General:

The performance in this paper was average. It was felt that students had not studied the theory and had concentrated on solving practical questions only. As a result they lost marks in theoretical questions and were also found deficient in application of various concepts in practical questions. They are advised to read the theory of the subject carefully which will enable them to comprehend the requirements of all types of questions.

Question-wise comments are given hereunder:

Q.1

This was an easy question based on job order and required computation of predetermined overhead rates, cost per unit and over/under applied overhead for each department.

Despite the fact that the basis of rate to be applied in each department was clearly mentioned, many student incorrectly applied the machine hour rate for both the departments. In part (c), under or over applied overhead for each department was to be calculated. Instead, many students calculated the same for each unit only.

Q.2

(a)

In part (i) the examinees were required to explain how holding and ordering costs affect the optimum inventory levels. They were required to explain that total purchases remaining the same, if the number of orders for a period increase, the ordering costs increase but resultantly, the inventory levels decline and holding costs decrease. The reverse is true when the number of orders decrease. The optimum level is achieved where ordering costs and holding costs are equal.

Instead, most of the examinees wrote irrelevant material like definitions, and the methods of controlling the ordering and holding costs etc.

Part (ii) and (iii) of the question in which students were required to give examples of ordering/holding costs and list down the problems which may arise in determining these costs, was well attempted by majority of the students.

(b)

This question proved to be the most difficult question for the students. Majority of them were unable to solve it. This question required computing the optimal safety stock level by estimating the costs that will have to be incurred at various levels of safety stocks. Instead, most of the students tried to re-work the EOQ, Ordering levels and minimum/maximum level of stocks which was not required.

Q.3

It was a very easy question. It comprised of three parts and majority of the students were able to solve the requirements of part (b) and (c) correctly.

However in part (a) very few were able to prepare the full Balance Sheet as on August 31, 2006. In this part, the students should have worked out the Account Payable, Account Receivable & Inventory as on August 31, 2006 based on the information given in the question which would have enabled them to prepare the correct Balance Sheet. Only few students calculated these balances correctly. Calculation of the amount of inventory proved to be the most difficult.

Q.4

It was a very easy question and most of the students solved it correctly.

Q.5

It was an easy question and most students were able to secure good marks. However, due to poor presentation, many students followed lengthy procedures which must have affected their ability to complete the paper in time.

Q.6

Again a very easy question on process accounts and well attempted by majority of the students. However, the following common mistakes were observed:

• Joint costs were allocated to by-product also and the by-product was treated as a separate product.
• Normal Loss was accounted for as Abnormal Loss.

Q.7

The question was easy for those students who had reasonable knowledge about the difference between Absorption Costing and Marginal Costing. But a large number of students did not attempt this question correctly. Some of them prepared the Income Statements under both methods giving identical figures of costs and profit. Some of them calculated the cost of sales by multiplying the rates as given in the question with the quantity sold without considering the opening and closing inventory and the under/over applied factory overhead under absorption costing. Consequently, part (b) of the question which required reconciliation of profit under the two systems could not be solved.

Q.8

The performance of the students in this question was average. The examinees were required to ascertain as to how the available timber can be utilized most profitably. Most students calculated the contribution margin per unit correctly. The most common mistake was made in ranking the products as many candidates ranked them according to contribution per unit instead of contribution per cubic feet of timber required. Many candidates erred while computing the expected profit as they based their calculation on budgeted sale and failed to restrict the same on account of scarcity of timber. Some of them who calculated the sale correctly, calculated Fixed Overheads on the basis of actual sale instead of budgeted sale.  Some of those who could not solve it, made very childish mistakes. For examples some examinees failed to double the variable costs when the sales was doubled. Similar other mistakes were made which can not be expected at this level.

Q.9

It was the easiest question of this paper. Most of the students were able to determine the fixed and variable element of the overheads on the basis of high low method but failed to define this relationship in terms of cost volume formula.