Cambridge A Level Accounting 9706 — 2019 Feb/March Paper 3 · Variant 2

This document consists of 23 printed pages, 1 blank page and 1 Insert. 03_9706_32_AB/5RP © UCLES 2019 [Turn over  Cambridge Assessment International Education Cambridge International Advanced Subsidiary and Advanced Level ACCOUNTING 9706/32 Paper 3 Structured Questions February/March 2019 3 hours Candidates answer on the Question Paper. No Additional Materials are required. READ THESE INSTRUCTIONS FIRST Write your centre number, candidate number and name in the spaces at the top of this page. Write in dark blue or black pen. You may use an HB pencil for any diagrams, graphs or rough working. Do not use staples, paper clips, glue or correction fluid. DO NOT WRITE IN ANY BARCODES. Answer all questions. The Insert contains all the sources referred to in the questions. At the end of the examination, fasten all your work securely together. The number of marks is given in brackets [ ] at the end of each question or part question. International accounting terms and formats should be used as appropriate. Workings should be shown. You may use a calculator.

2 © UCLES 2019 9706/32/F/M/19 Section A: Financial Accounting Answer all questions 1 Read Source A1 in the Insert. (a) Prepare the income and expenditure account for the year ended 30 June 2018. [7]

3 © UCLES 2019 9706/32/F/M/19 [Turn over (b) State two differences between an income and expenditure account and a receipts and payments account. 1 2 [2] (c) Prepare the statement of financial position at 30 June 2018.

5 © UCLES 2019 9706/32/F/M/19 [Turn over Additional information At 1 July 2017 the following balances for the restaurant were available. $ Inventory 15 700 Trade payables 13 900 (d) Calculate the restaurant cash surplus or deficit for the year ended 30 June 2018. [4] Additional information The club plans to improve the clubhouse next year at a cost of $50 000. The chairman is considering financing the improvement by either members’ loans or taking a bank loan. (e) Evaluate whether the club should finance the improvement by members’ loans or take a bank loan. Justify your answer. [5] [Total: 25]

6 © UCLES 2019 9706/32/F/M/19 2 Read Source A2 in the Insert. (a) Calculate the working capital cycle in days. [5]

7 © UCLES 2019 9706/32/F/M/19 [Turn over Additional information The company allows its customers 60 days credit. The company is allowed 30 days credit by its suppliers. The inventory turnover ratio for the previous year was 104 days. The net working assets to revenue ratio has risen from 27.85% to 32.74%. Trade payables had fallen and trade receivables had risen since 31 March 2017. (b) Analyse the liquidity of F Limited. [5]

8 © UCLES 2019 9706/32/F/M/19 (c) Analyse the change in the net working assets to revenue ratio of F Limited. [6]

9 © UCLES 2019 9706/32/F/M/19 [Turn over Additional information Blair, an investor, wishes to invest in either F Limited or a competitor, C Limited. The market value of one ordinary share in both companies is $1.50. Blair’s main requirement is a regular income from the investment. Relevant information for the two companies is as follows: F Limited C Limited Gearing 20% 25% Earnings per share $0.18 $0.21 Dividend cover 3 times 4 times Dividend per share $0.09 $0.12 (d) Advise Blair in which company he should invest. Justify your answer. [9] [Total: 25]

10 © UCLES 2019 9706/32/F/M/19 3 Read Source A3 in the Insert. (a) Calculate the value of the closing inventory. [4]

11 © UCLES 2019 9706/32/F/M/19 [Turn over (b) Prepare the following accounts in the books of account of SH Limited. (i) Consignment account [7] (ii) Maureen account [5]

12 © UCLES 2019 9706/32/F/M/19 (c) Calculate the profit per container. [2] (d) Explain what the closing balance on Maureen account represents. [3] (e) Explain two differences between a consignment and a joint venture. 1 2 [4] [Total: 25]

13 © UCLES 2019 9706/32/F/M/19 [Turn over 4 Read Source A4 in the Insert. (a) (i) State why a bonus issue of shares would not be recorded in a statement of cash flows. [1] (ii) Name one financial item, other than a bonus issue of shares and a transfer to general reserve, which would not be recorded in a statement of cash flows. [1] (b) Prepare the non-current assets schedule for the year ended 31 December 2018 for inclusion in the notes to the financial statements of the company. A total column is required. [9]

14 © UCLES 2019 9706/32/F/M/19 (c) Prepare the statement of changes in equity for the year ended 31 December 2018. A total column is required. [9]

