中文（繁體）
中文（简体）
English
A-Level Accounting Past Papers & Drilling (Paper 4): Costing and Variances
TUTORZONE ORIGINAL DRILLING MOCK · CAMBRIDGE A-LEVEL ACCOUNTING (9706) PAPER 4
Written to the 9706 syllabus (2026-2028): Paper 4 Cost and Management Accounting, 50 marks, 1 hour, two questions of 25 marks, 20% of the A Level. This is an extended drilling set – three questions of 25 marks (75 marks) – covering activity based costing, standard costing variances and investment appraisal, with step-by-step answers.
What is in Cambridge A-Level Accounting (9706) Paper 4?
Direct answer: Paper 4 Cost and Management Accounting is two structured questions of 25 marks, 50 marks in 1 hour, worth 20% of the A Level; this extended set drills three questions (75 marks) on ABC, standard costing and investment appraisal.
Assessment at a glance (2027)
| Component | Content | Weighting | Duration |
|---|---|---|---|
| Paper 1 (Multiple Choice) | 30 multiple-choice questions, 30 marks (22 financial accounting + 8 cost and management) | 30 · 28% AS / 14% A Level | 1 hour |
| Paper 2 (Fundamentals of Accounting) | four structured questions, 90 marks (Q1 30, Q2-Q3 15 each, Q4 30) | 90 · 72% AS / 36% A Level | 1 h 45 min |
| Paper 3 (Financial Accounting, A Level) | three structured questions of 25 marks, 75 marks; source material is on a separate insert | 75 · 30% A Level | 1 h 30 min |
| Paper 4 (Cost and Management Accounting, A Level) | two structured questions of 25 marks, 50 marks; source material is on a separate insert | 50 · 20% A Level | 1 hour |
Paper 4 technique: the official paper is two questions in 1 hour, about 30 minutes each; this set adds a third question for extra drilling. Do ABC first (driver rate, overhead per unit, unit cost), then the variance analysis separating price from quantity, and finally investment appraisal: cumulative cash flows for payback, discount factors for NPV, then interpolation between two rates for the IRR.
How this paper was built
This is a TutorZone original drilling mock: the questions follow the Cambridge 9706 structure (Paper 4 Cost and Management Accounting: 50 marks, 1 hour, two questions of 25 marks) and extend to a third question for extra practice (75 marks in total); the answers are our own, not Cambridge past papers or marking references.
Every figure was recomputed programmatically, including the discounted present values and the interpolated internal rate of return.
Pacing
| Section | Marks | Suggested time | What to do first |
|---|---|---|---|
| Paper 1 (Multiple Choice) | 30 · 28% AS / 14% A Level | about 2 min per question | concept items first, then ratio and cost calculations |
| Paper 2 (Fundamentals of Accounting) | 90 · 72% AS / 36% A Level | about 35 min on question 1 | statements first, decisions last |
| Paper 3 (Financial Accounting, A Level) | 75 · 30% A Level | about 30 min per question | notes and statements first, evaluation last |
| Paper 4 (Cost and Management Accounting, A Level) | 50 · 20% A Level | about 30 min per question | calculations before recommendations |
What are the three ABC driver rates?
Direct answer: set-up $60,000 / 100 = $600 per set-up; ordering $30,000 / 300 = $100 per order; machining $90,000 / 9,000 = $10 per machine hour.
Paper 4: cost and management accounting drilling (3 questions, 75 marks)
The official Paper 4 has two questions worth 50 marks; this extended set adds a third: question 1 activity based costing, question 2 standard costing variances and question 3 investment appraisal, 25 marks each.
Question 1 (25 marks)
A company makes two products, X and Y. Manufacturing overheads for 2026 are $180,000, with these activity data: set-up costs $60,000 (X 40 set-ups, Y 60 set-ups); ordering costs $30,000 (X 200 orders, Y 100 orders); machining costs $90,000 (X 3,000 machine hours, Y 6,000 machine hours). Output is 5,000 units of X and 2,500 units of Y; direct costs are $20 per unit for X and $36 per unit for Y. The company currently absorbs overheads on direct labour hours: 5,000 hours for X and 5,000 hours for Y.
(a) Using activity based costing, calculate the three cost driver rates, the overhead per unit and the total unit cost for X and Y (12 marks).
(b) Calculate the total unit cost of X and Y using direct labour hour absorption and explain the difference (8 marks).
