Cambridge A Level Accounting 9706 — 2022 Oct/Nov Paper 3 · Variant 1

This document has 24 pages. Any blank pages are indicated. [Turn over Cambridge International AS & A Level ACCOUNTING 9706/31 Paper 3 Structured Questions October/November 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 0 9 5 5 6 8 0 8 4 * DC (CJ) 303162/3 © UCLES 2022

2 9706/31/O/N/22 © UCLES 2022 Section A: Financial Accounting Answer all questions. 1 Read Source A1 in the insert. (a) Prepare the manufacturing account for the year ended 31 December 2021. … … … … … … … … … … … … … … … … … … … … … … … … [11]

3 9706/31/O/N/22 © UCLES 2022 [Turn over (b) Prepare the income statement for the year ended 31 December 2021. … … … … … … … … … … … … … … … … … … … … … … … … … … … [9]

4 9706/31/O/N/22 © UCLES 2022 Additional information The cost of the general expenses was divided on the basis of floor area. The floor area of the factory was 1400 m2. (c) Calculate the floor area of the office. … … [1] (d) Name the section of a statement of financial position where the closing balance on a provision for unrealised profit account would be recorded. … [1] Additional information Amit is considering allowing the public to take tours of the factory to see how the pastries are made, ending with a visit to a gift shop which he would open. (e) Discuss the factors which Amit should consider before deciding on whether to start the public tours. … … … … … … … … [3] [Total: 25]

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6 9706/31/O/N/22 © UCLES 2022 2 Read Source A2 in the insert. (a) Prepare a corrected statement of financial position at 31 December 2021. … … … … … … … … … … … … … … … … … … … … … … … … … …

7 9706/31/O/N/22 © UCLES 2022 [Turn over Workings: [18] (b) State whether each of the two events in point 6 of the additional information are adjusting or non-adjusting events. 5 January 2022 … 6 January 2022 … [2] (c) Explain why a business might want to revalue its non-current assets. … … … … [2]

8 9706/31/O/N/22 © UCLES 2022 Additional information An amount of $7600 for irrecoverable debts is included in the expenses in the income statement. The directors are considering creating a provision for doubtful debts to reduce the level of future irrecoverable debts. (d) Advise the directors whether or not they should create a provision for doubtful debts. Justify your answer. … … … … … … … [3] [Total: 25]

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10 9706/31/O/N/22 © UCLES 2022 3 Read Source A3 in the insert. (a) State what is measured by the working capital cycle. … … … [1] (b) Explain two reasons why AB plc’s working capital cycle is longer than that of the rival. 1 … … … … 2 … … … … [4] Additional information AB plc provided the following further information for the year ended 31 December 2021 and the previous year ended 31 December 2020. 1 2021 2020 Number of $1 ordinary shares in issue 700 000 500 000 Profit for the year $319 000 $247 000 Dividend paid $160 000 $120 000 Market price of one share $2.19 $1.93 2 The directors had decided to expand the business and therefore issued the additional ordinary shares on 1 January 2021. 3 There were no proposed dividends at the year ends.

11 9706/31/O/N/22 © UCLES 2022 [Turn over (c) Complete the following table. State the formula used to calculate each of the ratios and also calculate each ratio for both 2021 and the previous year 2020. Give your answers to two decimal places. Formula 2021 2020 Earnings per share Dividend per share Price earnings ratio Dividend yield [12]

12 9706/31/O/N/22 © UCLES 2022 (d) Discuss why the ratios in (c) and the market price of the shares changed between 2020 and 2021. … … … … … … … … … … … … … … [6] Additional information AB plc’s financial statements for 2021 were not available until 1 October 2022. (e) Explain why the date of publication affects the usefulness of AB plc’s financial statements. … … … … … … [2] [Total: 25]

13 9706/31/O/N/22 © UCLES 2022 [Turn over 4 Read Source A4 in the insert. (a) Calculate the total receipts from members recorded in the receipts and payments account for the year ended 31 December 2021. … … … … … … … … … … … … … … … … … [8] (b) Prepare the subscriptions account for the year ended 31 December 2021. … … … … … … … … [6]

