Common mistakes students make at AAT Advanced Level #2

This is the second article in a three part series to help you familiarise yourself with the AAT Advanced Diploma in Accounting units (AKA level 3) as you progress on from level 2.

Common mistakes at AAT Advanced Diploma in Accounting

The series is based on the feedback available in the examiner’s reports which are published annually, and available to AAT students within MyAAT study support.

We said in part 1 that the reports are designed to “promote a better understanding of the specification content”. 

I’m sure you all know what’s assessed within each unit, but do you know what’s tested in each task? 

Well, it’s possible to find out because it’s pre-defined, so doesn’t vary and is outlined in the examiner’s reports. Being well prepared for an assessment is paramount to being successful. 

To my mind, that preparation should include familiarising yourself with the exam format and finding out which areas are typically problematic. If you do that, you can focus your revision and ensure you avoid common mistakes.

Examiner reports

This is where the reports can help. Each includes a graph that provides a visual summary of performance across the tasks in the unit. 

The more dark green, the more students exceeded expectations.

Hopefully, you’ve already seen the graphs for the two financial accounting units and so will notice that the profile for the management accounting unit, shown above, is quite different. Not only are there more tasks, but the task by task performance is more even, and there’s proportionally more darker green, which indicates students performed better with this unit.

Rather than go through each task, as we did for the financial accounting units, we’re going to focus on the four tasks which saw the poorest performance. 

You can download the full report from the study support pages to check what’s covered in the others tasks and the commonly seen strengths and weaknesses.  

Management Accounting: Costing (MMAC)

Task 5

Task 5 saw one of the lowest performances across the assessment.

It deals with overhead recovery (absorption), and calculating overhead rates using both traditional and activity-based costing methods. It also deals with calculations to determine whether overheads have been under or over recovered, to make cost journal postings and to interpret the significance of under or over overhead recoveries. 

Specific weaknesses are identified as:

  • choosing the wrong basis on which to calculate overhead recovery/absorption rates
  • not understanding the meaning of under or over recovery
  • and not being familiar with activity-based costing (ABC).

It’s important to realise that even though all the tasks in the assessment ‘stand alone’, the process of recovering overheads is covered in both tasks 4 and 5. 

Task 4 requires you to allocate and apportion overheads to responsibility centres and performance is generally excellent. Therefore, try seeing the two tasks as one process, just with a change of numbers halfway through. 

The end point of task 4 will be the budgeted overheads. You need to use the equivalent of these amounts in task 5 to calculate recovery/absorption rates. 

Make sure you can do this using both traditional and activity-based based costing. Pay particular attention to how to calculate the budgeted number of setups by product, batch or unit, when revising ABC.

Finally, make sure you’re clear about the difference between the overheads incurred, in other words, the amount that the organisation has actually spent on indirect costs in a particular period, and the overheads absorbed, which is the amount that has been recovered, via the overhead recovery rate, in order to pay for the organisation’s indirect costs.

This article for level 4 students on fixed overhead variances (coming soon) goes beyond the understanding that you currently need, but as long as you bear that in mind, you’ll find the recap in the first half of the piece helpful.

Task 6

Task 6 is concerned with the purpose and uses of Management Accounting, and providing accurate information to management.

It also tests students’ understanding of the differences between marginal costing (MC) and full absorption costing (FAC). Student performance in this task was generally satisfactory.

The report states that common issues with this task are students:

  • not understanding the make-up of prime/direct costs (PC), marginal costs (MC) and full absorption costs (FAC)
  • not realising that non-manufacturing costs (such as selling and administration overheads) are never included in product costs;
  • and that the choice of using MC or FAC will affect the organisation’s internally reported profits.

This article entitled What’s the difference between marginal and absorption costing? should help you better understand all these problem areas, which will not only be useful at L3 but is great preparation for L4.

Task 7

Task 7 is concerned with the application of management accounting to short-term decision-making.

Students need to understand break-even or cost-volume-profit (C-V-P) analysis and limiting factor decision-making.

Student performance in this task was marginally below the pass rate, so this would be a good area to focus your studies on.

Two related topics are covered in this task, the first being C-V-P analysis, where weaknesses are to do with understanding the calculations involved, especially in relation to margin of safety figures and target profit. 

It also appears that sometimes students do not realise that they’ve been given monthly or quarterly costs that must be scaled up to annual costs before break-even volumes or revenues are calculated. This two-part article on Break even analysis addresses issues identified as problematic in this task and this Break even piece includes a study guide with an in depth worked example.

The second topic is limiting factor decision-making, which uses C-V-P analysis to maximise short-term profit when a resource is in limited supply. 

The report identifies that students are failing to: prioritise the product/route that makes the most contribution per unit/mile, pointing out that ‘this approach would be correct if there were not a limiting factor, but it is wrong where there is a scarce resource’; understand that a business cannot earn the maximum available short-term profit unless it uses all the limiting factor; and calculate the correct total contribution earned.

Look out for future AAT Comment articles on limiting factors.

Task 8

Task 8 tests students’ ability to differentiate between cost classifications for different purposes. This requires an understanding of different cost classifications for cost analysis, decision-making and reporting. It also tests students’ understanding of the appropriate choice of costing system for different business sectors and individual organisations. Student performance in this task was generally marginally below the pass rate.

In order to succeed in this task you need a good understanding of the way that costs behave. That was first introduced at L2 and is a fundamental building block that if you didn’t fully understand then, will become apparent now.

Revision of fixed, variable and semi-variable costs, will help to support key understanding that variable costs per unit remain the same regardless of quantity but that fixed costs per unit decline as volume increases. 

In other words, the cost per unit behaves in the opposite way to the total cost. You should also ensure you’re confident in your understanding of stepped fixed costs and that you can use the high-low method to separate a total semi-variable cost into it’s fixed and variable elements.

Now let’s turn our attention to Indirect Tax (IDRX).

Indirect Tax Unit (IDRX)

This is a very different chart to the other L3 units, as there is significantly less variety in the shades of green. 

The report states that students performed well in all tasks and that individual task performances for Tasks 1 to 6 range between 62.2% to 68.3% of students having met or exceeded requirements, with the percentage for the final two tasks being higher, at around 80%. This shows that the assessment is well balanced and that student skills and knowledge are equally well balanced.

The report says that there are only a few key issues and suggests additional detailed study is needed in areas such as special schemes, tax points and registration. It also recommends more practice of VAT calculations and adjusting accounts data for the VAT return.

Helpful resources

Dive into these AAT Comment articles to help improve your underpinning knowledge:

Try these Comment to help improve your calculation and adjustment skills:

The final part of this series concludes with a look at the Advanced Diploma Synoptic assessment report.

Read part 3 now.

Read more on studying AAT:

Gill Myers is a self-employed accounts consultant. She has taught AAT qualifications since 2005 and written numerous articles and e-learning resources.

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