15 © UCLES 2019 9706/32/F/M/19 [Turn over Additional information The directors are considering publishing a cash budget instead of preparing a statement of cash flows in the future. (d) Advise the directors whether or not to proceed with this change. Justify your answer. [5] [Total: 25]

16 © UCLES 2019 9706/32/F/M/19 Section B: Cost and Management Accounting Answer all questions 5 Read Source B1 in the Insert. (a) Calculate the cost per unit for each product using absorption costing. [3] Additional information A newly recruited management accountant suggests that B Limited should adopt activity based costing (ABC). He has provided an analysis of fixed overheads as follows: Cost Cost driver Annual quantity $ Materials requisition 90 000 Number of material requisitions 75 Machine set up 240 000 Number of setups 60 Inspection 150 000 Number of inspection hours 5000 480 000 Budgeted use of cost driver for each product for June 2019 is as follows: Premier Standard Number of material requisitions 2 6 Number of setups 2 3 Number of inspection hours 120 320 (b) Explain the meaning of the term ‘cost driver’. [2]

17 © UCLES 2019 9706/32/F/M/19 [Turn over (c) State two advantages and three disadvantages of ABC. Advantage 1 Advantage 2 Disadvantage 1 Disadvantage 2 Disadvantage 3 [5]

18 © UCLES 2019 9706/32/F/M/19 (d) Calculate the cost per unit for each product if ABC is adopted. Workings: [8]

19 © UCLES 2019 9706/32/F/M/19 [Turn over Additional information The selling price of each product is cost plus 40%. (e) (i) Calculate the selling price of each product using absorption costing. [2] (ii) Calculate the selling price of each product using ABC. [2] (iii) Explain, using suitable calculations, why your answers in (i) and (ii) are different. [3] [Total: 25]

20 © UCLES 2019 9706/32/F/M/19 6 Read Source B2 in the Insert. (a) Calculate the following variances for the month of September. (i) Material price [2] (ii) Material usage [2] (iii) Labour rate [2] (iv) Labour efficiency [2]

21 © UCLES 2019 9706/32/F/M/19 [Turn over (b) Suggest one possible cause for each of the variances calculated in (a). Material price variance Material usage variance Labour rate variance Labour efficiency variance [4] (c) Calculate the following variances for the month of September. (i) Fixed overhead expenditure [2] (ii) Fixed overhead volume [2]

22 © UCLES 2019 9706/32/F/M/19 Additional information For the month of October, Jack has calculated an adverse fixed overhead volume variance. (d) Explain how October’s fixed overhead volume variance can be further analysed to provide Jack with more information about the performance of the business. [5]

23 © UCLES 2019 9706/32/F/M/19 (e) State two advantages and two disadvantages to Jack of using standard costing system. Advantage 1 Advantage 2 Disadvantage 1 Disadvantage 2 [4] [Total: 25]

24 Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the publisher will be pleased to make amends at the earliest possible opportunity. To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge Assessment International Education Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download at www.cambridgeinternational.org after the live examination series. Cambridge Assessment International Education is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of the University of Cambridge Local Examinations Syndicate (UCLES), which itself is a department of the University of Cambridge. © UCLES 2019 9706/32/F/M/19 BLANK PAGE

This document consists of 22 printed pages. © UCLES 2019 [Turn over Cambridge Assessment International Education Cambridge International Advanced Subsidiary and Advanced Level ACCOUNTING 9706/32 Paper 3 A Level Structured Questions March 2019 MARK SCHEME Maximum Mark: 150 Published This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the examination. It shows the basis on which Examiners were instructed to award marks. It does not indicate the details of the discussions that took place at an Examiners’ meeting before marking began, which would have considered the acceptability of alternative answers. Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for Teachers. Cambridge International will not enter into discussions about these mark schemes. Cambridge International is publishing the mark schemes for the March 2019 series for most Cambridge IGCSE™, Cambridge International A and AS Level components and some Cambridge O Level components.

