Past Questions & Answers
Question
Tropico Ltd (Tropico) manufactures a range of Fruit Nectar and Fresh Salad which it sells under its own brand name in supermarkets throughout the region.
Recently, Value Mart, a low-cost supermarket chain, approached Tropico and asked if it would be interested in supplying this orange juice and allow it to be sold under the Value Mart brand in its supermarkets as part of a one-off, three-month promotion. To supply all of its supermarkets during the three-month promotion, Value Mart requires 50,000 bottles of orange juice at an offer price of GH¢12.5 per bottle.
The following information, relating to the production of one bottle of orange juice, is available.
i) Materials:
-
Tangerine 0.125kg at GH¢11.60 per kg.
-
Sugar 0.25kg at GH¢10.32 per kg.
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Sweetener 0.015 litres at GH¢15.25 per 0.75 litre bottle.
ii) The orange juice is sold in a bottle which Tropico purchases from its suppliers in batches of 100,000 for GH¢124,000. These bottles are in constant use in the production of a variety of Tropico products.
iii) Each bottle of orange juice supplied must have a Value Mart brand label. The labels cost GH¢15,000 for a batch of 500,000 and if not used for this contract they would be disposed of at the cost of GH¢2,000 regardless of the quantity.
iv) Tropico applies fixed overheads to products based on machine hours. Budgeted fixed overheads allocated to orange juice for the year amount to GH¢45,000 and the company expects that in total 100,000 machine hours will be spent producing the orange juice. The production team in Tropico calculated that on average each bottle of orange juice requires a total of six minutes of machine time. Variable manufacturing overheads have been calculated at GH¢5 per bottle.
v) Another jam producer has offered Tropico GH¢100,000 per month to lease machinery that would be required to produce the orange juice for Value Mart.
Required:
Based on the information provided above, advise whether Tropico should accept the contract to produce orange juice for the low-cost supermarket chain. You should provide calculations to support your recommendation.                                                                                                                                                                                                                          B)
Tropico currently sells a product at an all–inclusive price of GH¢164.5 each (including VAT at 17.5%) with a profit of 20% on cost. Material cost makes up 40% of the total product cost. Due to high rate of inflation, the supplier of the material is planning to increase the price of material by 10%.
Required:
Compute the new all- inclusive price of the product if Tropico needs to maintain the same profit margin if material price increment goes ahead.
Find Related Questions by Tags, levels, etc.
- Author Samuel Duah
- Professional Bodies ICA (Ghana)
- Programs PROFESSIONAL PROGRAM
- Tags Decision Making, Fixed Overheads, Opportunity Cost, Relevant Costing, Special Contract, Variable Costs
- Series JULY 2025
- Subjects MANAGEMENT ACCOUNTING
- Topics Relevant Cost and Revenue
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.
Find Related Questions by Tags, levels, etc.
- Author Samuel Duah
- Professional Bodies ICA (Ghana)
- Programs PROFESSIONAL PROGRAM
- Tags Break-even Analysis, Cost-benefit analysis, CVP Analysis, Fixed Costs, Grant Management, Non-profit, Public Sector, Variable Costs, Workshop Costing
- Series JULY 2025
- Subjects MANAGEMENT ACCOUNTING
- Topics Cost-Volume-Profit (CVP) Analysis
Question
a) MedSource Pharmaceuticals PLC (MedSource), an indigenous local drug manufacturing firm produces and markets three products Longlast DS, Ludicare CS and Lumback HS. The firm has noted the deficiencies in traditional overhead absorption methods and has taken the decision to introduce an activity-based costing (ABC) system in order to correctly allocate costs to their products and also enhance cost control techniques.
Traditionally, the original costing method has been to allocate overheads to products using a single indirect cost pool where overheads are allocated on the basis of direct labour hours (DLH). Using the ABC approach, MedSource will apportion indirect costs to products using cost pools which are representative of the relevant activity areas.
Relevant information relating to the three products for the next period is as follows:
| Longlast DS | Ludicare CS | Lumback HS | |
|---|---|---|---|
| Units to be produced and sold | 156,000 | 97,500 | 39,000 |
| Unit direct material cost | GH¢247 | GH¢234 | GH¢208 |
| Unit direct labour hours | 7.8 | 10.4 | 9.1 |
| Machine hours | 5.2 | 10.4 | 11.7 |
| Number of production runs | 20 | 39 | 98 |
| Number of component receipts | 59 | 98 | 468 |
| Number of production orders | 59 | 39 | 98 |
| Direct labour per hour | GH¢10 | GH¢10 | GH¢10 |
| Variable overheads per unit | GH¢44 | GH¢57 | GH¢49 |
Estimated amounts of fixed overheads are expected to be as follows:
| GH¢’000 | Cost Driver | |
|---|---|---|
| Set up | 1,638 | Production runs |
| Machine | 10,530 | Machine hours |
| Goods inwards | 3,276 | Component receipts |
| Packaging | 2,340 | Production order |
| Engineering | 2,106 | Production order |
| Total | 19,890 |
Required:
Calculate the unit costs of each product using:
i) Traditional Cost approach, based on direct labour hour rate.
ii) The ABC method.
b) When variances are discovered on investigation, and the cause of the variance can be controlled, action should be taken by Management.
Required:
Discuss FOUR conditions under which a responsible staff would take action to ensure the variances are controlled.
Find Related Questions by Tags, levels, etc.
- Author Samuel Duah
- Professional Bodies ICA (Ghana)
- Programs PROFESSIONAL PROGRAM
- Tags Activity-Based Costing, Cost Drivers, Management Action, Overhead Absorption, Traditional Costing, Unit Cost Calculation, Variance Analysis, Variance Control
- Series JULY 2025
- Subjects MANAGEMENT ACCOUNTING
- Topics Activity-based costing, Standard Costing, Variance Analysis