Cambridge A Level Accounting 9706 — 2022 Feb/March Paper 3 · Variant 2

This document has 20 pages. [Turn over Cambridge International AS & A Level DC (PQ) 303883/3 © UCLES 2022 * 4 2 7 3 0 7 6 5 1 9 * ACCOUNTING 9706/32 Paper 3 Structured Questions February/March 2022 3 hours You must answer on the question paper. You will need: Insert (enclosed) INSTRUCTIONS ● Answer all questions. ● Use a black or dark blue pen. ● Write your name, centre number and candidate number in the boxes at the top of the page. ● Write your answer to each question in the space provided. ● Do not use an erasable pen or correction fluid. ● Do not write on any bar codes. ● You may use an HB pencil for any diagrams, graphs or rough working. ● You may use a calculator. ● International accounting terms and formats should be used as appropriate. ● You should show your workings. INFORMATION ● The total mark for this paper is 150. ● The number of marks for each question or part question is shown in brackets [ ]. ● The insert contains all of the required information and questions.

2 9706/32/F/M/22 © UCLES 2022 Section A: Financial Accounting Answer all questions. 1 Read Source A1 in the insert. (a) Explain the term ‘indirect manufacturing costs’. … … … … [2] (b) Prepare the manufacturing account for the year ended 31 December 2021. … … … … … … … … … … … … … … … … … … … … [7]

3 9706/32/F/M/22 © UCLES 2022 [Turn over (c) Prepare the revised income statement for the year ended 31 December 2021. Use space on the next page to show your workings. Your statement should show separately the gross profit for each of standard furniture and luxury furniture. It should also show expenses split into ‘total administrative expenses’ and ‘total selling and distribution costs’. … … … … … … … … … … … … … … … … … … … … … … … … …

4 9706/32/F/M/22 © UCLES 2022 Workings: [11] (d) Assess the impact on the profitability of T Limited for the year ended 31 December 2021 of manufacturing luxury furniture. Support your answer with appropriate calculations. … … … … … … … … … … [5] [Total: 25]

5 9706/32/F/M/22 © UCLES 2022 [Turn over 2 Read Source A2 in the insert. (a) Explain why a business may need to impair its non-current assets. … … … … … … [3] (b) Explain to what extent the value of the diesel lorry is to be impaired. Support your answer with calculations. … … … … … … … … … … [6]

6 9706/32/F/M/22 © UCLES 2022 (c) Prepare the non-current assets schedule in a format suitable for inclusion in the notes to the financial statements for the year ended 31 December 2021. A total column is not required. … … … … … … … … … … … … … … … … … … … Workings: [11]

7 9706/32/F/M/22 © UCLES 2022 [Turn over Additional information The repair and maintenance cost of $30 000 for the 5-year contract for the new machine was paid on 1 March 2021. (d) Advise the directors whether or not X Limited should have entered into the contract. Justify your answer. … … … … … … … … … … [5] [Total: 25]

8 9706/32/F/M/22 © UCLES 2022 3 Read Source A3 in the insert. (a) Explain what is meant by the term ‘cash equivalents’. … … … … [2] (b) Prepare the statement of cash flows for the year ended 31 December 2021 in accordance with IAS 7. … … … … … … … … … … … … … … … … … … … … …

9 9706/32/F/M/22 © UCLES 2022 [Turn over … … … … … … … … … … … … … Workings: [14]

10 9706/32/F/M/22 © UCLES 2022 (c) Explain two reasons why a business prepares a statement of cash flows in addition to an income statement and a statement of financial position. 1 … … … … 2 … … … … [4] Additional information During a directors’ meeting, the finance director had been asked why he had raised a bank overdraft to finance the acquisition of non-current assets. (d) Advise the directors whether or not the finance director was correct in raising a bank overdraft to finance the acquisition of non-current assets. Justify your answer. … … … … … … … … … … … … … [5] [Total: 25]

11 9706/32/F/M/22 © UCLES 2022 [Turn over 4 Read Source A4 in the insert. (a) Explain two reasons why Javeed should ask for commission based on gross sales. 1 … … … … 2 … … … … [4] Additional information 1 Both parties later agreed that the commission of Javeed should be based on gross sales. 2 After incurring repair costs of $5 for each defective unit, all the returned goods can be sold for $160 each. (b) Calculate the value of inventory held by Javeed at 31 December 2021. … … … … … … … … … … [6]