(c) If prices are set at cost plus 25%, state the ABC selling prices of X and Y and give one pricing recommendation and one limitation of ABC (5 marks).
Question 2 (25 marks)
Budgeted production is 10,000 units. Standards: 4 kg of material per unit at $5 per kg; 2 labour hours per unit at $12 per hour; budgeted fixed overheads $50,000; standard selling price $70 per unit.
Actual: output 9,600 units; material used 39,000 kg costing $199,000; labour 18,700 hours costing $231,880; fixed overheads $52,000; sales 9,600 units at $72 each.
(a) Calculate the material price and usage variances, the labour rate and efficiency variances, the fixed overhead expenditure and volume variances, and the sales price and volume variances (15 marks).
(b) Suggest possible causes of the variances and explain how they can be interrelated (6 marks).
(c) Recommend one action for management (4 marks).
Question 3 (25 marks)
A company is considering a machine costing $180,000 with no residual value; net cash inflows over five years are $60,000, $70,000, $60,000, $40,000 and $20,000. The cost of capital is 10% (discount factors 0.909, 0.826, 0.751, 0.683, 0.621) and the machine is depreciated on a straight-line basis over five years.
(a) Calculate the payback period and the accounting rate of return (ARR: take average profit, divide it by average investment, then multiply by 100) (10 marks).
(b) Calculate the net present value and state whether the machine should be bought (8 marks).
(c) Estimate the internal rate of return using 14% (factors 0.877, 0.769, 0.675, 0.592, 0.519) and 15% (0.870, 0.756, 0.658, 0.572, 0.497), and give one non-financial consideration (7 marks).
How do I separate the material price and usage variances?
Direct answer: the price variance compares prices at the actual quantity: (5 – 199,000 / 39,000) x 39,000 = 4,000 adverse; the usage variance compares quantities at the standard price: (38,400 – 39,000) x 5 = 3,000 adverse.
Paper 4 model answers
Question 1
(a) Rates: set-up 60,000 / 100 = $600 per set-up; ordering 30,000 / 300 = $100 per order; machining 90,000 / 9,000 = $10 per machine hour.
X overheads = 40 x 600 + 200 x 100 + 3,000 x 10 = 74,000, so $14.80 per unit; Y overheads = 60 x 600 + 100 x 100 + 6,000 x 10 = 106,000, so $42.40 per unit. Total unit cost: X = 20 + 14.80 = $34.80; Y = 36 + 42.40 = $78.40. (12)
(b) Labour hour absorption rate = 180,000 / 10,000 = $18 per hour; X uses 1 hour and Y uses 2 hours, so overhead absorbed is $18 for X and $36 for Y, giving unit costs of $38.00 for X and $72.00 for Y.
Why they differ: X is a high-volume product with few set-ups and orders, so spreading overheads on labour hours overcosts X by about $3.20, while Y’s frequent set-ups and orders and heavier machining are hidden, undercosting Y by about $6.40. (8)
(c) At cost plus 25%: X = 34.80 x 1.25 = $43.50; Y = 78.40 x 1.25 = $98.00. Recommendation: X could be priced lower to win volume, while Y’s price should be reviewed against its higher activity costs. Limitation: ABC needs detailed activity data and is costly to maintain, and choosing the wrong cost driver can make the figures more misleading than a simple absorption rate. (5)
Question 2
(a) Material price = (5 – 199,000 / 39,000) x 39,000 = 4,000 adverse; material usage = (9,600 x 4 – 39,000) x 5 = 3,000 adverse; labour rate = (12 – 231,880 / 18,700) x 18,700 = 7,480 adverse; labour efficiency = (9,600 x 2 – 18,700) x 12 = 6,000 favourable; fixed overhead expenditure = 50,000 – 52,000 = 2,000 adverse; fixed overhead volume = (9,600 – 10,000) x (50,000 / 10,000) = 2,000 adverse; sales price = (72 – 70) x 9,600 = 19,200 favourable; sales volume = (9,600 – 10,000) x 21 = 8,400 adverse, where the standard margin is 70 – 20 – 24 – 5 = 21. (15)
(b) An adverse price variance may mean a supplier’s price rise or buying a better quality material, so less is used but at a higher price; an adverse rate variance can come from overtime or more skilled labour, while the favourable efficiency variance shows faster working. The favourable price and adverse volume variances together look like a price rise traded against volume, so the lost contribution must be compared with the extra margin. (6)
(c) Action: establish whether the material price rise is a market movement or a purchasing issue and test how demand reacted to the higher price, then decide whether to hold $72 or return to $70 to protect volume. (4)
Question 3
(a) Cumulative inflows: 60,000 in year 1, 130,000 in year 2 and 190,000 in year 3, so 180,000 – 130,000 = 50,000 of year 3’s 60,000 is needed: payback = 2.83 years.
