W3 (4000 (1) / 50 000) (1) = $0.

08 (1) OF

W4 (8000 / 50 000) (1) = $0.16 (1) OF

W5 (60 000 / 50 000) (1) = $1.20 (1) OF

Activity-based Costing WS 2 [12]

1 (d) The benefits of ABC

Avoids apportioning overheads using a basis that may not be relevant. e.g. machine hours
for administration costs (1)
More realistic / fair (1)
Considers batch sizes which are ignored by absorption costing. (1)
It charges each product with an accurate cost based on its use of an activity (1). (cost driver)
(1)
If the activity(cost driver) changes then the relevant effect on the cost can be assessed so
costs are controlled (1). eg how much will costs increase if there is another batch run? (1)
Helps to set a selling price (1)
Expensive costs may be outsourced (1)

Drawbacks
ABC is often of little benefit if there is only one product (1) because the overhead cost per
unit will be the same. (1)
There are still cost pools that are not caused by one particular cost driver (1) but by several
e.g. marketing (1)
This method may be time consuming (1) and require a specialist (1) to collect the data, which
will be more expensive (1)
The costs for implementing such a system for a small business often outweigh the benefits
(1)
The level of accuracy may be immaterial for management decisions (1)

Decision – Samir should/should not ask for this analysis (1)

(1) decision + Max 9 for benefits and drawbacks [10]

[Total: 25]

6 (a) (i) A cash budget deals with the future whilst a statement of cash flows deals with historic
data (1).
A cash budget does not deal with non-cash items whereas a statement of cash flows
does, e.g. depreciation (1)
A cash budget is an internal document whilst a statement of cash flows is published. (1)
Max (1) [1]

(ii) Identify and solve cash flow problems (1). E.g. avoid overdrafts
Identify possible investment opportunities for surplus cash (1).
Control of cash (1)
Plan timing of expenditure (1)
Co-ordination and communication of departmental cash needs (1)
Motivates staff to achieve departmental objectives (1) Max 2 [2]

© UCLES 2016
 9706/31 Cambridge International AS/A Level – Mark Scheme May/June 2017
PUBLISHED
Question Answer Marks

2 6(a) Calculate the cost driver rates 10

Machine hrs
Product X 10 000 units × 2.5hrs = 25 000
Product Y 14 000 units × 0.5 hrs = 7 000
32 000

Overhead costs

$264 000
Machine maintenance costs 32 000 = $8.25 Per machine hour (1)OF

$54 000
Ordering costs = $675 Per order (1)
80

$24 000
Production run costs = $500 Per set up (1)
48

Allocate overheads to products

Product X Product Y
$ $
Machine hrs 25 000 × $8.25 206 250 7000 × $8.25 57 750 (1) OF both
Orders 20 × $675 13 500 60 × $675 40 500 (1) OF both
Production runs 12 × $500 6 000 36 × $500 18 000 (1) OF both
225 750 116 250

Units ÷ 10 000 Units ÷ 14 000

$ $
Overhead cost 22.58 (1of) Overhead cost 8.30 (1)OF
9706/31 Direct cost +Cambridge
100.00International AS/A Level
Direct cost + – Mark Scheme
50.00 May/June 2017
Full cost per unit 122.58 PUBLISHED
Full costLevel
per unit 58.30 (1) OF both
9706/31 Cambridge International AS/A – Mark Scheme May/June 2017
Question
© UCLES 2017
PUBLISHED
Answer
Page 14 of 16 Marks

