition to all of the schedules in the usual
master budget, the manager must prepare a series of decision packages in which all of the activities of the department
are ranked according to their relative importance and the cost of each activity is identified. Higher level managers can
then review the decision packages and cut back in those areas that appear to be less critical or whose costs do not
appear to be justified.

Marks Allocated
Explanation of Each: 3 Marks Each
Total: 9 Marks

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Management Accounting May 2013 2nd Year Paper

2nd Year Examination: May 2013

Management Accounting

Examiner’s Report

 
 
Statistical Analysis – By Question
Question No. 1 2 3 4 5 6
Average Mark (%) 60% 43% 56% 45% 46% 60%
Nos. Attempting 805 810 806 735 405 604
 
 
Statistical Analysis - Overall
Pass Rate 67%
Average Mark 58%
Range of Marks Nos. of Students
0-39 205
40-49 136
50-59 176
60-69 138
70 and over 231
Total No. Sitting Exam 813
Total Absent 126
Total Approved Absent 53
Total No. Applied for Exam 992
 

General Comments:

This paper was divided into two sections A and B each consisting of three questions. All three questions in section A
were compulsory and candidates had a choice of two out of three questions from section B. All of the questions carried
20 marks each. The first five questions were mainly computational with some narrative parts whilst question 6 was
narrative.

In section B question 5 proved unpopular with candidates. The majority of candidates attempted questions 4 and 6 from
this section.

The paper examined six areas of the syllabus. All of the six areas examined are key elements of the syllabus and given
the depth of their coverage in the study text, past exam papers and sample papers should not have posed any difficulty.

It is important that candidates understand the costing concepts involved within the areas of the syllabus and not just
learn their content. Understanding leads to better application in the exam. This rote learning was evident in the
solutions to questions 3 and 4 whereby candidates had the ability to explain certain terms but did not demonstrate the
ability to apply them to practical scenarios. Additionally, in some questions candidates were required to explain certain
costing terms and provide a practical example. Most candidates across the country provided similar examples.
Candidates should have the ability to see potentially different examples for a given situation.

It was obvious that many candidates did not have the appropriate study completed for this paper. It was also clear that
students were question spotting from previous exams.

18 
 
 
 
Management Accounting May 2013 2nd Year Paper
Questions from past exam papers and sample papers will not be replicated for my exam. It is important to promote an
understanding of the concepts and divergent thinking rather than rote learning.

There were many well presented scripts but overall the presentation and layout of scripts was disappointing and
hopefully this will improve for future sittings.

i. The handwriting in some cases was very poor.

ii. The questions were not labelled.
iii. There was no logical sequence to some answers.
iv. In many cases there was a lack of workings. Many candidates produced a final figure rather than showing the
workings that lead to this figure. If this final figure is not correct then valuable marks are lost for workings.

It is important to read the requirements of the question carefully. Some questions require cost per unit whereas others
require a total cost. Also ensure that an example is provided if required to support a certain explanation. Easy marks
were lost here by the vast majority of students.

Specific Comments

Question 1

Parts (a) and (b) of this question required candidates to calculate the full cost and profit per unit of two products using
both Absorption Costing and Activity Based Costing principles. Part (c) required candidates to outline four benefits that
may arise as a result of a business having a good employee evaluation process in place.

It was surprising that so many candidates struggled with some fairly straightforward calculations required in part (a) of
this question. Many candidates were unable to (and showed no knowledge of) how to calculate an overhead absorption
rate. In many cases the candidates used the formula the wrong way around.

Whilst some candidates did calculate the overhead absorption rate per labour hour correctly they were unable to then
use this rate to calculate the overhead cost per unit.

In many cases, candidates did not complete the answer in that they did calculate the overhead cost per unit but did not
add this to the direct materials and direct labour cost per unit in order to arrive at a total cost per unit. This meant that
candidates lost out on easy marks.

This is very disappointing because candidates had access to practical examples in the study text and this topic has
appeared on every exam paper since 2008.

Candidates demonstrated more competence in calculating the cost and profit per unit using Activity based costing
principles as required for part (b) of this question. They seemed to have a clear understanding in identifying cost drivers
and applying them to the cost base.

For both parts (a) and (b) candidates in many instances did not read the requirements fully and presented calculations in
total as opposed to per unit as required by the question.

Part (c) of this question was very well answered with candidates demonstrating a very comprehensive understanding of
an employee evaluation process.

Question 2

This question required candidates to calculated total budgeted profit, contribution to sales ratio, breakeven sales volume
and sales required to achieve a certain profit for three products.

