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MA – L2 – Q49 – Pricing Strategies

Calculate selling price for Product X using Nexco Limited’s normal pricing policy with a 16.67% profit margin.

Question

Nexco Limited has developed a new product, Product X, that it wishes to introduce to the market. The cost per unit is expected to be as follows, assuming annual sales of 40,000 units.

Cost per unit

Cost Item	GH¢
Direct materials:
Material M1 (2 litres at GH¢15)	30
Material M2 (0.5 litres at GH¢8)	4
Direct labour (3 hours at GH¢10)	30
Fixed overheads (3 hours at GH¢12)	36
Full cost	100

It has been company policy to price products to achieve a profit of 16.67% (one-sixth) on the sales price.

Required:
(a) Calculate the selling price that would be charged if Nexco Limited applies its normal pricing policy.

(b) If Nexco Limited decided to price products at marginal cost plus, what mark-up on the marginal cost would be required to obtain the same selling price as in (a)?

Answer

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Tags: Cost-plus pricing, decision making, Pricing, Profit Margin, Selling price
Level: Level 2

Topic: Decision making techniques

FA – L1 – Q85 – Preparation of not-for-profit accounts

Calculate subscriptions due and prepare receipts and payments account for Afrika Hospital Sports Club for 20X9.

Question

The following balances have been obtained from the books of Afrika Hospital Sports Club:

	June 30, 20X8	June 30, 20X9
Cash	1,204,800	1,586,500

The following information is also available in respect of the year ended June 30, 20X9:
Payments during the year

	GH¢
Building	753,000
Sports Equipment	442,800
Investments	436,000

There were also a series of general expenses paid.
Membership
The club had 600 members on June 30, 20X9. No new members were admitted during the year but 10 members left the club on January 1, 20X9. Subscription per member is GH¢ 500 per month.
Some members pay subscriptions in advance but others pay late sometimes. The amounts paid in advance and amounts in arrears at each year end were as follows:

	June 30, 20X8	June 30, 20X9
Advance subscription	86,000	92,000
Subscriptions receivable	326,000	357,000

Required:
(a) Calculate the total subscriptions due from the members for the year ending June 30 20X9.
Use a T account (subscriptions account) to calculate the cash received from members and then complete a receipts and payments account identifying the cash paid as general expenses as a balancing figure.

(b) Afrika Hospital is a public sector entity. Identify what you expect its principal aims to be, and explain the importance of financial reporting in this sector, with reference to groups that may use the hospital’s financial reports.

Answer

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Tags: Financial Reporting, Not-for-profit accounts, Objectives, Public Sector, Stakeholders
Level: Level 1

Topic: Preparation of not-for-profit accounts

FA – L1 – Q84 – Preparation of not-for-profit accounts

Prepare receipts and payments and income and expenditure accounts for Unity Sports Club for the year ended June 30, 20X9, using provided balances and membership data.

Question

The following balances have been obtained from the books of Unity Sports Club:

	June 30, 20X8	June 30, 20X9
Building	6,024,000	6,024,000
Furniture	3,012,000	3,012,000
Books	1,129,500	1,129,500
Sports equipment	1,807,200	1,807,200
Investments
Advance subscription	86,000	92,000
Prepaid expenses	122,000	176,000
Expenses payable	186,900	207,600
Subscriptions receivable	326,000	357,000
Cash	1,204,800	1,586,500

The following information is also available in respect of the year ended June 30, 20X9:
(i) Depreciation for the year has been credited directly to the asset accounts. The rates of depreciation are as follows:

Building: 5%
Furniture and books: 10%
Sports equipment: 20%

(ii) The club had 600 members on June 30, 20X9. No fresh members were admitted during the year but 10 members left the club on January 1, 20X9. Subscription per member is GH¢ 500 per month.

Required:
(a) Summary of receipts and payments made during the year ended June 30, 20X9.
(b) Income and expenditure account for the year ended June 30, 20X9.

