Examiner’s report

T7 Planning, Control and Performance Management

June 2010

General Comments
This was the third sitting of the T7 paper under its new structure. Section A contained 20 marks of compulsory
objective testing questions (10 questions of 2 marks each) and Section B contained 4 compulsory questions
worth 20 marks each. Three past papers reflecting this new structure are available on the ACCA website for
students to practise.
The distribution of marks across the paper was similar to past papers. Candidates attempting the T7 paper
should expect it to:

• Focus on the key syllabus areas as specified in the published syllabus. On this occasion 79% of the
available marks were based upon key syllabus areas. In the long term I aim for key syllabus areas to
make up about 80% of the paper.
• Test both numeric and written skills, on this paper 44% of the marks were for discussion and 56% were
for calculation. In the long term I aim for a split of marks of approximately 40% for words and 60% for
numbers.
• Test application more than knowledge. The June2010 paper contained 28% knowledge-based marks.

Overall the standard of answers on section B was disappointing. Some excellent scripts were submitted and a
large number of candidates scored in the 70% to 80% range. Congratulations to these well-prepared candidates
and their teachers. However, at the other extreme some very poor scripts were received and a small minority of
candidates appeared totally unprepared for the examination.

The June 2010 paper was the thirteenth paper of this syllabus. By this stage the questions I have set have
covered the entire syllabus. Although I will not repeat entire questions, many of the questions I will set will be
made up of similar blocks of knowledge and techniques to those used on past papers. There are only so many
ways that I can ask questions, for example, on the construction of functional budgets. Candidates who practise
past exam questions will be very well placed to answer future questions. Past T7 papers, together with answers
and marking guides are available on the ACCA website and I urge candidates to use them in their exam
preparations.

Examination technique was weak at times. On several occasions candidates failed to answer all parts of the
requirement. A significant minority attempted numeric sections only. Candidate’s time management was, in the
main, good and there was little evidence of candidates running out of time.

Presentation of answers was variable. Some scripts were beautifully presented and were a joy to mark. On others
the handwriting was so bad it was almost impossible to follow.

I will now consider performance on a question-by-question basis. These sections will inevitably focus on
candidate weaknesses, but it is worth remembering that many good scripts were received.

Specific Comments

Question One
This question covered the construction of a standard marginal costing operating statement to reconcile budgeted
and actual profit. This area was the subject of a recent newsletter article by the examiner. It went on to cover the
factors to be considered before investigating a variance. These areas are covered by syllabus headings 5c and d
and study guide sections 21 d and 23b. Standard costing is a key syllabus area.

Part (a) required candidates to produce a reconciliation of budgeted profit and actual profit using standard
costing variances that were given in the question. Part (a) was split into six parts to assist students in preparing

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their answers. Despite the recent newsletter article, this was probably the worst answered question on the paper.
Common errors included:
• Not beginning the statement with budgeted profit as requested in the question.
• Failing to appreciate that profit + fixed cost = contribution.
• Using fixed cost expenditure variances in the reconciliation of actual and budgeted contribution.
• Ignoring the sales price variance altogether.
• Not explicitly stating actual fixed cost as requested in the question.
• Adding a favourable fixed cost variance onto budgeted fixed cost rather than deducting it. (remember:
favourable cost variances reduce cost, not increase it)
• Double counting the fixed overhead expenditure variance.

Markers made great use of the ‘own figure rule’ in marking this question so that each mistake was penalised only
once. For example if a candidate incorrectly calculated budgeted contribution they could still earn full marks for
standard contribution on actual sales as long as their answer was $3,950 (the adverse sales volume variance)
smaller than their first figure. Candidates with good presentation and clear workings benefited most from these
own figure marks. It is worth noting that despite the above comments a significant number of near perfect
answers were received.

Part b required candidates to explain four factors that should be considered in deciding whether or not to
investigate a variance. A significant minority of candidates wrote about the potential causes of variances (last
sitting’s question) and earned no marks, as they did not answer the question set. Other, better prepared
candidates, listed four relevant factors, but scored only half marks because they failed to explain them. The best
answers explained (literally “made plain”) why each of their suggested factors should be considered. For
example, an answer that said “Trend in variances” would score one mark out of two, whereas an answer that
said “Trend in variances: a series of increasingly adverse variances may indicate a process is drifting out of
control.” Would score two marks.

