9706_s05_er — 2005 May-June Accounting 9706 Examiner Report · Cambridge CAIE AS & A Level

Incorrect or missing labels on ledger account entries

“Candidates lost marks for using incorrect contra account names or abbreviations in ledger entries. Each entry must clearly state the name of the other account involved.”— 9706 Paper 2, May/June 2023

How to fix: Every ledger entry needs the full contra account name. If recording a sale on credit, the debit side of the receivables account must say 'Sales' (not 'S' or 'Sal'). Use the exact account name as it appears in the question or chart of accounts. Abbreviations are not accepted.

AVCO inventory valuation method poorly understood

“Many candidates could not correctly apply the AVCO method, failing to recalculate the weighted average cost after each purchase.”— 9706 Paper 2, May/June 2023

How to fix: AVCO recalculates the average cost per unit after EVERY purchase. Formula: (existing inventory value + new purchase value) / (existing units + new units) = new average cost per unit. Issues of inventory use this new average until the next purchase. Practise with a running balance table showing quantity, total cost, and unit cost after each transaction.

Limiting factor analysis and contribution not understood

“Candidates struggled with limiting factor analysis, often ranking products by profit per unit rather than contribution per unit of the scarce resource.”— 9706 Paper 4, May/June 2023

How to fix: When a resource is scarce, rank products by contribution per unit of the limiting factor, NOT by profit per unit or total contribution. Step 1: Calculate contribution per unit (selling price minus variable cost). Step 2: Divide by the amount of the scarce resource each product uses. Step 3: Prioritise production in order of this ratio.