3 Question
6(b) Answer
Product X Product Y Marks3
$ $
6(b) Product X
9.00 (1) OF Product
18.00 Y
(1)OF 3
Direct labour hour basis $342 000
= $12 / hr × 0.75 $
× 1.50
$
Direct
Direct labour
labour hours
hour basis 28 500000
$342 (1) 9.00 (1) OF 18.00 (1)OF
= $12 / hr × 0.75 × 1.50
Direct labour hours 28 500 (1)
6(c) If he uses ABC 4
4 6(c) If he uses ABC
• The cost of X increases. }
4
• The cost of Y decreases. (1) both
• The cost of X increases. }
• Thelabour
Direct cost of Y decreases. (1) both
hours
Direct labour hours
• Based on direct labour hours. Product Y has 2 times more hours per unit than product X. Therefore two times more share
of overhead costs. (1)
• Based on direct labour hours. Product Y has 2 times more hours per unit than product X. Therefore two times more share
ABCof overhead costs. (1)
ABC
• X has less set ups and orders than Y so takes less share of overhead costs (1)
• X has more machine hours than Y so takes larger portion of machine based overheads (1)
• X has less set ups and orders than Y so takes less share of overhead costs (1)
• The largest overhead costs are machine maintenance costs. The cost driver is machine hours, X has five times more
• X has more machine hours than Y so takes larger portion of machine based overheads (1)
hours per unit than Y so gets the largest portion. (1)
• Max
The largest
3 overhead costs are machine maintenance costs. The cost driver is machine hours, X has five times more
9706/31 Cambridge
hours per unit than Y so gets the International
largest portion. (1) AS/A Level – Mark Scheme May/June 2017
Max 3 PUBLISHED
Question Answer Marks

5 6(d) ABC 6
$ unit
Full cost 122.58
Mark-up 40% 49.03
Selling price 171.61 (1)OF
X 50 units
Order price $8580.50 (1)OF

Advice
© UCLES 2017 Page 15 of 16
• Ahmed should reject the offer as the offer price ($8450) is less than his required price. (1)
© UCLES 2017 • Ahmed still makes profit (1) Page 15 of 16
• May be able to build relationship with customer / further orders (1)
• Ensures work force is not idle / spare capacity (1)

1 mark for advice and max 3 for discussion points.

Other relevant points acceptable.

6(e) Fairer / more accurate / meaningful allocation of overhead costs. 2

Provides good understanding of what drives the cost.
Uses multiple cost drivers so recognises complexity of manufacturing.
Useful for decision making (profitability / pricing / discontinue lines).
Accurate and reliable cost information.
(1 mark) × any two reasons.
Max 2

Total: 25
 Advice

• Ahmed should reject the offer as the offer price ($8450) is less than his required price. (1)
• Ahmed still makes profit (1)
• May be able to build relationship with customer / further orders (1)
• Ensures work force is not idle / spare capacity (1)

1 mark for advice and max 3 for discussion points.

Other relevant points acceptable.

