An original Thinka practice paper modelled on the structure and difficulty of the Nov 2025 (V2) Cambridge International A Level Accounting (9706) paper. Not affiliated with or reproduced from Cambridge.
Paper 12 (Multiple Choice)
Answer all thirty questions. For each question, choose the one correct answer from the four possible options A, B, C or D.
30 PastPaper.question · 30 PastPaper.marks
PastPaper.question 1 · Multiple Choice
1 PastPaper.marks
A company manufactures a single product with a selling price of \( \$50 \) per unit and a variable cost of \( \$30 \) per unit. The current monthly fixed overheads are \( \$120,000 \). The company is considering a proposal that will reduce the variable cost per unit by 20% but will increase monthly fixed overheads by \( \$23,000 \). What is the monthly sales volume (in units) required to achieve a target profit of \( \$39,000 \) under the new proposal?
A.6,100 units
B.7,000 units
C.8,100 units
D.9,100 units
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PastPaper.workedSolution
Calculate the new variable cost per unit: \( \$30 \times (1 - 0.20) = \$24 \). The new contribution per unit is \( \$50 - \$24 = \$26 \). Calculate the new fixed overheads: \( \$120,000 + \$23,000 = \$143,000 \). Calculate the required total contribution to cover fixed costs and target profit: \( \$143,000 + \$39,000 = \$182,000 \). Calculate the required sales volume: \( \$182,000 / \$26 = 7,000 \) units.
PastPaper.markingScheme
1 mark for the correct option B.
PastPaper.question 2 · Multiple Choice
1 PastPaper.marks
At 30 June, a business had a debit balance in its bank statement of \( \$4,320 \). The following items were then discovered: 1. Bank charges of \( \$180 \) had not been recorded in the cash book. 2. A customer's cheque for \( \$950 \) was returned by the bank marked 'refer to drawer', but no entry had been made in the cash book. 3. Cheques written but not yet presented to the bank amounted to \( \$1,400 \). 4. Receipts of \( \$2,150 \) had been entered in the cash book but were not yet credited by the bank. What was the cash book balance before any adjustments?
A.$2,440 credit
B.$2,440 debit
C.$4,700 credit
D.$4,700 debit
PastPaper.showAnswersPastPaper.hideAnswers
PastPaper.workedSolution
Start with the bank statement balance of \( -\$4,320 \) (debit balance means overdrawn). Adjust for items in the bank statement but not yet recorded in the bank: Add receipts not yet credited: \( +\$2,150 \). Less unpresented cheques: \( -\$1,400 \). This gives the adjusted bank balance (and thus the adjusted cash book balance) of \( -\$4,320 + \$2,150 - \$1,400 = -\$3,570 \). To find the cash book balance before adjustments, reverse the cash book adjustments: Unadjusted cash book balance \( - \$180 \) (bank charges) \( - \$950 \) (dishonoured cheque) = \( -\$3,570 \). Therefore, unadjusted cash book balance = \( -\$3,570 + \$180 + \$950 = -\$2,440 \) (credit/overdrawn balance).
PastPaper.markingScheme
1 mark for the correct option A.
PastPaper.question 3 · Multiple Choice
1 PastPaper.marks
On 1 January 2022, a company purchased a machine for \( \$80,000 \) with an estimated useful life of 8 years. It was depreciated using the straight-line method. On 1 January 2024, the machine was revalued to \( \$72,000 \). On 31 December 2024, the machine was sold for \( \$68,000 \). What was the profit or loss on the disposal of the machine?
A.Profit of $6,000
B.Profit of $8,000
C.Loss of $4,000
D.Profit of $18,000
PastPaper.showAnswersPastPaper.hideAnswers
PastPaper.workedSolution
Step 1: Depreciation for 2022 and 2023 is \( \$80,000 / 8 = \$10,000 \) per year. Accumulated depreciation on 31 December 2023 = \( \$20,000 \). Step 2: Carrying value on 1 January 2024 = \( \$80,000 - \$20,000 = \$60,000 \). Step 3: Revalued amount on 1 January 2024 = \( \$72,000 \) (remaining useful life is 6 years). Step 4: Depreciation for 2024 = \( \$72,000 / 6 = \$12,000 \). Step 5: Carrying value on 31 December 2024 (at disposal) = \( \$72,000 - \$12,000 = \$60,000 \). Step 6: Profit on disposal = Sales proceeds - Carrying value = \( \$68,000 - \$60,000 = \$8,000 \) profit.
PastPaper.markingScheme
1 mark for the correct option B.
PastPaper.question 4 · Multiple Choice
1 PastPaper.marks
The draft profit for the year of a sole trader was \( \$43,500 \). The following errors and omissions were later discovered: 1. Sales returns of \( \$850 \) had been posted to the customer's account but were omitted from the sales returns account in the general ledger. 2. A purchase of equipment costing \( \$3,000 \) had been recorded in the repairs account. The business depreciates equipment at 20% per annum on the straight-line method. 3. No adjustment had been made for rental income of \( \$400 \) received in advance for the next financial year. What is the corrected profit for the year?
A.$44,650
B.$45,050
C.$45,250
D.$46,350
PastPaper.showAnswersPastPaper.hideAnswers
PastPaper.workedSolution
Draft profit = \( \$43,500 \). Adjustment 1: Deduct omitted sales returns of \( \$850 \) (reduces revenue and profit). Adjustment 2: Add back equipment cost wrongly charged to repairs of \( \$3,000 \), and deduct the corresponding depreciation of \( 20\% \times \$3,000 = \$600 \) (net effect of \( +\$2,400 \)). Adjustment 3: Deduct rental income received in advance of \( \$400 \). Corrected profit = \( \$43,500 - \$850 + \$3,000 - \$600 - \$400 = \$44,650 \).
PastPaper.markingScheme
1 mark for the correct option A.
PastPaper.question 5 · Multiple Choice
1 PastPaper.marks
A business absorbs overheads using a predetermined overhead absorption rate based on direct labour hours. The following details are available for a period: Budgeted overheads: \( \$180,000 \), Budgeted direct labour hours: 45,000 hours, Actual overheads: \( \$192,000 \), Actual direct labour hours: 47,200 hours. What was the over- or under-absorption of overheads for the period?
