Examiner’s report
F2/FMA Management Accounting
For CBE and Paper exams covering July to December 2013
Examiner’s report – F2/FMA Jul-Dec 2013 1
General Comments
As always, excellent scores were achieved by some candidates. We congratulate both them and their teachers.We offer our commiserations to those who were not successful.The structure of the exam was the same as in previous sittings, a two-hour paper containing 50 multiple choice questions – each worth 2 marks. The mix of questions across syllabus heads was in line with both the CBE demo and the pilot paper.
Candidates should note that the structure of the exam will change from 2014. Details of the new structure are available on the ACCA website. The worst answered questions were calculation based. Calculation questions account for approximately 40% of F2/FMA exam, but 7 out of the 10 worst answered questions during this period involved calculations. The best answered questions were of a narrative nature. As is usually the case for this paper, F2 candidates on average, performed better than FMA candidates.
The following questions are ones where the performance of candidates was very weak. Each of these questions
relate to a mainstream topic in the Study Guide.
Sample Questions for Discussion
Example 1
An
A company uses a standard absorption costing system. Last month the actual profit was $500,000. The only
variances recorded for the month were as follows.
$000
Sales volume profit variance 10 adverse
Fixed production overhead capacity variance 30 favourable
Fixed production overhead efficiency variance 40 adverse
Fixed production overhead volume variance 10 adverse
Fixed production overhead expenditure 50 favourable
Direct labour efficiency variance 15 adverse
What was the budgeted profit for last month?
A $485,000
B $495,000
C $505,000
D $515,000
The correct answer is A.
This question covers syllabus area D3a.
The correct answer can be obtained by working backwards from the actual profit figure. Because we are working backwards, adverse variances must be added back and favourable variances must be deducted to get to the budgeted profit figure. It is also important to remember that the fixed production overhead capacity and efficiency variances are subdivisions of the fixed production overhead volume variance, and it is important to avoid double counting.
The correct answer is therefore
$000
Actual profit 500
Add
Sales volume profit variance 10 adverse
Direct labour efficiency variance 15 adverse
Fixed production overhead volume variance 10 adverse
Less
Fixed production overhead expenditure 50 favourable
Budgeted profit 485
Only 19% of candidates correctly selected this figure, making this question the worst answered on the paper.
The most popular answer was B. This answer is obtained as follows
$000
Actual profit 500
Add
Sales volume profit variance 10 adverse
Direct labour efficiency variance 15 adverse
Fixed production overhead volume variance 10 adverse
Fixed production overhead efficiency variance 40 adverse
Less
Fixed production overhead expenditure 50 favourable
Fixed production overhead volume variance 30 favourable
Budgeted profit 495
The mistake here is the double counting of the fixed production overhead volume variance. The fixed overhead capacity and efficiency variances are subdivisions of the fixed overhead volume variance. Including all three in the reconciliation leads to double counting.
Alternative C was the next most popular choice. This answer is obtained by taking a similar approach to
alternative B, but erroneously adding back favourable variances and deducting adverse variances.
Finally alternative D answer is arrived at by taking the same approach as alternative A, but once again erroneously adding back favourable variances and deducting adverse variances. Majority of candidates did not know that the fixed production overhead capacity and efficiency variances are subdivisions of the fixed production overhead volume variance. This suggests a weakness in the candidates’ knowledge of standard costing variances. Also most candidates show lack of skills in reconciling actual and budgeted profits. This is a weakness that has been highlighted in previous reports.
Example 2
A division currently earns a return on investment (ROI) of 20%. It is considering investing in a project which has
a residual income (RI) of $1,000 at an imputed interest charge of 20%.
What is the effect on the division’s ROI if the project is undertaken?
A Increase
B DecreaseC Remain the same
D Not possible to tell from this information
This question tests Syllabus heading E2 f.
The correct answer A was selected by a minority of candidates.
A useful way of answering many ratio analysis questions is to substitute some simple numbers into the problem.
For example, if the division currently earns an ROI (operating profit over net assets) of 20%, this could be represented by operating profit of $20,000 and net assets of $100,000. Residual income is calculated by operating profit – (net assets x imputed interest rate). A residual income of $1,000 could be represented by an operating profit of $11,000 less an imputed interest charge of $50,000 x 20%.
Therefore the new ROI would become (existing operating profit + project operating profit)
