excluding one of the elements making up the cost of quality even though the cost of quality had been defined in the task

Transcription

1 Chief Assessor s report Contributing to the Management of Costs and Enhancement of Value (MCV) (1998 standards) / Management of Performance and Enhancement of Value (PEV) (2003 standards) GENERAL COMMENTS The June 2003 Chief Assessor s report for the MCV paper identified a clear trend emerging: of an ever-increasing quality in the scripts of many candidates that was not feeding through to overall success rates. The reason for this is the lack of improvement of some centres. This trend continued amongst candidates at the December 2003 sitting, where candidates either sat the Management of Costs and Enhancement of Value examination or its replacement under the new standards, the Management of Performance and Enhancement of Value. A large number of candidates presented perfect or near-perfect answers to many of the tasks assessed. There is a clear pattern in the scripts of such candidates. They first read the task and related the task requirements to the task data and scenario. They then demonstrated good practice in the analysis and presentation of relevant information for managers. As a result, successul candidates often fully completed all tasks within four pages while others required four pages or more to answer a single task. And for completeness, answers from successful candidates were often well presented, in the required format and with clear and full workings uniquely identifiable to each specific task. This not only saved time; in many cases it also gained candidates credit where required answers had been distorted by minor errors. Without those workings, no credit could have been given for an incorrect answer. There was no unique pattern, however, amongst the poorer-performing candidates other than that they tended to be associated with individual centres. Sometimes, it was clear from candidates scripts where those centres had omitted significant aspects of the performance criteria. And sometimes, it was obvious that candidates had been mechanically taught without having being introduced to the knowledge and understanding underpinning the performance criteria. To take but one example: standard costing variances. A good conceptual understanding of these often allows candidates to correctly answer a variance in a single line. For instance, a candidate answering the material price variance in Task 1.1 (b) might simply write: ( ,400) - 61,440 = 3,840(A), or ( ) 38,400 = 3,840(A). Either approach to the answer provides sufficient workings to allow candidates to receive credit for process where a minor mistake or arithmetic error occurs. It also shows how all of Task 1.1 (b) can be answered in eight lines. Poorer scripts would sometimes provide no workings. As a result, no credit could be given for an incorrect answer. Similarly, other poor scripts showed evidence of mechanistic teaching by lecturers and rote learning by candidates. One mechanistic method taught

2 involves candidates identifying blocks of figures. At its best, a figure might have an abbreviated formula/acronym attached to it such as AP AQ or SP SQ. Rough lines then often links the two figures and at the end of the lines is, allegedly, a variance. Such a method penalises candidates in four ways. First, candidates forget the linkages between the blocks of figures, as there is no inherent logic. Second, credit can rarely be given for process as the composition of the figures is often not disclosed. Third, the approach often takes up several pages of writing and so candidates impose a time penalty on themselves. Fourth, because of the mechanical approach used, candidates often had only a limited awareness of the knowledge and understanding underpinning the performance criteria of the standards. As a result, many candidates from the poorer-performing centres have great difficulty in tasks such as 1.2 and 2.2 that test the wider knowledge and understanding. The comments below are mainly addressed to those particular candidates. SECTION 1 Task 1.1 The scenario for Task 1.1 revolved around one of the two routes operated by a small airline. Candidates first had to derive basic data that might be of help in subsequent parts of the task. They then had to prepare the (by now familiar) material, labour and fixed overhead standard costing variances. Finally, in part (c), candidates had to prepare a statement reconciling the standard cost of actual operations to the actual cost of actual operations. Similar tasks have been assessed on every occasion since June 1999 and many of the centres had clearly put a great deal of effort in preparing candidates for this type of task. As a result, many of their candidates prepared perfect or near-perfect answers. This, however, only drew attention to the poor results from a minority of centres, from which many candidates attempted to calculate variances using the method outlined in my introduction, where any difference between blocks of figures is shown as a variance. Another failing was the inability to prepare an acceptable reconciliation statement. Again, sometimes task data appeared almost randomly across scripts. In between these extremes were candidates who had made a clear effort to derive the variances and reconciliation statement but had not been fully successful. There was no clear pattern amongst these scripts. Candidates from some centres, for example, were able to accurately derive the material and labour variances but then had difficulty completing the fixed overhead variances. Candidates from some other centres, however, had the reverse difficulty: they successfully derived the fixed overhead variances but could not then correctly derive the material and labour variances. In part (a) of Task 1.1, candidates had to prepare basic data. Of those candidates who did not gain full credit, most had difficulty deriving the standard fixed overhead absorbed by the 160 flights and the standard cost of actual operations. It was in part (b), the calculation of the variances, where most credit was lost. In the material and labour variances, credit was sometimes lost because candidates were unfamiliar with standard and actual prices/rates and gallons/hours. A similar lack of knowledge accounted for the loss of credit by some candidates when deriving the fixed overhead variances. For