Answer

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Tags: Club accounting, Depreciation, Financial Statements, Income and expenditure, Not-for-profit accounts, Receipts and payments, Subscriptions
Level: Level 1

Topic: Preparation of not-for-profit accounts

FA – L1 – Q83 – Preparation of Partnership accounts

Define books of prime entry and list four examples.

Question

(a) (i) Define book of prime entry.

(ii) Mention any four (4) books of prime entry.

(b) Farida, Jibril, and Esther are in partnership sharing profits and losses in the ratio of 5:3:2 respectively. According to the partnership agreement, partners’ capital accounts attract an interest of 20% per annum, while any drawings by a partner also attract 10% interest per annum.
The following trial balance has been extracted after the preparation of the statement of profit or loss for the period ending 31st December, 20X9.

Debit	GH¢	Credit	GH¢
Building	55,000	Capital – Farida	50,000
Furniture and Fittings	20,000	Capital – Jibril	30,000
Motor vehicle	45,000	Capital – Esther	20,000
Inventory	20,000	Payables	25,000
Receivables	20,000	Loan – Esther	20,000
Cash and bank	35,000	Current account – Farida	2,000
Current account – Jibril	5,000	Profit for the year	60,000
Current account – Esther	10,000
Total	210,000	Total	210,000

The following entries have not been recorded in the books:
(i) Salary of GH¢5,000 was paid to Esther during the period.
(ii) Farida personally paid general expenses of GH¢2,500 on behalf of the partnership.
(iii) Cash drawings made by partners: Farida GH¢500, Jibril GH¢1,500, and Esther GH¢1,200.
(iv) Interest on loan – Esther – GH¢2,000.
(v) Jibril took goods worth GH¢2,000 for personal use.
(vi) Interest on capital account. All capital accounts were to remain fixed.

You are required to prepare:
(i) Profit or loss and appropriation account.

(ii) Partners’ current account.

(iii) Farida, Jibril, and Esther Partnership

Answer

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Tags: Drawings, Interest on capital, Partnership accounts, Profit and loss appropriation, Salaries
Level: Level 1

Topic: Preparation of Partnership accounts

MA – L2 – Q48 – Decision Making Techniques

Determine if BHIL should manufacture Zeta internally or buy it, given material constraints and government orders.

Question

Blue Horizon Industries Limited (BHIL) produces and markets three products viz. Alpha, Beta, and Gamma. Following information is available from BHIL’s records for the manufacture of each unit of these products:

	Alpha	Beta	Gamma
Selling price	GH₵ 66	GH₵ 106	GH₵ 124
Material-A (GH₵ 4 per kg)	GH₵ 8	GH₵ 12	GH₵ 12
Material-B (GH₵ 6 per kg)	GH₵ 12	GH₵ 24	GH₵ 24
Direct labour (GH₵ 10 per hour)	GH₵ 25	GH₵ 25	GH₵ 30
Variable overhead based on:
– Labour hours	GH₵ 1.8	GH₵ 1.5	GH₵ 1.8
– Machine hours	GH₵ 1.4	GH₵ 1.2	GH₵ 1.2
Total	GH₵ 3.2	GH₵ 2.7	GH₵ 3.0
Other data:
Machine hours	7	6	6
Maximum demand per month (units)	3,000	3,000	5,000

Additional information:
(i) BHIL is also engaged in the trading of a fourth product Zeta, which is very popular in the market and generates a positive contribution. BHIL currently purchases 600 units per month of Zeta from a supplier at a cost of GH₵ 40 per unit. In-house manufacture of Zeta would require: 2.5 kg of material-B, 1 hour of direct labour, and 2 machine hours.
(ii) Materials A and B are purchased from a single supplier who has restricted the supply of these materials to 22,000 kg and 34,000 kg per month respectively. This restriction is likely to continue for the next 8 months.
(iii) BHIL has recently accepted a Government order for the supply of 200 units of Alpha, 300 units of Beta, and 400 units of Gamma each month for the next 8 months. These quantities are in addition to the maximum demand stated above.
(iv) There is no beginning or ending inventory.

Required:
Determine whether BHIL should manufacture Zeta internally or continue to buy from the supplier during the next 8 months.