A.$3,200 over-absorbed
B.$3,200 under-absorbed
C.$12,000 over-absorbed
D.$12,000 under-absorbed
PastPaper.showAnswersPastPaper.hideAnswers
PastPaper.workedSolution
Predetermined Overhead Absorption Rate (OAR) = Budgeted overheads / Budgeted direct labour hours = \( \$180,000 / 45,000 = \$4.00 \) per direct labour hour. Overheads absorbed = Actual direct labour hours \( \times \) OAR = \( 47,200 \times \$4.00 = \$188,800 \). Actual overheads incurred = \( \$192,000 \). Since overheads absorbed (\( \$188,800 \)) are less than actual overheads incurred (\( \$192,000 \)), they are under-absorbed by \( \$192,000 - \$188,800 = \$3,200 \).
PastPaper.markingScheme
1 mark for the correct option B.
PastPaper.question 6 · Multiple Choice
1 PastPaper.marks
On 1 January 2024, the equity balances of a limited company were: Ordinary shares (\( \$0.50 \) each): \( \$300,000 \), Share premium: \( \$80,000 \), Retained earnings: \( \$150,000 \). During 2024, the following events took place: 1. A 1-for-5 rights issue of ordinary shares at \( \$0.80 \) per share was fully subscribed. 2. A bonus issue of 1 ordinary share for every 10 held was made, utilizing the share premium account as far as possible. 3. Profit for the year was \( \$90,000 \). 4. An ordinary dividend of \( \$25,000 \) was paid. What was the balance on the Share Premium account at 31 December 2024?
A.$44,000
B.$80,000
C.$116,000
D.$152,000
PastPaper.showAnswersPastPaper.hideAnswers
PastPaper.workedSolution
Start: Ordinary shares = \( \$300,000 \) (representing 600,000 shares of \( \$0.50 \) each). Share premium = \( \$80,000 \). Rights issue: 1-for-5 rights issue on 600,000 shares = 120,000 new shares. Nominal value of rights shares = \( 120,000 \times \$0.50 = \$60,000 \). Share premium raised = \( 120,000 \times (\$0.80 - \$0.50) = \$0.30 \times 120,000 = \$36,000 \). Share premium balance after rights issue = \( \$80,000 + \$36,000 = \$116,000 \). Total ordinary shares after rights issue = 720,000 shares. Bonus issue: 1-for-10 on 720,000 shares = 72,000 new shares. Nominal value of bonus shares = \( 72,000 \times \$0.50 = \$36,000 \). This is funded from share premium. Share premium balance after bonus issue = \( \$116,000 - \$36,000 = \$80,000 \). Retained earnings transactions (profit and dividend) do not affect the share premium account.
PastPaper.markingScheme
1 mark for the correct option B.
PastPaper.question 7 · Multiple Choice
1 PastPaper.marks
A business provides the following information: Revenue (all on credit): \( \$438,000 \), Trade receivables at 1 January: \( \$32,000 \), Trade receivables at 31 December: \( \$40,000 \). What is the trade receivables turnover period (using average trade receivables and 365 days in a year)?
A company sells a single product for \( \$15 \) per unit with a contribution to sales (C/S) ratio of 40%. The annual fixed costs are \( \$60,000 \). The actual sales for the year were 12,500 units. What is the margin of safety (in value of sales)?
A.$15,000
B.$37,500
C.$60,000
D.$150,000
PastPaper.showAnswersPastPaper.hideAnswers
PastPaper.workedSolution
Contribution per unit = \( \$15 \times 40\% = \$6 \). Breakeven point in units = Fixed costs / Contribution per unit = \( \$60,000 / \$6 = 10,000 \) units. Actual sales units = 12,500 units. Margin of safety in units = \( 12,500 - 10,000 = 2,500 \) units. Margin of safety in value of sales = \( 2,500 \text{ units} \times \$15 = \$37,500 \).
PastPaper.markingScheme
1 mark for the correct option B.
PastPaper.question 9 · Multiple Choice
1 PastPaper.marks
A business's bank statement at 31 May showed an overdrawn balance of $4,210. On examination of the cash book and bank statement, the following differences were discovered:
* Unpresented cheques of $1,240 * Outstanding deposits of $850 * Bank charges of $45 shown on the bank statement but not yet entered in the cash book.
What was the balance in the cash book before adjusting for the bank charges?
A.$4,555 overdrawn
B.$4,645 overdrawn
C.$3,765 overdrawn
D.$3,855 overdrawn
PastPaper.showAnswersPastPaper.hideAnswers
PastPaper.workedSolution
To find the unadjusted cash book balance, we first calculate the corrected cash book balance using the bank statement reconciliation:
* Award 1 mark for calculating the correct unadjusted cash book balance of $4,555 overdrawn. * Reject B ($4,645 overdrawn) which incorrectly subtracts the bank charges from the corrected balance. * Reject C and D which stem from incorrect treatment of unpresented cheques or outstanding deposits.
PastPaper.question 10 · Multiple Choice
1 PastPaper.marks
At 30 June, the sales ledger control account balance of a business was $18,520, which did not agree with the total of the list of individual customer balances of $18,210. The following errors were later discovered:
1. A bad debt of $300 written off in the sales ledger had been completely omitted from the sales ledger control account. 2. Cash discount allowed of $120 had been correctly recorded in the customer's personal account but omitted from the control account. 3. A credit balance of $110 in the sales ledger had been omitted from the list of balances.
What is the correct balance of trade receivables at 30 June?
A.$18,100
B.$18,210
C.$18,220
D.$18,520
PastPaper.showAnswersPastPaper.hideAnswers
PastPaper.workedSolution
We can find the correct balance by adjusting either the sales ledger control account or the list of individual customer balances:
**Method 1: Adjusting the Sales Ledger Control Account** $$\text{Draft Control Account Balance} = \$18,520$$ $$\text{Less: Bad debt omitted} = (\$300)$$ $$\text{Less: Cash discount allowed omitted} = (\$120)$$ $$\text{Corrected Balance} = \$18,100$$
**Method 2: Adjusting the List of Balances** $$\text{Draft List of Balances} = \$18,210$$ $$\text{Less: Credit balance omitted} = (\$110)$$ $$\text{Corrected Balance} = \$18,100$$
Both methods reconcile to a correct trade receivables balance of $18,100.
