Q.1

This was an easy question with 99% students obtaining pass marks.

(a)

In this part, a significant majority classified some expenses to only one category without bothering to consider if they are applicable to other categories as well.

(b)

In this part, some students wrote pages about distinction between joint and by-products and their accounting treatment often missing key points. For a 4-mark question, this showed their lack of time management skills and is a clear indication of the tendency among many students to produce irrelevant answers.

Q.2

This was a question about inventory ordering decision by evaluating EOQ and volume purchase discounts. A proper approach to this question was to follow the under-mentioned steps:

(a)      estimate EOQ

(b)      calculate total costs of purchase, ordering and holding costs for  EOQ and for lowest quantities eligible for discounts i.e.1000 units and 2000 units.

Alternatively, differential costs could have been calculated. The students usually made the following mistakes: 

(a)      Purchase costs, or the discounts on purchase costs were altogether ignored.

(b)      There were three alternatives that should have been evaluated i.e. total cost as mentioned based on 500 units which was the EOQ or 1000 units or 2000 units. The students evaluated various other options as regards quantities such as 750 units (average of 500 and 1000); 999 units; 1500 units (average of 1000 and 2000 units) and 1999 units etc.

(c)      Instead of considering the purchase costs of the whole year, the purchase cost (or its difference) of the quantity of one order was considered:

The students should note the following key concepts:

• Sum of the total yearly ordering and holding costs is the lowest when the quantity per order is the EOQ.

• When any other quantity is ordered, the total of the ordering and holding cost keep on increasing as the difference between EOQ and the ordered quantity increases.

• In view of the above, when a quantity discount is offered, it should be compared with the increase in ordering and holding costs that would arise as a result of the change in the size of order.

Q.3

This question required drawing up of factory ledger accounts. The most common mistakes committed by the students were as follows:

• cost of goods produced account was prepared instead of cost of goods sold account.

• Over/under applied FOH was not accounted for.

• Unpaid bill of repairs expenditure amounting to Rs.12,000 was credited to FOH account instead of being debited.

Q.4

In this question requiring a make or buy decision, the common mistakes made by many students were as follows:

(a)

In calculating total costs for next year students simply increased material, labour and variable overheads by given percentages of  20%, 12% and 6% respectively. They ignored the impact of 60% increase in production.

(b)

Most students failed to consider the fact that the present material cost of Rs.1.0 million included abnormal loss of Rs.30,000/-.

Q.5

Here the two common mistakes were as under :

(i)

Students did not deduct the normal loss figures from total input to evaluate good production and abnormal gain/loss.

(ii)

Students evaluated good production and abnormal gain/loss on different bases not keeping in mind that both should have the same unit value.

Q.6

(i)

This was the worst attempted question and only 2% candidates secured pass marks. A simple approach was to segregate product-wise variable and attributable fixed costs. The difference between sales and total variable costs would give contribution margin. From this contribution margin, fixed attributable costs should have been deducted to arrive at attributable margin.

A schedule so drawn up would show that rings and pallets make positive contributions and therefore it would be wrong to discontinue the production of either of them.

(ii)

In this part the contribution earned as a result of 40% increase in sales, should have been compared with 300% advertising cost to determine the increase/decrease in profit that would result from increased advertising.

From the same schedule, the impact of replacing Rings with Caps or Crowns could have been calculated.

The main errors were as follows:

·        Fixed costs relating to storage and stores administration were not deducted in arriving at variable cost of material usage. Where these were deducted, the calculation was based on 10% of the gross amount instead of 10% of cost of material.

·        Fixed overheads were not bifurcated between general fixed production overheads and attributable fixed costs. Consequently the impact of discontinuing a certain product could not be calculated correctly.

·        The increase in sales of caps and crowns, as a result of discontinuing the sale of rings was not calculated correctly.

Q.7

In part (i) the required rate of profit was 10% of sales and commission on sales was 8%. Hence variable costs other than commission were 82% of sales, whereas the costs as given in the question aggregated to Rs.393,600 i.e. Rs.9.84 per unit. Hence the break even sales price per unit should have been Rs.12.00 (9.84/0.82)

In part (ii), many students omitted commission from their calculation.

Q.8

Many students could not calculate mix and yield variances correctly; whereas the performance in the others was average.