Accounting 9706/42 May/June 2024: question paper and mark scheme
Cambridge AS & A Level Accounting (9706), Paper 4 Cost and Management Accounting, May/June 2024. Read both free below, or download them. Done the paper? Get it marked by AI against this mark scheme.
Read Source A in the insert.
(a) Prepare the production budget (in units) for each of the months April, May, June and
July 2025.
…… [4]
Additional information
The budgeted cost structure of each unit is as follows:
$
Direct 25 These are purchased on credit in the month of production. materials
• One fifth (20%) is paid for in the month following purchase after a
5% discount.
• Another fifth (20%) is paid for in the month following purchase but without any discount.
• The remainder (60%) is paid for in the second month after purchase.
Direct labour 30 This is all paid in the month of production.
Other costs 40 These are all paid in the month after production, with the exception of a
$4 per unit charge for depreciation.
(b) Prepare an extract from the cash budget for each of the months June and July 2025 to show the payments related to production.
Workings:
[7]
Additional information
The company usually makes all its sales on a cash basis for a selling price of $150 per unit. It expects to operate with a bank overdraft throughout 2025.
The company has received an order from a prospective new customer who is based overseas.
This order is for 900 units to be supplied in June 2025. The customer is prepared to pay $156 per unit, paying in six equal monthly instalments starting in August 2025.
(c) Calculate the change in the expected bank overdraft at the end of each of the months June,
July and August 2025 if the order was accepted. Assume that all the extra production would take place in the month in which the units are supplied.
…… [7]
(d) Advise the directors whether or not the company should accept the order. Justify your answer.
…… [7]
[Total: 25]
Mark scheme
1(a) Prepare the production budget (in units) for each of the months April, May, June and July 2025. 4
April May June July
Sales 1 000 1 200 1 500 1 300 (1) row
Closing inventory 240 300 260 220 (1) row
Opening inventory (200) (1) (240) (300) (260)
Production 1 040 1 260 1 460 1 260 (1)OF row
Alternative answer
April May June July
Opening inventory 200 (1) 240 300 260
Production 1 040 1 260 1 460 1 260 (1)OF row
Sales (1 000) (1 200) (1 500) (1 300) (1) row
Closing inventory 240 300 260 220 (1) row
1(b) Prepare an extract from the cash budget for each of the months June and July 2025 to show the payments related 7
to production.
Payments June July
$ $
Trade payables – month after 12 285 (1)OF 14 235 (1)OF
purchase W1
Trade payables – two months after 15 600 (1)OF 18 900 (1)OF
purchase W2
Direct labour W3 43 800 37 800 (1)OF both
Other costs W4 45 360 (1)OF 52 560 (1)OF
Total production payments 117 045 123 495
W1 based on units for May = 0.39 × 1 260 × 25 = 12 285
based on units for June = 0.39 × 1 460 × 25 = 14 235
OR W1
based on units for May = (0.2 × 1 260 × 25) + (0.2 × 1 260 × 25 × 0.95) = 12 285
based on units for June = (0.2 × 1 460 × 25) +(0.2 × 1 460 × 25 × 0.95) = 14 235
OR W1
based on units for May = 9.75 × 1 260 = 12 285
based on units for June = 9.75 × 1 460 = 14 235
W2 based on units for April = 0.6 × 1 040 × 25 = 15 600
based on units for May = 0.6 × 1 260 × 25 = 18 900
W3 1 460 × 30 = 43 800 and 1 260 × 30 = 37 800
W4 based on units for May = 1260 × (40 – 4) = 45 360
based on units for June = 1460 × (40 – 4) = 52 560
1(c) Calculate the change in the expected bank overdraft at the end of each of the months June, July and August 2025 7
if the order was accepted. Assume that all the extra production would take place in the month in which the units
are supplied.
$
June – direct labour 900 × 30 27 000
Increase in overdraft at end June 27 000 (1)
July – direct materials 900 × 25 × 0.39 8 775 (1)
– other costs 900 × 36 32 400 (1)
Increase in overdraft at end July 68 175 (1)OF
August – direct materials 900 × 25 × 0.6 13 500 (1)
receipt from customer 900 × 156 × 1/6 (23 400) (1)
Increase in overdraft at end August 58 275 (1)OF
1(d) Advise the directors whether or not the company should accept the order. Justify your answer. 7
For (max 3)
It would be more profitable than the usual sales. (1)
It might make use of spare capacity. (1)
It would increase market share / enter overseas market. (1)
There might be repeat orders. (1)
If other costs are largely fixed, they would reduce per unit as they are spread over more units, further increasing profit. (1)
Against (max 3)
Regular customers may also request credit. (1)
There might not be enough capacity in the factory. (1)
Existing machinery may become exhausted / new machinery may be required. (1)
Additional labour and materials may not be available. (1)
Workers may be overworked / overtime may be required. (1)
Finance will be needed – the overdraft limit may need to be renegotiated. (1)
Increased overdraft interest (1) will reduce profit.
Credit checks will be needed on the new customer. (1)
The company may have to adopt credit control / collection procedures. (1)
The longer the credit period the greater the risk of not being paid. (1)
More administration/delivery costs may be incurred for an overseas customer. (1)
Accept other valid responses.
Decision supported with a comment (1)
Read Source B in the insert.
(a) State why cost drivers are used in the application of activity based costing (ABC).
…… [1]
(b) Calculate the selling price of one unit of each product.
Workings:
[9]
Additional information
Sooraj is considering using machine hours rather than carrying values to allocate the depreciation cost.