Depreciation = 180,000 / 5 = 36,000, so annual profits are 24,000, 34,000, 24,000, 4,000 and -16,000; average profit = 70,000 / 5 = 14,000 and average investment = 180,000 / 2 = 90,000, giving ARR = 14,000 / 90,000 x 100 = 15.6%. (10)
(b) Present value = 60,000 x 0.909 + 70,000 x 0.826 + 60,000 x 0.751 + 40,000 x 0.683 + 20,000 x 0.621 = 54,540 + 57,820 + 45,060 + 27,320 + 12,420 = 197,160, so NPV = 197,160 – 180,000 = +$17,160; a positive NPV means the machine should be bought. (8)
(c) At 14% the NPV is 181,010 – 180,000 = +$1,010 and at 15% it is 177,420 – 180,000 = -$2,580, so the IRR is about 14% + 1,010 / (1,010 + 2,580) x 1% = 14.3%, above the 10% cost of capital and consistent with the NPV decision. Non-financial factors include machine reliability and maintenance, staff training, the effect on quality and delivery, and future environmental or customer requirements. (7)
What are the NPV and IRR of the investment?
Direct answer: at 10% the present value is 197,160 against a cost of 180,000, so NPV = +$17,160, and the IRR is about 14.3% (NPV +$1,010 at 14% and -$2,580 at 15%), above the 10% cost of capital.
Where these marks are usually lost
| Mistake | What it looks like | What it costs | Instead |
|---|---|---|---|
| Wrong activity base | Spreading overheads by output volume | Allocate by activity data (set-ups, orders, machine hours) | X $14.80, Y $42.40 |
| Variance signs reversed | Writing an adverse variance as positive | Actual above standard is adverse (negative) | material price 4,000 adverse |
| Sales volume variance using the selling price | Multiplying the volume difference by $70 | Use the standard margin of $21 | 8,400 adverse |
| Payback rounded to a whole year | Answering 3 years | It is recovered part way through year 3, so pro-rate | 2.83 years |
| ARR using the full investment | Average profit / 180,000 | Average investment is cost / 2 | 15.6% |
How to use this paper
First drill: all three questions in 1 h 45 min, doing ABC before the variance analysis.
Mark it: check every driver rate and the sign and units of each variance.
Second drill: redo three to seven days later, aiming to finish inside 1 h 15 min.
What should I do after drilling Paper 4?
Direct answer: log every wrong activity base and variance sign, redo the paper in three to seven days, then complete the 9706 cycle by revising Papers 1 and 2 for your exam route.
FAQ
Is this a Cambridge past paper?
No. This is not a Cambridge past paper: the questions and answers are TutorZone originals, not marking references.
What is in Cambridge A-Level Accounting 9706 Paper 4?
Cost and management accounting: two questions of 25 marks, 50 marks in 1 hour, worth 20% of the A Level; this extended set adds a third question for 75 marks.
How does ABC differ from traditional absorption?
ABC allocates overheads on the activities that cause them (set-ups, orders, machine hours) rather than a single base such as labour hours; here X is cheaper under ABC and Y more expensive.
Do I need to explain the variances?
Yes. The calculation earns part of the marks, but explaining causes and how variances interact, such as a higher price leading to lower volume, is where the top marks are.
Official references
| Resource | What to check |
|---|---|
| Cambridge A-Level Accounting 9706 syllabus (2026-2028) | Confirm the marks, time and costing topics of Paper 4 |
| https://www.tutorzone.com.hk/en-alevel-accounting-9706-paper-3-mock-2027/ | A-Level Accounting 9706 Paper 3 drilling mock (financial accounting) |
Related: practice area · · A-Level Accounting 9706 drilling guideA-Level Accounting Paper 1 drilling mock · A-Level Accounting Paper 3 drilling mock
Next step: find a tutor / register as a tutor
After drilling, the hard part is telling a conceptual error from a writing error. Tell us the year group, the school and your available times, and TutorZone will match you with a tutor who knows the HKEAA assessment requirements.
Demand for tutors in this subject is steady, and those who can explain the marking scheme and where marks are won are especially sought after. Register free; you pay only when a match succeeds.