Question Two
This question covered forecasting in a period of changing prices. The final section required candidates to interpret
a compound bar chart. It covers syllabus areas 3a, 3b and 4a, and Study guide sections 6a, 6b, 7a, 7c, 7f. This
was the best answered question on the paper. Forecasting is a key syllabus area.
Part (a) required candidates to restate costs in 2010 price levels using four observations of a price index. The
slight “twist” in the question was that price levels decreased over the period concerned. Many candidates scored
the full four marks in this section. A significant number did not offer a figure for 2010, presumably because it
was already in 2010 prices and they considered it did not need restating. These candidates were given full
credit. A surprisingly wide range of wrong answers was received, but the most common error was to mix up the
numerator and denominator in the price level adjustment.
Part (b) required candidates to construct a graph to represent the relationship between output and total cost. Full
credit was given to candidates who plotted their own, incorrect, figures from part a. Common errors were:
• Not labelling the axes.
• Using years rather than volume on the x axis.
• Putting cost on the x, rather than the y axis.
• Using an inappropriate graph to represent the relationship (e.g. a bar chart).
• Wildly inaccurate plotting of data.

Despite these errors many perfect graphs were submitted with candidates scoring full marks.
Part (c) asked candidates to use the high low technique to estimate the fixed and variable elements of total cost,
expressed in 2010 price levels. Once again this was generally well done. Full credit was given to candidates who
used their own incorrect figures from part (a). A maximum of two out of four marks were awarded to candidates
who used non price adjusted figures from the question as these were clearly not in 2010 price levels.

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The most common error in this section was to use the highest and lowest costs in the variable cost calculation
rather than the costs associated with the highest and lowest levels of output.

Part (d) required candidates to use the results of the high low analysis to make a cost forecast for 2011. Two
steps were involved. Firstly candidates needed to calculate total cost for a volume of 2,000 units and secondly
the 2010 prices needed to be indexed to 2011. These calculations could be performed in any order. The most
common error was to omit one of the steps. Another was to index the volume level of 2,000 units rather than the
costs.
Part (e) asked candidates to identify three trends apparent in a compound bar chart. This was generally well
answered. Problems occurred when candidates tried to over complicate matters by trying, for example, to identify
seasonal trends in the data. This was clearly impossible as only annual data was given.

Question Three
This question covered the construction of a budgeted income statement in the context of a principal budget factor
of limited labour availability. It was almost entirely computational. This area is covered under syllabus areas 6a,
and c, and study guide sessions10 a, c and 11b and f. Budget preparation is a key syllabus area. In general it
was well answered.

Part (a) required candidates to construct a labour budget in terms of hours and costs. In the main this was
competently done. A very common error was to calculate total pay for overtime hours ($288,000 = basic pay +
overtime premium) rather than overtime premium as requested ($96,000). Candidates who took this approach
earned one mark instead of two.

Part (b) required the construction of a number of functional budgets in the context of limited skilled labour hours.
This was generally competently done. The most common mistake was to ignore the data in the question and to
assume that 30,000 units could be produced, despite being told that there was only sufficient labour for 23,040
units. Candidates who took this incorrect approach were still able to earn up to 6 out of 7 marks on an own
figure basis.

Part (c) required the construction of a budgeted income statement, using the data from part b. Once again the
own figure rule allowed candidates who had incorrectly answered part (b) to potentially earn full marks in part c).
The most common error in this section was to treat fixed overheads as a variable cost. Only a small minority of
candidates remembered to allow for the under absorption of fixed overhead due to the restricted production level.
Part (d) of the question required candidates to suggest ways of overcoming labour shortages. This was well
answered and many sensible suggestions were received.

Question Four
This was an entirely narrative question designed to redress the balance of the paper due to some of the earlier,
highly computational questions. It was based around the behavioural aspects of budgeting, areas which are
covered under syllabus heading 7 c and in study guide sessions 18 a b and c. The behavioural aspects of
budgeting are a key syllabus area.

Part (a) required candidates to write notes to define and explain various pieces of terminology relating to the
behavioural aspects of budgeting. This section was entirely knowledge based.

Some candidates had a very clear understanding of these areas and provided lucid explanations and definitions.
Others appeared confused and appeared to simply reproduce study notes and therefore failed to answer the
question set. Explaining the benefits of a top down approach to budgeting is of little use when the question was
about a participative (bottom up) approach. Others attempted to “guess” their way through by simply rearranging
the words in the question.

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Part (b) involved the application of some of the behavioural issues discussed in part (a) to a hotel company. A
large minority of candidates realized this and produced excellent answers. Others saw the problems but failed to
explain them well. To score full marks candidates needed to identify a problem (e.g. top down budgets) and to
explain its consequences (e.g. lack of motivation).

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