6 6(e) Fairer / more accurate / meaningful allocation of overhead costs. 2

Provides good understanding of what drives the cost.
Uses multiple cost drivers so recognises complexity of manufacturing.
Useful for decision making (profitability / pricing / discontinue lines).
Accurate and reliable cost information.
9706/31 (1 mark) × any two reasons. Cambridge International AS/A Level – Mark Scheme October/November
Max 2 PUBLISHED 2017
9706/31 Cambridge International AS/A Level – Mark Scheme October/November
Question PUBLISHED
Answer 2017
9706/31 Cambridge International AS/A Level – Mark Scheme Total: Marks
October/November25
PUBLISHED 2017
7 Question
6(a)
9706/31 Cambridge Product A
International
Answer
AS/A Product
Level –BMark Scheme Total
Marks
October/November 3
Question $ PUBLISHED
Answer $ $ 2017
Marks3
6(a) Sales value Product
240 000 A(1) Product
360 000 B(1) Total
600 000
Question Overheads 120 $000 Answer
180 $000 (1) for both 300 $000 Marks3
6(a) Sales value Product
240 000 A(1) Product
360 000 B(1) Total
600 000
6(a)
6(b) Overheads 120$000
Product A
Product A 180$000 B
Product (1) for both Product
300 $000
Total
B 3
5
Sales value 240 000 (1) 360 000 (1) 600 000
8 6(b) Overheads 120$000 $
Product 180$000 (1) for both Product $ $000
300 5
Direct cost Sales value
(3.2 + 1.8) 240 000 (1) 5 A 360 000 (1)+ 2.1)
(4.9 600 B (1) for both
7 000
Overheads Overheads(120 / 20)120 000 $6 180 000
(1)OF (1) /for
(180 $ 000 (1)OF
18)both Product
300
10
6(b) Direct cost (3.2 + 1.8) Product5 A (4.9 + 2.1) 7 B (1) for both 5
Total 11
$6Page 16(1)OF 17
$
© UCLES 2017 Overheads (120 / 20) of 16 (180 (1)OF
6(b) Sellingcost
Direct price (3.2 + 1.8) Product
125 A 20 +/ 18)
(4.9 2.1)
10
Product
207 B (1) for both 5
Total 11
$ 17
$3
Profit
Overheads (120 / 20) 1
6 (1)OF (180 / 18) 10 (1)OF
Sellingcost
Direct price (3.2 + 1.8) 125 20 + 2.1)
(4.9 207 (1) for both
Total
Profit 111 173
6(c) Overheads (120 / 20) A 12 6 (1)OF
B (180 / 18) 10 (1)OF 5
Selling price 20 20 Total
Total $ 11 $
(1)OF 17 $ (1)OF
6(c) Profit A 1 B 3 Total 5
Selling price
Delivery (100+) 51012 690 20(1) for both 20
$ $ 920 (1) for both $ (1)OF
9 6(c) Profit Delivery (small)
Delivery (100+)
13
A 280
510
1 (1)OF
8
B 690 (1) for both
3 Total 5
13
$ 790 9
$ 610 $
6(c) Delivery (small) 13
A 280 8 920 (1)
B for both
(1) for
for both
both Total 5
Order processing
Delivery (100+) 17 025
510 11 725
690 (1)
13
$ 790 9
$ 610 $ 150
Delivery (small) 30 280
13 185 218 335
920 (1) for both 52
Order processing
Delivery (100+) 17 025
510 11 725
690 (1)(1)OFfor for
both
both
Other overheads 130
13 447
790 117 9 403
610 247 850
Delivery (small) 30 280
13 185 218 335
920 (1) for both 52 150
Total
Order overheads
processing 161
17 262
025 138 725 (1)OF
11 738 (1) for for both
both 300 000
Other 130
13 447
790 117 610 (1)OF for both
9 403 247 850
Total 30 262
161 185 21 738
138 335 (1)OF for both 52 000
300 150
6(d) Order processing 17 025
A 11 725 (1) for both 5
Other overheads 130 447 117 403 (1)OF for both B 247 850
30 185
$ 21 335 (1)OF for both $ 52 150
6(d) Total 161 262A 5 138 738 300 000 5
Other overheads
Direct cost 130 447 117 403 (1)OF for both B 7247(1) 850for both
Overheads Total (161.2 / 20) 161 262 $
8.06 138 738(138.7
(1)OF (1)OF for both B
/ 18) $7.71300(1)OF
000
6(d) Direct cost A 5 7 (1) for both 5
Total 13.06
$ 14.71
$
10 6(d) Overheads
Selling price
Direct cost
(161.2 / 20) A 5 (1)OF
8.06
12.00
(138.7 / 18) B7.71
20.00
(1)OF
7 (1) for both 5
Total 13.06
$ 14.71
$7.71
Profit
Overheads (161.2 / 20) (1.06)
8.06 (1)OF (138.7 / 18) 5.29 (1)OF
Selling price
Direct cost 12.00 5 20.00 7 (1) for both
Total
Profit 13.06
(1.06) 14.71
5.29 (1)OF
Overheads (161.2 / 20) 8.06 (1)OF (138.7 / 18) 7.71
Selling price 12.00 20.00
Total 13.06 (1)OF 14.71 (1)OF
Profit (1.06) 5.29
9706/31 Selling price Cambridge International
12.00 AS/A Level – Mark Scheme 20.00 October/November
Profit PUBLISHED
(1.06) (1)OF 5.29 (1)OF 2017
9706/31 Cambridge International AS/A Level – Mark Scheme October/November
Question PUBLISHED
Answer 2017
Marks
© UCLES 2017 Page 13 of 14
11 Question
6(e) Profit per unit for A is now negative (1) although A still has aAnswer
positive contribution towards fixed costs. (1) Profit per unit for B Marks5
© UCLES 2017 has increased. (1) Page 13 of 14
6(e) Profit per unit for A is now negative (1) although A still has a positive contribution towards fixed costs. (1) Profit per unit for B 5
© UCLES 2017 has increased. (1) Page 13 of 14
The directors should consider increasing the selling price of A. (1) Perhaps delivery charges could be charged separately as an
© UCLES 2017 addition to the unit price. (1) Page 13 of 14
The directors should consider increasing the selling price of A. (1) Perhaps delivery charges could be charged separately as an
addition to the unit price. (1)
Advantage/disadvantage of change of method. (1)
Motivation/behavioural aspects. (1)
Advantage/disadvantage of change of method. (1)
Motivation/behavioural
[1 mark for decision +aspects. (1)
1 max method + 1 max non-financial + 2 max for comparison A versus B]

