April 2021
Gareth John explains what you need to do to score the marks on the
narrative written tasks you need to get that pass.
Level 4 is the final hurdle that AAT students face before they earn a qualification that can have a dramatic impact on their career. A qualification that is so valuable and well recognised is going to be challenging, particularly at the last level. As I often say: “Nothing worthwhile is easy, and nothing easy is worthwhile!”
One particular aspect that students tend to find difficult are the narrative written tasks that are introduced at Level 4, and the Management Accounting: Decision and Control assessment is no exception.
In the Decision and Control assessment, students might be asked to explain a few variances in the context of a scenario. Many students will answer this sort of written question with a detailed explanation of how to calculate each of the variances mentioned, to which my first thought is, “Why are you telling me this? I know you can calculate variances”.
In the assessment you will already have been asked to calculate variances in another task.
These sort of numerical tasks are automatically marked by the exam software as it’s easy to identify if the number entered is correct or not.
So why would the AAT pay real human markers (which are expensive) just to test students again to see if you can calculate variances? Why would they waste a second task in the assessment testing the same knowledge?
The answer is that they don’t and they won’t! You have to ensure that your answer demonstrates to them the additional knowledge that they want you to show, not simply repeating knowledge you have already proved you have.
So what should you do?
In the written questions on variances you will need to be able to calculate some variances, but the figures themselves are not what the marker is going to be interested in. They will be looking for you to suggest what might have caused the variances, and what effect they will have on the business. You need to demonstrate a thorough understanding of how variances can improve the way we run the business.
So, for example if you calculate that the labour rate variance for a company is adverse, you need to be able to suggest possible causes for this. Sometimes the detail of the scenario will allow you to identify a possible cause, but sometimes it won’t. If it doesn’t give you any clues you need to suggest possible causes. You don’t need any proof to back it up, it just needs to be sensible.
Looking at our adverse labour rate variance scenario, the first step is to understand clearly what this variance means. The labour rate variance shows the difference between the actual labour rate paid per hour compared to the standard that was expected. An adverse labour rate variance means that we actually paid more per hour than anticipated. This is why you can’t just learn how to calculate variances by rote, without knowing what they are actually showing. Knowing exactly what each variance shows about the business will greatly help you in answering the written questions with relevant points.
So, if the labour rate variance is adverse, you don’t want to say that you employed cheaper labour as this is clearly is wrong; this would in fact cause a favourable variance. A more appropriate answer could be that you had to pay for overtime working during the period. You need to assume the marker doesn’t know that overtime is often paid at a premium so you need to state this fact in your answer.
While it is obvious to you and you may think it ‘goes without saying’, it would earn you valuable marks in your answer. It could also be that you have employed more experienced, highly-trained staff who are paid at a higher rate per hour than normal workers. You don’t need to know this for certain, it just needs to be a sensible, possible cause for an adverse labour rate.
How do you get top marks?
If you are looking for top marks in the written questions and that elusive Distinction grade, you can add real value to your answer by linking variances to each other. Showing these sorts of inter-relationships will really excite the markers!
For example, if the adverse labour rate variance is because you did employ more experienced, highly-trained staff you would probably expect them to work faster. This means that the labour efficiency variance is likely to be favourable.
You do, however, need to look at the bigger picture, and consider what the overall net effect is. If the labour efficiency variance is £500 favourable but the labour rate variance is £700 adverse, the overall profit will be down by £200.
The move to recruiting better workers might not have been worthwhile.
Finally, don’t just assume that if overall costs are up profit is definitely down. If a business uses better labour or better materials this may mean that the quality of the product is better.
This could mean that the selling price charged is higher than expected so that the extra costs might be offset by extra revenue.
The Decision and Control exam is not easy so you want to get as many marks from the written questions as possible! Make sure you practise questions that force you to identify and explain these sorts of commercial insights.
• Gareth John is chief executive of First Intuition Cambridge