14 9706/31/O/N/22 © UCLES 2022 (c) Calculate: (i) the life membership fees for inclusion in the income and expenditure account for the year ended 31 December 2021 … … … [1] (ii) the value of the life membership fund for inclusion in the statement of financial position on 31 December 2021. … … … … … … [3] (d) Suggest two sources of income, other than subscriptions, which might be received by a club. 1 … 2 … [2]

15 9706/31/O/N/22 © UCLES 2022 [Turn over Additional information At present club members have to be aged 16 or over. It had been suggested that a junior section of the club should be opened for younger members, with an annual subscription of $15. (e) Advise the managing committee whether or not they should open a junior section of the club. Justify your answer. … … … … … … … … … … … … … … [5] [Total: 25]

16 9706/31/O/N/22 © UCLES 2022 Section B: Cost and Management Accounting Answer all questions. 5 Read Source B1 in the insert. (a) Explain how a project could pay back during the life of the project whilst having a negative NPV. … … … … [2] Additional information It is the policy of the company to reject any project with a negative NPV. The supplier of the machine has stated that the machine should receive a maintenance service once for every 500 units produced. Each service costs $300. The cost of this level of servicing had been included in the calculation of the negative NPV. The finance director has suggested servicing the machine only once for every 2000 units produced, in order to reduce costs and improve the NPV. The production manager has said that reducing servicing in this way would increase the repair costs. He estimates that the increase in repair costs would be as follows: Year $ 1 2 000 2 5 600 3 12 600 4 19 900 (b) Complete the following table to calculate the changes in costs which would occur if the level of servicing was reduced. Year Decrease in number of services Cost savings $ Repairs $ Total change $ 1 2 3 4 [5]

17 9706/31/O/N/22 © UCLES 2022 [Turn over Additional information Discount factors for the 10% cost of capital are as follows: Year 1 0.909 2 0.826 3 0.751 4 0.683 (c) Calculate the NPV which the purchase of the machine would have if the level of servicing was reduced. … … … … … … … … … … … … [5] (d) Advise the directors whether or not they should purchase the machine if it was operated with the reduced level of servicing. Justify your answer. … … … … … … … … … … [5]

18 9706/31/O/N/22 © UCLES 2022 Additional information The production manager also thinks that the sales proceeds of the machine at the end of year 4 would be different from the existing estimate if the machine was perceived as not properly maintained. (e) Calculate the sales proceeds at which the NPV would be zero. … … … … … … … … [4] (f) Explain how a business would calculate its internal rate of return (IRR). … … … … … … … … [4] [Total: 25]

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20 9706/31/O/N/22 © UCLES 2022 6 Read Source B2 in the insert. (a) Calculate: (i) the overhead absorption rate per direct labour hour … … [1] (ii) the total standard cost of April’s production. … … … … … … [3] Additional information Actual costs for April were as follows: $ Direct materials 148 500 (for 19 800 kilos) Direct labour 283 500 (at $9 per hour) Fixed overhead 94 000 526 000

21 9706/31/O/N/22 © UCLES 2022 [Turn over (b) Prepare a statement reconciling the total standard cost of production for April (as calculated in (a)(ii)) with the actual cost. Your answer should include two direct material variances, two direct labour variances and two fixed overhead variances. … … … … … … … … … … … … Workings: [13]

22 9706/31/O/N/22 © UCLES 2022 Additional information Adhi’s factory is in Jakarta, Indonesia. The direct materials he uses are imported from Bordeaux, France. He is considering starting a second factory making the same product in France and then transporting the finished product to Indonesia for sale. (c) Advise Adhi whether or not he should use the same standard costs for units produced in France as for those produced in Indonesia. Justify your answer. … … … … … … … … … … [5] (d) (i) State the difference between a fixed budget and a flexed budget. … … … … [2] (ii) State one reason why a business would prepare a flexed budget. … … … [1] [Total: 25]

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24 9706/31/O/N/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. BLANK PAGE

This document consists of 17 printed pages. © UCLES 2022 [Turn over Cambridge International AS & A Level ACCOUNTING 9706/31 Paper 3 Structured Questions October/November 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 October/November 2022 series for most Cambridge IGCSE™, Cambridge International A and AS Level components and some Cambridge O Level components.