6(f) [1 mark
Cost for–decision
driver + 1 max
the separate method
activities + 1 max
of each non-financial
department. (1) + 2 max for comparison A versus B] 2
Cost pool – an account collecting the cost of each activity. (1)
12 9706/31
6(f) Cost driver – the separate activitiesCambridge International
of each department. (1) AS/A Level – Mark Scheme May/June 2018 2
PUBLISHED
Cost pool – an account collecting the cost of each activity. (1)
9706/31 Cambridge International AS/A Level – Mark Scheme May/June 2018
Question PUBLISHED
Answer Marks

13 Question
6(a)(i) Answer
Alpha Omega Marks3
$ $
6(a)(i) Direct materials Alpha
2 000 000 Omega
968 000 3
Direct labour $
480 000 $
48 000
Direct materials
Overheads 2 000
330 000
000 968
66 000
000 (1)
Direct labour
Total production costs 2 480
810 000
000 (1) 48 000
1 082 000 (1)
Overheads 330 000 66 000 (1)
6(a)(ii) Cost per unit $140.5 Total production
$135.25 (1) costs 2 810 000 (1) 1 082 000 (1) 1
6(a)(ii)
6(b) Cost per unit $140.5 $135.25 (1) $ $ 1
2
Cost per unit 140.50 135.25
14 6(b) Add 50% $70.25 $67.63 (1) OF both 2
Costper
SP perunit
unit 140.50
210.75 135.25
202.88 (1) OF both
Add 50% 70.25 67.63 (1) OF both
6(c) SP per unit
It is not possible to attribute all costs to activities. (1) 210.75 202.88 (1) OF both 2
6(c) It is not additional
It takes possible tocosts
attribute all usually
(1) as costs tospecialist
activities.employees
(1) are required (1) or extensive training may be required. (1) 2

It takes
It is additional
expensive costs (1)implement
to develop, as usually and
specialist employees
maintain. (1) are required (1) or extensive training may be required. (1)

© UCLES 2017 It
2 is
× 1expensive to develop,
mark for any two validimplement and maintain. (1)
disadvantages Page 14 of 14

© UCLES 2017 Accept other valid points. Page 14 of 14

2 × 1 mark for any two valid disadvantages
6(d) Accept other valid points. Total 4
Overhead Alpha Omega
6(d) $ $ Total $ 4
Machine set-up Overhead
90 000 Alpha
54 000 Omega
36 000
Materials handling $
80 000 $
24 000 $
56 000 (1)
Machine maintenance
Machine set-up 90 000
46 000 54 000
26 000 36 000
20 000
Materialsinspection
Product handling 80 000
180 000 24 000
120 000 56
60 000
000 (1)
(1)
Machine maintenance 46 000
396 000 26 000
224 000 (1) OF 20 000
172 000 (1) OF
Product inspection 180 000 120 000 60 000 (1)
396 000 224 000 (1) OF 172 000 (1) OF
 $ $
Direct labour 480 000 48 000
Direct materials 2 000 000 968 000
Overheads 330 000 66 000 (1)
Direct labour 480 000 48 000
Total production costs 2 810 000 (1) 1 082 000 (1)
Overheads 330 000 66 000 (1)
6(a)(ii) Cost per unit $140.5 Total production
$135.25 (1) costs 2 810 000 (1) 1 082 000 (1) 1
6(a)(ii)
6(b) Cost per unit $140.5 $135.25 (1) $ $ 1
2
Cost per unit 140.50 135.25
6(b) $ $ 2
Add 50% 70.25 67.63 (1) OF both
Cost per unit 140.50 135.25
SP per unit 210.75 202.88 (1) OF both
Add 50% 70.25 67.63 (1) OF both
15 6(c) It is not possible to attribute allper
SP unitto activities. (1)
costs 210.75 202.88 (1) OF both 2
6(c) It is not additional
It takes possible tocosts
attribute all usually
(1) as costs tospecialist
activities.employees
(1) are required (1) or extensive training may be required. (1) 2