9706/32 Cambridge International AS/A Level – Mark Scheme PUBLISHED March 2019 © UCLES 2019 Page 2 of 22 Generic Marking Principles These general marking principles must be applied by all examiners when marking candidate answers. They should be applied alongside the specific content of the mark scheme or generic level descriptors for a question. Each question paper and mark scheme will also comply with these marking principles. GENERIC MARKING PRINCIPLE 1: Marks must be awarded in line with: • the specific content of the mark scheme or the generic level descriptors for the question • the specific skills defined in the mark scheme or in the generic level descriptors for the question • the standard of response required by a candidate as exemplified by the standardisation scripts. GENERIC MARKING PRINCIPLE 2: Marks awarded are always whole marks (not half marks, or other fractions). GENERIC MARKING PRINCIPLE 3: Marks must be awarded positively: • marks are awarded for correct/valid answers, as defined in the mark scheme. However, credit is given for valid answers which go beyond the scope of the syllabus and mark scheme, referring to your Team Leader as appropriate • marks are awarded when candidates clearly demonstrate what they know and can do • marks are not deducted for errors • marks are not deducted for omissions • answers should only be judged on the quality of spelling, punctuation and grammar when these features are specifically assessed by the question as indicated by the mark scheme. The meaning, however, should be unambiguous. GENERIC MARKING PRINCIPLE 4: Rules must be applied consistently e.g. in situations where candidates have not followed instructions or in the application of generic level descriptors.

9706/32 Cambridge International AS/A Level – Mark Scheme PUBLISHED March 2019 © UCLES 2019 Page 3 of 22 GENERIC MARKING PRINCIPLE 5: Marks should be awarded using the full range of marks defined in the mark scheme for the question (however; the use of the full mark range may be limited according to the quality of the candidate responses seen). GENERIC MARKING PRINCIPLE 6: Marks awarded are based solely on the requirements as defined in the mark scheme. Marks should not be awarded with grade thresholds or grade descriptors in mind.

9706/32 Cambridge International AS/A Level – Mark Scheme PUBLISHED March 2019 © UCLES 2019 Page 4 of 22 Question Answer Marks 1(a) Income and expenditure account for year ended 30 June 2018 $ $ Subscription fee ($544 000 + ($3400 + $8200) (1) – ($7000 + $2400) (1)) 546 200 Restaurant profit ($12 600 – $3300) 9 300 (1) 555 500 Depreciation clubhouse $300 000 × 4% 12 000 (1) Depreciation equipment ($140 000 – $64 000) × 15% 11 400 (1) Club operating expenses 192 000 Club staff salaries 326 000 Loan interest $10 000 × 10% × 12 6 500 (1) 541 900 Surplus of income over expenditure 13 600 (1) OF 7

9706/32 Cambridge International AS/A Level – Mark Scheme PUBLISHED March 2019 © UCLES 2019 Page 5 of 22 Question Answer Marks 1(b) Responses could include: receipts and payments account is a summary of cash book while income and expenditure account is of same nature as an income statement; (1) receipts and payments account applies cash basis accounting while income and expenditure account applies accrual accounting; (1) receipts and payments account records only cash transactions while income and expenditure also records non-cash transactions such as depreciation; (1) receipts and payments account looks for the increase / decrease in cash during the year while income and expenditure account looks for the surplus / deficit; (1) the opening balance of receipts and payments account represents cash balance at bank and in hand while there is no opening balance for income and expenditure account. (1) Accept other valid points. (1 mark) × 2 differences 2

9706/32 Cambridge International AS/A Level – Mark Scheme PUBLISHED March 2019 © UCLES 2019 Page 6 of 22 Question Answer Marks 1(c) Statement of financial position at 30 June 2018 $ $ $ Cost Accumulated depreciation NBV Non-current assets Clubhouse 300 000 168 000 132 000 (1) OF Equipment 140 000 75 400 64 600 (1) OF 440 000 243 400 196 600 Current assets Inventory 23 400 Subscriptions in arrears 8 200 Cash and cash equivalents 7 700 39 300 (1) Total assets 235 900 Accumulated fund at 1 July 2017 194 000 Surplus for the year 13 600 (1) OF Non-current liability Loan from member 10 000 (1) Current liabilities Trade payables 12 100 Subscriptions in advance 2 400 (1) Accrued wages 3 300 } Accrued interest 500 } (1) OF 18 300 Total accumulated fund and liabilities 235 900 7