Answer

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Tags: Contribution Analysis, fixed costs, Government Order, Make or Buy, Manufacturing, Material Scarcity, Production Planning, Profit Maximization, Resource Constraints, variable costs
Level: Level 2

Topic: Decision making techniques

FA – L1 – Q82 – Preparation of Partnership accounts

Prepare realisation, cash, and capital accounts for K, M, and B partnership dissolution on 31.12.20X9, including asset sales and liability settlements.

Question

K, M, and B are in partnership; they share profits and losses 3:3:2. They agree to dissolve their partnership on 31.12.20X9 when their statement of financial position is as follows:

Non-current assets	GH₵
Premises	300,000
Plant and machinery	150,000
Vehicles (3 cars)	90,000
	540,000

Current assets	GH₵
Inventory	60,000
Receivables	70,000
Cash	5,000
	135,000

Current liabilities	GH₵
	65,000

Capital accounts	GH₵
K	200,000
M	150,000
B	100,000
	450,000

Current accounts	GH₵
K	5,000
B	5,000
Loan – M	50,000

Various assets are sold for cash as follows:

Premises: 400,000
Plant and machinery: 100,000
Inventory: 50,000

The vehicles are taken over by the partners at the following agreed values:

Car 1 – K: 35,000
Car 2 – M: 30,000
Car 3 – B: 25,000

The receivables pay GH₵ 67,000 in settlement.
The payables are paid GH₵ 18,000 in settlement.
Dissolution expenses amount to GH₵ 20,000.

Required:
Prepare the realisation account, cash account, and capital accounts to close off the partnership books.

Answer

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Tags: Asset disposal, Capital accounts, Cash account, Financial Statements, Liabilities settlement, Partnership dissolution, Realisation account
Level: Level 1

Topic: Preparation of Partnership accounts

FA – L1 – Q81 – Preparation of Partnership accounts

Prepare capital accounts and statement of financial position for Alvin, Boris, and Gina partnership after Gina's admission, including adjustments for goodwill and revaluation.

Question

Alvin and Boris are partners in a firm sharing profits and losses in the ratio of 3:2. The Statement of financial position of the firm as on 31 March 20X9 was as under:

Assets	GH¢
Furniture and fixture	600,000
Office equipment	300,000
Motor car	375,000
Inventory	250,000
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Due to expansion in the business, Gina was admitted as a partner with effect from 1 April 20X9. Gina brought furniture worth GH¢120,000 and inventory costing GH¢80,000. She also contributed cash of GH¢150,000 plus her proportionate share of goodwill valued at two years’ purchase of the average profits of the last three years.
Following adjustments were considered necessary, at the time of admission:
(i) On 1 April 20X7, new furniture costing GH¢8,000 was purchased but wrongly debited to revenue account. The firm charges depreciation on furniture @ 10% on straight line basis.
(ii) An invoice dated 1 October 20X8 for purchase of goods amounting to GH¢24,000 has not been recorded.
(iii) Value of the sundry receivables on 31 March 20X9 is to be reduced by 6%.
The profits of the last three years, before the above adjustments were:

Year	GH¢
20X8-11	352,100
20X7-10	232,000
20X9-09	128,000

It was decided that the future profits of the firm would be shared among Alvin, Boris, and Gina in the ratio of 5:3:2 respectively.

Required:
Prepare the capital accounts of the partners and the statement of financial position of the firm on Gina’s admission as a partner.

Answer

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Tags: Adjustments, Capital accounts, Depreciation, Financial Statements, Goodwill, Partner admission, Partnership accounts, Profit-sharing ratio, Revaluation, Statement of Financial Position
Level: Level 2

Topic: Preparation of Partnership accounts, Preparing financial statements

MA – L2 – Q47 – Decision Making Techniques

Establish production plan to maximize profit with steel limited to GH₵250,000, prioritizing a major customer's order.