PastPaper.markingScheme
1 mark for the correct option A.
* Award 1 mark for the correct reconciled figure of $18,100. * Reject B ($18,210) which is the uncorrected list balance. * Reject C ($18,220) which only adjusts the control account for the bad debt. * Reject D ($18,520) which is the uncorrected control account balance.
PastPaper.question 11 · Multiple Choice
1 PastPaper.marks
A company manufactures 10,000 units of component X annually. The unit production costs are as follows:
| Cost Item | Cost per unit ($) | | :--- | :---: | | Direct materials | 6.00 | | Direct labour | 4.50 | | Variable overheads | 2.50 | | Allocated fixed overheads | 3.00 |
An external supplier has offered to supply the component for $14.50 per unit. If the company buys from the external supplier, $20,000 of the allocated fixed overheads will continue to be incurred, but the remaining allocated fixed overheads will be avoided.
What is the financial effect of buying the component from the external supplier?
A.$5,000 decrease in profit
B.$5,000 increase in profit
C.$15,000 decrease in profit
D.$15,000 increase in profit
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PastPaper.workedSolution
To make the decision, we compare the relevant (avoidable) costs of manufacturing to the purchase cost from the supplier:
$$\text{Relevant Unit Cost to Manufacture} = \text{Direct Materials} + \text{Direct Labour} + \text{Variable Overheads} + \text{Avoidable Fixed Overheads}$$ $$\text{Relevant Unit Cost to Manufacture} = \$6.00 + \$4.50 + \$2.50 + \$1.00 = \$14.00 \text{ per unit}$$
$$\text{Purchase Price from Supplier} = \$14.50 \text{ per unit}$$
$$\text{Unit Difference} = \$14.50 - \$14.00 = \$0.50 \text{ increase in cost per unit}$$ $$\text{Total Financial Effect} = 10,000 \text{ units} \times \$0.50 = \$5,000 \text{ decrease in profit}$$
PastPaper.markingScheme
1 mark for the correct option A.
* Award 1 mark for calculating the relevant make cost ($14.00/unit) and identifying the net $5,000 decrease in profit. * Reject B ($5,000 increase in profit) as it mistakes a cost increase for a benefit. * Reject C ($15,000 decrease in profit) which ignores avoidable fixed costs. * Reject D ($15,000 increase in profit) which treats all fixed costs as avoidable.
PastPaper.question 12 · Multiple Choice
1 PastPaper.marks
A business has fixed costs of $120,000 per year. It sells a single product for $25 per unit and achieves a contribution to sales (C/S) ratio of 40%.
What is the sales revenue required to achieve a target profit of $30,000?
A.$150,000
B.$300,000
C.$375,000
D.$500,000
PastPaper.showAnswersPastPaper.hideAnswers
PastPaper.workedSolution
The formula to calculate the required sales revenue to achieve a target profit is:
* Award 1 mark for the correct calculation: $150,000 / 0.40 = $375,000. * Reject A ($150,000) which is simply the total target contribution. * Reject B ($300,000) which is the break-even sales revenue without the target profit. * Reject D ($500,000) which uses an incorrect margin calculation.
PastPaper.question 13 · Multiple Choice
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On 1 January 2021, a company purchased premises for $500,000 with an estimated useful life of 50 years. Straight-line depreciation is charged.
On 1 January 2023, the premises were revalued to $600,000 and the remaining useful life was estimated to be 40 years.
What is the depreciation charge for the year ended 31 December 2023, and the balance on the revaluation reserve at that date (assuming no transfer is made to retained earnings)?
* Award 1 mark for correctly determining both the depreciation charge of $15,000 and the revaluation reserve balance of $120,000. * Reject options B, C, and D which use incorrect remaining useful lives or fail to subtract accumulated depreciation before revaluing.
PastPaper.question 14 · Multiple Choice
1 PastPaper.marks
The draft profit for the year of a sole trader was $48,500. The following errors and omissions were later discovered:
1. Rent received of $1,200, which relates to the next financial year, had been credited to the rent received account and included in the income statement. 2. Motor expenses accrued of $450 had been completely omitted from the accounts. 3. An insurance prepayment of $300 at the end of the year was recorded as an accrual of $300 in the accounts.
What is the corrected profit for the year?
A.$46,550
B.$47,150
C.$47,450
D.$48,050
PastPaper.showAnswersPastPaper.hideAnswers
PastPaper.workedSolution
Let's apply the corrections to the draft profit:
* **Draft profit:** $48,500 * **Adjustment 1:** Rent received in advance (prepaid income) must be deducted from the income statement. $$\text{Effect: } -\$1,200$$ * **Adjustment 2:** Unrecorded accrued motor expenses must be deducted from profit. $$\text{Effect: } -\$450$$ * **Adjustment 3:** Insurance prepayment of $300 was incorrectly recorded as an accrual of $300. * To remove the incorrect accrual (which lowered profit): \(+\$300\) * To record the correct prepayment (which increases profit): \(+\$300\) * Total correction: \(+\$600\)
* Award 1 mark for the corrected profit of $47,450. * Reject A ($46,550) which results from subtracting the insurance prepayment error instead of adding it. * Reject B ($47,150) which only adjusts the insurance error by $300 instead of $600. * Reject D ($48,050) which fails to deduct the prepaid rent.
PastPaper.question 15 · Multiple Choice
1 PastPaper.marks
A business uses a predetermined overhead absorption rate based on direct labour hours. The following budgeted and actual data are available for a period:
* Budgeted overheads: $180,000 * Budgeted direct labour hours: 45,000 hours * Actual overheads incurred: $192,000
If the overheads were over-absorbed by $6,000, how many actual direct labour hours were worked?
A.45,000 hours
B.46,500 hours
C.48,000 hours
D.49,500 hours
PastPaper.showAnswersPastPaper.hideAnswers
PastPaper.workedSolution
1. **Calculate the predetermined overhead absorption rate (OAR):** $$\text{OAR} = \frac{\text{Budgeted Overheads}}{\text{Budgeted Direct Labour Hours}} = \frac{\$180,000}{45,000} = \$4.00 \text{ per direct labour hour}$$
3. **Calculate actual direct labour hours:** $$\text{Actual hours worked} = \frac{\text{Overheads absorbed}}{\text{OAR}} = \frac{\$198,000}{\$4.00} = 49,500 \text{ hours}$$
PastPaper.markingScheme
1 mark for the correct option D.