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2022 © UCLES 2022 Page 2 of 17 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 October/November 2022 © UCLES 2022 Page 3 of 17 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.

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2022 © UCLES 2022 Page 4 of 17 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).

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2022 © UCLES 2022 Page 5 of 17 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 October/November 2022 © UCLES 2022 Page 6 of 17 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 October/November 2022 © UCLES 2022 Page 7 of 17 Question Answer Marks 1(a) Amit Manufacturing account for the year ended 31 December 2021 $ $ Inventory of raw materials at 1 January 2021 2 810 Purchases of raw materials 81 750 Carriage inwards 400 (1) 84 960 Inventory of raw materials at 31 December 2021 2 350 Cost of raw materials consumed 82 610 (1)OF Direct costs Machine operators’ wages 53 000 (1) Prime cost 135 610 (1)OF Factory overheads Factory supervisor’s salary 26 000 Rent and rates 6 760 (1) Depreciation of factory machinery 14 520 (1) General expenses 7 140 (1) 54 420 190 030 Inventory of work in progress at 1 January 2021 1 190 Inventory of work in progress at 31 December 2021 1 100 90 (1) Cost of production 190 120 (1)OF Factory profit (25%) 47 530 (1)OF Transfer to income statement 237 650 (1)OF 11

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2022 © UCLES 2022 Page 8 of 17 Question Answer Marks 1(b) Amit Income statement for the year ended 31 December 2021 $ $ Revenue 288 830 Inventory of finished goods at 1 January 2021 6 700 Cost of production at transfer price 237 650 (1OF) 244 350 Inventory of finished goods at 31 December 2021 6 900 Cost of sales 237 450 (1)OF Gross profit 51 380 Factory profit 47 530 (1)OF Administrative salaries 28 500 Increase in provision for unrealised profit 40 (1) Rent and rates 3 640 (1) Depreciation of office equipment 1 710 (1) Selling and distribution costs 14 700 Administrative expenses 16 100 General expenses 3 060 (1) 67 750 Profit from operations 31 160 Finance costs 1 080 (1) Profit for the year 30 080 (1)OF 9 1(c) 600 m2 (1) 1 1(d) current assets (1) 1 1(e) Health and safety of visitors in an area with machinery (1) Possibility of contamination of food stuffs in the factory (1) Costs of staff to act as guides during the tours (1) Prices he could charge in the gift shop (1) Costs of staff to work in the gift shop (1) Anticipated level of sales in the gift shop (1) Accept other valid points Max 3 3

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2022 © UCLES 2022 Page 9 of 17 Question Answer Marks 2(a) NM plc Statement of financial position at 31 December 2021 $ Assets Non-current assets Property, plant and equipment W1 609 340 (2) Current assets Inventory 18 900 Trade receivables W2 37 400 (2) 56 300 Total assets 665 640 Equity Ordinary share capital ($1 shares) 250 000 (1) Share premium 65 000 (1) Revaluation reserve 72 000 (1) General reserve 45 000 (1) Retained earnings W3 171 140 (7) 603 140 Non-current liabilities Bank loan 32 000 (1) Current liabilities Trade payables 21 900 Bank loan 8 000 (1) Bank overdraft 600 (1) 30 500 Total equity and liabilities 665 640 W1 612 000 – impairment losses (1 300 (1) + 1 360 (1)) = 609 340 W2 36 200 – 800 (1) + 2 000 (1) = 37 400 W3 267 500 +25 000 (1) – 72 000 (1) – 45 000 (1) – impairment losses 2 660 (1)OF –900 (1) – 800 (1) = 171 140 (1)OF 18