Question

An engineering company has been experiencing problems with restricted availability of resources. The company manufactures a variety of casings. It makes four types of casing. Each casing requires the same bought-in component and some high-grade steel. The standard costs for the four types of casing are as follows:

Casing	A	B	C	D
	GH₵	GH₵	GH₵	GH₵
Steel	250	500	190	390
Bought-in component	50	50	50	50
Direct labour	60	60	50	100
Variable production costs	40	50	40	50
Fixed production costs	180	240	150	270
Selling and administration costs	145	225	120	215
Profit	35	55	30	55
Selling price	760	1,180	630	1,130

All the selling and administration costs are fixed and the same single component is used for each of the four products. Direct labour is paid GH₵8 per standard hour and each member of the workforce is capable of producing any of the casings.
The company’s main customer has ordered 30 units of Casing A, 20 units of B, 30 units of C, and 20 units of D for production and delivery in the next month. Senior management have agreed that this order should be treated as a priority order and that these casings must be manufactured and delivered to the customer next month. This is necessary to maintain the goodwill of the customer. It is estimated that this order represents 10% of the total demand next month for each type of casing.
The company operates a just-in-time system, and has no inventories of steel, components, or finished goods.
Required:
If the aim is to maximise profit for the month, establish the production and selling plan for the company next month in the following situation:
(a) Situation 1. Supplies of steel are limited to GH₵250,000.

(b) Situation 2. Only 400 bought-in components are available from suppliers.

(d) Situation 4. A labour dispute restricts available productive labour hours in the month to 2,125; but the manufacture of any quantities of the four casings could be sub-contracted to an outside supplier. The cost of buying the casings externally would be GH₵475, GH₵705, GH₵380, and GH₵640 for Casing A, Casing B, Casing C, and Casing D respectively. In addition, it should be assumed that the major customer insists that its order is completed by the company itself and the manufacture should not be subcontracted.

Answer

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Tags: Contribution Analysis, fixed costs, Manufacturing, Priority Orders, Production Planning, Profit Maximization, Resource Constraints, Shortages, Steel Limitation, variable costs
Level: Level 2

Topic: Decision making techniques

FA – L1 – Q80 – Preparation of Partnership accounts

Prepare capital accounts for Djembo, Akwele, and Eduvie partnership after Eduvie's admission, including revaluation, goodwill, and profit allocation.

Question

Djembo and Akwele were in partnership and shared profits and losses in the ratio of 3:2 respectively. The balances on the partners’ capital accounts at July 1 20X8 were: Djembo GH₵250,000, Akwele GH₵400,000.
Due to expansion of business, Eduvie was admitted as a partner on October 1, 20X8 under the following arrangements:
(i) Assets were revalued upwards by GH₵200,000 but the revaluation was not recorded in the books.
(ii) Goodwill of the firm was assessed at GH₵300,000 and was retained in the books.
(iii) Eduvie invested GH₵500,000 as capital.
(iv) Eduvie was allowed a monthly salary of GH₵20,000 whereas Djembo and Akwele continued to receive salaries of GH₵28,000 and GH₵25,000 per month respectively, as in the past.
(v) The balance profit was to be shared: Djembo 35%; Akwele 35% and Eduvie 30%.
(vi) Mr. Atikpui was hired as manager from October 1, 20X8 at a salary equal to 5% of the profit remaining after deducting such salary but before charging partners’ salaries.
The profit for the year ended June 30, 20X9 amounted to GH₵486,000 after:
(i) Making allowance for a debt of GH₵48,000 incurred prior to July 20X8; and
(ii) providing for the partners’ salaries.
In addition to salaries, the partners withdrew the following amounts:
Djembo GH₵150,000; Akwele GH₵120,000; and Eduvie GH₵90,000

Required:
Partners’ capital accounts for the year ended June 30, 20X9.

Answer

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Tags: Capital accounts, Drawings, Financial Statements, Goodwill, Partnership accounts, Profit sharing, Revaluation, Salaries
Level: Level 1

Topic: Preparation of Partnership accounts

FA – L1 – Q79 – Preparation of Partnership accounts

Prepare journal entries for partner retirement and admission, excluding goodwill in the books.