12 9706/32/F/M/22 © UCLES 2022 (c) Prepare the consignment account in the books of G Limited for the year ended 31 December 2021. … … … … … … … … … … … … … … … [7] (d) Complete the table to show the effect of the consignment to Javeed on each item in G Limited’s financial statements and state the reason. Item Effect (Increase / Decrease) in $ Reason Other receivables Cash at bank Purchases Profit for the year [8] [Total: 25]

13 9706/32/F/M/22 © UCLES 2022 [Turn over PLEASE TURN OVER

14 9706/32/F/M/22 © UCLES 2022 Section B: Cost and Management Accounting Answer all questions. 5 Read Source B1 in the insert. (a) Prepare the flexed budget to show the budgeted profit for the month of July. … … … … … … … … … [5] Additional information The actual result for the month of July is also available. $ Sales 277 760 Direct material ($11.80 per kilo) (72 688) Direct labour ($25.50 per labour hour) (128 520) Fixed overhead (25 600) Actual profit 50 952 The cost accountant is going to conduct a variance analysis for the July performance. (b) State what is meant by the term ‘variance analysis’. … … … … … … [2]

15 9706/32/F/M/22 © UCLES 2022 [Turn over (c) Calculate the following: (i) sales price variance … … … [1] (ii) sales volume variance … … … [1] (iii) direct material total variance … … … [1] (iv) direct labour total variance … … … [1] (v) fixed overhead total variance. … … … [1]

16 9706/32/F/M/22 © UCLES 2022 Additional information The directors are interested in further analysis of the variances in direct materials. (d) (i) Calculate the two variances which combine to give the direct material total variance. … … … … … … … … [4] (ii) Explain the likely causes of the variances calculated in (d)(i). … … … … … … … … … … [4]

17 9706/32/F/M/22 © UCLES 2022 [Turn over Additional information In July, Y Limited had adopted a new strategy to increase sales by reducing the selling price. (e) Advise the directors of Y Limited whether or not the company should continue the strategy in the long run. Justify your answer. … … … … … … … … … … [5] [Total: 25]

18 9706/32/F/M/22 © UCLES 2022 6 Read Source B2 in the insert. (a) Explain what is meant by the term ‘cost of capital’. … … … … [2] (b) Calculate for the proposed investment: (i) payback period (in years and months) … … … … [2] (ii) accounting rate of return (to two decimal places) … … … … … … [3] (iii) net present value (NPV) … … … … … … … … … … [3]

19 9706/32/F/M/22 © UCLES 2022 [Turn over (iv) internal rate of return (IRR) (to two decimal places). … … … … … … … … [4] (c) Advise the directors whether or not the company should purchase the machine. Justify your answer. … … … … … [3] Additional information The directors decide to use the NPV method for investment appraisal. Due to recent adverse economic conditions, the directors think that they should use a cost of capital of 16%. (d) Explain the impact on the directors’ decision to purchase the machine if the cost of capital is 16%. … … … … [2]

20 9706/32/F/M/22 © UCLES 2022 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 Cambridge Assessment. Cambridge Assessment is the brand name of the University of Cambridge Local Examinations Syndicate (UCLES), which is a department of the University of Cambridge. Additional information In view of the increase in the cost of capital to 16%, the directors consider that net cash inflows for each year need to be improved. (e) Calculate the net cash inflows for each of the four years so that the NPV of the proposed investment is zero. … … … … … … … … … … … … … … … … [6] [Total: 25]