9706/32 Cambridge International AS/A Level – Mark Scheme PUBLISHED March 2019 © UCLES 2019 Page 7 of 22 Question Answer Marks 1(d) $ Restaurant profit 9 300 Increase in inventory (23 400 – 15 700) (7 700) (1) Decrease in trade payables (12 100 – 13 900) (1 800) (1) Increase in accrued wages 3 300 (1) Net cash surplus from restaurant 3 100 (1) OF 4 1(e) Responses could include: less paper work and procedures (than bank loan) quicker to obtain loan (than bank loan) may not require collateral (vs. bank loan) however: still may have to pay interest still may have to repay the loan already has a loan from a member $10 000; members may refuse to lend more Accept other valid points. (2 marks) for explaining one reason for obtaining members’ loan and (2 marks) for explaining one reason against members’ loan. (1 mark) for decision. 5

9706/32 Cambridge International AS/A Level – Mark Scheme PUBLISHED March 2019 © UCLES 2019 Page 8 of 22 Question Answer Marks 2(a) Trade receivables turnover = 000 994 500 137 × 365 = 51 days (1) Inventory turnover ratio = (1) 000 640 000 220 × 365 = 126 days (1) OF Trade payables turnover = 000 680 100 52 × 365 = 28 days (1) Working capital cycle = 51 + 126 – 28 = 149 days (1) OF 5 2(b) The company is receiving payments and making payments within the agreed period. (1) Payments are being made before receipt (1) so there will be an adverse effect on cash flow. (1) Inventory turnover ratio has worsened from the previous year. (1) OF Liquidity could be improved by reducing receivable days and inventory turnover ratio whilst increasing payables days. (1) Accept other valid points. 5 2(c) The ratio has worsened from the previous year (1) because a greater proportion of the revenue is being used to fund the working capital cycle. (1) The increase in the closing inventory has contributed to this (1) and indicates greater inefficiency. (1) The fall in trade payables (1) and rise in trade receivables (1) have also had the same effect. Accept other valid points. 6

9706/32 Cambridge International AS/A Level – Mark Scheme PUBLISHED March 2019 © UCLES 2019 Page 9 of 22 Question Answer Marks 2(d) The gearing of F Limited is lower which indicates less risk (1) although both are low geared companies. (1) Earnings per share of C Limited is higher which is better (1) indicating greater profits for each share held. (1) Dividend cover of C Limited is higher which is better (1) indicating that there is a greater proportion of profits available for the payment of dividends. (1) Dividend per share of C Limited is higher which is better (1) showing that a higher dividend is paid for each share owned. (1) From the limited information available, I would advise Blair to invest in C Limited. (1) Accept other valid points. Award 1 mark for decision and max 2 marks for each ratio. 9 Question Answer Marks 3(a) The closing inventory is valued at: $ unsold containers 6 × 7 200 43 200 (1) shipping expenses 5 1 × 11 600 2 320 (1) customs charges 5 1 × 7 800 1 560 (1) closing inventory valuation. 47 080 (1) OF 4

9706/32 Cambridge International AS/A Level – Mark Scheme PUBLISHED March 2019 © UCLES 2019 Page 10 of 22 Question Answer Marks 3(b)(i) Consignment account $ $ Goods on consignment 216 000 (1) Sales 244 800 (1) Shipping expenses 11 600 (1) Commission 12 240 (1) Customs charges 7 800 (1) Income statement 44 240 (1) OF Balance c/d 47 080 291 880 291 880 Balance b/d 47 080 (1) OF 7 3(b)(ii) Maureen account $ $ Consignment a/c -sales 244 800 (1) Consignment a/c-commission 12 240 (1) OF Bank 220 320 (1) Consignment a/c- customs 7 800 (1) Balance c/d 4 440 244 800 244 800 Balance b/d 4 440 (1) OF 5 3(c) 44 240 / 24 (1) = $1843.33 (1) OF 2 3(d) The debit balance (1) on Maureen’s account shows the amount payable by Maureen (trade receivable – the consignee) (1) to SH Limited (the consignor). (1) 3

9706/32 Cambridge International AS/A Level – Mark Scheme PUBLISHED March 2019 © UCLES 2019 Page 11 of 22 Question Answer Marks 3(e) Consignment Joint venture Long-term trading relation (1) Short-term, specific purpose (1) Profit usually commission (1) Joint venture total profit shared (1) Involves consigner and consignee (1) Involves co-venturers (1) Control exercised by consignor (1) Both parties have control over decisions (1) Accept other valid points. Max 4 4 Question Answer Marks 4(a)(i) No movement of funds is involved. (1) 1 4(a)(ii) Revaluation of non-current asset. (1) Accept other valid points. 1

