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EXAMINATION REPORT

Course Title : Managerial Accounting


Course Code : ACC203
Semester : July 2009

Preamble
The examination paper comprised 4 compulsory questions to be completed in 2 hours.
Questions consisted of computations and descriptive components. The objective of the
examination paper was to test students’ ability to apply knowledge acquired in this course
to address management accounting problems.

Students’ performance
The overall performance remains comparable to that of the previous semester. The
examination paper covered 4 main areas.
Students who did not do well may not have prepared for some of the key areas,
particularly process costing (in Question 2) and variance analysis (in Question 4).
Candidates performed much better for Q1 on CVP analysis, followed by Q3 on
absorption costing.

Question 1
This question tested the students’ ability to apply cost-volume-profit analysis in planning
and decision making.
This question on cost-volume-profit analysis was well answered by most students. This
question was widely expected as it had consistently appeared in the previous exams and
was one of the core ACC203 topics. The first two parts were quite straight-forward and
generally done well by many students.
In part (c), students were required to compute the net profit, breakeven point and margin
of safety for the proposal. There was some evidence of rote learning in the computation
of net profit as some candidates were able to articulate the steps/formula for computing
net profit but were not able to apply them correctly to the question.
In the last part, most students were able to answer this discussion question. They were
able to conclude that the company should go ahead with the proposal given the higher
profit. However, not many students considered the risk aspects (breakeven point and
margin of safety) in the analysis.

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Weaknesses of students comprise mainly the following:
• Omission of incremental variable costs as sales units increased (part c).
• Omission of decrease in net profit in part (b) although the net profit figure of
$60,000 is the same as the decrease.
• For part (d), many students did not discuss changes in the margin of safety and
risks.

Question 2
This question tested the students’ ability to understand the cost flows associated with
process costing and prepare a production report using the weighted average method.
In the previous semester, most students did not do well on process costing. In this
semester, we see a similar situation. Many candidates were not able to complete this
question, which requires them to prepare a cost of production report. However, those who
understood the topic could do almost the entire quantitative component whilst those who
had a very poor grasp of the topic generally could not cope with the question.
The primary weaknesses are:
• Some candidates could not remember the format of working out the production
cost report.
• Part (a): Quite a number of candidates could not get the completed units correct.
Most of these candidates gave the 1,800 units started as the completed units.
• Part (c): The explanations on the similarities and differences between transferred-
in costs and direct material costs were poorly attempted by the majority of the
candidates.

Question 3
This question tested the students’ ability to understand the concept of absorption costing
and to prepare an income statement based on absorption costing.
This was a relatively straight-forward question on inventory costing. Most students were
able to do the first part, which required them to compute the unit product costs (although
there were some students who computed the total product costs). The second part was
also quite straight-forward.
However, in the last part, most students were not able to answer the discussion well,
suggesting that they probably did not fully understand the principles of absorption costing
versus variable costing.
Weaknesses of students can be summarised as follows:
• Part (a): Quite a number of candidates could not get the fixed overheads costs per
unit for the two months correct and some incorrectly included the variable selling
expenses (i.e. the commissions in the manufacturing costs).
• Part (b): Many candidates did not show the beginning and ending inventory and
showed only the cost of goods sold. The April cost of goods sold were incorrectly
computed, the previous month’s (March) ending inventory cost which was

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different from April’s cost due to differences in the units produced, were not
considered.
• Part (c): Most candidates did not explain that the main cause of the difference was
due to the fixed costs included in the inventory brought forward from March.
• Omission of variable selling and administrative expenses.
• Doing the income statements in the contribution margin format.
• Using only variable costs as product costs.

Question 4
This question tested the students’ ability to compute material variances and labour
variances and identify reasons and responsibilities for the variances.
This question was badly answered. Most students could not remember the key formulas
(e.g. for material price variance, material usage variance, labour rate variance, labour
efficiency variance).
Weaknesses of students are:
• Parts (a) & (b): Most candidates could not apply the numbers to the variance
formulae, even when they were able to give the correct formulae.
• Part (c): Answers were generally not very well presented. Most students did not
know what to compare.
• Part (d): Most of the candidates were unable to explain the need for transfer
pricing and the problems associated with the use of actual full cost transfer
pricing.

Conclusion

Very few students did well in answering all 4 questions adequately. The general
impression was that the majority of the students had not acquired depth in the
understanding of the concepts and the underlying principles in utilising managerial
accounting tools to make decisions.