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2022 © UCLES 2022 Page 10 of 17 Question Answer Marks 2(b) 5 January 2022 – non-adjusting (1) 6 January 2022 – adjusting (1) 2 2(c) To make its statement of financial position more realistic (1) so that depreciation charges to be based on the revalued amounts giving a more meaningful cost (1) Accept other valid answers. 2 2(d) A provision for doubtful debts would not stop irrecoverable debts (1) as it is only a paper entry which does not stop credit customers from defaulting (1). However, a provision would match the loss arising from irrecoverable debts with the income from the sales which generated the debts (1) and would stop assets from being overstated (1), applying matching/prudence (1). Decision (1) Accept other valid points Max (2) for comments plus (1) for decision 3 Question Answer Marks 3(a) It measures the time between a business paying its trade payables for inventory and receiving funds from its trade receivables arising from the sale of that inventory (1) OR the time taken for cash to travel through the working capital of a business (1) 1 3(b) AB plc has a longer inventory turnover period (1) which may be due to holding a higher level of inventory (1). It has a longer trade receivables turnover period (1) as it receives payments slower (1). It has a shorter trade payables turnover period (1) as it pays its credit suppliers faster (1). Any two reasons, (1) mark for identification of effect on ratio plus (1) mark for development 4

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2022 © UCLES 2022 Page 11 of 17 Question Answer Marks 3(c) Formula 2021 2020 Earnings per share Profit for the year Number of shares (1) $0.46(1) $0.49(1) Dividend per share Dividend paid Number of shares (1) $0.23 (1) $0.24 (1) Price earnings ratio Market price of share Earnings per share (1) 4.76 (1)OF 3.94 (1)OF Dividend yield Dividend paid and proposed per share/ Market price of share  100 (1) 10.50% (1)OF 12.44% (1)OF 12 3(d) Earnings per share has fallen. Although profit for the year has increased, it has not increased in proportion with the increase in the number of shares (1). Dividend per share has fallen. Although the dividend has increased in absolute terms it has not increased in proportion with the increase in the number of shares (1). The price earnings ratio has increased which suggests an increase in investor confidence (1) The dividend yield has fallen because of the increase in the share price and the fall in the dividend per share (1). The market value has risen because investors feel positive about the expansion of the business which is taking place (1). The benefits from the expansion are not yet being fully felt as the expansion is not yet ‘bedded in’ (1) and investors expect an increase in dividends and profits in the future (1). Accept other valid points Max (6) 6

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2022 © UCLES 2022 Page 12 of 17 Question Answer Marks 3(e) Information needs to be timely to be useful (1). Performance of the business may already have changed (1). There is almost a full year of performance about which the investor knows nothing (1). Accept other valid points. 1 mark for identification and 1 mark for development. 2 Question Answer Marks 4(a) $ 2020 subscriptions (6  50) 300 (1) Receipts from new members (8  50 + 11  30) 730 (1) Receipts from existing members Members at start 210 Resigned (1) }(1) Paid previously (8) } Transferred to life membership (5) *}(1) Not yet paid (4) *} 192  50 9 600 (1)OF 2022 subscriptions (14  55) 770 (1) 11 400 Life membership (5  750) 3 750 (1) Total receipts 15 150 (1)OF 8

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2022 © UCLES 2022 Page 13 of 17 Question Answer Marks 4(b) Subscriptions account $ $ Balance b/d 350 * Balance b/d 400 *(1) both Income and expenditure (1) 10 930 (1)OF Receipts and payments 11 400 (1)OF Irrecoverable debt 50 (1) Balance c/d 770 ** Balance c/d 200 **(1) both 12 050 12 050 Marking guidance – income and expenditure figure may be a balancing figure for (1of) or, should anyone calculate it, (210 – 1 – 5 + 8)  50 plus (11  30) = 10 930 6 4(c)(i) 8  750  1/10 = $600 (1) 1 4(c)(ii) $ joining in 2020 3  750  8/10 1800 (1) joining in 2021 5  750  9/10 3375 (1) 5175 (1)OF 3 4(d) Grants (1) Donations (1) Profit from trading activity (1) Fund raising/special events (1) Accept other valid points Max 2 2

