Cambridge A Level Accounting 9706 — 2022 May/June Paper 3 · Variant 1

This document has 20 pages. [Turn over Cambridge International AS & A Level * 9 5 4 3 6 6 1 1 6 9 * DC (CJ) 311363 © UCLES 2022 ACCOUNTING 9706/31 Paper 3 Structured Questions May/June 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 9706/31/M/J/22 © UCLES 2022 Section A: Financial Accounting Answer all questions. 1 Read Source A1 in the insert. (a) State three differences between the financial statements of a not-for-profit organisation and those of a limited company. 1 … … 2 … … 3 … … [3] (b) Prepare the café trading account for the year ended 31 December 2021 to find the profit or loss on its trading activity. … … … … … … … … … … … … [4]

3 9706/31/M/J/22 © UCLES 2022 [Turn over (c) Prepare the subscriptions account for the year ended 31 December 2021. … … … … … … … … … … [4] (d) Prepare the income and expenditure account for the year ended 31 December 2021. … … … … … … … … … … … … … … [6]

4 9706/31/M/J/22 © UCLES 2022 Additional information The club will admit life members from 1 January 2023. A life membership fee of $1 500 will be payable on the date of admission. (e) Explain to the treasurer how the club should account for the life membership fees in the club’s financial statements. … … … … … … [3] Additional information The committee of the club is thinking of closing the café. Vending machines would be installed to provide snacks and drinks for the members. (f) Advise the committee whether or not the café should be closed. Justify your answer. … … … … … … … … … … [5] [Total: 25]

5 9706/31/M/J/22 © UCLES 2022 [Turn over 2 Read Source A2 in the insert. (a) Prepare a revised statement of financial position at 31 December 2021. … … … … … … … … … … … … … … … … … … … … Workings: [14]

6 9706/31/M/J/22 © UCLES 2022 (b) Explain the correct accounting treatments of the claim and the legal cost in item 3 with reference to the relevant international accounting standard (IAS). … … … … … … … … … … [7] (c) State what is meant by: (i) events after the reporting period … … … … [2] (ii) adjusting events … … [1] (iii) non-adjusting events. … … [1] [Total: 25]

7 9706/31/M/J/22 © UCLES 2022 [Turn over 3 Read Source A3 in the insert. (a) Prepare a statement showing the movement of retained earnings for the year ended 31 December 2021. … … … … … … … … [4] (b) Calculate, to two decimal places, the following: (i) price earnings ratio … … … … … … [3] (ii) dividend yield … … … … [2] (iii) gearing ratio … … … … [2]

8 9706/31/M/J/22 © UCLES 2022 (iv) income gearing … … … … [2] (v) return on capital employed. … … … … [2] (c) Explain what is meant by a ‘highly geared company’. … … … … [2] Additional information At 31 December 2020, the market value of one ordinary share was $3.64 and the price earnings ratio was 9.27. (d) Explain the change in the price earnings ratio with reference to your calculation in (b)(i). … … … … … … [3]

9 9706/31/M/J/22 © UCLES 2022 [Turn over Additional information On 1 January 2021, E plc had an opportunity to invest $150 000 in a new project. The directors had two options to finance the new project: Option 1: issue a 9% debenture for $150 000 Option 2: issue 120 000 ordinary shares at a price of $1.25 per share. The directors chose Option 1 and the new project contributed a pre-interest profit of $70 000 to the 2021 profit. (e) Assess whether or not the directors of E plc made the correct decision in issuing the debenture to finance the new project. Justify your answer. … … … … … … … … … … … … … [5] [Total: 25]

10 9706/31/M/J/22 © UCLES 2022 4 Read Source A4 in the insert. (a) Prepare the memorandum joint venture account. Dates are not required. … … … … … … … … … … … … … [7] (b) Prepare the joint venture account with Adam in Mary’s books. Dates are not required. … … … … … … … … … … … … [7]

11 9706/31/M/J/22 © UCLES 2022 [Turn over (c) Explain one benefit to each of Adam and Mary of entering the joint venture. Benefit to Adam … … … … … Benefit to Mary … … … … … [4] (d) State three differences between a joint venture and a consignment. 1 … … … 2 … … … 3 … … … [3]

12 9706/31/M/J/22 © UCLES 2022 Additional information Due to the success of the joint venture, Mary suggests to Adam that they form a partnership. They would set up an office and sell the products which would be bought from bankrupt companies. Adam is a management consultant. He has concerns about forming a partnership with Mary. (e) Explain two disadvantages to Adam of forming a partnership with Mary. 1 … … … … 2 … … … … [4] [Total: 25]

