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A-level
ACCOUNTING
Paper 2 Accounting for analysis and decision-making

Time allowed: 3 hours

Materials
For Examiner’s Use
For this paper you must have:
• a calculator. Question Mark

A
Instructions
• Use black ink or black ball-point pen. B
• Fill in the boxes at the top of this page. C
• Answer all questions. TOTAL
• You must answer the questions in the spaces provided. Do not write
outside the box around each page or on blank pages.
• If you need extra space for your answer(s), use the lined pages at
the end of this book. Write the question number against your answer(s).
• Do all rough work in this answer book. Cross through any work you
do not want to be marked.

Information
• The marks for each question are shown in brackets.
• The maximum mark for this paper is 120.

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Section A box

Answer all questions in this section.

Only one answer per question is allowed.

For each answer completely fill in the circle alongside the appropriate answer.

CORRECT METHOD WRONG METHODS

If you want to change your answer you must cross out your original answer as shown.

If you wish to return to an answer previously crossed out, ring the answer you now wish to
select as shown.

0 1 A manufacturer employs one factory supervisor for every five factory workers.

Which best describes the cost of the factory supervisors’ salaries?

[1 mark]

A Direct and stepped fixed

B Direct and variable

C Indirect and stepped fixed

D Indirect and variable

0 2 Which is the correct formula to calculate the current ratio?

[1 mark]

Current assets
A
Current liabilities

Current assets – inventory

B
Current liabilities

Current assets
C × 365
Current liabilities

Current assets – inventory

D × 365
Current liabilities

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0 3 Which of the following is an advantage of zero-based budgeting? box

[1 mark]

A Budgets are quick to prepare

B It encourages managers to work together

C Inexpensive to operate

D Minimal planning required

0 4 A manufacturer requires 9 000 labour hours and 3 000 kg of material to produce

450 units of product L and 300 units of product M. It expects to have 7 500 labour
hours and 3 500 kg of material available.

Which product should it produce first?

[1 mark]

A The product with the highest contribution per kg of material.

B The product with the highest contribution per labour hour.

C The product with the highest contribution per unit.

D The product with the highest profit per unit.

0 5 The following information is available for the sale of product D for April 2021.

Budgeted sales 3 100 units

Actual sales 2 950 units
Budgeted sales revenue £20 460
Actual sales revenue £19 765

What is the sales volume variance?

[1 mark]

A £695 Adverse

B £695 Favourable

C £990 Adverse

D £990 Favourable

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0 6 Which is the correct formula to calculate the rate of inventory turnover in days? box

[1 mark]

Average inventory
A × 365
Cost of sales

Average inventory
B × 365
Revenue

Cost of sales
C × 365
Average inventory

Revenue
D × 365
Average inventory

0 7 The following information is available for product K for May 2021.

Standard material usage per unit 1.5 kg

Standard material cost per kg £9.00
Actual production 4 500 units
Material usage variance £900 adverse

How many kg of material were used in May 2021?

[1 mark]

A 6 650

B 6 750

C 6 850

D 7 650

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0 8 The gross profit margin percentage of a business has decreased. box

Which of the following could have caused this change?

[1 mark]

A Decrease in carriage inwards

B Increase in carriage inwards

C Decrease in carriage outwards

D Increase in carriage outwards

0 9 Which is never a responsibility of a management accountant within a business?

[1 mark]

A External audit

B Internal audit

C Monitor budgets

D Prepare budgets

1 0 Which of the following is not true for a public limited company?

[1 mark]

A It can offer shares to the general public.

B It is a separate legal entity.

C It needs a minimum allotted share capital of £50 000.

D It needs a minimum of one director.

Turn over for the next question

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1 1 Describe one disadvantage of a standard costing system. box

[3 marks]

1 2 Bee Ltd started in business on 1 January 2021 and provided the following
information for January 2021 and February 2021:

Actual January February

Sales (units) 4 500 4 900

Sales (£) 85 500 93 100

Production (units) 5 100 4 800

Selling price per unit £19

Direct cost per unit £6

Budgeted fixed production overheads of £22 000 per month are absorbed on the
basis of budgeted output of 5 000 units per month.

1 2 . 1 Calculate the total production cost per unit using absorption costing.
[1 mark]

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1 2 . 2 Prepare an income statement using absorption costing for the month of box

February 2021. Clearly identify any under or over absorption of fixed

production overheads.
[6 marks]
Income statement for February 2021

£ £

Workings

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1 3 The following information is available for F Ltd, a manufacturing company. box

Quarter 1 Quarter 2

Production (units) 1 750 2 300

Each unit takes 2.5 labour hours to produce.

Nine staff are employed who are each paid:

• a guaranteed wage of £480 per week for a basic 40 hours
• overtime at a premium of 25% per hour.

Each quarter consists of 13 weeks.

1 3 . 1 Prepare the labour budget showing the hours required and cost for both quarters
1 and 2.
[7 marks]

Labour Budget for F Ltd

Quarter 1 Quarter 2

Workings

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1 3 . 2 Explain, using an example, one benefit of preparing a labour budget. box

[3 marks]

Extra space

30

Turn over for Section B

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Answer all questions in this section.

1 4 Karim, a sole trader, owns a wholesale business for baking equipment.

The finance officer has prepared a draft income statement for the year ended
30 June 2021 and statement of financial position at that date. The draft profit for
the year has been calculated as £58 320 and the closing bank balance is
£14 784 overdrawn.

The following transactions have not been accounted for in the draft
financial statements.

