Question Tag: Cost Management

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AA – Nov 2024 – L2 – Q2b – Advantages of Outsourcing Internal Audit

Explain the advantages and disadvantages of outsourcing the internal audit function.

Question

As organisations look for ways to cut costs, the idea of outsourcing internal audit work goes on the agenda. While outsourcing may be appealing in theory, there are good reasons to keep internal audit in-house.

Required:
i) State TWO advantages of outsourcing the internal audit function.
ii) State THREE disadvantages of outsourcing the internal audit function.

Answer

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Tags: Audit Function, Business Strategy, Cost Management, Internal Audit, Outsourcing, Risk Management
Level: Level 2

Topic: Internal Audit and Its Relationship with External Audit
Series: Nov 2024

FM – Nov 2022 – L3 – Q7 – Corporate Governance and Financial Strategy

Analyze the Chairman's proposals to improve EPS and discuss methods to align stakeholder objectives.

Question

The Chairman of Opeyemi plc, a company listed on the Alternative Investment Market, has circulated a memorandum to the company’s directors and senior managers which contains the following statements:

“Looking to the year ahead, there are a number of measures which I propose to increase the company’s earnings per share (EPS).

Payments to trade creditors should be made as late as possible, even if this means extending our credit beyond the terms allowed by our suppliers. The company currently runs a substantial overdraft, and this measure will cut the level of bank interest and charges.

Relatively high capital expenditure in recent years has resulted in substantial depreciation charges in the profit or loss account. All capital spending, including that on the Oloro II project – designed to reduce toxic emissions from the manufacturing plant – should be postponed except where such spending can be shown to be essential to current operations.

Staff pay should be frozen at this year’s level for the forthcoming year. The company’s sponsorship of the local charity events run by the Staff Social Club should also, regrettably, be ended.

By boosting profits and therefore EPS, these measures will help us to achieve the highest possible stock market capitalisation.”

Required:

a. Prepare a response to the Chairman’s proposals which examines the possible consequences of the proposals for the price of the company’s shares and for the company’s stakeholders. (9 Marks)

b. Discuss FOUR ways that encourage managers to achieve stakeholder objectives. (6 Marks)

(Total 15 Marks)

Answer

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Tags: Capital Expenditure, Cost Management, Delayed Payment, EPS, Stakeholder Management
Level: Level 3

Topic: Corporate Governance and Financial Strategy
Series: NOV 2022

PSAF – May 2017 – L2 – SB – Q2 – Financial Reporting and Accountability in the Public Sector

Explain Zero-Based Budgeting stages, benefits, drawbacks, and users in the public sector.

Question

The Zero-based budgeting system is a budgeting system that requires every item of expenditure to be justified as if the particular activity or programme is taking off for the first time.

Required:

a. State the stages involved in the Zero-based budgeting system. (5 Marks)

b. Explain THREE benefits associated with the Zero-based budgeting system. (6 Marks)

c. Explain THREE drawbacks of the Zero-based budgeting system. (6 Marks)

d. State THREE key users of the Zero-based budgeting system. (3 Marks)

Answer

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Tags: Budget Justification, Cost Management, Financial planning, Public Sector Budgeting, Zero-Based Budgeting
Level: Level 2

Topic: Financial Reporting and Accountability in the Public Sector
Series: MAY 2017

MI – Nov 2020 – L1 – SA – Q11 – Costing Techniques

Identify the method that allocates overhead to products based on activities that give rise to costs.

Question

Which of the following attributes support overhead to products using the activities which give rise to the cost?

A. Activity based costing

B. Absorption costing

C. Marginal costing

D. Standard costing

E. Activity based budgeting

Answer

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Tags: Activity-Based Costing, Cost Management, Overhead Allocation
Level: Level 1

Topic: Costing Techniques
Series: NOV 2020

MI – Nov 2020 – L1 – SA – Q1 – Forecasting Techniques

The question asks to calculate the Economic Order Quantity (EOQ) based on holding costs, ordering costs, and annual demand.

