A-Level Accounting ACCN4 Further Aspects of Management Accounting Final Mark scheme 2120 June 2017 Version/Stage: v1.0
Mark schemes are prepared by the Lead Assessment Writer and considered, together with the relevant questions, by a panel of subject teachers. This mark scheme includes any amendments made at the standardisation events which all associates participate in and is the scheme which was used by them in this examination. The standardisation process ensures that the mark scheme covers the students responses to questions and that every associate understands and applies it in the same correct way. As preparation for standardisation each associate analyses a number of students scripts. Alternative answers not already covered by the mark scheme are discussed and legislated for. If, after the standardisation process, associates encounter unusual answers which have not been raised they are required to refer these to the Lead Assessment Writer. It must be stressed that a mark scheme is a working document, in many cases further developed and expanded on the basis of students reactions to a particular paper. Assumptions about future mark schemes on the basis of one year s document should be avoided; whilst the guiding principles of assessment remain constant, details will change, depending on the content of a particular examination paper. Further copies of this mark scheme are available from aqa.org.uk Copyright 2017 AQA and its licensors. All rights reserved. AQA retains the copyright on all its publications. However, registered schools/colleges for AQA are permitted to copy material from this booklet for their own internal use, with the following important exception: AQA cannot give permission to schools/colleges to photocopy any material that is acknowledged to a third party even for internal use within the centre.
Level of response marking instructions Level of response mark schemes are broken down into levels, each of which has a descriptor. The descriptor for the level shows the average performance for the level. There are marks in each level. Before you apply the mark scheme to a student s answer read through the answer and annotate it (as instructed) to show the qualities that are being looked for. You can then apply the mark scheme. Step 1 Determine a level Start at the lowest level of the mark scheme and use it as a ladder to see whether the answer meets the descriptor for that level. The descriptor for the level indicates the different qualities that might be seen in the student s answer for that level. If it meets the lowest level then go to the next one and decide if it meets this level, and so on, until you have a match between the level descriptor and the answer. With practice and familiarity you will find that for better answers you will be able to quickly skip through the lower levels of the mark scheme. When assigning a level you should look at the overall quality of the answer and not look to pick holes in small and specific parts of the answer where the student has not performed quite as well as the rest. If the answer covers different aspects of different levels of the mark scheme you should use a best fit approach for defining the level and then use the variability of the response to help decide the mark within the level, ie if the response is predominantly level 3 with a small amount of level 4 material it would be placed in level 3 but be awarded a mark near the top of the level because of the level 4 content. Step 2 Determine a mark Once you have assigned a level you need to decide on the mark. The descriptors on how to allocate marks can help with this. The exemplar materials used during standardisation will help. There will be an answer in the standardising materials which will correspond with each level of the mark scheme. This answer will have been awarded a mark by the Lead Examiner. You can compare the student s answer with the example to determine if it is the same standard, better or worse than the example. You can then use this to allocate a mark for the answer based on the Lead Examiner s mark on the example. You may well need to read back through the answer as you apply the mark scheme to clarify points and assure yourself that the level and the mark are appropriate. Indicative content in the mark scheme is provided as a guide for examiners. It is not intended to be exhaustive and you must credit other valid points. Students do not have to cover all of the points mentioned in the Indicative content to reach the highest level of the mark scheme. An answer which contains nothing of relevance to the question must be awarded no marks. 3