13 9706/31/M/J/22 © UCLES 2022 [Turn over PLEASE TURN OVER

14 9706/31/M/J/22 © UCLES 2022 Section B: Cost and Management Accounting Answer all questions. 5 Read Source B1 in the insert. (a) Prepare a statement to calculate the selling price per unit for each of Product S and Product P. The statement should also show the total cost per unit for each product. … … … … … … … … … … … … … … [8] Additional information The management accountant suggested that activity based costing should be adopted and provided an analysis of the budgeted annual factory overheads as follows: Activity Cost Cost driver Expected usage of cost driver $ Product S Product P Purchasing materials 120 000 Purchases order 24 8 Machine running 162 000 Machine hours 36 000 18 000 Machine setups 72 000 Number of setups 40 8 Inspecting 111 000 Inspection hours 400 100 Factory overheads 465 000

15 9706/31/M/J/22 © UCLES 2022 [Turn over (b) Explain what is meant by the term ‘activity based costing’. … … … … … … [3] (c) Prepare a statement to calculate the selling price per unit for each of Product S and Product P by using activity based costing. The statement should also show separately the total cost and total cost per unit for each product. … … … … … … … … … … … … … … … … … … … … [9]

16 9706/31/M/J/22 © UCLES 2022 (d) Advise the directors whether or not they should adopt activity based costing. Support your answer with reference to (a) and (c). … … … … … … … … … … … … … [5] [Total: 25]

17 9706/31/M/J/22 © UCLES 2022 [Turn over 6 Read Source B2 in the insert. (a) Calculate the budgeted profit for the budgeted sales of 6 000 units. … … … … … … … … … … [2] Additional information The actual result for April was as follows: Production and sales (units) 5 800 $ Selling price per unit 72 Direct materials 35 113 Direct labour 221 760 Factory overhead 70 400 (b) Calculate the following variances: (i) sales price variance … … … … [2]

18 9706/31/M/J/22 © UCLES 2022 (ii) sales volume variance (as a measure of change in profit) … … … … … … [3] (iii) direct material total variance … … … … [2] (iv) direct labour total variance … … … … [2] (v) fixed overhead volume variance … … … … [2] (vi) fixed overhead expenditure variance. … … … … [2]

19 9706/31/M/J/22 © UCLES 2022 [Turn over Additional information The management accountant is going to perform variance analysis. The actual labour hours used in April were 17 600. (c) Explain the likely causes of: (i) sales volume variance calculated in (b)(ii) … … … … … … [3] (ii) direct labour total variance calculated in (b)(iv). … … … … … … … … … … [4]

20 9706/31/M/J/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 By analysing the direct material total variance the direct material usage variance was found to be $1 275 adverse. (d) Assess whether or not the company has been successful in controlling the direct material cost price. Justify your answer. … … … … … … … … [3] [Total: 25]

This document consists of 21 printed pages. © UCLES 2022 [Turn over Cambridge International AS & A Level ACCOUNTING 9706/31 Paper 3 Structured Questions May/June 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 May/June 2022 series for most Cambridge IGCSE, Cambridge International A and AS Level and Cambridge Pre-U components, and some Cambridge O Level components.

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2022 © UCLES 2022 Page 2 of 21 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.

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2022 © UCLES 2022 Page 3 of 21 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. 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)

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2022 © UCLES 2022 Page 4 of 21 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). 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.

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2022 © UCLES 2022 Page 5 of 21 ANNOTATIONS The following annotations are used in marking this paper and should be used by examiners. Annotation Use or meaning  Correct and relevant point made in answering the question. × Incorrect point or error made. LNK Two statements are linked. REP Repeat A An extraneous figure N0 No working shown AE Attempts evaluation R1 Required item 1 R2 Required item 2 OF Own figure EVAL Evaluation NAQ Not answered question BOD Benefit of the doubt given. SEEN Noted but no credit given Highlight Highlight Off page Comment Off page comment

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2022 © UCLES 2022 Page 6 of 21 Question Answer Marks 1(a) Not-for-profit organisations Limited company Income and expenditure account Income statement Surplus / deficit Profit / loss Accumulated fund Equity 1 mark for each difference up to a maximum of three Accept other valid answers. 3 1(b) Café trading account for year ended 31 December 2021 $ $ Sales $43 500  180% 78 300 (1)OF Opening inventory 9 500) Purchases W1 44 200) (1) Closing inventory (10 200) Cost of sales 43 500 (1)OF Gross profit 34 800 Wages 22 000 Profit for the year 12 800 (1)OF W1 Purchases $42 000 + $13 600 – $11 400 = $44 200 4