* Award 1 mark for calculating the correct OAR of $4.00 and actual hours of 49,500. * Reject B (46,550 hours) which treats the overheads as under-absorbed. * Reject C (48,000 hours) which is the actual overheads divided by the OAR without factoring in the over-absorption.
PastPaper.question 16 · Multiple Choice
1 PastPaper.marks
On 1 January, a company's equity capital consisted of:
* Award 1 mark for the correct final share premium balance of $90,000. * Reject A ($45,000) which ignores the opening share premium balance. * Reject C ($135,000) which applies the bonus issue to the initial share count before the rights issue. * Reject D ($165,000) which is the balance after the rights issue but before the bonus issue.
PastPaper.question 17 · Multiple Choice
1 PastPaper.marks
A company makes a single product and provides the following details: - Selling price: $45 per unit - Variable cost: $27 per unit - Budgeted fixed overheads: $54,000 per month - Budgeted sales: 4,000 units per month
The company is considering an advertising campaign costing $6,000 per month. This is expected to increase sales volume by 15%.
What is the change in the monthly profit if the advertising campaign is undertaken?
A.$4,800 decrease
B.$4,800 increase
C.$10,800 increase
D.$16,800 increase
PastPaper.showAnswersPastPaper.hideAnswers
PastPaper.workedSolution
Current Contribution per unit = $45 - $27 = $18. Proposed Sales Volume Increase = 15% of 4,000 units = 600 units. Additional Contribution = 600 units * $18 = $10,800. Additional Fixed Costs = $6,000. Net Increase in Profit = $10,800 - $6,000 = $4,800.
PastPaper.markingScheme
1 mark for the correct option B. Award 0 marks for incorrect options. Reject other answers.
PastPaper.question 18 · Multiple Choice
1 PastPaper.marks
On 30 April, a trader's bank statement showed an overdraft of $2,400. This did not agree with the cash book.
Investigation showed: - A cheque received for $350 had been entered in the cash book as $530. - A payment of $150 by bank transfer had been recorded in the bank statement but not in the cash book. - Unpresented cheques totalled $620. - Receipts of $890 entered in the cash book on 30 April were not credited by the bank until 2 May.
What was the balance in the cash book before any adjustments were made on 30 April?
A.$1,800 overdrawn
B.$2,130 overdrawn
C.$2,460 overdrawn
D.$2,760 overdrawn
PastPaper.showAnswersPastPaper.hideAnswers
PastPaper.workedSolution
First, calculate the adjusted bank balance from the bank statement: Bank statement balance = -$2,400 (overdraft) Add: Receipts not yet credited = +$890 Less: Unpresented cheques = -$620 Adjusted Bank Balance = -$2,130 (overdrawn). This must equal the adjusted cash book balance.
Next, work back to the unadjusted cash book balance: Adjusted Cash Book Balance = Unadjusted Balance - Correction of receipt error ($530 - $350 = $180) - Direct payment ($150) -$2,130 = Unadjusted Balance - $180 - $150 -$2,130 = Unadjusted Balance - $330 Unadjusted Cash Book Balance = -$1,800 (overdrawn).
PastPaper.markingScheme
1 mark for the correct option A. Award 0 marks for incorrect options. Reject other answers.
PastPaper.question 19 · Multiple Choice
1 PastPaper.marks
A business purchased a machine on 1 January 2021 for $80,000. It is depreciated at 20% per annum using the reducing balance method. On 31 December 2023, the machine was traded in for a new machine. The trade-in allowance was $36,000.
What was the profit or loss on the disposal of the machine?
A.$4,000 profit
B.$4,960 loss
C.$4,960 profit
D.$15,200 loss
PastPaper.showAnswersPastPaper.hideAnswers
PastPaper.workedSolution
Depreciation for 2021: 20% * $80,000 = $16,000. Net Book Value (NBV) at 31 Dec 2021 = $64,000. Depreciation for 2022: 20% * $64,000 = $12,800. NBV at 31 Dec 2022 = $51,200. Depreciation for 2023: 20% * $51,200 = $10,240. NBV at 31 Dec 2023 = $40,960. Loss on disposal = Trade-in allowance - NBV at date of disposal = $36,000 - $40,960 = -$4,960 (Loss of $4,960).
PastPaper.markingScheme
1 mark for the correct option B. Award 0 marks for incorrect options. Reject other answers.
PastPaper.question 20 · Multiple Choice
1 PastPaper.marks
The draft financial statements of a trader showed a profit for the year of $34,200. It was later discovered that the following items had been incorrectly treated:
1. A payment of $1,200 for building repairs had been debited to the premises asset account. Premises are depreciated at 5% per annum on cost. 2. The closing inventory was undervalued by $850.
What is the corrected profit for the year?
A.$33,850
B.$33,910
C.$35,990
D.$36,190
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PastPaper.workedSolution
Draft profit: $34,200 Less: Building repairs incorrectly capitalized: -$1,200 Add back: Depreciation incorrectly charged on building repairs (5% * $1,200): +$60 Add: Undervaluation of closing inventory: +$850 Corrected profit: $34,200 - $1,200 + $60 + $850 = $33,910.
PastPaper.markingScheme
1 mark for the correct option B. Award 0 marks for incorrect options. Reject other answers.
PastPaper.question 21 · Multiple Choice
1 PastPaper.marks
A manufacturing company has two production departments: Machining and Assembly. The following budgeted information is available: - Budgeted overheads: Machining $180,000; Assembly $120,000 - Budgeted direct labour hours: Machining 15,000 hours; Assembly 30,000 hours - Budgeted machine hours: Machining 45,000 hours; Assembly 10,000 hours
Overheads are absorbed using machine hours in the Machining department and direct labour hours in the Assembly department.
During a period, actual Machining department overheads were $192,000 and actual machine hours worked were 46,000 hours.
What was the over or under absorption of overheads for the Machining department?
1 mark for the correct option B. Award 0 marks for incorrect options. Reject other answers.