1 Total for this question: 22 marks 1 (a) Prepare an extract from the manufacturing account for the year ended 31 January 2017 to show the prime cost of manufacture. [4 marks] Barber Products Limited Manufacturing account (extract) for the year ended 31 January 2017 000 000 Raw materials Opening inventory 36 Purchases 365 Carriage inwards 6 (1) 407 Closing inventory (32) Cost of raw materials consumed 375 (1 of) Manufacturing wages 186 (1) Prime cost 561 (1 of) must be labelled Own figure for prime costs only awarded if no aliens present. If student omits manufacturing wages and labels the cost of raw materials consumed as the prime cost, award 1 mark for this subtotal, i.e. 375 is labelled prime cost (1); if the student shows cost of raw materials 375 and then as a separate line prime cost 375 there will be (1) for the raw materials consumed and an extra 1 mark for the prime cost. The term raw materials (accept in an abbreviated form) must appear somewhere within the calculation of the 375 (1of). 4
1 (b) Prepare an extract from the manufacturing account for the year ended 31 January 2017 to show the value of goods transferred from the factory during the year. [4 marks] Barber Products Limited Manufacturing account (extract) for the year ended 31 January 2017 000 000 Prime cost 561 Total factory overheads 235 796 (1)OF Opening work in progress 12 Closing work in progress (18) (6) (1) 790 Add factory profit 158 (1 of) Goods transferred 948 (1 of) must be labelled OF mark for prime cost plus overheads has to be their own prime cost plus 235 (this could be a single figure or five individual factory overheads 24+12+113+31+55) (the student does not have to sub-total these two figures). Own figure for goods transferred only awarded if no aliens present. Accept for final label transfer price, goods transferred, transferred to income statement other possible labels but must include the word transfer. Factory profit must be identified as a separate item and to award OF mark this must be 20% of the student s cost of goods manufactured. 5
1 (c) Prepare an extract from the current assets section of the balance sheet at 31 January 2017 to show only the inventories section. Closing inventory of finished goods comprises only goods manufactured by the company. Barber Products Limited Balance sheet (extract) at 31 January 2017 000 000 Current assets Raw materials 32 Work in progress 18 (1) Finished goods 24 Less: Provision for unrealised profit (4) 20 (1) 70 Each inventory must be identified. Accept identifiable abbreviations for the inventories [2 marks] 1 (d) Calculate all material and labour sub-variances for February 2017. [8 marks] Direct material price 8240 mtrs should cost ( 3.45) 28 428 variance Actually cost 27 604 824 (1) Favourable (1) Direct material usage 680 units should use (12 mtrs) 8 160 variance Actually used 8 240 80 x 3.45 276 (1) Adverse (1) Direct labour rate 2420 hours should cost ( 9.60) 23 232 variance Actually cost 23 958 726 (1) Adverse (1) Direct labour efficiency 680 units should take (3.5 hrs) 2 380 variance Actually took 2 420 40 x 9.60 384 (1) Adverse (1) Accept abbreviations: Fav, F; Adv, A. Where a student calculates figures but makes no attempt to label them as favourable or adverse, award 1 mark for each correct figure (ignore the use of brackets). 6
1 (e) State two factors that should be considered when setting the standard price for material. Current market price (1) Current price paid (1) Historic prices (1) Change in supplier (1) Available discounts (1) Likely price increases/decreases (1) Carriage inwards costs (1) Inflation (1) Exchange rate (1) Quality of proposed material (1) Do not reward references to shortage of material affecting price [2 marks] 1 (f) State two factors that should be considered when setting the standard usage for material. [2 marks] Potential wastage (1) Material quality (1) Workforce efficiency (1) Grade of labour (1) Machine efficiency (1) Past records (1) Changes in production processes (1) 7
2 Total for this question: 18 marks 2 (a) Prepare budgeted income statements for each of the months July 2017 and August 2017 using absorption costing. [12 marks] Includes 2 marks for quality of presentation Workings: OAR = 96 000 / 30 000 hrs = 3.20 per dlh = 16 per unit Unit cost = 50 + 60 + 8 + 16 = 134 Asnar Wood Limited Budgeted income statement for the months of July 2017 and August 2017 July 2017 August 2017 Revenue 72 000* 76 800* Opening inventory - 9 380 Direct materials 26 000 20 500 Direct labour 31 200 (1) 24 600 (1) Variable overheads 4 160 3 280 Fixed overheads 8 320 (1) 6 560 (1) Closing inventory (70) (9 380) (1)CF Cost of production 60 300 64 320 Profit (pre-adjustment) 11 700 (1 of) 12 480 (1 of) F/O over-absorbed 320 (1) F/O under-absorbed (1 440) (1) Profit for the month 12 020 11 040 *1 mark for both correct revenue figures. Award 1 mark for all three costs: direct materials, direct labour, and variable overhead which might be given as a single figure of 61 360 (1) CF (July), 48 380 (1) CF (August). Award 2 marks for a combination of direct materials, direct labour, direct variables and fixed costs: 69 680 (July), $54 940 (August) If under and over-absorption not shown, allow 1 mark for fixed overheads of 8000 in July and 1 mark for 8000 in August. Quality of presentation 1 mark for correct labelling both opening and closing inventory and 1 mark for correctly labelling profit (for the month). Presentation mark for profit: could be given at the end of the student s income statement, for example where under- and over-absorption figures are not shown i.e. for the profit pre-adjustment. 8