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2022 © UCLES 2022 Page 7 of 21 Question Answer Marks 1(c) Subscriptions account $ $ Balance b/d 3 000 } Balance b/d 1 600 }(1) row Income and Expenditure W1 90 000 (1) Receipts & payments 89 600 (1)OF Balance c/d 2 200 } Balance c/d 4 000 }(1) row 95 200 95 200 W1 (420+18)  $200 + 24  $200  50% = $90 000 4 1(d) Income and expenditure account for year ended 31 December 2021 $ $ Subscriptions 90 000) (1)OF Profit from café 12 800) (1)OF Rental of meeting room $2 100 + $4 600 6 700) (1) 109 500) Club expenses 94 400 Depreciation of equipment ($78 000 + $14 000)  15% 13 800 (1) Annual dinner $16 200 + $4 000 20 200 (1) 128 400) Deficit / Excess of expenditure over income (18 900) (1)OF 6 1(e) Accrual / matching concept should be applied. (1). Life membership fee should be spread over a number of years. (1). The number of years to be spread depends on the accounting policy of the club. (1) Max 3 Accept other valid answers. 3

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2022 © UCLES 2022 Page 8 of 21 Question Answer Marks 1(f) Café wages are saved leading to higher profit from sale of refreshment (1) More space is released for club’s other activities (1) Can offer snack and drinks 24/7 (1) Should consider the cost of vending machines (1) Welcoming atmosphere created by café staff (1) Food and drinks offered are fresher (1) Food and drinks are made to special needs, e.g. allergies (1) Redundancy payment if café staff are fired (1) Need for comparison between profitability and profit margins on vending machines and café. (1) 1 mark for decision Accept other valid answers. 5

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2022 © UCLES 2022 Page 9 of 21 Question Answer Marks 2(a) Revised statement of financial position at 31 December 2021 $ $ Non-current assets Property, plant and equipment W1 794 500 (3) Current assets Inventory W2 76 500 (3) Trade receivables ($164 000-$12 000) 152 000 (1) Cash and cash equivalents 86 000 314 500 Total assets 1 109 000 Equity Ordinary share capital ($1 shares) 600 000 Revaluation reserve 146 000 (1) Retained earnings W3 153 000 (4) 899 000 Current liabilities Trade payables 128 000 Other payables W4 82 000 (2) 210 000 Total equity and liabilities 1 109 000 14

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2022 © UCLES 2022 Page 10 of 21 Question Answer Marks 2(a) $ W1 Balance 606 000) Machine 50 000) (1) Depreciation $50 000x15% ( 7 500) (1) Revaluation reserve $350 000-($300 000-$96 000) 146 000) (1) 794 500) W2 Lower of cost and NRV Category A 57 000) (1) Category B ($14 000-$3 000) 11 000) (1) Category C ($12 000-$2 500-$1 000) 8 500) (1) 76 500) W3 Retained earnings before adjustments 184 000) Depreciation of machine ( 7 500) (1)OF Inventory overstated ($80 000-$76 500) ( 3 500) (1)OF Irrecoverable debt (12 000) (1) Provision for legal fee ( 8 000) (1) 153 000) W4 Other payables before adjustment 24 000) Machine 50 000) (1) Provision for legal fee 8 000) (1) 82 000)

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2022 © UCLES 2022 Page 11 of 21 Question Answer Marks 2(b) Item 3 IAS 37 Provisions, contingent liabilities and contingent assets (1) The success of the claim is not probable (1) and therefore there is no need to make provision (1). However, it is necessary to disclose the claim as a note to the financial statements. (1) Provision for legal cost $8 000 should be made (1) as it is a liability (1) of uncertain timing or amount. (1) 7 2(c)(i) Events after the reporting period are those events, favourable and unfavourable, occur between the end of the reporting period (1) and the date when the financial statements are authorised for issue. (1) 2 2(c)(ii) Adjusting events – those that provide evidence of conditions that existed at the end of the reporting period (1) 1 2(c)(iii) Non-adjusting events – those that are indicative of conditions that arose after the reporting period. (1) 1