Question

A company uses 40,000 units of an item per annum. It is recorded that the holding costs are N4 per annum and the ordering cost is N50 per order. The Economic order Quantity is:

A. 2,500
B. 1,500
C. 1,000
D. 800
E. 500

Answer

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Tags: Cost Management, Decision Making, EOQ, Forecasting Techniques, Inventory Management, Operations
Level: Level 1

Topic: Forecasting Techniques
Series: NOV 2020

MI – Nov 2015 – L1 – SB – Q2 – Budgeting

Compiles functional budgets for sales, production, and material purchases for six months.

Question

ABC Limited is engaged in the production of AiBiCi product and the following data were extracted from the Budget Committee’s Report:

i. Sales is expected to be 20,000 units each in months 1 and 2, this will increase by 10% each in months 3 and 4, and 5% each in months 5 and 6.

ii. Unit selling price is currently estimated at N250, and due to increased awareness, the price will move up to N300 in the fourth month.

iii. To produce one unit of AiBiCi, the following materials are required:

2kgs of A @ N20/kg
5kgs of B @ N5/kg
2kgs of C @ N10/kg

iv. The company keeps 10% of estimated sales as closing inventory for the month. Assume no opening inventory for month 1.

You are required to compile, in tabular form, the following functional budgets for the next 6 months:

a. Sales in quantity and value. (6 Marks)

b. Production in quantity. (6 Marks)

c. Material purchase in quantity and the total cost. (8 Marks)

(Total 20 Marks)

Answer

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Tags: Budget Committee, Budgeting, Cost Management, Financial planning, Functional Budgets, Material Purchase, Production Budget, Sales Budget
Level: Level 1

Topic: Budgeting
Series: NOV 2015

MI – Nov 2015 – L1 – SB – Q1 – Costing Techniques

Involves calculating the life cycle target cost and addressing cost reduction actions for a new product.

Question

XYZ Limited has just designed a new consumer product – XEE, which is expected to have a ten-year life cycle. Based on its market research, XYZ Limited’s Management has determined that the new product should be packaged in a 5kg-polymer sack with a selling price of N150 in the first four years, N120 in the next four years, and N90 per unit during the last two years.

Sales in units are expected as follows:

Year	Units
1	400,000
2	500,000
3	600,000
4	800,000
5	1,000,000
6	1,200,000
7	900,000
8	600,000
9	500,000
10	300,000

Variable selling costs are expected to be N10 per package throughout the product’s life. Annual fixed selling and administrative costs are estimated to be N1,200,000. XYZ Limited’s management desires a 25% profit margin on the selling price.

Required:
a. Compute the life cycle target cost of manufacturing the product (round up to the nearest kobo). (14 Marks)

b. If XYZ Limited anticipated that the new product will cost N90.50 per unit to manufacture in the first year, what are the maximum manufacturing costs in the following nine years? (3 Marks)

c. Suppose that the outcome of the market research indicates that expected manufacturing cost per unit over the product life cycle is N89.90, what actions would the company take to reduce this cost? (3 Marks)

(Total 20 Marks)

Answer

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Tags: Cost Management, Life Cycle Costing, Target costing
Level: Level 1

Topic: Costing Techniques
Series: NOV 2015

MI – Nov 2015 – L1 – SA – Q12 – Budgeting

Identifies which option is not considered a functional budget.

Question

he following are functional budgets EXCEPT:
A. Distribution cost budget
B. Production budget
C. Sales budget
D. Material purchase budget
E. Cash budget

Answer

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Tags: Budgeting, Cost Management, Functional Budgets
Level: Level 1

Topic: Budgeting
Series: NOV 2015

MI – May 2018 – L1 – SA – Q7 – Costing Techniques

Features of standard cost.

Question

Which of the following is NOT a feature of standard cost?
A. Estimated
B. Predetermined
C. Actual
D. Basis for later comparison
E. Developed from historical data

Answer

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Tags: Cost Management, Standard Costing
Level: Level 1

Topic: Costing Techniques
Series: MAY 2018

MI – May 2018 – L1 – SA – Q2 – Cost Classifications

Definition of cost behavior.

