Accounting 9706/42 October/November 2025: question paper and mark scheme
Cambridge AS & A Level Accounting (9706), Paper 4 A Level Cost and Management Accounting, October/November 2025. 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) State two benefits of preparing a:
(i) cash budget
1 ……
2 ……
[2]
(ii) production budget.
1 ……
2 ……
[2]
(b) Prepare the production budget (in units) for each of the months of April, May and June.
April May June
[4]
* 0000800000003 * DFD
3
(c) Calculate the payments to suppliers for each of the months of April, May and June.
…… [4]
* 0000800000004 * DFD
4
(d) Prepare the cash budget for each of the months of April, May and June.
April May June
[6]
* 0000800000005 * DFD
5
Additional information
The directors think that they will have some surplus cash at the end of June 2026 which could be used for other purposes. They have two options:
Option 1: use the surplus cash to incur expenditure on developing a new product
Option 2: place the surplus cash in a fixed deposit account at an estimated interest of
2% per annum.
(e) Advise the directors which option they should choose. Justify your answer.
…… [7]
[Total: 25]
* 0000800000006 * DFD
6
Mark scheme
1(a)(i) State two benefits of preparing a: 2
cash budget
Ensuring that the payments are made to avoid a shortage of cash / liquidity problems. (1)
Ensuring arrangements are made for the investment of surplus funds. (1)
Max 2
Accept other valid responses.
1(a)(ii) State two benefits of preparing a: 2
production budget
Ensuring right amount of inventory to meet the customers’ demand. (1)
Ensuring resources are available to meet the production target. (1)
Max 2
Accept other valid responses.
1(b) 4
Prepare the production budget (in units) for each of the months of April, May and June.
April May June
Sales of next month (units) 3 100 3 000 2 800 (1) row
Opening inventory (units) (160) (155) (150) (1) row
Closing inventory (units) 155 150 140 (1) row
Production (units) 3 095 2 995 2 790 (1)OF row
1(c) Calculate the payments to suppliers for each of the months of April, May and June. 4
March April May June
$ $ $ $
Units produced 3 235 W1 3 095 2 995
Direct material required per unit (kilos) 3 3 3
Total direct material required (kilos) 9 705 9 285 8 985
Decrease in base inventory (200) (1)
Total direct material purchased (kilos) 9 705 9 285 8 785
Direct material cost per kilo $8 $8 $8
Purchases payable next month 77 640 74 280 70 280
Payment to suppliers 77 640 (1) 74 280 (1)OF 70 280 (1)OF
W1 3200 + 160 – 125 = 3 235 units
1(d) Prepare the cash budget for each of the months of April, May and June. 6
April May June
$ $ $
Receipts
February sales 156 000
March sales 48 500 150 000
April sales 62 080 192 000
May sales 63 147
204 500 (1) 212 080 (1) 255 147 (1)
Payments
Suppliers 77 640 74 280 70 280 OF
Direct wages and variable overheads 61 900 59 900 55 800 (1)OF row
Fixed overheads 52 000 55640 55640 (1) row
Promotion cost 20 000
211 540 189 820 181 720
Net cash increase/(decrease) (7 040) 22 260 73 427
Opening balance 38 000 30 960 53 220
Closing balance 30 960 53 220 126 647 (1)OF row
1(e) Advise the directors which option they should choose. Justify your answer. 7
Option 1 (Max 3)
Existing product may be coming to the end of its product life cycle. (1)
Developing a new product is important for the future of the business. (1)
Further costs may be incurred on development / promotion of new product. (1)
Research and development may fail / it is risky. (1)
Option 2 (Max 3)
It has less risk (1)
Interest income increases the profit or cash / return from the interest income is too low (1)
Cash can be used for other investments to generate a higher return (1)
Cash is not available for long-term investment / emergency use in the business (1)
Decision supported with a comment (1)
Accept other valid responses.
Read Source B in the insert.