1. Trade payables of £720 were paid after having taken a cash discount of 4%.

2. Insurance of £2 325 was paid for the six months ending 31 October 2021.

3. Karim took goods for his own use totalling £470.

4. On 1 May 2021, a van costing £20 640 was purchased. The purchase was
financed by a four-year interest-free loan. The monthly repayments started
on 1 June 2021. Motor vehicles are depreciated at 30% using the straight-line
method on a month by month basis.

5. There were credit sales of £1 720. Trade receivables of £3 910 were received
into the bank account. This included a cheque from a customer that has been
declined of £135. Karim has decided to treat this as an irrecoverable debt.

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1 4 . 1 Calculate the revised profit for the year ending 30 June 2021 and the bank balance to box

be included in the statement of financial position as at that date.

[14 marks]

Profit for the year Bank

£ £

Draft figures 58 320 (14 784)

Note 1

Note 2

Note 3

Note 4

Note 5

Revised figures

Workings

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The finance officer discussed with Karim the difference between profitability and
liquidity as Karim wants to take 25% of the profits as cash drawings.

1 4 . 2 Advise Karim whether his business can afford this amount of drawings.
[6 marks]

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Turn over for the next question

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1 5 UJW Electrical Ltd produces washing machines. It has a new washing machine it
box

wants to launch from 1 August 2021, which will be produced in a new factory. The
following options (A and B) are being considered:

Factory A Factory B
Annual capacity 1 450 units 2 000 units
Annual factory rent £38 000 £42 000
Annual factory manager salary £27 295 £27 295
Number of factory staff 4 5

The selling price for washing machines produced in Factory A will be £750 each.
Due to economies of scale, the selling price of the washing machines produced in
Factory B will be 10% lower than Factory A.

Royalties must be paid to the designer of the washing machine at a rate of £15.40
per machine.

Factory staff are paid a monthly salary of £1 475. Each completed washing machine
incurs an additional labour cost of £20.

Materials of a higher quality are needed for the new product and are likely to cost
40% more per washing machine. The current costs are £177.40 per
washing machine.

1 5 . 1 Calculate the break-even point in units if 1 450 units are produced and sold using
Factory A.
[5 marks]

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1 5 . 2 Prepare a marginal costing statement to show revenue, contribution and profit if box

2 000 units are produced and sold using Factory B.

[9 marks]

Marginal costing statement

£ £

Question 15 continues on the next page

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The directors of UJW Electrical Ltd have reviewed the results for both options box

(Factory A and Factory B). One director raised some issues with using break-even
analysis as a decision-making tool.

1 5 . 3 Assess the usefulness of break-even analysis in deciding which factory to open.

[6 marks]

40

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Turn over for the next section box

DO NOT WRITE ON THIS PAGE

ANSWER IN THE SPACES PROVIDED

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Section C box

Answer all questions in this section.

1 6 The directors of Aye plc, a car manufacturer, are considering investing in a project
developing an electric car. This is due to the UK government proposing to ban the
sale of all new petrol and diesel cars from 2030. The directors have provided the
following information:

Initial investment £15 million

Estimated life of project 10 years

Net present value £750 000

Payback period 8 years

To be financed by:
9% bank loan (2026) £10 million

Rights issue £5 million

The net present value was calculated using a discount rate of 8% assuming that
cash flows occur at the year end.

Extract from Aye plc’s statement of financial position at 31 March

2021 2020
£ million £ million
Equity
Issued ordinary share capital of £1 each 10 10
Retained earnings 2 1.5

Non–current liabilities
7% Debenture loans 8 8

Shareholders currently receive a dividend of 6%.

The directors of Aye plc consider now is the right time to invest in the project due
to their competitors already producing electric cars. Market research shows there
is a concern that this type of vehicle is not currently made by Aye plc. However,
the company is concerned that their current workforce has no experience or
knowledge in this technology.

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1 6 Evaluate the proposed investment and financing method and advise the directors box

whether they should proceed with the proposal.

Consider both financial and non-financial factors.

[25 marks]

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ANSWER IN THE SPACES PROVIDED

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1 7 As the recently appointed finance director of V plc, you have produced the following box

draft income statement.

Income statement for the year ended 31 January 2021

£
Revenue 1 680 000
Cost of sales 975 000
Gross profit 705 000
Administrative expenses 558 510
Operating profit 146 490
Finance costs 69 300
Profit before taxation 77 190
Taxation 18 260
Profit for the year 58 930

The managing director has made the following comments after reviewing the income
statement:

• revenue has increased by £190 000 from 2020 whilst profit for the year has
decreased by £105 000. This may be due to a key customer going into liquidation
in September 2020 owing £184 000. Their credit limit was increased in July 2020
without accurately assessing the risk, and they were sold £68 000 of goods in
August 2020
• finance costs include overdraft interest of £14 700. At 31 January 2021 the bank
overdraft was £197 200. The arranged bank overdraft limit of £200 000 is due to
be reviewed at a meeting with the bank manager in August 2021
• all staff are due to be paid a bonus of £500 if revenue for the year is 10% higher
than 2020
• a company called ZZ plc is looking to take-over companies in this industry. It is
looking for companies who export to the EU and whose accounts show year on
year growth in revenue and retained earnings.

The managing director has requested you to:

• adjust the draft accounts to offset against revenue the irrecoverable debt of
£184 000 which is included in administrative expenses
• change the date of the meeting with the bank manager to later in the year as the
overdraft is currently high
• not publish this year’s financial statements to stop ZZ plc looking at the accounts.
He feels there is no benefit in publishing any financial statements as no one is
interested in them.

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1 7 Assess the professional and ethical implications of the managing director’s requests box

and whether he is correct in his view that no one is interested in the financial
statements.
[25 marks]

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50

END OF QUESTIONS

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ANSWER IN THE SPACES PROVIDED

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Question Additional page, if required.
number Write the question numbers in the left-hand margin.

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