PastPaper.question 22 · Multiple Choice
1 PastPaper.marks
A company's statement of financial position at 31 December 2022 showed: - Ordinary shares of $0.50 each: $300,000 - Share premium: $80,000
On 1 July 2023, the company made a rights issue of 1 ordinary share for every 4 shares held at a price of $1.20 per share. The issue was fully subscribed. On 1 November 2023, the company made a bonus issue of 1 ordinary share for every 10 shares held, using the share premium account.
What was the balance on the share premium account at 31 December 2023?
A.$110,000
B.$147,500
C.$185,000
D.$252,500
PastPaper.showAnswersPastPaper.hideAnswers
PastPaper.workedSolution
1. Initial ordinary shares held = $300,000 / $0.50 = 600,000 shares. 2. Rights issue of 1 for 4 = 150,000 shares. Share premium on rights issue = 150,000 shares * ($1.20 - $0.50) = $105,000. Share premium balance after rights issue = $80,000 + $105,000 = $185,000. Total shares now in issue = 600,000 + 150,000 = 750,000 shares. 3. Bonus issue of 1 for 10 = 75,000 shares. Value of bonus issue funded from share premium = 75,000 shares * $0.50 = $37,500. 4. Final share premium balance = $185,000 - $37,500 = $147,500.
PastPaper.markingScheme
1 mark for the correct option B. Award 0 marks for incorrect options. Reject other answers.
PastPaper.question 23 · Multiple Choice
1 PastPaper.marks
A company provides the following financial details for the year ended 31 December 2023: - Revenue: $480,000 - Gross profit margin: 25% - Inventory at 1 January 2023: $34,000 - Inventory at 31 December 2023: $38,000
1 mark for the correct option B. Award 0 marks for incorrect options. Reject other answers.
PastPaper.question 24 · Multiple Choice
1 PastPaper.marks
A business sells a single product for $30 per unit. The variable cost is $18 per unit. The total monthly fixed overheads are $24,000. The business wants to achieve a target monthly profit of $12,000.
What is the required sales revenue to achieve this target profit?
A.$40,000
B.$60,000
C.$90,000
D.$120,000
PastPaper.showAnswersPastPaper.hideAnswers
PastPaper.workedSolution
Contribution per unit = $30 - $18 = $12 per unit. Target Contribution required = Fixed Overheads + Target Profit = $24,000 + $12,000 = $36,000. Target sales volume in units = $36,000 / $12 = 3,000 units. Target sales revenue = 3,000 units * $30 per unit = $90,000.
PastPaper.markingScheme
1 mark for the correct option C. Award 0 marks for incorrect options. Reject other answers.
PastPaper.question 25 · multiple_choice
1 PastPaper.marks
A business purchased a non-current asset on 1 January 2021 for $100,000. It was depreciated using the straight-line method over an estimated useful life of 5 years, with an estimated residual value of $10,000. On 31 December 2022, the asset was revalued to $76,000. At that date, the remaining useful life was estimated to be 3 years, and the estimated residual value was revised to $4,000. What is the depreciation charge for the year ended 31 December 2023?
A.$18,000
B.$22,000
C.$24,000
D.$25,333
PastPaper.showAnswersPastPaper.hideAnswers
PastPaper.workedSolution
Step 1: Calculate annual depreciation for 2021 and 2022. \(\text{Annual depreciation} = \frac{\$100,000 - \$10,000}{5} = \$18,000\). Step 2: Calculate the carrying value at 31 December 2022 (after 2 years). \(\text{Carrying value} = \$100,000 - (\$18,000 \times 2) = \$64,000\). Step 3: Calculate depreciation for 2023 based on the revalued amount and revised estimates. \(\text{New depreciable amount} = \$76,000 - \$4,000 = \$72,000\). \(\text{Depreciation charge for 2023} = \frac{\$72,000}{3 \text{ years}} = \$24,000\).
PastPaper.markingScheme
Award 1 mark for the correct answer C. No partial marks are available for incorrect selections.
PastPaper.question 26 · multiple_choice
1 PastPaper.marks
A business compiles its bank reconciliation statement at 31 May. The bank column of the cash book shows an unadjusted credit balance of $1,850. The following discrepancies are discovered: 1. Bank charges of $120 shown on the bank statement have not been entered in the cash book. 2. A cheque for $430 received from a customer was dishonoured and returned by the bank, but no entry has been made in the cash book. 3. Unpresented cheques amounted to $650. 4. Receipts of $920 paid into the bank on 31 May were not credited by the bank until 2 June. What was the balance shown on the bank statement at 31 May?
A.$2,130 credit
B.$2,130 debit
C.$2,670 credit
D.$2,670 debit
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PastPaper.workedSolution
Step 1: Adjust the cash book balance. \(\text{Adjusted cash book balance} = -\$1,850 \text{ (credit)} - \$120 \text{ (bank charges)} - \$430 \text{ (dishonoured cheque)} = -\$2,400 \text{ (credit/overdraft)}\). Step 2: Reconcile to find the bank statement balance (B). \(B + \$920 \text{ (uncredited deposits)} - \$650 \text{ (unpresented cheques)} = -\$2,400\). \(B + \$270 = -\$2,400\). \(B = -\$2,670\), which is a debit balance (overdraft) of \(\$2,670\) on the bank statement.
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PastPaper.question 27 · multiple_choice
1 PastPaper.marks
A company manufactures a single product. The following budgeted information is available: Selling price per unit: $50, Variable cost per unit: $30, Annual fixed costs: $150,000, Budgeted sales volume: 13,500 units. The company is considering a proposal to improve the quality of the product. This will increase the variable cost per unit by $5 and increase annual fixed costs by $30,000. The selling price will remain unchanged. What is the new level of sales (in units) required to maintain the original budgeted profit?
A.12,000 units
B.15,000 units
C.18,000 units
D.20,000 units
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PastPaper.workedSolution
Step 1: Calculate the original budgeted profit. \(\text{Original contribution per unit} = \$50 - \$30 = \$20\). \(\text{Original profit} = (13,500 \times \$20) - \$150,000 = \$120,000\). Step 2: Calculate the new contribution per unit and new fixed costs. \(\text{New variable cost} = \$30 + \$5 = \$35\). \(\text{New contribution per unit} = \$50 - \$35 = \$15\). \(\text{New fixed costs} = \$150,000 + \$30,000 = \$180,000\). Step 3: Calculate the sales volume required to maintain the target profit of \(\$120,000\). \(\text{Required sales volume (units)} = \frac{\$120,000 + \$180,000}{\$15} = 20,000 \text{ units}\).