This document consists of 20 printed pages. © UCLES 2022 [Turn over Cambridge International AS & A Level ACCOUNTING 9706/32 Paper 3 A Level Structured Questions February/March 2022 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 February/March 2022 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 February/March 2022 © UCLES 2022 Page 2 of 20 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 February/March 2022 © UCLES 2022 Page 3 of 20 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 February/March 2022 © UCLES 2022 Page 4 of 20 Social Science-Specific Marking Principles (for point-based marking) 1 Components using point-based marking: • Point marking is often used to reward knowledge, understanding and application of skills. We give credit where the candidate’s answer shows relevant knowledge, understanding and application of skills in answering the question. We do not give credit where the answer shows confusion. From this it follows that we: a DO credit answers which are worded differently from the mark scheme if they clearly convey the same meaning (unless the mark scheme requires a specific term) b DO credit alternative answers/examples which are not written in the mark scheme if they are correct c DO credit answers where candidates give more than one correct answer in one prompt/numbered/scaffolded space where extended writing is required rather than list-type answers. For example, questions that require n reasons (e.g. State two reasons …). d DO NOT credit answers simply for using a ‘key term’ unless that is all that is required. (Check for evidence it is understood and not used wrongly.) e DO NOT credit answers which are obviously self-contradicting or trying to cover all possibilities f DO NOT give further credit for what is effectively repetition of a correct point already credited unless the language itself is being tested. This applies equally to ‘mirror statements’ (i.e. polluted/not polluted). g DO NOT require spellings to be correct, unless this is part of the test. However spellings of syllabus terms must allow for clear and unambiguous separation from other syllabus terms with which they may be confused (e.g. Corrasion/Corrosion) 2 Presentation of mark scheme: • Slashes (/) or the word ‘or’ separate alternative ways of making the same point. • Semi colons (;) bullet points (•) or figures in brackets (1) separate different points. • Content in the answer column in brackets is for examiner information/context to clarify the marking but is not required to earn the mark (except Accounting syllabuses where they indicate negative numbers).

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2022 © UCLES 2022 Page 5 of 20 3 Calculation questions: • The mark scheme will show the steps in the most likely correct method(s), the mark for each step, the correct answer(s) and the mark for each answer • If working/explanation is considered essential for full credit, this will be indicated in the question paper and in the mark scheme. In all other instances, the correct answer to a calculation should be given full credit, even if no supporting working is shown. • Where the candidate uses a valid method which is not covered by the mark scheme, award equivalent marks for reaching equivalent stages. • Where an answer makes use of a candidate’s own incorrect figure from previous working, the ‘own figure rule’ applies: full marks will be given if a correct and complete method is used. Further guidance will be included in the mark scheme where necessary and any exceptions to this general principle will be noted. 4 Annotation: • For point marking, ticks can be used to indicate correct answers and crosses can be used to indicate wrong answers. There is no direct relationship between ticks and marks. Ticks have no defined meaning for levels of response marking. • For levels of response marking, the level awarded should be annotated on the script. • Other annotations will be used by examiners as agreed during standardisation, and the meaning will be understood by all examiners who marked that paper.

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2022 © UCLES 2022 Page 6 of 20 Question Answer Marks 1(a) Indirect manufacturing costs are costs incurred during the course of production / in the factory (1) but they cannot be directly traced to the items being manufactured (1) Accept other valid answers. 2 1(b) $ Purchases of direct materials 76 500 Closing inventory 14 200 Cost of direct materials consumed 62 300 (1) Direct wages 119 000 Prime cost 181 300 (1) Factory manager salaries 36 000 } Factory rent 32 000 }(1) Indirect manufacturing costs W1 22 000 (1) Factory machines depreciation W2 7 200 (1) 278 500 Closing work in progress 12 500 Cost of goods manufactured 266 000 20% factory profit 53 200 (1)OF Transfer value 319 200 (1)OF W1 ($188 000 – $32 000 – $46 000) × 20% = $22 000 W2 $9000 ÷ 25% × 20% = $7200 7

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2022 © UCLES 2022 Page 7 of 20 Question Answer Marks 1(c) $ $ Standard furniture Revenue 510 000 Opening inventory 71 000 Purchases 292 000 Closing inventory 66 500 Cost of sales 296 500 (1) Gross profit 213 500 (1) Luxury furniture Revenue 484 000 Value transferred from factory 319 200 (1)OF Closing inventory $35 000 × 120% 42 000 (1) Cost of sales 277 200 Gross profit 206 800 (1)OF Total gross profit 420 300 Factory profit 53 200 (1)OF Less :unrealised profit $35 000 × 20% 7 000 (1) 46 200 466 500 Administrative expenses W1 309 600 (2) Selling and distribution costs W2 73 000 (1) 382 600 Profit for the year 83 900 (1)OF W1 Administrative expenses $ Salaries for office staff 167 000 Depreciation of office equipment 8 600 Office rent 46 000 Other expenses 88 000 (1) 309 600 (1) 11