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2022 © UCLES 2022 Page 14 of 17 Question Answer Marks 4(e) This would bring in additional income (1) but there may be increased costs. (1) Junior members may go on to become regular members in time. (1) This may raise the club’s profile in the community. (1) Junior members may require more supervision. (1) With a lower subscription regular members may be subsidising the junior section of the club. (1) Decision (1) Accept other valid points Max (4) for comments plus (1) for decision 5 Question Answer Marks 5(a) Cash flows in payback are not discounted (1). Although net cash flows may cover the purchase price in absolute terms (1) they may not do so once discounted (1) especially if the distribution of cash flows is biased towards the later years of the project’s life (1). Max (2) Accept other valid answers. 2 5(b) Decrease in number of services Cost savings $ Repairs $ Total change $ 1 27 } 8 100 (2 000) 6 100 2 30 }(1) 9 000 (5 600) 3 400 3 39 *} 11 700 (12 600) (900) 4 36 *}(1) 10 800 (19 900) (9 100) (1)OF column (1) column (1)OF column 5

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2022 © UCLES 2022 Page 15 of 17 Question Answer Marks 5(c) Total change $ Discount factor Discounted cash flow $ 1 6 100 0.909 5 545 } 2 3 400 0.826 2 808 } (1)OF 3 (900) 0.751 (676) }* 4 (9 100) 0.683 (6 215) }*(1)OF Increase in NPV 1 462 (1)OF Existing NPV (180) (1) Revised NPV 1 282 (1)OF 5 5(d) The NPV is now positive (1)OF However, breakdowns become more likely involving disruption to production/increased repair costs (1) which might mean that some orders are not fulfilled on time (1) with loss of reputation amongst customers (1). If spare parts are not available delays in repairs will be inevitable (1). Workers may need to be paid overtime premiums in order to catch up once the machine is fixed (1) Decision (1) Accept other valid answers Max (4) for comments plus (1) for decision 5 5(e) 1 282 (1)OF = 1 877(1)OF 0.683 (1) 16 000 – 1 877 = $14 123 (1)OF 4 5(f) IRR involves the use of two different discount rates (1) to calculate two separate NPV values (1), usually one positive and one negative (1). An intermediate point is then calculated where the NPV would be zero (1). 4

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2022 © UCLES 2022 Page 16 of 17 Question Answer Marks 6(a)(i) 96 000 / (3  10 000) = $3.2 (1) 1 6(a)(ii) $ Direct materials (2  8  9 000) 144 000 }(1) Direct labour (3  10  9 000) 270 000 } Fixed overhead (3.2  3  9 000) 86 400 (1OF) Total standard cost 500 400 (1OF) 3 6(b) $ $ $ Total standard cost 500 400 Variance Favourable Adverse Materials price 19 800 x (8 – 7.5) 9 900 (2) Materials usage 8 x (18 000 – 19 800) 14 400 (2) Labour rate 31 500 x (10 – 9) 31 500 (2) Labour efficiency 10 x (27 000 – 31 500) 45 000 (2) Fixed overhead expenditure 96 000 - 94 000 2 000 (2) Fixed overhead volume (10 000 – 9 000) x 3 x 3.2 9 600 (2) 43 400 69 000 25 600 Actual cost 526 000 (1)both* * to be CF for actual and OF for standard Marks for variances – (1) for amount and (1) for direction 13

9706/31 Cambridge International AS & A Level – Mark Scheme PUBLISHED October/November 2022 © UCLES 2022 Page 17 of 17 Question Answer Marks 6(c) For (Max 2) Using the same standards would be simple / less time consuming than calculating separate ones (1). Using the same standards would make it easier to compare results/variances between the two factories (1). Against (Max 2) Labour rates/rent/rates are likely to be different in the different countries (1) The material cost is likely to be less in France as the cost of transportation to Indonesia will not be included (1). Decision (1) Accept other valid points 5 6(d)(i) A fixed budget is based on the budgeted output level (1) whereas a flexed budget is based on the actual output level (1). 2 6(d)(ii) To be able to compare like with like/to make variances more meaningful (1) 1