3 example, a few candidates could not derive the fixed overhead expenditure variance even though, effectively, it was already provided as the task data clearly identified budgeted and actual fixed overheads. Another error by a small number of candidates was to develop the fixed overhead capacity and efficiency variances using labour hours. Both in the budgeted and actual task data, and in the task paragraph dealing with other information, it was explicitly stated that fixed overheads were charged to operations on the basis of flying hours. Task 1.2 This task continued with the scenario developed in the first task. Candidates were provided with additional data relating to flights and passengers per flight, the current policy for charging fixed overheads and a detailed analysis of the elements making up the fixed overheads, together with possible cost drivers. Candidates had to then prepare a memo in which they had to (a) identify a more appropriate way than flying hours for charging fixed overheads, (b) explain how that chosen alternative method would affect the capacity and efficiency variances, and (c) use the detailed analysis of fixed overheads, together with the cost drivers, to reallocate the budgeted overheads chargeable to one of the routes. Practically all candidates managed to write their answer in the form of a memo. From thereon, there was little consistent pattern to the answers provided. Many candidates failed to identify which part of the task they were addressing in the memo. Most candidates had successfully used flying hours to charge fixed overheads to operations in the earlier Task 1.1. Task 1.2 (a) was quite clear: candidates were being asked to identify a better method than flying hours for charging fixed overheads. To help them, the task data gave the evidence necessary to answer Task 1.2 (b). In that task data, candidates were told that the actual number of flights was less than planned but that each flight carried more passengers than planned. If the actual number of flights was less than planned, full use was not being made of the available capacity of the aircraft fleet. Likewise, if you are carrying more passengers per aircraft than planned, you are making more efficient use of those planes while they are being operated. The number of passengers or passenger-miles, therefore, seemed a more appropriate method of charging fixed overheads as it was consistent with the evidence and commonsense. Some candidates correctly identified all of this and gained easy credit in answering parts (a) and (b). Some identified pilot hours, but were then unable to offer any reasonable justification in part (b). The most common mistake, however, was for candidates to identify the need for some form of Activity Based Costing, as part (c) related to that topic, and to then structure the whole of their answers on that single issue. This was disappointing. ABC is a method of identifying fixed costs to individual cost centres and not individual units of output. In part (c), almost all candidates identified the luggage handling and in-flight facilities as being unique to the flight to Betaland. Most also correctly identified the insurance chargeable to the internal flight as being based on the insurance value of the aircraft. Rather fewer candidates were then able to go on and derive appropriate drivers for the aircraft maintenance.

4 SECTION 2 Task 2.1 Candidates were asked to calculate 14 pieces of accounting information in Task 2.1. Some of these were performance indicators such as the return on capital employed and added value per employee. Others, such as the unit selling price, were to be of use in Task 2.2. Each piece of information had been assessed on several occasions in the recent past. Most centres had prepared candidates for this type of task. As a result, the large majority of them made few errors. And when they did, it was often relatively insignificant. The most common errors made by the well-prepared candidates were: omitting the bought-in expense of heat, light and power when deriving the added value per employee despite this having been identified in the task data excluding one of the elements making up the cost of quality even though the cost of quality had been defined in the task basing the average delay in completing orders on the 390,000 potential demand rather than the 360,000 actual demand. Of these three errors, rarely would a well-prepared candidate make more than two and even then, the resulting answers were substantially correct. However, there was evidence that some students had not been introduced to basic commercial arithmetic, for they had difficulty deriving the selling price per unit by dividing turnover by sales volume. A mechanical approach to teaching and/or learning would appear to be the reason why candidates from some centres often had difficulty deriving the average age of stocks and the average age of creditors. In the former case, the task data specified that there were no stocks of finished goods or work-in-progress. Any stocks must, therefore, have been entirely related to material issued to production. Despite that, a few candidates used the variable cost of production figure. In the latter case, the task specified that creditors related entirely to material purchases. Again, a minority of candidates wrongly used the variable cost of production when calculating the average age of creditors. Task 2.2 Task 2.2 built on the data previously prepared in Task 2.1. The task required candidates to prepare data for the forthcoming year based on a number of assumption and forecasts, and to then prepare a forecast profit margin and return on capital employed. In essence, there were three aspects to the task: amending selling prices and volumes to take account of sales price and volume indices the reduction of expenses and elimination of one asset arising from the introduction of Total Quality Management revising some assets and liabilities as a result of better working capital control. Every aspect of the task has been assessed on several occasions in the past four years.

5 As in previous tasks involving prospective performance indicators, each part followed on logically from the previous one. For example, candidates were asked to first calculate the sales volume. This then allowed them to derive the next part of the task, the purchases. Once purchases had been calculated, candidates were then asked to calculate the cost of purchases. This process continued until candidates had sufficient data to calculate the prospective net profit margin and return on capital employed. The extremes of performance identified in earlier tasks continued through to Task 2.2. Many candidates not only prepared perfect or near perfect answers, they also prepared their answers extremely efficiently. For example, a significant number of candidates simply prepared a single forecast operating profit for their answer to parts (e), (f), (g) and (h) of the task. Interestingly, some of those candidates who prepared perfect or near-perfect answers to Task 2.2 only prepared average answers to Task 2.1. A small minority of candidates, however, had little or no idea how to start the task. These candidates tended to be associated with particular centres. At worst, some of those candidates either made little attempt to answer the task or calculated various permutations of the data provided in Task 2.1 multiplied by equally varied permutations of the indices given in Task 2.2. For example, some took the purchases figure from Task 2.1 and then enhanced this by the selling price index to derive the cost of purchases. Fortunately, such lack of preparation affected only a small minority of scripts and most candidates made a reasonable attempt at the task. The most common errors were: ignoring the backlog of orders from the previous year in the sales forecast ignoring the existing stock when calculating purchases not fully taking account of the cost of quality savings when calculating the forecast operating profit ignoring the extra year s depreciation in the figure for net assets.