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Award 1 mark for the correct answer D. No partial marks are available for incorrect selections.
PastPaper.question 28 · multiple_choice
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A manufacturing business uses direct labor hours to absorb its production overheads. The following budgeted and actual figures are available for the year: Budgeted production overheads: $360,000, Budgeted direct labor hours: 45,000 hours, Actual production overheads: $385,000, Actual direct labor hours worked: 47,200 hours. What was the over- or under-absorption of production overheads for the year?
A.$7,400 over-absorbed
B.$7,400 under-absorbed
C.$25,000 over-absorbed
D.$25,000 under-absorbed
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PastPaper.workedSolution
Step 1: Calculate the predetermined overhead absorption rate (OAR). \(\text{OAR} = \frac{\$360,000}{45,000 \text{ hours}} = \$8.00 \text{ per direct labor hour}\). Step 2: Calculate the absorbed overheads based on actual hours. \(\text{Absorbed overheads} = 47,200 \text{ hours} \times \$8.00 = \$377,600\). Step 3: Compare actual and absorbed overheads. \(\text{Actual overheads} = \$385,000\). Since absorbed overheads (\(\$377,600\)) are less than actual overheads (\(\$385,000\)), the overheads are under-absorbed. \(\text{Under-absorbed amount} = \$385,000 - \$377,600 = \$7,400\).
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Award 1 mark for the correct answer B. No partial marks are available for incorrect selections.
PastPaper.question 29 · multiple_choice
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The draft profit of a sole trader for the year ended 30 June 2023 was $64,800. Subsequently, the following errors and omissions were discovered: 1. Closing inventory had been overvalued by $3,200. 2. A payment of $1,500 for insurance was recorded in the insurance account as $5,100. 3. No entry had been made for accrued telephone expenses of $450. 4. Carriage inwards of $800 had been incorrectly debited to the carriage outwards account. What is the corrected profit for the year?
A.$63,950
B.$64,750
C.$65,550
D.$71,150
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PastPaper.workedSolution
We adjust the draft profit as follows: Draft profit = \(\$64,800\). 1) Overvaluation of closing inventory overstates profit, so deduct \(\$3,200\). 2) Overstatement of insurance expense (\(\$5,100 - \$1,500 = \$3,600\)) understates profit, so add back \(\$3,600\). 3) Unrecorded accrued telephone expense of \(\$450\) understates expenses, so deduct \(\$450\). 4) Misclassifying carriage inwards as carriage outwards does not affect net profit because both are expenses deducted to find net profit (only gross profit is affected), so the net effect is \(\$0\). Corrected profit = \(\$64,800 - \$3,200 + \$3,600 - \$450 = \$64,750\).
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Award 1 mark for the correct answer B. No partial marks are available for incorrect selections.
PastPaper.question 30 · multiple_choice
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A business has the following financial information at the end of its financial year: Credit revenue: $584,000, Cost of sales: $438,000, Credit purchases: $438,000, Year-end inventory: $60,000, Trade receivables: $64,000, Trade payables: $36,000. Assume there are 365 days in a year. What is the length of the working capital cycle?
A.40 days
B.60 days
C.90 days
D.120 days
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PastPaper.workedSolution
Step 1: Calculate the inventory holding period. \(\frac{\$60,000}{\$438,000} \times 365 = 50 \text{ days}\). Step 2: Calculate the trade receivables collection period. \(\frac{\$64,000}{\$584,000} \times 365 = 40 \text{ days}\). Step 3: Calculate the trade payables payment period. \(\frac{\$36,000}{\$438,000} \times 365 = 30 \text{ days}\). Step 4: Calculate the working capital cycle. \(\text{Working capital cycle} = 50 \text{ days} + 40 \text{ days} - 30 \text{ days} = 60 \text{ days}\).
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Award 1 mark for the correct answer B. No partial marks are available for incorrect selections.
Paper 22 (Structured Questions)
Answer all questions. Present all accounting statements in good style, show your workings, and use international accounting terms.
4 PastPaper.question · 90 PastPaper.marks
PastPaper.question 1 · Structured Problem Solving & Financial Statement Drafting
22.5 PastPaper.marks
Harlen PLC has equipment. On 1 January 2022, the balance of the Equipment account was $200,000 (at cost) and the Provision for Depreciation of Equipment was $60,000.
The company's policy is as follows: 1. Depreciation is charged at 10% per annum using the straight-line method. 2. A full year's depreciation is charged in the year of purchase, and none in the year of disposal.
The following transactions took place during the year ended 31 December 2022: 1. On 30 June 2022, an item of equipment purchased on 1 January 2019 for $40,000 was sold for $25,000. 2. On 1 October 2022, a new piece of equipment was purchased for $50,000. 3. On 31 December 2022, the directors decided to revalue the remaining original equipment (excluding the new purchase) to its fair value of $115,000.
Required: (a) Calculate the profit or loss on the disposal of the equipment on 30 June 2022. (6 marks) (b) Prepare the Equipment account and the Provision for Depreciation of Equipment account for the year ended 31 December 2022. (10 marks) (c) Explain the difference between capital expenditure and revenue expenditure, providing one example of each for equipment. (4 marks) (d) State two reasons why a business depreciates non-current assets. (2.5 marks)
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(a) Calculation of Profit or Loss on Disposal: - Cost of disposed equipment: $40,000 - Date of purchase: 1 January 2019. Date of disposal: 30 June 2022. - Number of years of depreciation: 3 years (2019, 2020, 2021). No depreciation in the year of disposal (2022). - Accumulated depreciation on disposal: \( 3 \text{ years} \times 10\% \times \$40,000 = \$12,000 \) - Net Book Value (NBV) on disposal: \( \$40,000 - \$12,000 = \$28,000 \) - Disposal proceeds: $25,000 - Loss on disposal: \( \$28,000 - \$25,000 = \$3,000 \)
(b) Ledger Accounts:
Equipment Account (at cost/valuation) - Balance b/d (1 Jan 2022): Debit $200,000 - Bank - purchase (1 Oct 2022): Debit $50,000 - Disposal - cost (30 Jun 2022): Credit $40,000 - Revaluation Reserve adjustment (31 Dec 2022): Credit $45,000 - Balance c/d (31 Dec 2022): \( \$200,000 + \$50,000 - \$40,000 - \$45,000 = \$165,000 \)
*Workings for Revaluation of remaining original equipment:* - Remaining original cost: \( \$200,000 - \$40,000 = \$150,000 \) (restated to valuation of $115,000, hence credit of $45,000 to Equipment account and debit to Provision for Depreciation of $64,000 to clear depreciation on revalued asset. Net Revaluation Reserve credit is \( \$115,000 - \$96,000 \text{ NBV} = \$19,000 \)).
