Mark Scheme

September 2020
Final

Pearson LCCI Certificate in Cost and

Management Accounting Level 3
(ASE20098)
LCCI Qualifications

LCCI qualifications come from Pearson, the world’s leading learning company. We
provide a wide range of qualifications including academic, vocational, occupational
and specific programmes for employers. For further information, please visit our
website at www.lcci.org.uk.

Pearson: helping people progress, everywhere

Our aim is to help everyone progress in their lives through education. We believe
in every kind of learning, for all kinds of people, wherever they are in the world.
We’ve been involved in education for over 150 years, and by working across 70
countries, in 100 languages, we have built an international reputation for our
commitment to high standards and raising achievement through innovation in
education. Find out more about how we can help you and your students at:
www.pearson.com/uk

All the material in this publication is copyright

© Pearson Education Ltd 2020
Question Answer (AO2 2) Mark
1(a) $
Materials 13 800 x 0.35 x 11.75 = 56 752.50 ) (1) for
Labour 13 800 x 0.16 x 12.50 = 27 600.00 ) both
Overheads (given) 57 800.00
Standard Cost 142 152.50 (1) (2)

Question Answer (AO2 3) Mark

1(b)(i)
Material usage: (4 830 OF – 4 710) x 11.75 (1OF) = $1 410 Fav (1OF)
Standard quantity = 13 800 x 0.35 = 4 830 kg (1)
The variance must be correctly identified as favourable to get the final mark. (3)

(4 830 x 11.75) 56 752.50 (1OF) less (4 710 x 11.75) 55 342.50 (1) = 1 410 Fav (1OF)

Question Answer (AO2 2) Mark

1(b)(ii)
Material price: (11.75 – 12.20) x 4 710 (1) = $2 119.50 Adv (1OF)
Actual price = 57 462 / 4 710 = $12.20
The variance must be correctly identified as adverse to get the final mark.
(2)
(4 710 x 11.75) 55 342.50 OF less 57 462 (1) = 2 119.50 Adv (1OF)

Question Answer (AO2 3) Mark

1(b)(iii)
Labour efficiency: (2 208 – 2 330) x 12.50 (1OF) = $1 525 Adv (1OF)
Standard quantity = 13 800 x 0.16 = 2 208 hours (1)
Standard rate = 24 000 / 1 920 = $12.50
(3)
The variance must be correctly identified as adverse to get the final mark.

(2 208 x 12.50) 27 600 (1OF) less (2 330 x 12.50) 29 125 (1) = 1 525 Adv (1OF)

Question Answer (AO2 2) Mark

1(b)(iv)
Labour rate: (12.50 – 14.00) x 2 330 (1) = $3 495 Adv (1OF)
32 620 Actual rate = 32 620 / 2 330 = $14.00
given
The variance must be correctly identified as adverse to get the final mark.

(2 330 x 12.50) 29 125 OF less 32 620 (1) = 3 495 adverse (1OF) (2)

Question Answer (AO2) 1 Mark

1(b)(v)
Overhead Expenditure: 57 800 – 61 975 = $4 175 Adv (1) (1)
Question Answer (AO2 4) Mark
1(c)
$ $ $

Standard cost for actual production 142 152.50 OF (1a)

Variances Fav Adv

Direct materials usage 1 410 )(1of)

Direct materials price 2 119.50 ) both

Direct labour efficiency 1 525 )(1of)

) for
Direct labour rate 3 495
) all 3
Fixed overhead
4 175
expenditure

Total variance 1 410 11 314.50 9 904.50* (1of)

(4)
Actual cost of actual production 152 057 (1of)

• Adverse will be added – OF favourable will be deducted

Question Answer (AO1) 1 Mark

1(d)(i)
Answers for a favourable material usage variance may include:

Good quality materials leading to less wastage / production problems (1)

Highly skilled workers made fewer mistakes and reduced wastage (1)
Inappropriate standard setting before production began * (1) (1)
(*Accept this answer only once)
Maximum of 1 mark – accept OF comments
Accept only the first answer given

Question Answer (AO1) 1 Mark

1(d)(ii)
Answers for an adverse labour rate variance may include:

Workers may have been of a higher quality / skill level – these get paid more
than the usual workers (1).
Unexpected pay-rise between budget-setting and the work being done (1). (1)
There may have been unexpected overtime being paid (1).
Maximum of 1 mark – accept OF comments
Accept only the first answer given

Question Answer (AO1) 1 Mark

1(d)(iii)
Answers for an adverse fixed overhead expenditure variance may include:

There may have been increases in some overheads between budget-

setting and the work being done (1).
There may have been unexpected expenses eg repairs to machinery (1).
There may have been poor control of costs (1).
Output has increased - overheads are not entirely fixed eg stepped costs (1). (1)
Maximum of 1 mark – accept OF comments
Accept only the first answer given

(Total for Question 1 = 20 Marks)

Question Answer (AO2 1) Mark
2(a)(i)
Reorder level = 8 x 75 = 600 kg (1) (1)

Question Answer (AO2 2) Mark

2(a)(ii)
Minimum level = 600 OF (ai) – (6 x 45) 270 (1OF) = 330 kg (1OF) (2)

Question Answer (AO2 1) Mark

2(a)(iii)
Maximum level = 51 200 / 12.80 = 4 000 kg (1) (1)

Alternative answer 600 (OF) – (25 x 4) 100 = 500 + 3 670 = 4 170 (1OF)

Question Answer (AO2 2) Mark

2(a)(iv)
Average Inventory (kg) = 330 (OF) (aii) + (3 670 / 2) (1OF) = 2 165 kg (1OF) (2)

Question Answer (AO2 1) Mark

2(a)(v)
Average Inventory ($) = 2 165 kg OF (aiv) x $12.80 per kg = $27 712 (1OF) (1)

Question Answer (AO1 1) (AO3 1) Mark

2(b)
Award 1 AO1 mark for basic point and 1 AO3 mark for development.
Answers may include:
EOQ is the most efficient / cost effective amount of inventory to order (1) and
achieves this by minimizing the combined ordering and holding costs (1).

The EOQ is the quantity that minimises the cost of managing inventory (1) by
identifying the most efficient order size taking into account the ordering and
holding costs (1). (2)

ONE required - maximum of 2 marks

Question Answer (AO1 1) (AO2 3) Mark

2(c)
EOQ = √ 2 c d (1)
h
= √ 2 x 300 x 2 160 (1) = 1 200 kg (1of)
0.90 (1) (4)

Question Answer (AO1 2) Mark

2(d)
• Warehouse / stockroom costs – rental
• Warehouse / stockroom costs - heat and light (1)
• Warehouse / stock keepers wages (1)
• Security equipment (1)
• Security staff (1)
• Insurance (1)
• Wastage / deterioration of inventory (1)
• Theft (1)
• Money tied up in inventory / opportunity cost / interest paid (1)
(2)
Maximum of 2 marks
Question Answer (AO1 2) (AO3 2) Mark
2(e) Award 1 AO1 mark for basic point and 1 AO3 point for development.

Answers might include:

• Business will hold sufficient inventory (1) – thus avoiding any

problems of lost production/sales/customers (1).

• Business more likely to hold the right type of inventory (1) – this
might mean that the business maximises sales / reduces the likelihood
of having to dispose of obsolete inventory (1).

• The business won’t hold too much inventory (1) – meaning that
holding costs are reduced / less money is tied up / less wastage (1)

• Employees might realise that as the business knows how much

inventory is being held (1) – they are discouraged from stealing it (1).

• The stockroom will be tidy and organised (1) – which will mean that
less time will be wasted trying to find inventory and there will be a (4)
reduced likelihood of a breach of health and safety regulation (people
won’t fall over it or have it drop on them) (1).

Maximum of 4 marks

(Total for Question 2 = 19 marks)

Question Answer (AO2 2) Mark
3(a)(i)
Variable costs = $727 000 - $517 000 (1) = $210 000 = $8.40 / unit (1)
40 000 – 15 000 units 25 000 (2)

Question Answer (AO2 1) Mark

3(a)(ii)
Fixed costs: 727 000 – (40 000 x 8.40) = $391 000 (1of)
Or 517 000 – (15 000 x 8.40) = $391 000
(1)
Question Answer (AO2 3) Mark
3(b)
Selling price = 313 500 or 836 000 = $20.90 (1)
15 000 40 000

Contribution = 20.90 OF – 8.40 OF = $12.50 (1of)