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2022 © UCLES 2022 Page 12 of 21 Question Answer Marks 3(a) $ At 1 January 2021 204 000) Profit for the year 198 000) (1)OF Dividend paid 450 000  $0.30 (135 000) (1) Bonus issue ($400000  1/8-$44 000) ( 6 000) (1) General reserve (30 000) (1) At 31 December 2021 231 000) 4 3(b)(i) Price earnings ratio Earnings per share $198 000/450 000 $0.44 (1)OF $4.52/$0.44 (1)OF 10.27 (1)OF 3 3(b)(ii) Dividend yield ($0.3 + $0.25)/$4.52  100 (1) 12.17% (1) 2 3(b)(iii) Gearing ratio $150 000/($711 000 + $150 000)  100 (1) 17.42% (1) 2 3(b)(iv) Income gearing Debenture interest $150 000  9%=$13 500 (1) $13 500/($198 000 OF + $13 500)  100 6.38% (1)OF 2 3(b)(v) Return on capital employed ($198 000 OF + $13 500) (1)OF] / ($711 000 + $150 000)  100 24.56% (1)OF 2

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2022 © UCLES 2022 Page 13 of 21 Question Answer Marks 3(c) A highly geared company is a company which has a higher proportion of debt (1) compared to its share capital. (1) This indicates that the company has a very high financial risk in terms of default in repayment of debt and high level of interest expenses. (1) Max 2 Accept other valid answers. 2 3(d) The earnings per share for 2020 is $0.39 ($3.64/9.27) (1) There is an increase of 12.82% in earnings per share from $0.39 to $0.44 (1) The share price has increased (1) by a greater proportion than the earnings (1) as the investors have confidence in E plc (1) Max 3 Accept OF answers. 3 3(e) Profit for the year with the debenture will be lower by the amount of the interest (1) The interest has to be paid whether the company made a profit or not (1) The company may need to provide a security for the debenture (1) Issuing debenture will increase gearing (1) If the shares had been issued the dividends would be at the discretion of the directors (1) The issue of shares would be a permanent capital whereas debenture would have to be repaid (1) Issuing ordinary shares dilutes ownership (1) Max 4 1 mark for decision. Accept other valid answers. 5

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2022 © UCLES 2022 Page 14 of 21 Question Answer Marks 4(a) Memorandum joint venture account $ $ Purchases of shirts 90 000 } Cash sales 21 000 (1) Carriage 1 250 } Credit sales 129 000 (1) Insurance 800 }(1) Storage 2 000 } Use of office equipment 7 000 }(1) Packing 1 650 } Advertising 4 400 } Salespeople salaries 8 000 }(1) Discount allowed 1 000 } Irrecoverable debt 3 000 }(1) Profit shared: Adam 15 450 Mary 15 450 (1)OF 150 000 150 000 7

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2022 © UCLES 2022 Page 15 of 21 Question Answer Marks 4(b) Joint venture with Adam account $ $ Other income : hire of storage 2 000 } Cash : sales 21 000 } Other income : hire of office equipment 7 000 }(1) Trade receivables : sales 129 000 }(1) Cash : packing 1 650 } Cash : advertising 4 400 } Cash : salespeople salaries 8 000 }(1) Trade receivables : Discount allowed 1 000 } Trade receivables : irrecoverable debt 3 000 }(1) Bank : payment to Adam 40 000 (1) Income statement : profit shared 15 450 (1)OF Bank : payment to Adam 67 500 (1)OF 150 000 150 000 7 4(c) Adam He earns an extra profit of $15 450 (1), a return of 17.17% of investing $90 000 within a period of less than 2 months (1) Mary Apart from earning profit of $15 450, she also receives a total of $9 000 (1) for hiring her warehouse and office facilities. She can utilize her resource to earn more income. (1) 1 mark for identification of basic point for each of Adam and Mary and 1 further mark for development. Accept other valid answers. 4

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2022 © UCLES 2022 Page 16 of 21 Question Answer Marks 4(d) Joint venture Consignment Relationship Temporary partnership Principal and agent Profit sharing Profit shared between the parties Only principal gets the profit, agent is only entitled to commission Ownership of inventory Either party can control the inventory Principal is the sole owner 1 mark for each difference up to a maximum of three 3 4(e) Long-term commitment (1) which therefore requires a capital outlay (1) Adam is not experienced in trading (1) and may find it difficult to purchase goods from bankrupt sources (1) He may be distracted from his major business (1) by the demands of dealing with partnership (1) 2 points x 2 marks Accept other valid answers. 4

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2022 © UCLES 2022 Page 17 of 21 Question Answer Marks 5(a) Product S Product P $ $ Direct materials 8 } 17 }(1) row Direct labour 60 } 108 }(1) row Factory overheads W1 10 } 15 }(3) row Total cost per unit 78 } 140 }(1)OF row Mark-up 39 } 70 }(1)OF Selling price 117 } 210 }(1)OF row W1 Total labour hours 24 000  4 + 15 000  6 = 186 000 $465 000/186 000 = $2.50 (1) per labour hour $2.50  4 = $10 (1) $2.50  6 = $15 (1) 8 5(b) Activity based costing assigns costs to products based on the activities that consume the resources (1) Activities are used as cost pools and costs are allocated to products using a cost driver (1) Cost driver is the factor that has a direct cause and effect relationship with the resources consumed. (1) Max 3 Accept other valid answers. 3

