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F2 Management Accounting

December 2007

The following questions are ones where less than 30% of the candidates selected the correct answer. These

questions carried 2 marks each.

Example 1

A company uses standard marginal costing. Last month the standard contribution on actual sales was $10,000

and the following variances arose:

$

Total variable costs variance 2,000 Adverse

Sales price variance 500 Favourable

Sales volume contribution variance 1,000 Adverse

A $7,000

B $7,500

C $8,000

D $8,500

The correct answer was D ($8,500). The most popular choice made by candidates was B. More than twice as

many candidates chose B than chose D. Those choosing B had overlooked the fact that the ‘standard

contribution on actual sales’ (given in the question) would have been obtained by adjusting the budgeted

contribution by the sales volume contribution variance. Therefore this variance should have been ignored in

answering the specific question set. The correct answer is obtained as follows:

$

Standard contribution on actual sales 10,000

Add Favourable sales price variance 500

Subtract Adverse total variable costs variance (2,000)

Actual contribution $ 8,500

This question tested Section E5(b) in the Study Guide – the reconciliation of budgeted and actual contributions

under standard marginal costing.

Example 2

The probability of an organisation making a profit of $180,000 next month is half the probability of it making a

profit of $75,000.

A $110 ,000

B $127,500

C $145,000

D $165,000

This short calculation question caused many candidates a lot of problems. Both choices B and D were very

popular – many more candidates chose either B or D than chose the correct answer A ($110,000).

The correct calculation is:

[(180,000 × 1) + (75,000 × 2)] ÷ [1 + 2] = $110,000

[(180,000 × 2) + (75,000 × 2)] ÷ [2 + 2] = $127,500

This approach has weighted the two profits equally and not in the ratio described in the question.

[(180,000 ÷ 2) + 75,000] = $165,000

This approach indicates a poor understanding of what an expected value is, namely a weighted average.

This question tested Section C1(a) in the Study Guide – the calculation of an expected value.

Example 3

Two products (W and X) are created from a joint process. Both products can be sold immediately after split-off.

There are no opening inventories or work in progress. The following information is available for last period:

units units per unit

W 12,000 10,000 $10

X 10,000 8,000 $12

Using the sales value method of apportioning joint production costs, what was the value of the closing

inventory of product X for last period?

A $68,992

B $70,560

C $76,032

D $77,616

The correct answer was D ($77,616). Both answers B and C were more popular choices by candidates and A

was selected by more than 12 % of the candidates.

Product W : (12,000 × 10) = $120,000

Product X : (10,000 × 12) = $120,000

Amount apportioned to product X is (776,160 ÷ 2) = $388,080.

20% of X’s production is in closing inventory: (0.2 × 388,080) = $77,616.

Answer B has split the joint production costs on the basis of sales prices and Answer C has used the sales value

of sales to apportion joint production costs.

This question tested Section D6(k) in the Study Guide – the valuation of joint products .

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