It takes
It is additional
expensive costs (1)implement
to develop, as usually and
specialist employees
maintain. (1) are required (1) or extensive training may be required. (1)

It is expensive to develop, implement and maintain. (1)

2 × 1 mark for any two valid disadvantages
Accept other valid points.
2 × 1 mark for any two valid disadvantages
6(d) Accept other valid points. Total 4
Overhead Alpha Omega
16 6(d)
$ $
Total $
4
Overhead Alpha Omega
Machine set-up 90 000 54 000 36 000
$ $ $
Materials handling 80 000 24 000 56 000 (1)
Machine set-up 90 000 54 000 36 000
Machine maintenance 46 000 26 000 20 000
Materials handling 80 000 24 000 56 000 (1)
Product inspection 180 000 120 000 60 000 (1)
Machine maintenance 46 000 26 000 20 000
396 000 224 000 (1) OF 172 000 (1) OF
9706/31 Product inspection Cambridge International
180 000 AS/A Level
120– Mark
000 Scheme 60 000 (1) May/June 2018
396 000 PUBLISHED 224 000 (1) OF 172 000 (1) OF
9706/31 Cambridge International AS/A Level – Mark Scheme May/June 2018
Question PUBLISHED
Answer Marks
9706/31 Cambridge International AS/A Level – Mark Scheme May/June 2018
17 Question
6(e) PUBLISHED
AlphaAnswer Omega Marks3
Question $ Answer $ Marks3
6(e) 2018
© UCLES
Materials Alpha
2 000Page 17 of 18
000 Omega
968 000
Labour 480 $
00017 of 18 $
48 000
6(e) 2018
© UCLES
Materials Alpha
2 000Page
000 Omega
968 000 3
Overheads 224 000
$ 172 000
$
Labour
Total cost 480 000 48
1 188 000
Materials
Overheads
2
2 704
000 000
000
224 000 968 000
172 000 (1) both OF
000
Labour
Total costunit 480 000
2 704 000 48 000
1 188 000 (1) both OF
Cost per
Overheads 135.20
224 000 148.50
172 000 (1) both OF
Add 50%
Total cost 2 67.60
704 000 1 18874.25
000 (1) both OF
Cost per
SP per unitunit 135.20
202.80 148.50
222.75 (1) (1) both
both OF
OF
Add 50% 67.60 74.25
Cost
SP perunit
per unit 135.20 148.50
222.75
202.80will reflect a more realistic (1)
(1) both
bothonOF
OF
6(f) As ABC provides moreAdd
realistic
50% figures (1) the selling prices
67.60 figure
74.25 based costs. (1) 6
18 6(f) As ABC provides moreSP per unit
realistic figures (1) the selling prices 222.75
202.80will reflect a more realistic figure (1) bothonOF
Using the old method Alpha showed a very high portion of overheads (1) and so its costs were too highcosts.
based (1)a true figure is
(1) and 6
6(f) not reflected
As ABC in themore
selling price (1)
Using theprovides
old method realistic
Alpha figures
showed (1) the
a very selling
high prices
portion will reflect(1)
of overheads a more
and sorealistic figure
its costs werebased on costs.
too high (1) and(1)a true figure is 6
not reflected
Omega bears inathe selling price (1) low amount of overheads (1) and so is underpriced (1)
disproportionately
Using the old method Alpha showed a very high portion of overheads (1) and so its costs were too high (1) and a true figure is
not reflected
Omega inathe selling price (1) low amount of overheads (1) and so is underpriced (1)
Costs inbears
the old disproportionately
method are set simply using only one basis. (1) The setting of the costs using ABC will enable the company to
carefullybears
Omega investigate
a the basis (1) and
disproportionately lowwill resultofinoverheads
amount improved production methods as well as better pricing. (1)
Costs in the old method are set simply using only one basis. (1)
(1) and
The so is underpriced
setting of the costs (1)using ABC will enable the company to