(a) Prepare the fixed budget for August showing the budgeted profit.
…… [3]
Additional information
In August, 7500 units were produced and sold. The actual result was as follows:
$
Sales (7500 units) 607 500
Direct material (33 750 kilos) 168 750
Direct labour (24 000 hours) 372 000
Fixed overhead 66 000
Profit 750
C Limited prepared a flexible budget statement and the following statement reconciling the flexible budget profit with actual profit.
$
Flexible budget profit 64 500
Sales price variance 7 500 Adverse
Direct material variance 18 750 Adverse
Direct labour variance 34 500 Adverse
Fixed overhead variance 3 000 Adverse
Actual profit 750
(b) Explain why a business prepares a flexible budget statement.
…… [2]
* 0000800000007 * DFD
7
(c) Calculate the following variances:
(i) fixed overhead expenditure
…… [2]
(ii) fixed overhead volume.
…… [3]
* 0000800000008 * DFD
8
Additional information
The directors are concerned about the adverse variances of both the total direct material cost and the total direct labour cost.
(d) Explain the likely causes for the adverse variances of:
(i) the total direct material cost
…… [4]
(ii) the total direct labour cost.
…… [4]
* 0000800000009 * DFD
9
Additional information
Direct material is supplied by one local supplier who dominates the local market. Because of the adverse direct material variance, the directors are thinking of switching to an overseas supplier who charges a higher price.
(e) Advise the directors whether or not they should switch to the overseas supplier. Justify your answer.
…… [7]
[Total: 25]
DFD
10
DFD
11
* 0000800000012 * DFD
12
Mark scheme
2(a) Prepare the fixed budget for August showing the budgeted profit. 3
Fixed budget $
Sales (8 000 units) 656 000 }
Direct material 160 000 }
Direct labour 360 000 }(1)
Fixed overhead 67 200 (1)
Profit 68 800 (1)OF
2(b) Explain why a business prepares a flexible budget statement. 2
Flexible budget allows a business to prepare a budget based on the actual level of activity. (1) It facilitates variance
analysis / a comparison between the actual result and the flexed budget. (1)
Accept other valid responses.
2(c)(i) Calculate the following variances: 2
Fixed overhead expenditure
$67 200 – $66 000 = $1 200 (1) F (1)
2(c)(ii) Calculate the following variances: 3
Fixed overhead volume
(24 000 – (7 500 × 3)) × $2.8 (1)= $4 200 (1) A (1)
2(d)(i) Explain the likely causes for the adverse variances of: 4
the total direct material cost
There is no material price variance (1) This is because the actual price paid was the same as the standard price. (1)
The material usage variance is $18 750 A. (1) This may be due to low quality of direct material / increased wastage /
inefficient use by labour (1)
Accept other valid responses.
2(d)(ii) Explain the likely causes for the adverse variances of: 4
the total direct labour cost.
The labour rate variance is $12 000 A. (1) This may be due to inflation causing the increase in hourly rate. (1)
The labour efficiency variance is $22 500 A. (1) This may be due to inefficient labour force / low quality of direct material /
lack of training / low motivation. (1)
Accept other valid responses.
2(e) Advise the directors whether or not they should switch to the overseas supplier. Justify your answer. 7
For (Max 3)
The quality should be better (1)
There is likely to be less wastage (1)
Returns of direct materials can be reduced (1)
Better quality of direct material may lead to a better final product (1)
The customer can be charged a premium price for a better quality product (1)
Against (Max 3)
Changing the supplier may not solve the problem of labour inefficiency (1)
Transportation cost/ import duties / fluctuating exchange rate may erode profit (1)
Delivery from overseas of direct material takes time (1)
It takes time to build up a good relationship with a new supplier (1)
Not sure whether the new supplier is reliable (1)
Decision supported with a comment (1)
Accept other valid responses.
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Accounting 9706/42 for October/November 2025 is out of 50 marks, with 1 hour to answer it, across 2 questions.
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