CIMA BA2 common mistakes
CIMA BA2 · Understand the traps and how to avoid them.
Calculating under- or over-absorption by comparing actual overhead with actual hours multiplied by the actual overhead rate, rather than applying the predetermined absorption rate to actual hours.
Candidates conflate actual overhead incurred with overhead absorbed, especially when actual activity differs from budgeted activity.
What to do instead
Use three steps: predetermined rate = budgeted overhead / budgeted base; absorbed overhead = predetermined rate × actual base; compare absorbed with actual incurred and post the difference as under- or over-absorption.
Valuing closing work in progress as if it were fully complete for both materials and conversion, or ignoring the scrap value of normal loss when averaging process costs.
Process costing questions often give separate percentage completion by cost element and a scrap value for normal loss, and candidates apply a single completion percentage or leave normal loss proceeds out of the cost pool.
What to do instead
Build a physical-units and equivalent-units statement by cost element using the stated percentages; deduct normal-loss scrap proceeds from total process costs before calculating cost per equivalent unit.
Using the highest and lowest cost observations in the high-low method instead of the highest and lowest activity levels.
Cost and activity are not perfectly correlated, so the highest cost may not occur at the highest activity level.
What to do instead
Sort the data by activity level, select the two extreme activity observations, and use their paired costs to calculate variable cost per unit and fixed cost.
Ranking products by contribution per unit when a scarce resource limits output, rather than by contribution per unit of the scarce resource.
A product with high unit contribution may consume disproportionately more of the limiting factor, so unit ranking can reduce total contribution.
What to do instead
Calculate contribution per unit of scarce resource, rank products in descending order, allocate the scarce resource, and then compute total contribution.
Including apportioned fixed overhead or sunk costs in make-or-buy, shutdown, or special-order decisions.
Candidates treat all recorded costs as relevant, but apportioned fixed costs may not change and sunk costs are unavoidable.
What to do instead
Use only future incremental cash flows; exclude sunk costs and non-incremental apportioned fixed costs; include opportunity costs where a scarce resource is diverted.
Comparing actual costs with the original static budget and interpreting the difference as a controllable variance.
Actual activity usually differs from budgeted activity, so a static-budget comparison mixes volume effects with price and usage effects.
What to do instead
Flex variable costs to the actual activity level before comparing with actual costs; compare fixed costs to the original budget; separate volume variances from price and usage variances.
Calculating the material price variance using quantity used when the question specifies quantity purchased, or using quantity purchased when the variance is required at the point of usage.
The price variance can be isolated at purchase or at usage, and the correct quantity depends on the wording of the question.
What to do instead
Identify the variance point first: use actual quantity purchased for a purchase-price variance and actual quantity used for a usage variance; state the basis in your workings.
Describing zero-based budgeting as last year's budget plus an inflation increment.
Candidates confuse zero-based budgeting with incremental budgeting, missing the requirement to justify activities from a zero base.
What to do instead
For zero-based budgeting, start from zero and justify each activity and cost in decision packages; for incremental budgeting, use the prior-year budget plus known changes.
Treating fixed cost per unit as constant when volume changes, or using a per-unit fixed cost in breakeven calculations.
Total fixed costs are constant over the relevant range, but fixed cost per unit falls as volume rises; candidates mix total and unit amounts.
What to do instead
Use total fixed costs in CVP calculations: breakeven units = total fixed costs / contribution per unit; do not multiply a unit fixed cost by volume unless that volume is the basis on which the unit rate was calculated.
Rejecting a project that earns more than the company's cost of capital because accepting it would reduce the division's return on investment.
ROI is an average ratio; adding a project with a return below the current divisional ROI but above the cost of capital lowers the average and can lead to dysfunctional decisions.
What to do instead
Compare the project return with the cost of capital; use residual income to align divisional and company interests, and explain the goal-congruence problem when ROI is used.