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2022 © UCLES 2022 Page 18 of 21 Question Answer Marks 5(c) Product S Product P $ $ Direct materials 192 000 } 255 000 } Direct labour 1 440 000 } 1 620 000 }(1) Factory overheads W1 346 800 118 200 (4) row Total cost 1 978 800 1 993 200 (1)OF row Total cost per unit 82.45 132.88 (1)OF row Mark-up 41.23 66.44 (1)OF row Selling price 123.68 199.32 (1)OF row W1 $ $ Purchasing materials 90 000 30 000 (1) row Machine running 108 000 54 000 (1) row Machine setups 60 000 12 000 (1) row Inspecting 88 800 22 200 (1) row 346 800 118 200 $120 000  (24/32) = $90 000; $120 000x(8/32) = $30 000 $162 000  (36 000/54 000) = $108 000; $162 000  (18 000/54 000) = $54 000 $72 000  (40/48) = $60 000; $72 000x(8/48) = $12 000 $110 000  (400/500) = $88 800; $110 000  (100/500) = $22 200 9

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2022 © UCLES 2022 Page 19 of 21 Question Answer Marks 5(d) For ( Max 2) ABC provides more accurate/realistic cost information. Before ABC, overhead per unit for Product P ($15) is higher than Product S ($10); after ABC, overhead per unit for Product S ($14.45) is higher than Product P ($7.88)(1) Accurate cost information results in better pricing decision. Before ABC, selling price per unit for Product S and Product P is $117 and $210 respectively. After ABC, selling price per unit for Product S and Product P is $123.68 and $199.32. Selling price of Product S increase because it has higher overhead per unit after adopting ABC.(1) Against (Max 2) ABC is costly to implement, i.e. it needs specialists and staff require training. (1) ABC is time consuming (1) 1 mark for decision Accept other valid answers. 5

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2022 © UCLES 2022 Page 20 of 21 Question Answer Marks 6(a) Sales 420 000 Direct materials 36 000 Direct labour 216 000 Fixed overheads 72 000 (324 000) (1) 96 000 (1)OF 2 6(b)(i) Sales price variance ($72-$70)  5 800 = $11 600 (1) F (1) 2 6(b)(ii) Sales volume variance Standard profit ($70 – $6 – $36 – $12) = $16 (1) (6 000 – 5 800)  $16 = $3 200 (1)OF A (1) 3 6(b)(iii) Direct material total variance (5 800  $6) – $35 113 = $313 (1) A (1) 2 6(b)(iv) Direct labour total variance (5 800  36) – $221 760 = $12 960 (1) A (1) 2 6(b)(v) Fixed overhead volume variance Overhead absorption rate $4 ($12/3) per labour hour (6 000 – 5 800)  3 hours  $4 = $2 400 (1) A(1) Alternative answer $72 000 – (5 800  $12) = $2 400 (1) A(1) 2 6(b)(vi) Fixed overhead expenditure variance $72 000 – $70 400 = $1 600 (1) F (1) 2

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED May/June 2022 © UCLES 2022 Page 21 of 21 Question Answer Marks 6(c)(i) Actual sales of 5800 units are lower than the budgeted sales. (1) Goods are sold at a price higher than the budget, increasing from $70 to $72. This may cause a decrease in demand. (1) Promotion / advertising is ineffective (1) Quality of goods are not good as expected (1) Max 3 Accept other valid answers. 3 6(c)(ii) Direct labour rate variance (17 600  $12) – $221 760 = 10 560(A) (1) $221 760 ÷ 17 600 = $12.6 There has been an increase in pay / hourly rate has increased from $12 to $12.60 (1) Direct labour efficiency variance [(5 800  3) – 17 600]  $12 = $2 400(A) (1) 200 more labour hours have been deployed due to inefficiency of labour force (1) Accept other valid answers. 4 6(d) Direct material total variance is $313 adverse and direct material usage variance is $1 275 adverse, therefore the direct material price variance is $962 favourable (1)OF The cost price of direct material is cheaper than expected, maybe due to change in supplier (1) P Limited has been successful in controlling the cost price of direct material (1) Max 2 for justification 1 mark for decision. 3