Provision for Depreciation of Equipment Account - Balance b/d (1 Jan 2022): Credit $60,000 - Income Statement (Depreciation charge for 2022): Credit $21,000 *(Working: 10% of remaining original cost $160,000 = $16,000; plus 10% of new equipment $50,000 = $5,000; Total = $21,000)* - Disposal (30 Jun 2022): Debit $12,000 - Revaluation (31 Dec 2022): Debit $64,000 *(To eliminate accumulated depreciation on remaining original asset: $48,000 \text{ opening} + $16,000 \text{ current year})* - Balance c/d (31 Dec 2022): $5,000 (which is the depreciation on the new asset)
(c) Capital vs Revenue Expenditure: - Capital expenditure is spending on purchasing or improving non-current assets (long-term benefits). Example: Purchasing the equipment or paying for its installation. - Revenue expenditure is spending on the day-to-day running and maintenance of non-current assets (short-term benefits). Example: Repairing or servicing the equipment.
(d) Reasons for Depreciation: 1. To apply the matching/accruals concept by spreading the cost of the asset over its useful life. 2. To present a true and fair view of the net book value of assets in the statement of financial position (avoid overstating assets).
PastPaper.markingScheme
(a) Total 6 marks: - Cost: $40,000 (1 mark) - Accumulated depreciation: $12,000 (2 marks) - NBV: $28,000 (1 mark) - Loss on disposal: $3,000 (2 marks)
(c) Total 4 marks: - Definitions: 1 mark each for capital and revenue expenditure (2 marks total) - Examples: 1 mark each (2 marks total)
(d) Total 2.5 marks: - Any 2 valid points (1.25 marks per point)
PastPaper.question 2 · Structured Problem Solving & Financial Statement Drafting
22.5 PastPaper.marks
On 30 April 2023, the Sales Ledger Control Account of Apex Traders showed a debit balance of $38,450. The total of the schedule of trade receivables (subsidiary ledger balances) was $40,050 on the same date.
The following errors and omissions were later discovered: 1. The Sales Journal had been undercast by $1,200. 2. A credit customer, J. Smith, had returned goods with a list price of $800. He was allowed a 10% trade discount. No entry had been made in the books of Apex Traders. 3. A debt of $450 outstanding from A. Brown is to be written off as irrecoverable. This has not yet been recorded. 4. A contra entry of $600 with the Purchase Ledger Control Account was recorded correctly in the subsidiary ledgers but had been omitted from both control accounts. 5. A debit balance of $350 in the account of K. Patel had been completely omitted from the schedule of trade receivables. 6. A receipt of $1,500 from T. Wong had been correctly entered in the Cash Book but was posted to T. Wong's account in the Sales Ledger as $150. 7. Credit sales of $920 to L. Green had been posted to the debit of L. Grey's account in the Sales Ledger.
Required: (a) Prepare the corrected Sales Ledger Control Account for the month of April 2023, showing the corrected balance carried down. (9 marks) (b) Prepare a statement reconciling the total of the schedule of trade receivables with the corrected Sales Ledger Control Account balance. (8 marks) (c) Explain two advantages of maintaining a Sales Ledger Control Account. (4 marks) (d) State why a contra entry occurs between the Sales Ledger and the Purchase Ledger. (1.5 marks)
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(a) Apex Traders - Corrected Sales Ledger Control Account
(b) Statement Reconciling the Schedule of Trade Receivables with the SLCA:
- Original Schedule Total: $40,050 - Less: Sales Returns (J. Smith): \(\$720\) - Less: Irrecoverable debts written off (A. Brown): \(\$450\) - Add: Omitted customer balance (K. Patel): $350 - Less: T. Wong receipt under-posted \( (\$1,500 - \$150) \): \(\$1,350\) - Reconciled Schedule Total: $37,880
*Note: Item 7 (L. Green posted to L. Grey) does not change the total of the schedule of trade receivables.*
(c) Advantages of maintaining a Sales Ledger Control Account: 1. Helps to locate and prevent errors in the individual customer accounts. 2. Provides a quick check on the accuracy of the trade receivables balance for financial statements without adding up all individual accounts. 3. Acts as an internal control mechanism to deter fraud by segregating duties.
(d) A contra entry occurs when a business sells goods to and purchases goods from the same individual or firm (acting as both a customer and supplier). The mutual debts are set off against each other to simplify payment.
PastPaper.markingScheme
(a) Total 9 marks: - Opening balance: 1 mark - Sales journal undercast (debit): 2 marks - Sales returns (credit): 2 marks - Irrecoverable debts (credit): 1 mark - Contra (credit): 2 marks - Corrected balance c/d: 1 mark
(b) Total 8 marks: - Starting schedule total: 1 mark - Sales returns deduction: 2 marks - Irrecoverable debts deduction: 1 mark - Patel addition: 2 marks - Wong correction deduction: 2 marks
(c) Total 4 marks: - Any 2 points explained: 2 marks each
(d) Total 1.5 marks: - Clear explanation of mutual debtor/creditor offset: 1.5 marks
PastPaper.question 3 · Structured Problem Solving & Financial Statement Drafting
22.5 PastPaper.marks
Maya, a sole trader, prepared draft financial statements for the year ended 31 December 2022 which showed a draft profit for the year of $42,800. The draft statement of financial position did not balance, and the difference had been entered into a Suspense Account.
The following errors were subsequently discovered: 1. Credit purchases of equipment costing $6,000 had been recorded in the Purchases Journal. Depreciation of equipment is charged at 20% per annum on cost for a full year. 2. A payment of $1,400 to a supplier, G. Graham, was recorded correctly in the cash book but had been debited to F. Graham's account in the purchase ledger. 3. Rental income of $800 received in advance was recorded as rent received in the Statement of Profit or Loss. 4. Capital introduced by Maya of $10,000 had been correctly recorded in the Cash Book but credited to the Sales account. 5. The Sales Returns Day Book had been undercast by $350. 6. A credit customer's balance of $1,250 had been written off as an irrecoverable debt. This was recorded correctly in the customer's personal account, but no entry had been made in the Irrecoverable Debts account.