Break-even = 391 000 OF = 31 280 units (1of) (3)

12.50 OF

Question Answer (AO2 1) Mark

3(c)(i)
Margin of safety (units) = 40 000 – 31 280 OF = 8 720 units (1of)
(1)

Question Answer (AO2 2) Mark

3(c)(ii)
Margin of safety (%) = 8 720 (1of) x 100 = 21.80% (1of)
40 000
(2)
Question Answer (AO2 2) Mark
3(d) [OF 3aii]
Target Output = 391 000 + 100 000 (1of) = 39 280 units (1of)
12.50 OF [OF 3b] (2)

Question Answer (AO2 6) Mark

3(e) Marks should be awarded for the following features on the chart:
Own figure rule applies for Arr.

• Horizontal axis correctly labelled and numbered – units in 000s (1)

• Vertical axis correctly labelled – profit and loss areas and numbered (1)
• Arr line drawn accurately – showing loss at 0 units of $391 000 and profit
at 40 000 units of $109 000 (1)
• Ess line drawn accurately – showing loss at 0 units of $259 000 and profit
at 40 000 units of $91 000 (1)
• Break-even point for Arr identified at 31 280 units (1)
(6)
• Break-even point for Ess identified at 29 600 units (1)
Question Answer (AO4 4) (AO5 2) Mark
3(f) Answers may include:
Own figure rule applies for both Arr and Ess

In favour of Arr:
• Arr can provide Mormont with $109 000 profit – more than the
$100 000 required (1) - whereas Ess only provides a maximum profit of
$91 000 LESS than what is required (1)
• Arr provides a higher contribution per unit ($12.50 vs $8.75) (1) – this
means that if demand exceeds 40 000 units, then Arr’s potential profit is
much higher (1)
• Arr will provide more profit if sales exceed 35 200 units per month (1*)
• Arr needs to sell 39 280 units to achieve the target profit of
$100 000 – Err would need to sell 41 029 units (1)

In favour of Ess:
• Ess has a lower break-even point (29 600 units) higher margin of safety
(10 400 units or 26.00%) (1) – which means that if sales are less than
expected, Mormont is less likely to make a loss (1)
• Ess will produce more profit if sales are less than 35 200 per month (1*)
• Fixed costs of $259 000 for Ess are lower that the fixed costs of
$391 000 for ARR (1)

Four marks maximum at this point

(6)
Conclusion: Mormont should continue to produce the Arr (1) – as it is the only
product that can provide the required profit of $100 000 (1)

There can only be an argument in favour of the Ess if the candidate has
an OF profit that is larger than $100 000

Two marks maximum for evaluation

(Total for Question 3 = 23 marks)

Question Answer (AO2 6) Mark
4(a)
Wye Production Budget
October November December
(units) (units) (units)
Sales 5 700 6 080 6 384 (1)
+ Closing Inventory 1 520 1 596 1 197 (1)

7 220 7 676 7 581

- Opening Inventory (1 425) (1 520) (1 596) (1)

= Good Output 5 795 6 156 5 985 (1 of)

Defective Units 305 324 315 (1 of)

Units undertaken * 6 100 6 480 6 300 (1 of)

(6)
Defective units (1of) must not be 5% of the good output.
5 795 / 95% x 100% = 6 100

Award full marks if the correct answer is obtained

Question Answer (AO2 6) Mark

4(b)
Purchases of Material Budget
October November December
kg kg kg
Production 20 740 22 032 21 420 (1of)
+ Wastage 3 660 3 888 3 780 (1of)

= Material required 24 400 25 920 25 200 (1of)

+ Closing Inventory 22 000 19 000 16 000 (1)

46 400 44 920 41 200

- Opening Inventory (25 000) (22 000) (19 000) (1)

Purchases (kg) * 21 400 22 920 22 200 (1 of)

October: 6 100 x 3.40 = 20 740 6 100 x 4.00 = 24 400

November: 6 480 x 3.40 = 22 032 6 480 x 4.00 = 25 920
December: 6 300 x 3.40 = 21 420 6 300 x 4.00 = 25 200
(6)
20 40 / 85% x 100% = 24 400

• Award full marks if the correct answer is obtained

Question Answer (AO2 2) Mark

4(c)
July: 72 000 units required 5 machines or
August: 94 000 units required 7 machines (1)