(c) Calculate the change in selling price of one unit of each product if Sooraj uses machine hours as the cost driver for depreciation cost.
…… [5]
(d) Explain the relationship between the choice of cost driver and profit.
…… [3]
Additional information
In recent months, actual results have been unfavourable in comparison with the budgeted figures.
On one occasion, the manufacture of Product A had been stopped and sales lost because the sole supplier of some of the components of that product had been unable to fulfil Sooraj’s orders.
Sooraj is considering manufacturing these components in his own factory instead of buying them in. He estimates that the total direct material cost of Product A would fall to $30 per unit and that the labour requirement for Product A would increase to 5 hours per unit, with the wage rate unchanged.
The budgeted depreciation cost would increase by $8000 per annum. Sooraj is unclear whether overheads other than depreciation would be affected.
(e) Advise Sooraj whether or not he should manufacture these components for Product A in his own factory. Justify your answer. Your answer should include any effect on the costs of
Product B.
…… [7]
[Total: 25]
Mark scheme
2(a) State why cost drivers are used in the application of ABC. 1
Cost drivers relate cost and effect in allocating indirect costs. (1)
OR Cost drivers assist in allocating overheads to activities (1)
Accept other valid responses
2(b) Calculate the selling price of one unit of each product. 9
A B
$ $
Direct material 80 } 66 }
Direct labour 33 }(1) 78 }(1)
Quality inspections W1 8.40 11.20 (1) both
Order processing W2 12 16 (1) both
Depreciation W3 9.45 10.08 (1) both
Other overheads W4 20 20 (1) both
Cost 162.85 201.28 (1)OF both
Mark-up 162.85 201.28
Selling price 325.70 (1)OF 402.56 (1)OF
W1 8 960 × 210/560 = 3 360 3 360/400 = 8.40
8 960 × 350/560 = 5 600 5 600/500 = 11.20
W2 12 800 × 120/320 = 4 800 4 800/400 = 12
12 800 × 200/320 = 8 000 8 000/500 = 16
W3 8 820 × 54/126 = 3 780 3 780/400 = 9.45
8 820 × 72/126 = 5 040 5 040/500 = 10.08
W4 18 000/900 = 20
18 000 × 400/900 = 8 000 18 000 × 500/900 = 10 000
2(b) OR
A B
$ $
Direct material 32 000 } 33 000 }
Direct labour 13 200 } (1) 39 000 }(1)
Quality inspections W1 3 360 5 600 (1) both
Order processing W2 4 800 8 000 (1) both
Depreciation W3 3 780 5 040 (1) both
Other overheads W4 8 000 10 000 (1) both
Cost 65 140 100 640 (1)OF both
Mark-up 65 140 100 640
Revenue 130 280 201 280
Selling price 325.70 (1)OF 402.56 (1)OF
2(c) Calculate the change in selling price of one unit of each product if Sooraj uses machine hours as the cost driver. 5
A B
$ $
Total machine hours 1200 3000
Revised depreciation W1 2520(1) OR 6300 OR (1)
6.30(1) 12.60 (1)
Original depreciation (3780) (5040)
9.45 10.08
Change in depreciation (1260) 1260
3.15 2.52
Cost change per unit (3.15) 2.52 (1)OF
both
Change in selling price decrease 6.30 increase 5.04 (1)OF
1(OF)
W1 8820 × 1200/4200 = 2520 8820 × 3000/4200 = 6300
2(c) OR
A B
$ $
Total machine hours 1200 3000
Original total cost 65 140 100 640
Revised depreciation W1 2 520(1) 6 300 (1)
Original depreciation (3 780) (5 040)
Revised total cost 63 880 101 900
Revised revenue 127 760 203 800
Revised selling price 319.40 407.60 (1)OF both
Original selling price (325.70) (402.56)
Change in selling price decrease 6.30 increase 5.04 (1)OF
(1) OF
2(d) Explain the relationship between the choice of cost driver and profit. 3
The choice of cost driver does not affect the total costs (1) as it merely moves costs between products (1). It will affect
profits if products have a percentage mark-up (1) but will have no effect where a fixed mark-up is used (1).
Max 3
Accept other valid responses.
2(e) Advise Sooraj whether or not he should manufacture these components for Product A in his own factory. Justify 7
your answer.
For (max 2)
It could decrease the total cost of the business (1) by [400 × (50 – 22) – 8000] = $3200 (1).
He could use any spare capacity in the factory (1).
He is not dependant on supplier / no delivery charge (1).
He might be able to improve the quality of the components as he would be making them for his own use (1).
His business reputation might improve if it is seen as an expanding business (1).
Against (max 2 )
He may require new machinery (1) and may have to finance the purchase of the new machinery (1).
Extra space for the production may be required (1).
Additional workers may not be available (1).
Staff training would be needed / staff would lack the necessary expertise / quality may worsen (1).
The problems which affected the supplier’s ability to meet demand might also affect Sooraj (1).
If he maintained the same percentage mark-up, the decrease in cost would actually reduce profit (1).
There may be environmental issues due to extra production (1).
Effect on product B (max 2)
He might need to process fewer purchase orders (1). This would increase the cost savings for product A and the allocation
of overheads to product B might increase (1).
OR More quality inspections might be needed to be assured of the quality of the components (1). This would decrease the
cost savings for product A and allocation of overheads to product B might decrease (1).
Accept other valid responses.
Decision supported with a comment (1)
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Accounting 9706/42 for May/June 2024 is out of 50 marks, with 1 hour to answer it, across 2 questions.
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