Required: (a) Prepare a Statement of Corrected Profit for the year ended 31 December 2022, starting with the draft profit of $42,800. (10 marks) (b) Prepare Journal Entries to correct errors 1, 4, and 6. Narratives are required. (6.5 marks) (c) State the opening balance of the Suspense Account and indicate whether it was a debit or credit balance. (6 marks)
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(a) Maya - Statement of Corrected Profit for the year ended 31 December 2022
- Draft profit for the year: $42,800 - Error 1: Remove equipment cost from purchases: +$6,000 - Error 1: Charge depreciation on equipment \( (20\% \times \$6,000) \): -$1,200 - Error 3: Deduct rent received in advance: -$800 - Error 4: Remove capital introduced from sales: -$10,000 - Error 5: Correct undercast of sales returns: -$350 - Error 6: Charge omitted irrecoverable debt: -$1,250 - Corrected Profit for the year: \( \$42,800 + \$6,000 - \$1,200 - \$800 - \$10,000 - \$350 - \$1,250 = \$35,200 \)
(b) Journal Entries:
1. Equipment Account: Debit $6,000 Purchases Account: Credit $6,000 *(Correction of equipment purchases wrongly entered in purchases journal)*
Depreciation Account: Debit $1,200 Provision for Depreciation: Credit $1,200 *(Recording of 20% depreciation on newly acquired equipment)*
4. Sales Account: Debit $10,000 Capital Account: Credit $10,000 *(Correction of capital introduction wrongly credited to sales)*
6. Irrecoverable Debts Account: Debit $1,250 Suspense Account: Credit $1,250 *(Recording of written-off debt omitted from the expense account)*
(c) Determination of Suspense Account Balance: Let's trace all entries affecting the suspense account: - Error 5: Sales Returns (Debit) was undercast by $350. To correct, we Debit Sales Returns $350 and Credit Suspense $350. - Error 6: Irrecoverable Debts (Debit) was omitted. To correct, we Debit Irrecoverable Debts $1,250 and Credit Suspense $1,250.
Total credits to the Suspense Account to close it = \( \$350 + \$1,250 = \$1,600 \). Therefore, the opening balance of the Suspense Account must have been a **Debit balance of $1,600**.
PastPaper.markingScheme
(a) Total 10 marks: - Draft profit: 1 mark - Error 1 (purchases): 2 marks - Error 1 (depreciation): 2 marks - Error 3 (rent): 1 mark - Error 4 (sales/capital): 2 marks - Error 5 (returns): 1 mark - Error 6 (bad debt): 1 mark
(b) Total 6.5 marks: - Error 1 Journal & Narrative: 2.5 marks - Error 4 Journal & Narrative: 2 marks - Error 6 Journal & Narrative: 2 marks
(c) Total 6 marks: - Identifying Error 5 affects suspense: 1.5 marks - Identifying Error 6 affects suspense: 1.5 marks - Correctly calculating $1,600: 1.5 marks - Correctly identifying Debit balance: 1.5 marks
PastPaper.question 4 · Structured Problem Solving & Financial Statement Drafting
22.5 PastPaper.marks
Vance Ltd manufactures three products: X, Y, and Z. The company's budget for the upcoming period is as follows:
- Selling price per unit: X = $80, Y = $120, Z = $140 - Direct materials ($8 per kg): X = $24 (3 kg), Y = $40 (5 kg), Z = $48 (6 kg) - Direct labour ($12 per hour): X = $24 (2 hours), Y = $36 (3 hours), Z = $40 (3.33 hours) - Variable overheads: X = $8, Y = $12, Z = $16 - Maximum demand (units): X = 1,200, Y = 1,000, Z = 800 - Fixed overheads for the period are $45,000.
Due to a strike at the main supplier's warehouse, the maximum supply of direct materials available for the period is restricted to 9,200 kg.
Required: (a) Calculate the contribution per unit and contribution per kg of materials for each product. (4.5 marks) (b) Determine the optimal production plan to maximize profit for the period, and calculate the maximum profit Vance Ltd can achieve. (11 marks) (c) An overseas customer offers to buy 200 units of Product X at $65 per unit. This order would be in addition to the normal demand and would require 3 kg of direct materials and 2 hours of direct labour per unit. However, the direct materials for this order must come from the restricted 9,200 kg limit. Determine, with supporting calculations, whether Vance Ltd should accept this special order. (7 marks)
- Special order contribution per unit of X: \( \$65 \text{ (selling price)} - \$56 \text{ (variable cost)} = \$9 \text{ per unit} \). - Total contribution from special order: \( 200 \text{ units} \times \$9 = \$1,800 \). - Materials needed for special order: \( 200 \text{ units} \times 3 \text{ kg} = 600 \text{ kg} \). - Since materials are restricted, this 600 kg must be redirected from Product Z (the lowest ranked product). - Contribution lost from Product Z: \( 600 \text{ kg} \times \$6.00 \text{ contribution per kg} = \$3,600 \) (which is equivalent to losing the entire 100 units of Z's production). - Net financial effect: \( \$1,800 \text{ (gained)} - \$3,600 \text{ (lost)} = -\$1,800 \).
Conclusion: Vance Ltd should **reject** the special order because it results in a net profit reduction of $1,800.
PastPaper.markingScheme
(a) Total 4.5 marks: - Contribution per unit for X, Y, Z: 0.75 marks each (2.25 marks total) - Contribution per kg for X, Y, Z: 0.75 marks each (2.25 marks total)
(b) Total 11 marks: - Ranking of products: 2 marks - Allocation of materials: 3 marks - Calculation of units of Z (100 units): 2 marks - Total Contribution calculation: 2 marks - Net Profit calculation: 2 marks
(c) Total 7 marks: - Contribution from special order ($1,800): 2 marks - Opportunity cost of material from Z ($3,600): 2 marks - Net effect calculation (-$1,800): 2 marks - Clear decision to reject: 1 mark