9706/32 Cambridge International AS/A Level – Mark Scheme PUBLISHED March 2019 © UCLES 2019 Page 12 of 22 Question Answer Marks 4(b) T plc Schedule of non-current assets Land and buildings Machinery Fixtures and fittings Total $000 $000 $000 $000 Cost at 1 January 2018 400 214 82 696 (1) for row Purchases 262 10 272 (1) for row Disposals (100) (100) (1) for row Cost at 31 December 2018 400 376 92 868 Accumulated depreciation at 1 January 2018 12 112 17 141 (1) for row Charge for the year 4 84 9 97 (1) for row Eliminated on disposals (70) (70) (2) for row* Accumulated depreciation at 31 December 2018 16 126 26 168 NBV at 31 December 2018 384 250 66 700 (1) OF for row NBV at 1 January 2018 388 102 65 555 (1) for row * depreciation eliminated = 100 + 12 – 42 = 70 (2) for correct answer in correct column (1) for other answer based on 100 in correct column 9

9706/32 Cambridge International AS/A Level – Mark Scheme PUBLISHED March 2019 © UCLES 2019 Page 13 of 22 Question Answer Marks 4(c) T plc Statement of Changes in Equity for the year ended 31 December 2018 Share capital Share premium Retained earnings General reserve Total $000 $000 $000 $000 $000 Balance at 1 January 2018 500 105 40 645 (1) for row Share issue 400 (1) 80 (1) 480 Profit for the year 167 (3)*W1 167 Dividend paid (80) (1) (80) Transfer (10) 10 0 (1) for row Balance at 31 December 2018 900 _________ 80 ________ 182 ________ 50 _______ 1212 _______ (1) OF for row W1 profit for the year = 288 – 21 (1) interest – 100 (1) tax = 167 (1) OF 9

9706/32 Cambridge International AS/A Level – Mark Scheme PUBLISHED March 2019 © UCLES 2019 Page 14 of 22 Question Answer Marks 4(d) The directors should continue with the statement of cash flows. (1) A statement of cash flows is a requirement of IAS 1. (1) It shows how cash has been acquired and applied. (1) It is a link between two statements of financial position. (1) A cash budget is a management tool. (1) It deals with the future, not historical data. (1) If published, it could be of use to competitors. (1) Accept other valid points. (1) for decision + (Max 2) for comments on statement of cash flows at (1) mark each and (Max 2) for comments on cash budgets. 5 Question Answer Marks 5(a) Premier Standard $ $ Direct materials 80 50 } Direct labour 90 50 }(1) for all Fixed overheads 36 24 (1) for both Cost per unit 206 124 (1) OF for both Fixed overhead per unit $12 000 40 000 $480 = 3 5(b) Cost driver is the factor that causes the change (1) in the cost of an activity. (1) 2

9706/32 Cambridge International AS/A Level – Mark Scheme PUBLISHED March 2019 © UCLES 2019 Page 15 of 22 Question Answer Marks 5(c) Advantages ABC provides more reliable information for product costing, i.e. it is based on activity cost driver. (1) ABC facilitates pricing decision. (1) Disadvantages It is time consuming to implement ABC. (1) Determining the cost driver may be difficult. (1) Measuring the quantity of each cost driver consumed may be difficult. (1) It is costly because it may be necessary to employ a specialist to implement the ABC system. (1) Accept other valid points. Max 2 for advantages, Max 3 for disadvantages 5

9706/32 Cambridge International AS/A Level – Mark Scheme PUBLISHED March 2019 © UCLES 2019 Page 16 of 22 Question Answer Marks 5(d) Premier Standard $ $ Direct materials 80 50 } Direct labour 90 50 } (1) OF for all Fixed overheads 28 36 Cost per unit 198 (1) OF 136 (1) OF Premier Standard $ $ Materials requisition 2 × $1200* 2 400 ) 6 × $1200 7 200 )(1) Machine setup 2 × $4000* 8 000 ) 3 × $4000 12 000 )(1) Inspection 120 × $30* 3 600 ) 320 × $30 9 600 )(1) Total for June 2019 14 000 28 800 Units produced ÷ 500 ÷ 800 Per unit $28 (1) OF $36 (1) OF * $90000 $1200 75 = per requisition * $4000 60 000 $240 = per setup * $30 5000 000 150 = per inspection hour 8