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2022 © UCLES 2022 Page 8 of 20 Question Answer Marks 1(c) W2 Selling and distribution costs $ Salaries for salespeople 44 000 Depreciation of motor vehicles 10 500 Carriage outwards 18 500 73 000 (1) 1(d) Gross margin of standard furniture for 2021 is 41.86% (1)OF ($213 500 / $510 000) Effective gross margin (including factory profit) of luxury furniture for 2021 is 52.27% ($206 800 + $46 200) / $484 000 (1)OF Luxury has a higher gross margin than standard (1) The inclusion of luxury furniture which has a high gross margin can improve the profit margin (1) Inclusion of luxury can increase the customer base which has positive effect on profitability (1) Synergy may occur, i.e. by streamlining some operations to reduce cost thus improving profitability (1) 1 mark for each of the two calculations plus 1 mark for each other valid point up to a max of three. Accept other valid answers. 5

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2022 © UCLES 2022 Page 9 of 20 Question Answer Marks 2(a) Prudence concept / So that the value of the assets were not overstated (1) To ensure that the carrying amount of assets does not exceed their recoverable amount (1) So that the financial statements show a true and fair view (1) IAS 36 Impairment of assets (1) Max 3 Accept other valid answers. 3 2(b) Carrying amount at 31 December 2021 $24 000 ($36 000 – $12 000) (1) Fair value less cost to sell $21 000 – $4000 = $17 000 (1) Value in use $18 500 Recoverable amount is the higher of fair value ($17 000) and value in use ($18 500)(1), therefore recoverable amount is $18 500 (1). Since the carrying amount ($24 000) exceeds the recoverable amount ($18 500) (1), the impairment loss is $5500 (1) ($24 000 – $18 500) 6

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2022 © UCLES 2022 Page 10 of 20 Question Answer Marks 2(c) Plant and Motor Building Machinery Vehicle $ $ $ Cost/valuation 1 January 2021 600 000 400 000 60 000 Addition 224 000 (1) W1 Revaluation 150 000 (1) W2 Impairment (41 500) (1)OF W3 31 December 2021 750 000 624 000 18 500 Accumulated depreciation 1 January 2021 150 000 160 000 24 000 Revaluation (150 000) (1) Impairment (36 000) (1) Charge for the year 50 000 (2) W4 116 000 (1)OF W5 12 000 (1) W6 31 December 2021 50 000 276 000 - Carrying amount at 31 December 2021 700 000 348 000 18 500 (1)OF row Carrying amount at 31 December 2020 450 000 240 000 36 000 (1) row W1 $200 000 + ($54 000 – $30 000) = $224 000 (1) W2 $750 000 – $600 000 = $150 000 (1) W3 ($60 000 – $18 500) = $41 500 (1)OF W4 $750 000/15 (1) = $50 000 (1)OF W5 ($624 000 – $160 000) × 25% = $116 000 (1)OF W6 $60 000 / 5 = $12 000 (1) 11

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2022 © UCLES 2022 Page 11 of 20 Question Answer Marks 2(d) Advantages (Max 2) Repair and maintenance cost for the coming 5 years is fixed regardless of increase in future cost The service of same company for the coming 5 years is guaranteed Accept other valid advantages Disadvantages (Max 2) A one-off payment may adversely affect the cash flow Not flexible, may have another company providing better and/or cheaper service Accept other valid disadvantages 1 mark for decision. 5 Question Answer Marks 3(a) Cash equivalents are short-term (1) / highly liquid investments (1) that are readily convertible to known amounts of cash (1) and which are subject to an insignificant risk of changes in value (1) Max 2 Accept other valid answers. 2

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2022 © UCLES 2022 Page 12 of 20 Question Answer Marks 3(b) Statement of cash flows for the year ended 31 December 2021 $'000 $'000 Operating activities Profit from operations W1 211 (3) Adjustments for: Depreciation – buildings W2 41 (1) Depreciation – plant and equipment W3 63 (1) Profit on disposal of plant and equipment (2) (1) Increase in inventory (28) } Increase in trade receivables (32) } Decrease in trade payables (34) }(1) 8 Cash generated from operations 219 Interest paid (44) (1) Net cash from operating activities 175 Cash flows from investing activities Purchase of buildings W4 (420) (1) Purchase of plant and equipment W5 (97) } Sale of plant and equipment 3 }(1) Net cash used in investing activities (514) Cash flows from financing activities Proceeds from issue of shares W6 250 (1) Repayment of debenture (50) (1) Dividend paid W7 (140) (1) Net cash from financing activities 60 Net decrease in cash and cash equivalents (279) (1) Cash and cash equivalents at beginning of the period 37 Cash and cash equivalents at end of the period (242) 14