2 (b) Reconcile the marginal cost profit for July 2017 with the absorption cost profit or loss for July 2017. [2 marks] Marginal cost profit for the month 10 900 Fixed overhead included in inventory (1) (70 x 16) 1 120 (1) Absorption cost profit for the month 12 020 : The first mark is for recognising the fixed overheads are included in inventory; the mark is for the word inventory. The second mark for a correct figure. 2 (c) Explain one advantage and one disadvantage of activity based costing. [4 marks] Advantage Award one advantage only max 2 marks Advantage Provides an accurate cost (per unit) (1) Provides insight into what drives costs (1) Development Overheads are not apportioned on an arbitrary basis (1) Results in better pricing (1) Results in better decision making (1) Disadvantage Award one disadvantage only max 2 marks Disadvantage It is complex/time consuming (1) Does not separate fixed and variable costs therefore no contribution (1) Development May not be cost effective (1) Some overheads may still need to be apportioned (1) Not appropriate for short-term decision making (1) Cannot calculate break-even (1) 9
3 Total for this question: 24 marks 3 (a) Calculate the annual net cash inflow from operations for the lifetime of each machine. Machine A Year 1 Year 2 Year 3 Year 4 Cash inflow per unit 160 160 160 160 Cash outflow per unit 120 121 122 123 Net cash inflow per unit 40 39 38 37 x units produced 2000 units 2100 units 2200 units 2300 units Net cash inflow 80 000 81 900 83 600 85 100 Residual value - - - 80 000 Total net cash inflow 80 000 81 900 83 600 165 100 (1) (1) (1) (1) [8 marks] Machine B Year 1 Year 2 Year 3 Cash inflow per unit 160 160 160 Cash outflow per unit 130 131 132 Net cash inflow per unit 30 29 28 x units produced 2000 2100 2200 Net cash inflow 60 000 60 900 61 600 (1) Residual value - - 25 000 Total net cash inflow 60 000 60 900 86 600 (1) (1) (1) 10
3 (b) Calculate the payback period for each machine. [2 marks] Machine A 200 000 80 000 81 900 = 38 100 Payback = 2 years + 38 100 / 83 600 = 2 years 167 days (1 of) or 2.46 years (1 of) or 2 years 5.5 months (1 of) Machine B 100 000 60 000 = 40 000 Payback = 1 year + 40 000 / 60 900 = 1 year 240 days (1 of) or 1.66 years (1 of) or 1 year 7.9 months (1 of) Allow the alternatives: For answers involving days: allow plus/minus 1 day For answers involving years: allow rounding to one decimal place For answers involving months: allow rounding to nearest month 11
3 (c) Calculate the net present value of each machine based on the company s cost of capital of 12%. [6 marks] Machine A Year Net cash flow ( ) Discount factor Present value ( ) 0 (200 000) 1 (200 000) (1) 1 80 000 0.893 71 440 2 81 900 0.797 65 274 3 83 600 0.712 59 523 (1 of) 4 165 100 0.636 105 004 NPV 101 241 (1) of must be labelled Machine B Year Net cash flow ( ) Discount factor Present value ( ) 0 (100 000) 1 (100 000) (1) 1 60 000 0.893 53 580 2 60 900 0.797 48 537 (1 of) 3 86 600 0.712 61 659 NPV 63 776 (1) of must be labelled s: If student has omitted the residual value in part (a) then their correct answer will be awarded 6 marks. The answers are: Machine A: Year 4 without residual value figure: 54 124 and the total 50 361 Machine B: Year 3 without residual value figure: 43 859 and the total 45 976 If the residual value is included in the net cash flow column, but has not been discounted then award max 2 marks. 12
3 (d) Advise the directors which machine they should purchase based only on financial factors. [8 marks] Machine A has much higher NPV (1) ( 101 251 v 63 776) therefore less risky investment (1). Machine B has quicker payback (1) (1.66 years v 2.46 years) if company has possible cash flow issues (1). Machine A costs twice as much as Machine B (1) decision may be subject to initial capital availability/or the availability of loan finance (1). Will competitors reduce prices (1) nullifying planned turnover increases (1)? How reliable are the directors estimates of cost increases (1) and will competitor reaction affect these (1)? Less capital investment gives the company other investment opportunities (1) for example replacing the machine with a newer version or discharging debts (1) Max 1 mark for identification (max 3 for identification) Max 1 mark for development (max 3 for development) Overall max 6 marks Advice (1) plus justification (1). : Do not reward non-financial issues. Figures do not have to be quoted. Comments should focus on the two techniques; ignore comments comparing the relative merits of the cash flows of the two machines (e.g. Machine A has less cash outflow or less variable overheads. etc). 13
