THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

EXAMINERS’ COMMENTS

SUBJECT SESSION
Management Accounting Final Examination - Winter 2011

General:

This was a balanced paper and most of the questions pertained to areas which are
repeatedly examined. Still, a below average response was witnessed. A common reason
for poor performance was the students’ inability to understand the requirements of the
questions. The candidates are advised to make good use of the 15-minutes extra reading
time that is now being provided to them.

Question-wise comments are as under:

Q.1 It was a simple question requiring determination of bid price based on relevant
costs. Identification of relevant cost of material B was difficult for many students.
Loss on sale of redundant material B stock was mostly missed out. Most
candidates were unable to calculate the idle labour hours. Majority of the students
considered idle hours for one month only. Moreover, idle hours were being paid
at 80% of the normal salaries, hence 20% should have been treated as additional
cost. Instead, a vast majority of students did the other way round.

Q.2 This question was quite easy but was not responded well. Most candidates were
able to calculate the sales variances and the labour efficiency variances but could
not correctly bifurcate them between the operational and planning components.
Most of the students seemed to lack the conceptual knowledge probably because
this area was tested after many attempts.

Q.3 This again was an easy question. The students could have secured good marks by
carefully following the details (instructions) provided in the question. However,
most candidates seemed quite confused. A number of errors were witnessed and
the common among them are as follows:

• Most of the students did not compute the sales tax on mobilization advance;
furthermore most of them applied sales tax on running bills without
adjustment of mobilization advance.

• Some students correctly computed and provided sales tax on mobilization

advance but instead of adjusting the advance excluding sales tax against
subsequent billings, adjusted the advance inclusive of sales tax.

• Most of the students computed retention money of 5% on the value inclusive

of sales tax, whereas the retention money should have been deducted from the
principal amount of the invoice.

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 Examiners’ Comments on Management Accounting – Final Examination Winter 2011

• Most of the students did not deduct income tax on release of retention money.

• Most of the students failed to carry forward the excess input tax to the next
months.

• Student provided a number of workings in support of the main cash flow

statement. Most of the figures could have been placed on the face of the cash
flow statement and a lot of time could have been saved.

Q.4 In this question the candidates were required to evaluate the consultant’s
suggestions by comparing the consultant savings and additional costs. Although
the calculations were relatively complex but even then, such a poor performance
was unwarranted as the students did not have grip on some very simple concepts
as was evident from the following common mistakes:

• Most of the students did not compute the number of units produced. They
treated units sold as units produced. As a result, the per unit costs could not be
computed correctly.

• Various types of errors were made while making adjustment for calculating
the impact of reduction in material wastage. Some of the students simply
assumed 2% of the material cost as the reduction in wastage. Some students
divided material cost by 96% to arrive at the cost before wastage although the
element of wastage was already included in the total material cost. The correct
method was to multiply the material cost by 96% to arrive at the cost before
wastage and then dividing it with 98% to incorporate 2% wastage of input.

• While computing loss of discount on discontinuation of bulk purchases, most

of the students just computed 1.5% of the cost of material. The material cost
should have been grossed up to arrive at the pre-discount cost before
computing the loss of discount thereon.

• Most of the students computed the cost of labour and material in the event the
new machine was purchased but did not compute the cost if the existing
machine was to be continued.

• Holding cost of inventory should have been computed by applying 4%

holding cost to the average inventory (half the size of order + safety stock).
Many students made various errors in computing the inventory size on which
the holding cost was to be computed.

Q.5 This was a simple question on process costing and involved no complications.
However, the response thereof was not encouraging and simple errors were
committed by most of the students. Such performance is not expected at the final
level. The common errors were as follows:

• Most of the students computed normal loss on units processed during the year.
It should have been computed on units produced during the year.

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 Examiners’ Comments on Management Accounting – Final Examination Winter 2011

• While computing cost of closing work in process, most of the students

ignored the cost from the previous department.

• Scrap value of normal loss was not deducted while computing the cost
transferred from Department 1.

• Surprisingly, some students were not aware of the procedure for calculation of
Equivalent Production which is a very basic concept and studied at the
intermediate level.

Q.6 This appeared to be the most difficult question for students. It required
determination of repeat order size after taking the learning curve effect into
consideration. Only a handful of students were able to reach the right or even
some conclusion.

It was evident from the response that most of the students had cursory knowledge
of the subject inspite of the fact that a question on Learning Curve is frequently
asked. The major errors were as follows:

• A large number of students tried to apply the Learning Curve formula without
appreciating the requirement of the question.

• The important step in solving the question was to determine the costs which
were subject to learning curve. Most students had no idea about this aspect.

(THE END)

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