JUNE 2005 - EXAMINERS' REPORT

The examination consisted of Section A and Section B. Section A consisted of two compulsory questions for 40 and 20 marks respectively. Section B consisted of three optional questions for 20 marks each from which candidates were required to answer two questions. It was pleasing to see a large number of candidates providing good answers to every question they attempted and consequently achieving high marks. Sadly, the examination revealed a number of candidates who were inadequately prepared. Nevertheless, it was pleasing to observe that far fewer candidates scored very low marks than in recent diets and, in general, the overall performance of candidates was much better. However, it was sad that many candidates who clearly had good knowledge of the relevant syllabus areas, were unable to achieve a pass because of poor examination technique, especially poor presentation and time management. Well-prepared candidates invariably provided concise workings which arrived at the correct solutions to the computational parts of the examination paper. However, a large number of candidates produced workings which were difficult to follow and a significant number displayed their answers poorly. Therefore it is vital that candidates give more thought to the layout and organisation of their answers. Valuable time was wasted in the production of pages of workings to arrive at incorrect solutions to relatively straightforward calculations, such as those contained in parts (a) and (b) of Question 1. A number of candidates ignored the advice given in previous reports that each question should start on a new page in the answer booklet(s) and that there should be clear labelling to indicate which questions are being attempted. Most candidates attempted all four questions although there was some evidence of poor time management, particularly in Question 1. Indeed, the number of candidates who left Question 1 until last was surprising. The poor performance of many candidates was once again exacerbated by a clear failure to carefully read the content and requirements of questions. This contributed to poor performance in the computational and discursive parts of each question.
Question 1

This 40-mark question tested candidates' ability to cope with various aspects of budget preparation and performance evaluation within a service environment. A large number of candidates achieved maximum marks in part (a) of the question. However, by way of contrast, a large number of candidates clearly failed to read the question in a careful enough manner and, consequently, arrived at incorrect profit or loss figures. There was a significant variation in the quality of candidates' answers to part (b). Some candidates produced answers which were mainly numeric with little or no meaningful commentary, while others provided some very generalised commentaries with few supporting calculations. A common mistake was to use the target delivery performance percentages, given in the question, as a basis for comments, without realising that the actual percentages could be calculated. Answers to part (c) were generally good. In their answers to part (d), many candidates wrote extensively about TQM in very general terms, often in relation to a manufacturing environment thereby not only totally ignoring the scenario contained within the question but also not addressing the specific requirement of part (d). Other candidates reproduced a list of poor service elements raised in part (b) which could be addressed by a TQM programme, without describing how they would be addressed.
Question 2

This question focused on a core management accounting topic and was the least well-answered. Sadly, the performance of a very large number of candidates was extremely disappointing. Most candidates were able to identify and analyse the problem with the management incentive plan. However, very few candidates were able to calculate the correct ROI. Common errors were the failure to treat depreciation correctly in arriving at profit, and ignoring the instruction to use

average capital employed. A number of candidates made fundamental technical errors, such as using NPV as the return as opposed to profit. Very few candidates were able to provide a satisfactory answer to part (b). Candidates described the calculation of residual income but were unable to explain how its adoption might overcome the problems of under-investment etc. Descriptions of annuity depreciation were usually technically incorrect, failing to explain how the use of the technique could overcome the distortion caused by the use of 'traditional' depreciation methods. Part (c) was generally answered much better than the previous parts, although technical weakness was shown by candidates who evaluated the projects on simple cash flows, ignoring discounting altogether. Candidates provided good answers to the non-financial aspects, although it was noticeable that they focused more on the business case (reduced reputational risk etc) than the moral case (it is their pollution, they should clear it up).
Question 3

Many candidates easily produced an answer to part (a) which achieved maximum marks. Clearly they had read and learned from the examiner's article published in the March 2005 issue of student accountant. A large number of candidates listed five inherent weaknesses of the annual budget model but did not provide the relevant comments that were required in order to achieve extra marks. Other candidates produced weaker answers, often describing the weakness of incremental budgeting and thereby ignoring the instruction to disregard the particular budget approach that is applied. The vast majority of candidates found part (b) far more challenging and consequently there were few really good answers. Weaker candidates did no more than describe, sometimes at great length, the three models. Most candidates could only identify fairly basic 'barriers' such as the internal and financial focuses of traditional budgeting processes.
Question 4

In their answers to part (a), a large number of candidates were able to gain most, if not all, of the marks available for the calculation of net profit. An equally large number of candidates made no attempt whatsoever to calculate the percentage of maximum capacity that had to be used in order to break even, and which was worth five marks. Most candidates who did attempt the calculation were unable to do it correctly, often providing very detailed but meaningless calculations. The reason for this appears to have been an inability to apply a very simple technique to a slightly complicated scenario. It was pleasing to see so many good answers to part (b). A large number of candidates demonstrated knowledge of the four 'factors' and most made some attempt to relate them to the dental practice. However, it is clear that a significant number of candidates had clearly not studied this topic. In their answers to part (c), a surprisingly large number of candidates offered 'number of complaints' as a measure, despite being told to exclude this from their answer. Other problems arising from a failure to read the requirement were a tendency to identify qualitative as opposed to quantitative performance measures (eg friendliness of staff), and to identify measures of other aspects of the business such as resource utilisation rather than service quality.
Question 5

Most candidates were able to score at least some marks with relevant comments concerning financial analysis, but few made enough use of the information given in order to achieve high marks. In particular, a large number of candidates provided no commentary whatsoever regarding customer and/or product changes. Further evidence of failure to read the question closely was the widespread misinterpretation of the information given regarding the number of new products introduced. This was interpreted as the number of products sold by many candidates - who then deduced that one new product had been introduced during the year. Very few candidates were unable to calculate ROCE correctly for 2005, treating the loan interest and/or loan finance incorrectly.

Many candidates' answers to part (b) offered a wide range of possible techniques which could be used for internal development (TQM, BPR etc) without satisfying the requirement to explain the major benefits. While there were many good answers to part (c), many candidates provided a description of activity-based techniques in general terms and did not focus on the potential benefits to Taliesin Ltd.