Question

A summarized statement of financial position of ABC Partnership as on January 31, 20X9 is given below:

Debit	GH₵	Credit	GH₵
Non-current assets	1,700,000	Current liabilities	1,900,000
Current assets	4,700,000	James, Capital	1,000,000
		Emma, Capital	1,500,000
		Liam, Capital	2,000,000
	6,400,000		6,400,000

James, Emma, and Liam share profits in the ratio of their capital in the partnership.
On January 31, 20X9, James retired from the partnership. For the purposes of his retirement, goodwill of the partnership was estimated at GH₵1.89 million. It was agreed that James would take cash from the business equal to the value of his closing capital after the goodwill adjustment.
On February 1, 20X9, Sophia was admitted to the partnership. The new profit sharing ratio was agreed at 3:4:2 for Emma, Liam, and Sophia respectively. Sophia agreed to bring in cash equivalent to her share of assets (excluding goodwill) in the new partnership plus an additional amount of GH₵0.5 million for goodwill.

Required:
Prepare journal entries to record the above transactions under the following assumption:
(a) Goodwill is not recorded in the books of account.

(b) Goodwill is recorded in the books of account.

Answer

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Tags: Admission, Capital accounts, Goodwill, Journal entries, Partnership accounting, Profit-sharing ratio, Retirement
Level: Level 1

Topic: Preparation of Partnership accounts

Program (SQ): PROFESSIONAL PROGRAM

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MA – L2 – Q49 – Pricing Strategies

Calculate selling price for Product X using Nexco Limited’s normal pricing policy with a 16.67% profit margin.

FA – L1 – Q85 – Preparation of not-for-profit accounts

Calculate subscriptions due and prepare receipts and payments account for Afrika Hospital Sports Club for 20X9.

FA – L1 – Q84 – Preparation of not-for-profit accounts

Prepare receipts and payments and income and expenditure accounts for Unity Sports Club for the year ended June 30, 20X9, using provided balances and membership data.

FA – L1 – Q83 – Preparation of Partnership accounts

Define books of prime entry and list four examples.

MA – L2 – Q48 – Decision Making Techniques

Determine if BHIL should manufacture Zeta internally or buy it, given material constraints and government orders.

FA – L1 – Q82 – Preparation of Partnership accounts

Prepare realisation, cash, and capital accounts for K, M, and B partnership dissolution on 31.12.20X9, including asset sales and liability settlements.

FA – L1 – Q81 – Preparation of Partnership accounts

Prepare capital accounts and statement of financial position for Alvin, Boris, and Gina partnership after Gina's admission, including adjustments for goodwill and revaluation.

MA – L2 – Q47 – Decision Making Techniques

Establish production plan to maximize profit with steel limited to GH₵250,000, prioritizing a major customer's order.

FA – L1 – Q80 – Preparation of Partnership accounts

Prepare capital accounts for Djembo, Akwele, and Eduvie partnership after Eduvie's admission, including revaluation, goodwill, and profit allocation.

FA – L1 – Q79 – Preparation of Partnership accounts

Prepare journal entries for partner retirement and admission, excluding goodwill in the books.

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Calculate selling price for Product X using Nexco Limited’s normal pricing policy with a 16.67% profit margin.

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Calculate subscriptions due and prepare receipts and payments account for Afrika Hospital Sports Club for 20X9.

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Prepare receipts and payments and income and expenditure accounts for Unity Sports Club for the year ended June 30, 20X9, using provided balances and membership data.

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Define books of prime entry and list four examples.

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Determine if BHIL should manufacture Zeta internally or buy it, given material constraints and government orders.

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Prepare realisation, cash, and capital accounts for K, M, and B partnership dissolution on 31.12.20X9, including asset sales and liability settlements.

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Prepare capital accounts and statement of financial position for Alvin, Boris, and Gina partnership after Gina's admission, including adjustments for goodwill and revaluation.

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Establish production plan to maximize profit with steel limited to GH₵250,000, prioritizing a major customer's order.

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Prepare capital accounts for Djembo, Akwele, and Eduvie partnership after Eduvie's admission, including revaluation, goodwill, and profit allocation.

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Prepare journal entries for partner retirement and admission, excluding goodwill in the books.

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