carefully
3 investigate
x 2 marks each the
(1 markbasis (1) and will result in improved production methods as well as better pricing. (1)
Costs in the old method areforset
stating
simplythe reason
using onlyandone1basis.
mark for
(1) development)
The setting of the costs using ABC will enable the company to
carefully
3 investigate
x 2 marks the basis (1) andthe
willreason
result inand
improved
1 mark production methods as well as better pricing. (1)
Accept othereach (1points.
valid mark for stating for development)
3 x 2 marks
Accept othereach (1points.
valid mark for stating the reason and 1 mark for development)
6(g)(i) Alpha profit
Accept $135.20
other valid × 60% = 81.12 × 20 000 = $1 622 400 (1)
points. 2
Omega profit $148.50 × 30% = 44.55 × 8 000 = $356 400 (1)
6(g)(i) Alpha profit $135.20 × 60% = 81.12 × 20 000 = $1 622 400 (1) 2
Omega profit $148.50 × 30% = 44.55 × 8 000 to= $356 400 (1)an increase of $32 800 (1)
19 6(g)(ii)
6(g)(i) The
Alphaactual
profittotal$135.20
profit will rise from
× 60% $1 946
= 81.12 × 20000000 =$1$1978
622800
400 (1) 2
2
The
Omegaprice of Alpha
profit will fall and =Omega will rise bringing them both nearer to their previous price (1)
6(g)(ii) The actual total$148.50 × 30%
profit will 44.55
rise from × 8 000
$1 946 000 = $356
to 400
$1 978 (1)an
800 increase of $32 800 (1) 2
The
Fixesprice of
higher Alpha
prices will fall
forwill and
therise Omega
product will rise bringing them both nearer specialist
to their previous price(1)(1)
6(g)(ii) The actual total profit from which
$1 946is000
higher in978
to $1 demand
800 anand needs
increase of $32 800workforce
(1) which is justified and lower 2
priceprice
The for Omega
of Alphawhich
will does
fall andnot need specialist
Omega will rise workforce
bringing as both
them the rate of labour
nearer to isprevious
their lower (1)price (1)
Fixes higher
Accept otherprices
validfor the product which is higher in demand and needs specialist workforce (1) which is justified and lower
points.
price for Omega which does not need specialist workforce as the rate of labour is lower (1)
Fixes higher
Accept otherprices
validfor the product which is higher in demand and needs specialist workforce (1) which is justified and lower
points.
9706/33 price for Omega which does not need Cambridge
specialistInternational
workforce asAS/A Level
the rate of–labour
Mark is
Scheme
lower (1) May/June 2018
© UCLES 2018 Page 18 of 18
PUBLISHED
Accept other valid points.
© UCLES 2018 Page 18 of 18
Question Answer Marks

20
© UCLES 2018 Page 18 of 18
6(a)(i) Alpha Omega 3
$ $
Direct materials 2 000 000 968 000
Direct labour 480 000 48 000
Overheads 330 000 66 000 (1)
Total production costs 2 810 000 (1) 1 082 000 (1)

6(a)(ii) Cost per unit $140.5 $135.25 (1) 1

6(b) $ $ 2
Cost per unit 140.50 135.25
Add 50% 70.25 67.63 (1) OF both
SP per unit 210.75 202.88 (1) OF both

6(c) It is not possible to attribute all costs to activities. (1) 2

It takes additional costs (1) as usually specialist employees are required (1) or extensive training may be required. (1)

It is expensive to develop, implement and maintain. (1)

2 × 1 mark for any two valid disadvantages

Accept other valid points.

6(d) Total 4
Overhead Alpha Omega
$ $ $
Machine set-up 90 000 54 000 36 000
Materials handling 80 000 24 000 56 000 (1)
Machine maintenance 46 000 26 000 20 000
Product inspection 180 000 120 000 60 000 (1)
396 000 224 000 (1) OF 172 000 (1) OF