Accounting 9706/42 February/March 2023: question paper and mark scheme

Mark scheme

1(a) Prepare the cash budget for each of the four months from January 2024 to April 2024. 7 Cash budget for January to April 2024 January February March April $ $ $ $ Receipts Sales 56 000 59 500 61 200 59 200 Payments Trade payables 27 100 (1) 28 600 (1) 30 200 (1) 33 300(1) Operating expenses 24 200 25 100 26 100 25 900 } Loan repayment 8 000 0 0 0 }(1) rows Capital expenditure 0 4 800 7 600 0 } Total payments 59 300 58 500 63 900 59 200 Net (3 300) 1 000 (2 700) 0 receipts/(payments) Balance b/f 3 000 (1) (300) 700 (2 000) Balance c/f (300) 700 (2 000) (2 000) (1)OF 1(b) Prepare a revised cash budget for each of the four months from January 2024 to April 2024 on the basis of this 11 director’s suggestion. Cash budget for January to April 2024 January February March April $ $ $ $ Receipts Sales 56 000 59 500 61 200 59 200 Payments Cash purchases 13 585 (1) 14 725 (1) 15 675 (1) 16 150 (1) (W1) Trade payables 15 215 (1) 14 875 (1) 11 825 (1) 17 150 (1) Operating expenses 24 200 25 100 26 100 25 900 } Loan repayment 8 000 0 0 0 }(1) rows Capital expenditure 0 4 800 7 600 0 } Total payments 61 000 59 500 61 200 59 200 Net (5 000) 0 0 0 receipts/(payments) Balance b/f 3 000 (1) (2 000) (2 000) (2 000) Balance c/f (2 000) (2 000) (2 000) (2 000) (1)OF 1(b) W1 January 28 600 × 0.5 × 0.95 = 13 585 February 31 000 × 0.5 × 0.95 = 14 725 March 33 000 × 0.5 × 0.95 = 15 675 April 34 000 × 0.5 × 0.95 = 16 150 1(c) Advise the directors whether or not they should accept the suggestion to make half of the purchases in cash. 7 Justify your answer. The discount would increase profits (1). Relationships with the suppliers of the cash purchases could improve (1). The business would be operating at the maximum overdraft (1) which could produce financial constraints should other demands occur (1) and this would increase interest payable (1) and decrease profits (1). The bank overdraft limit might need to be renegotiated (1). Relationships with suppliers of credit purchases would be likely to deteriorate (1) as they would be waiting for longer for their money (1). Interest may become payable on overdue accounts (1). If additional funds could be made available in January or if other expenditure could be delayed, some or all of the opening trade payables could be paid off, and the increase in payment period could be avoided (1). The problems arising from the introduction of the new approach would be largely short term and the advantages of it could become more apparent in the longer term (1). Accept other valid responses. Max 6 marks for comments 1 mark for decision supported with comment

Mark scheme

2(a) State what is meant by the term ‘cost driver’. 1 An activity which causes costs to be incurred in the production process (1) 2(b) Calculate the total profit or loss made from the production of each product for a year. 11 Product A Product B $ $ Net revenue 100 000 288 000 } Scrap 4 000 4 800 }(1) both Direct material (30 750) (152 950) } Direct labour (50 000) (138 000) }(1) both Machine set up (1 280) (1) (3 200) (1) OF Quality inspections (3 200) (1) (4 800) (1)OF Order processing (1 900) (1) (3 600) (1)OF Depreciation (6 840) (1) (8 360) (1)OF Profit/(loss) 10 030 (18 110) (1)OF both 2(c) Calculate the revised total profit or loss made from the production of each product for a year if the surveillance 5 cameras were introduced and all the returns were eliminated. EITHER Product A Product B $ $ Original profit/(loss) 10 030 (18 110) (1)OF both Loss of scrap (4 000) (4 800) (1) both Increase in revenue 25 000 43 200 (1) both Cost of cameras (7 200) (10 800) (1) both Revised profit 23 830 9 490 ((1)OF both 2(c) OR Product A Product B $ $ Net revenue 125 000 331 200 (1) both Direct material (30 750) (152 950) Direct labour (50 000) (138 000) Machine set up (1 280) (3 200) Quality inspections (10 400) (1) (15 600) (1) Order processing (1 900) (3 600) Depreciation (6 840) (8 360) Revised profit 23 830 9 490 (1)OF both Plus (1of) mark for repeating costs from (b) 2(d) Advise Simran whether or not she should install the system of surveillance cameras. Justify your answer. 6 Production of B turns from a loss to a profit. (1) The total production goes from a net loss to a profit. (1) Being monitored might encourage workers to work harder/more consistently as well as more attentively which could reduce the direct labour cost. (1) Fewer returns will improve customer perception due to quality improvement (1) but all returns may not be eliminated. (1) It might be better to increase the number of quality inspections. (1) The cause of the returns may need more investigation – there could be faulty components. (1) Workers may well be resentful/demotivated/demoralised. (1) There may be extra costs such as repairs and training. (1) If the camera system does not eliminate the returns Simran is obliged to go on paying for the cameras for the remainder of the three-year rental period. (1) Might it be cheaper in the long run to buy the cameras rather than renting them? (1) Accept other valid responses. Max 5 marks for comments. 1 mark for decision supported with comment. 2(e) Comment on the suitability of the cost driver to account for the cost of the surveillance cameras. 2 The choice of cost driver does not affect the profit of the business as a whole (1). The cost is not related to the number of inspections taking place (1). A better cost driver might be the number of workers/total labour hours (1). Max 2 Accept other valid responses.