9706/32 Cambridge International AS/A Level – Mark Scheme PUBLISHED March 2019 © UCLES 2019 Page 17 of 22 Question Answer Marks 5(e)(i) Premier Standard $ $ Absorption costing method Cost per unit 206.00 124.00 Cost plus 40% 82.40 49.60 Unit selling price 288.40 (1) OF 173.60 (1) OF 4 5(e)(ii) Premier Standard $ $ ABC costing method Cost per unit 198.00 136.00 Cost plus 40% 79.20 54.40 Unit selling price 277.20 (1) OF 190.40 (1) OF 5(e)(iii) Difference in price of Premier ($288.40 − $277.20) = $11.20 Difference in price of Standard ($173.60 − $190.40) = $16.80 The difference in selling price is caused by the fixed overhead charged to each product (1) For Premier ($36 − $28) × 140% = $11.20 (1) OF For Standard ($36 − $24) × 140% = $16.80 (1) OF 3 Question Answer Marks 6(a)(i) Material price $ standard 2800 kilos × $6 16 800 actual 17 350 $550 (1) A (1) 2

9706/32 Cambridge International AS/A Level – Mark Scheme PUBLISHED March 2019 © UCLES 2019 Page 18 of 22 Question Answer Marks 6(a)(ii) Material usage standard 5900 units × 0.5 kilos 2 950 actual 2 800 150 kilos × $6 $900 (1) F (1) 2 6(a)(iii) Labour rate $ standard 9500 hours × $4.50 42 750 actual 42 275 $475 (1) F (1) 2 6(a)(iv) Labour efficiency standard 5900 units × 1.5 hours 8 850 actual 9 500 650 hours × $4.50 $2 925 (1) A (1) 1 mark for calculation plus 1 mark for direction 2

9706/32 Cambridge International AS/A Level – Mark Scheme PUBLISHED March 2019 © UCLES 2019 Page 19 of 22 Question Answer Marks 6(b) Material price variance – adverse Unexpected price increase. Loss of previous discount from supplier. Better quality materials purchased. (1 mark) × any 1 reason OF Material usage variance – favourable Less wastage due to better quality material. Less wastage due to better skilled/experienced workforce. (1 mark) × any 1 reason OF Labour rate – favourable A planned pay increase was not given. Use of lower skilled labour. Greater supply of labour. (1 mark) × any 1 reason OF 4

9706/32 Cambridge International AS/A Level – Mark Scheme PUBLISHED March 2019 © UCLES 2019 Page 20 of 22 Question Answer Marks 6(b) Labour efficiency - adverse Use of lower quality material. Use of lower skilled labour. More idle time than budgeted. Poor supervision (1 mark) × any 1 reason OF Accept other valid points. 6(c)(i) Fixed overhead expenditure $ standard 6500 units × 1.5 hours × $5 48 750 actual 52 100 $3 350 (1) A (1) 2 6(c)(ii) Fixed overhead volume standard units 6 500 actual units 5 900 600 units Standard OAR 1.5 hours × $5 × $7.50 $4 500 (1) A (1) 2

9706/32 Cambridge International AS/A Level – Mark Scheme PUBLISHED March 2019 © UCLES 2019 Page 21 of 22 Question Answer Marks 6(d) The fixed overhead volume variance is the difference between the actual and budgeted production and can be broken down further (to show what caused this difference) into the fixed overhead efficiency (1) and fixed overhead capacity. (1) If Jack calculated the fixed overhead efficiency he would know how much of the volume variance was due to the efficiency of his workforce. (1) As the volume variance was adverse for Jack this could mean the workforce worked more slowly than expected (1) due to lack of skills, poor material quality. (1) If Jack calculated the fixed overhead capacity he would know how much of the volume variance was due to number of hours worked. (1) As the volume variance was adverse for Jack this could mean the workforce worked fewer hours than expected (1) due to strikes, machine breakdown or shortage of labour. (1) Accept other valid points. Max 5 5

9706/32 Cambridge International AS/A Level – Mark Scheme PUBLISHED March 2019 © UCLES 2019 Page 22 of 22 Question Answer Marks 6(e) Advantages Acting as a control device in variance analysis (1) Assisting in budget setting (1) Evaluating managers performance (1) Predicting future costs to aid decision making (1) Providing targets to motivate staff (1) Suggesting ways to improve efficiency (1) Enabling more accurate inventory valuation (1) Disadvantages Time consuming to collect data (1) Standards based on estimates (1) Unrealistic standards can demotivate staff (1) Factors causing variances are outside his control (1) Max 2 marks for advantages and Max 2 marks for disadvantages Accept other valid points. 4