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2022 © UCLES 2022 Page 13 of 20 Question Answer Marks 3(b) W1 ($136 000 – $109 000)(1) + ($80 000 + $60 000) (1) + $44 000 (1) = $211 000 W2 $201 000 – $160 000 = $41 000 (1) W3 $326 000 – ($274 000 – $11 000) = $63 000 (1) W4 ($1150 000 – $80 000) – $650 000 = $420 000 (1) W5 $539 000 – ($454 000 – $12 000) = $97 000 (1) W6 ($600 000 + $120 000) – ($400 000+$70 000) (1) W7 $80 000(400 000 × $0.2) + $60 000(600 000 × $0.1) = $140 000 (1) 3(c) Provides additional information (1) how the business generates and uses cash (1) Produced on a cash basis (1) whereas income statement and statement of financial position are prepared on accrual basis (1) Max 2 points x 2 marks (1 mark for a basic point and 1 mark for development) Accept other valid answers. 4

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2022 © UCLES 2022 Page 14 of 20 Question Answer Marks 3(d) For ( Max 2) Maybe the finance by overdraft is only for short-term, i.e. very strong cash from operations in the coming one or two years. The time to obtain overdraft is shorter than other means (debenture or issue of shares) No or minimal costs to obtain overdraft Have no impact on gearing ratio Against (Max 2) Long-term assets should be financed by long-term financing Interest rate of overdraft may be higher than debenture/bank loan, let alone no interest for issue of shares Overdraft is repayable on demand / short notice. 1 mark for decision. Accept other valid answers. 5 Question Answer Marks 4(a) Javeed can receive more commission (1) as he should not be responsible for the faulty goods (1) Javeed has given effort in selling goods (1) which are later returned; he spent further effort in dealing with the returned goods (1) Max 2 points × 2 marks (1 mark for a basic point and 1 mark for development) Accept other valid answers. 4

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2022 © UCLES 2022 Page 15 of 20 Question Answer Marks 4(b) Number of goods unsold 300 – (254-18) = 64, of which 18 units have defects subject to repair. $ Cost 34 500 } Freight 7 200 } Import duties 2 100 } Transportation to warehouse 3 600 } Total for 300 units 47 400 (1) Cost per unit 158 (1)OF Net realisable value of returned goods ($160 – $5) = $155 each (1) 18 × $155 (1)OF + (64 – 18) × $158 (1)OF = $10 058 (1)OF 6 4(c) Consignment account $ $ Goods sent on consignment 34 500 (1) Javeed – net sales 59 000 (1) Bank – freight 7 200 (1) Inventories c/d 10 058 (1)OF Javeed – Import duties 2 100 } Assistant’s salary 4 500 } Transportation to warehouse 3 600 } Transportation to customers 6 000 } Advertising 4 800 }(1) Commission 5 080 (1) Income statement – profit on consignment 1 278 (1)OF 69 058 69 058 7

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2022 © UCLES 2022 Page 16 of 20 Question Answer Marks 4(d) Item Effect (Increase/Decrease) in $ Reason Other receivables Increased by $32 920 W1(1) Amount due from Javeed (1) Cash at bank Reduced by $7200 (1) Freight charges paid by G Limited (1) Purchases Decreased by $34 500 (1) Cost of goods sent to Javeed (1) Profit for the year Increased by $1278 (1)OF Profit on consignment (1) W1 $59 000 – $2100 – $4500 – $3600 – $6000 – $4800 – $5080 = $32 920 (1) 8 Question Answer Marks 5(a) $ Sales 1120 × $250 280 000 (1) Direct materials 1120 × $60 (67 200) (1) Direct labour 1120 × $100 (112 000) (1) Fixed overhead 1120 × $24 W1 (26 880) (1) Budgeted profit 73 920 (1)OF W1 $24 000/($100 000 ÷ $25) = $6 per labour hour; $6 × 4=$24 or $24 000/1000 = $24 5 5(b) Variance is the difference between budgeted amount (cost or revenue) and actual amount. (1) Variance analysis is the way to identify and explain the difference. (1) Accept other valid answers. 2 5(c)(i) Selling price variance ($250 – $248*) × 1120 $2240 A (1) *$277 760//1120=$248 1

