ManagementAccounting_w13.pdf - THE INSTITUTE OF CHARTERED...

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Page 1 of 4 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN EXAMINERS’ COMMENTS SUBJECT Management Accounting SESSION Final Examination - Winter 2013 General: The overall performance this time was quite poor. The students again showed their inability to deal with questions that require analysis and comments as in Question 3. Questions which were even slightly different from the routine were also attempted badly like questions 1 and 5. Students at final exams stage are expected to be capable to handle new situations on their merit as this is what they would be required to do once they qualify. Simply remembering the formulas and the calculation procedures would not be enough. Question-wise comments are as under: Question 1(a) This part requiring calculation of economic order quantity was done well by majority of the students. The most common error was in determining the finance cost per unit as many students computed the financial charges for the year instead of computing the cost per day. Many students ignored it also, probably because they did not consider it to be a part of holding costs. Question 1(b) This part required determination of most appropriate re-order level/safety stock so as to maximize the profit as different probabilities were associated with the number of days for which the purchase process may be delayed. It proved too difficult for majority of the students. Many of them did not attempt this part altogether. A significant number of candidates did not even understand the key concept i.e. as we push back the re-order level i.e. increase the safety stock, the stock out costs reduce but on the other hand, the holding costs of inventory increase. Some such students just wrote that we should keep the safety stock at the maximum required level. Other common mistakes were as follows: 1 Many candidates were unable to determine the correlation between reorder level and the stock level i.e. that increasing re-order level by 10 days would mean that stock level would increase by 25 units and so on. 2 The contribution lost per unit due to stock out was not determined correctly because the factor of idle time wages was ignored.
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