4 Total for this question: 26 marks 4 (a) Calculate the number of chargeable hours required in the Payroll department to produce a profit of 30 000 for the year ending 30 April 2018. [2 marks] Contribution: 30 7 = 23 Fixed costs: 15 x 4 emps x 40 hours x 48 weeks = 115 200 + 25 000 = 140 200 Hours required: ( 140 200 OF + 30 000 = 170 200(1)) / 23 = 7 400 hours (1 of). Award 1 mark if the student s own fixed cost figure is divided by 23. 4 (b) Prepare a budgeted marginal cost statement for the Payroll department to show the profit for the year ending 30 April 2018. [4 marks] Working: Available hours = 4 x 40 x 48 = 7 680 x 95% = 7 296 hours PR Support Limited Payroll department Budgeted marginal cost statement for the year ending 30 April 2018 Revenue (7296 x 30) 218 880 } Variable costs (7296 x 7) (51 072) } (1 for both)* Contribution 167 808 (1 of) must be labelled Fixed costs (115 200 + 25 000) (140 200) (1) Profit for the year 27 608 (1 of) must be labelled The answer must start with revenue to be able to award any marks. *Do not award mark if other items included in calculation. Do not regard wages as alien in calculation of contribution. Fixed costs must be labelled and shown as one figure to award the mark. 14
4 (c) Calculate the total contribution for the year ending 30 April 2018 from the contract if the directors decide to proceed with Option 1. Tick one box only. [1 mark] A 69 120 B 65 664 C 15 360 D 14 592... 4 (d) Calculate the total budgeted wages of the Payroll department for the year ending 30 April 2018, if the directors decide to proceed with Option 2. [3 marks] Workings Total available hours currently 7 680 Additional hours 4 200 Hours required 11 880 Total hours available now (6 x 40 x 48) 11 520 (1) 360 hours Wages budget Fixed salary (11 520 x 18) 207 360 (1) Overtime (360 x 27) 9 720 (1) 217 080 Award 2 marks for 207 360 even if the calculation of total hours available is not shown as this is the total hours available 11 520 x the correct wage rate 18. 15
. 4 (e) Prepare a budgeted marginal cost statement for the Payroll department for the year ending 30 April 2018, if the directors decide to proceed with Option 2. [4 marks] PR Support Limited Payroll department Budgeted marginal cost statement for the year ending 30 April 2018 Revenue (11 880 x 30) 356 400 Variable costs (11 880 x 7) (83 160) Overtime payments (9 720) (1 of) Contribution 263 520 (1 of) must be labelled Fixed costs (11 520 x 18) + 25 000 (232 360) (1) Profit for the year 31 160 (1 of) must be labelled : The answer must start with revenue to be able to award any marks. Do not regard wages as alien in calculation of contribution. Fixed costs must be labelled and shown as one figure to award the mark. 16
4 (f) Advise the directors which option they should choose. Consider both financial and non-financial issues. [12 marks] [Includes 2 marks for quality of written communication] Max 5 for financial issues; Max 5 for non-financial issues overall max 8 Financial issues (max 5 marks) Option 1 Option 1 produces greater contribution/profit than option 2 (1)OF. Would involve closing down the Payroll department (1) incurring potential redundancy payments (1). The allocated fixed costs of the department would still have to be borne by the company (1) Results in higher overall company profits (1) Possible increase prices in the future, e.g. exchange rate changes (1) Training costs for overseas staff (1) Option 2 Achieves directors target profit of 30 000 after covering all fixed costs (1). The staff in Market Research and Financial Services may demand an increased salary of 18 per hour (1). Training/recruitment costs for the additional staff (1) Non-financial issues (max 5 marks) Option 1 Sub-contractors standard of work may not meet in-house standard (1) resulting in lost clientele (1). There may be confidentiality issues using an overseas contractor (1). There may be communications issues using an overseas provider (1). Lack of direct supervision may result in quality control issues (1). Will the supplier business continue to operate in the future? (1) The Market Research and Financial Services departments may lose clients (1) if Payroll clients are dissatisfied and leave (1). The contractor may not meet strict deadlines required for payroll processing (1) resulting in lost clientele (1). May causes concern over job security in the other departments (1) Option 2 Increasing fixed salary of Payroll department may cause resentment and de-motivation in the other two departments (1). Will the Payroll staff be willing to work the necessary overtime hours (1)? Will staff in the other departments be resentful at the availability of overtime payments (1)? Will they be able to recruit suitable staff (1)? Will the quality suffer as a result of workforce working over 100% capacity? (1) Advice (1) plus justification (1) Do not reward comparisons between the original situation and the new options, the student must be comparing the two alternative options. 17
Reward valid financial and non-financial points even if shown in the wrong section. Do not reward the same development twice for an identified issue eg Option 1 lack of direct supervision may lead to lost sales; confidentiality issues may lead to lost sales award 1 mark for each issue but only reward the development (loss of sales) only once. Quality of written communication: 2 marks: no more than 3 spelling, punctuation and grammatical errors 1 mark: 4 or more spelling, punctuation and grammatical errors 0 marks: prose response is difficult to undertand 18