Cost per machine = 61 500 or 86 100 = $12 300 per machine (1) (2)
5 7

Question Answer (AO2 2) Mark

4(d)
Revised cost per machine = $12 300 x 105% = $12 915 (1) OF

Machine hire costs = 8 x $12 915 = $103 320 (1) OF (2)

(Total for Question 4 = 16 marks)

Question Answer (AO1 1) (AO2 9) Mark
5(a)
Overhead Distribution Table
(1) Departments
Expense Total Basis Manuf’g Packing Stores Admin
R&R 11 200 Area 4 200 2 240 3 920 840 (1)
Mach Dep’n 9 000 M Value 6 210 1 260 1 530 - (1)
St Salary 4 300 Direct - - 4 300 - ) (1)
Ad Salary 6 500 Direct - - - 6 500 ) for both
HL&P 3 600 Usage 1 800 900 540 360 (1)
Oth Ohds 13 400 Direct 5 690 3 330 2 510 1 870 (1)
48 000 [2] 17 900 7 730 12 800 9 570 (1 of)
Admin Overheads 2:1 6 380 3 190 - (9 570) (1 of)
Stores Overheads Requis’ns 5 120 7 680 (12 800) - (1 of)
Revised Total [1] 29 400 18 600 0 0 (1 of)
(10)
[1] Basis Mark – award (1) if ALL appropriate bases are shown (8)
[2] Totals – award (1 of) if all 6 expenses are attempted
[3] Only award marks for the overhead rows if they are complete

Question Answer (AO2 1) Mark

5(b)(i)
Manufacturing OAR = $29 400 OF / 1 200 MH = $24.50 / MH (1of)
(1)

Question Answer (AO2 1) Mark

5(b)(ii)
Packing OAR = $18 600 OF / 2 000 DLH = $9.30 / DLH (1of)
(1)

Question Answer (AO2 2) Mark

5(c)(i)
$
Overheads Absorbed 1 240 x 24.50 OF * = 30 380 (1of)
Overheads Incurred 33 100
Under-Absorption 2 720 (1of)

The over/under must be appropriate to be awarded the second mark. (2)

*Clear workings must be shown for an OF

Question Answer (AO2 2) Mark

5(c)(ii)
$
Overheads Absorbed 2 120 x 9.30 OF * = 19 716 (1of)
Overheads Incurred 18 970
Over-Absorption 746 (1of)
(2)
The over/under must be appropriate to be awarded the second mark.

*Clear workings must be shown for an OF

Question Answer (AO4 4) (AO5 2) Mark

5(d) Answers may include:

Positives:
• Each overhead is apportioned using and appropriate characteristic/basis (1) – this
ensures that each cost centre is given a fair share of that overhead (1).
• Where possible, an overhead is allocated directly to the relevant cost centre (1) –
this ensures that cost centres are only charged for costs that they cause (1).
• The choice of method is suitable as it represents the nature of the activities going on
in the two departments (1) – Manufacturing is machine/capital-intensive (1 200
machine hours) whereas Packing is more labour intensive (2 000 labour hours
compared to only 350 machine hours) / Manufacturing has a high value of machinery
compared to Packing ($345 000 to only $70 000) (1).
• In both departments, more hours were worked than expected (1) – this means that
both departments absorbed more than their budgeted costs (1).

Negatives:
• The costs in both departments were greater than expected (1) – so despite the
working of extra hours, there was an overall under-absorption of $1 974 (1).
• The under-absorption of overheads meant that not all overhead costs were passed
onto the customer (1) – which, if a regular occurrence, represents a major failing in
the main objective of any method used to absorb overheads (1).
• The under-absorption of overheads means that the cost per unit was higher than
expected / too low a price was charged for the product (1) – this means that another
main objective of accounting for overheads (price-setting) was not successfully met
(1).

Alternative argument:
It is difficult to evaluate a method based on one month’s data (1) – other months might
see an over-absorption / costs and output may be difficult to forecast accurately (1).

Conclusion: The method used to absorb overheads is ineffective (1) because not all of
the overheads have been absorbed (1).
(6)
The conclusion should reflect at least one of the points made by the candidate.

(Total for Question 5 = 22 Marks)

(Total for Paper = 100 marks)