FRR - independent subject foundations common mistakes
FRR - independent subject foundations · Understand the traps and how to avoid them.
When answering budgeting or decision-making questions, the candidate prepares a budget without identifying the limiting factor, or makes a make-or-buy or accept-or-reject decision on total cost per unit instead of relevant (incremental) cost, treating fixed costs and sunk costs as relevant.
Candidates default to absorption costing figures because that is what appears in the accounts, and they have not practised ranking products by contribution per unit of scarce resource. They also include apportioned fixed overheads in decisions where those costs do not change.
What to do instead
For any scarce-resource question, compute contribution per unit, then contribution per unit of the limiting factor, then rank. For make-or-buy and special-order decisions, list only future cash flows that differ between alternatives, exclude sunk costs and apportioned fixed overheads, and include opportunity costs of using scarce capacity. State the decision rule and the resulting recommendation explicitly.
Treating allocated costs as automatically avoidable
An accounting allocation can remain even after an activity is discontinued.
What to do instead
Compare future cash flows with and without the decision, documenting which capacity or contract payments actually change.
Confusing margin and markup
One uses selling price as its denominator while the other uses cost.
What to do instead
Write the denominator explicitly and check the relation between price, cost and profit before calculating the percentage.
Ranking investments without stating constraints
Different scale, risk, lives and funding limits can alter the relevant comparison.
What to do instead
Use a consistent cash-flow timeline and decision objective, then test the feasible alternatives under the actual constraints.
Assuming a model guarantees a result
Models simplify conditions and can omit implementation costs, uncertainty and behavior.
What to do instead
Explain the mechanism and assumptions, compare actual evidence and record conditions under which the conclusion could change.
Using a favorable variance as proof of overall success
A lower expense can accompany worse quality or lost future revenue.
What to do instead
Trace the cause and compare related service, quality, capacity and financial indicators before evaluating performance.
Treating digital delivery as automatic value creation
A new channel may add cost or shift activity without satisfying customer needs.
What to do instead
Connect actual customer benefit, operating capability, contribution, retention and investment requirements before judging value.
Confusing an output with its benefit
Delivering a system or completing training does not prove improved organizational performance.
What to do instead
Define a benefit owner and baseline, measure the intended outcome and review adverse effects after implementation.
Using a point estimate as a certainty
Forecasts depend on uncertain quantities and relationships rather than known future outcomes.
What to do instead
Identify the sensitive assumptions, use coherent scenarios and explain their effect without inventing probabilities or promising results.