- 20 Marks
Question
a) The National Health Insurance Agency (NHIA) has through the government of the Republic of Sylvania (RoS) received a grant from an international development partner to implement certain projects. Consequently, the Agency is required to build the capacity of its staff and other stakeholders within its value chain to ensure the smooth execution of activities associated with the project implementation.
The Agency has organised capacity building workshops to further its intent of building the competence of its staff and stakeholders. However, the conditions attached to the grant explicitly prohibit expending any part of the grant amount on capacity building. As a result, the Agency has to find ways of funding the workshops but must not make a net loss in that endeavour.
In order not to make a loss, the Agency intends to charge a concessionary fee of GH¢165 per attendee per week. The workshops will last for two weeks and it is expected that the fee charged will suffice for all related expenses.
Associated costs of organisation of the workshops are:
| Food and drinks | GH¢45 per attendee per week |
|---|---|
| Hire of venue (Maximum capacity 560 attendees) | GH¢525 per week |
| Facilitator fees (5 facilitators) | GH¢675 per week per facilitator |
Two of the facilitators have agreed to waive their fees. Each facilitator will only facilitate for one week of the workshops. Also, workshop attendees are required to be given an information pack that is expected to cost GH¢30 per pack. As well, the Agency is expected to incur general costs of GH¢15,000 in organising the workshops.
Required:
As the management accountant of the NHIA:
i) Determine the minimum number of attendees required for the Agency to at least cover its costs. (10 marks)
ii) Compute the fee per attendee for the NHIA not to run at a loss if the number of attendees reaches maximum capacity. )
b) The distribution of limited economic resources among competing policy objectives is an inherent difficulty in public sector investment. Cost-Benefit Analysis (CBA) is an economic evaluation method used to compare the costs and advantages of different techniques. Cost-benefit analysis (CBA) is a valuable tool for making decisions and helps in the organising evaluation and control of capital and ongoing projects. However, there have been persistent challenges associated with conducting CBA analyses in the public sector.
Required:
Outline FOUR challenges associated with carrying out CBA in the public sector.
Answer
a)
i)
| Fixed costs: | GH¢ | |
|---|---|---|
| Hire of Venue | GH¢525 per week @ 2 weeks | 1,050 |
| Facilitators | GH¢675 per facilitator @ 3 facilitators | 2,025 |
| General costs | 15,000 | |
| Total Fixed costs | 18,075 |
Variable costs:
Food and drinks GH¢45 per week @ 2 weeks 90
Information pack GH¢30 per pack 30
Total variable cost per attendee | 120
Minimum number of attendees to cover costs = ______ Fixed costs
= ______ contribution per unit
=GHe18,075.00GHe330.00−GHe120.00=87 attendees
Or
TR=TC
330n = 90n+1050+2025+30n+15,000
330n = 120n+18,075
210n =18,075
n = 86 or 87
ii) Fee per attendee for the NHIA not to run at a loss at maximum capacity
=Total fixed costs+(maximum capacity units x variable cost per unit)Maximumcapacityunits=GHe18,075.00+(560 attendees x GHe120.00 per attendee)560attendees=GH¢152.28
b) Challenges associated with carrying out CBA in the public sector
-
Departments and agencies not carrying out CBA analyses for investment projects as required according to the rules relating to scale of appraisal.
-
Underestimation of costs – some projects have cost significantly more than expected.
-
Lack of sufficient options analysis including no definition of the ‘counterfactual’.
-
Lack of clarity over specific objectives for the project.
-
Double counting of benefits.
-
Insufficient sensitivity analysis.
- Topic: Cost-Volume-Profit (CVP) Analysis
- Series: JULY 2025
- Uploader: Samuel Duah