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2022 © UCLES 2022 Page 17 of 20 Question Answer Marks 5(c)(ii) Sales volume variance (1120 – 1000) × $250 $30 000 F (1) 1 5(c)(iii) Direct materials total variance $72 688 – $67 200 $5 488 A (1) 1 5(c)(iv) Direct labour total variance $128 520 – $$112 000 $16 520 A (1) 1 5(c)(v) Fixed overhead total variance $26 880 – $25 600 $1 280 F (1) 1 5(d)(i) Standard usage per unit $60 000 ÷ 1000 ÷ $12=5 kilos Actual usage $72 688 ÷ $11.8=6160kilos Direct material price variance ($12 – $11.8) × 6160 = $1232 (1) (F) (1) Direct material usage variance [6160 – (1120 × 5)] × $12 = $6720 (1) (A) (1) 4 5(d)(ii) Direct material price variance – Price per kilo reduces (1) due to a decrease in market price/trade discount for larger order/shift to a cheaper supplier (1) Direct material usage variance – More direct materials are used (1) due to materials of lower quality/inefficient use by labours (1) 4

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2022 © UCLES 2022 Page 18 of 20 Question Answer Marks 5(e) For (Max 2) reducing price can increase sales as evidenced in July with a reduction of $2, 120 more units were sold customer base can be increased provided that the quality maintained Against (Max 2) there is no financial gain due to a higher proportionate increase in direct materials, direct labour and fixed overhead the company may not have enough capacity to cope with the increased production the quality of products may be compromised. 1 mark for decision Accept other valid answers. 5 Question Answer Marks 6(a) It is the cost of financing an investment through debt and/or equity. (1) It is also the minimum required rate of return for an investment. (1) Accept other valid answers. 2 6(b)(i) 2 years (1) + [($550 000 – $400 000)/180 000] × 12 = 2 years and 10 months (1) 2 6(b)(ii) Average profit ($200000 × 2 + $180 000 + $162 000 – $550 000)/4 = $48 000 (1) $48 000/($550 000/2) (1) = 17.45% (1)OF 3

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2022 © UCLES 2022 Page 19 of 20 Question Answer Marks 6(b)(iii) NPV $ 10% $ Year 0 (550 000) 1 (550 000) (1) Year 1 200 000 0.909 181 800 } Year 2 200 000 0.826 165 200 } Year 3 180 000 0.751 135 180 } Year 4 162 000 0.683 110 646 }(1) 192 000 42 826 (1)OF 3 6(b)(iv) $ 16% $ Year 0 (550 000) 1 (550 000) Year 1 200 000 0.862 172 400 Year 2 200 000 0.743 148 600 Year 3 180 000 0.641 115 380 Year 4 162 000 0.552 89 424 192 000 (24 196) (1) 10% (1) + [6% × ($42 826/($42 826 + $24 196)] (1)OF = 13.83% (1)OF 4 6(c) The payback period is within the life of the machine (1) There is a positive NPV (1) The IRR is higher than the cost of capital (1) The directors should purchase the machine (1) Max 2 1 mark for decision. Accept OF comments 3 6(d) The NPV is negative (1) therefore the machine should not be purchased (1) Accept OF comments 2

9706/32 Cambridge International AS & A Level – Mark Scheme PUBLISHED February/March 2022 © UCLES 2022 Page 20 of 20 Question Answer Marks 6(e) 16% 0.862 ×1 0.862 0.743 ×1 0.743 0.641 ×0.9 0.5769 0.552 ×0.9×0.9 0.44 712 2.62 902 (1) $550 000(1) ÷ 2.62 902 = $209 203 $ Year 1 209 203 (1) Year 2 209 203 (1) Year 3 $209203x0.9 188 283 (1) Year 4 $188283x0.9 169 455 (1) 776 145 Proof: $ 16% $ Year 0 (550 000) 1 (550 000) Year 1 209 203.4 0.862 180 333 Year 2 209 203.4 0.743 155 438 Year 3 188 283.1 0.641 120 690 Year 4 169 454.8 0.552 93 539 0 Alternative methods of calculation are possible, e.g. to increase each year’s discounted cash flow by 4.6% to eliminate the deficit of $24 196 and then to gross up each year’s increased amount by the discount rate. This gives slightly different figures due to rounding but is a correct answer. 6