Part (a) required candidates to calculate total budgeted profit for three products and candidates scored very well in this
part of the question. Some candidates calculated the total contribution rather than the total profit but those candidates
were in the minority. Those candidates were awarded marks accordingly.

Candidates also scored well in part (b) of this question which required candidates to calculate the contribution/sales
ratio for each product and in total.

19 
 
 
 
Management Accounting May 2013 2nd Year Paper
However candidates had difficulty in answering part (c) of this question. This part required candidates to calculate the
breakeven sales volume. Many candidates scored little or no marks in this section despite the fact that this topic has
appeared on past papers and is adequately covered in the study text.

Part (d) of this question required candidates to calculate the sales volume required to achieve a certain profit. Again the
answers to this part of the question were very disappointing and many candidates scored little or no marks.

Candidates were required to apply some decision making to part (e) in order to decide whether additional expenditure
on advertising was worthwhile.
Many candidates did not attempt this part of the question.

Question 3

[Please see note in the suggested solutions in respect of the marking that was applied in this question]

This question required candidates to calculate variances, explain the causes of the material usage and labour rate
variances and explain the benefits and limitations of standard costing.

Many students displayed a good knowledge of the calculation of basic variances. However the theory elements in parts
(b) and (c) were of a very mixed standard.
Some candidates scored very highly whilst it was clear that others did not understand the concept of standard costing
and variance analysis. A minority did not even attempt parts (b) and (c).This proves that whilst candidates are able to
calculate the variances accurately they do not understand the theory underpinning standard costing.

Question 4

This question required candidates to explain with the use of an example variable, fixed and mixed costs, the calculation
of the variable cost per unit and total fixed costs under five cost headings and the calculation of the total cost for a
particular activity level.

The standard of the answers was mixed for part (a) which required the explanation of a variable, fixed and mixed cost
together with an example.
Many candidates scored very highly whilst others lost out on very easy marks by not giving an example. Most
candidates provided the same examples across the country.

Part (b) of the question required candidates to calculate the variable cost per unit and the total fixed cost under five cost
headings. One of the cost headings was a variable cost, one was a fixed cost and three were mixed costs.
It was both surprising and disappointing that many candidates were unable to distinguish between the three different
costs. (even by those students that answered part (a) correctly)
This proves that candidates are unable to apply the principle despite understanding the theory.

A minority of students were able to split the mixed costs between fixed and variable using the high low method. The
text book has dedicated a separate chapter to this topic.
.
Easy marks were lost by not adding up the individual costs to arrive at a total amount so it is important to read the
requirements of the question carefully.

In part (c) of the question candidates were required to calculate the total cost for a given level of production and sales
and this posed a problem.
In most cases this question was not attempted or badly answered particularly by candidates that were unable to attempt
part (b). Marks were awarded if the principle was correct even if the amounts used were incorrect.

Question 5

This question required the calculation of the total contribution for three products, maximum contribution achievable
when there is a constrained resource and listing four ways to overcome a labour constraint.

Part (a) of the question required the calculation of total contribution for three products and
this part of the question was answered quite well.

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Management Accounting May 2013 2nd Year Paper
Part (b) required the calculation of the maximum contribution achievable when labour hours were limiting.

This part of the question was very poorly answered.

Students failed to identify the limiting factor and for those that did identify it they were unable to rank the products
according to the highest contribution per limiting factor.
Many ranked them according to the highest contribution per unit.

In order to answer this type of question there are four steps. Many answers did not follow those steps with the result
that candidates ended up with no format which caused them confusion and many answers were unfinished.

A number of candidates multiplied the labour hours per unit by the contribution per unit rather than dividing which
meant that the rankings were incorrect. However marks were awarded because the principle was correct.

Part (c) required candidates to list four ways to overcome labour constraints and this part of the question was answered
very well.

Question 6

This question required candidates to list the five benefits of budgeting, give a brief overview of the budgeting process
and to explain certain budgeting terms.

Part (a) of the question required candidates to demonstrate their knowledge of the benefits of budgeting and this part of
the question was answered quite well. A minority of candidates gave five benefits but the five benefits all had the same
meaning so those candidates were only awarded marks for one benefit.

Part (b) required candidates to demonstrate their knowledge of the budgeting process and again was well answered.
Many candidates listed the points directly from the study text whilst others used practical examples rather than word for
word from the study text. Both answers scored highly.

Part (c) required an explanation of Activity based budgeting, Zero Based Budgeting and Rolling Budgets.

This part of the question was answered quite well.

 

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