Question

Which of the following describes cost behavior?
A. The effect of cost on company performance
B. The total cost of running a business
C. The movement of material costs during inflation
D. How total costs react to changes in output
E. The ratio of costs to turnover

Answer

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Tags: Cost behavior, Cost Management
Level: Level 1

Topic: Cost Classifications
Series: MAY 2018

MI – May 2023 – L1 – SB – Q2a – Decision-Making Techniques

This question asks for the qualitative factors to consider when making a make or buy decision.

Question

State FIVE of the qualitative factors to be considered when making a ‘Make or Buy’ decision.

Answer

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Tags: Cost Management, Make or buy decisions, Qualitative Factors
Level: Level 1

Topic: Decision-making techniques
Series: MAY 2023

MI – May 2017 – L1 – SA – Q9 – Costing Techniques

Determine when overhead is under-absorbed.

Question

Overhead is under-absorbed when:
A. Budgeted cost exceeds actual costs
B. Budgeted cost equals actual costs
C. Budgeted cost is less than standard cost
D. Actual cost exceeds budgeted cost
E. Actual cost is more than the variance achieved

Answer

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Tags: Budgeting, Cost Management, Overhead Absorption
Level: Level 1

Topic: Costing Techniques
Series: MAY 2017

MI – May 2017 – L1 – SA – Q3 – Costing Methods

Identify the element not used in process costing.

Question

Which of the following is NOT used in process costing?
A. Equivalent units
B. Progress payments
C. Abnormal loss
D. Material introduced
E. Scraps

Answer

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Tags: Abnormal Loss, Cost Management, Process Costing
Level: Level 1

Topic: Costing Methods
Series: MAY 2017

MI – Mar-Jul 2020 – L1 – SB – Q3 – Decision-Making Techniques

Determine the optimal production plan and prepare the income statement based on the given production constraints and sales data.

Question

ZUBEY LIMITED manufactures 4 homogeneous products A, B, C, and D with the following projections for the coming year:

The market can only absorb a maximum of 250,000 units of whatever mix in a year.

Assume no opening or closing stocks.

Required:

a. Compute the optimal production plan. (9 Marks)

b. Prepare the income statement arising from (a) above. (11 Marks)

Answer

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Tags: Cost Management, Decision Making, Production planning, Profit Optimization
Level: Level 1

Topic: Decision making techniques
Series: MAR/JULY 2020

MI – Mar-Jul 2020 – L1 – SB – Q2b – Costing Techniques

Prepare ledger accounts for a backflush accounting system based on the given data for production and sales.

Question

XYZ operates a backflush accounting system with the following standard costs:

Raw materials (5Kg per unit) @ N230 per Kg
Personnel cost @ N300 per unit
Overheads @ N750 per unit

During a period, the following was achieved:

Raw materials purchased: 24,500 Kg
Production: 4,800 units
Sales: 4,600 units

There was no opening stock, and the triggers used for initiating accounting entries are:

Purchase of raw materials;
Sale of finished goods.

Required:

Prepare the following ledger accounts:

i. Combined raw materials and work-in-progress (WIP)
ii. Conversion cost
iii. Cost of goods sold
iv. Period expenses

Answer

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Tags: Backflush Accounting, Cost Management, Costing Techniques, Ledger Preparation
Level: Level 1

Topic: Costing Techniques
Series: MAR/JULY 2020

MI – Mar-Jul 2020 – L1 – SB – Q2a – Costing Techniques

List the characteristics of a Just-In-Time (JIT) environment in manufacturing.

Question

The aim of the just-in-time system is to produce the required items with high quality and at the exact time required.

i. List FIVE characteristics of the just-in-time environment. (5 Marks)
ii. List FIVE benefits from the just-in-time system. (5 Marks)

Answer

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Tags: Cost Management, Costing Techniques, Inventory Management, Just-in-Time, Lean Production
Level: Level 1

Topic: Costing Techniques
Series: MAR/JULY 2020

MI – Mar-Jul 2020 – L1 – SB – Q1 – Costing Methods

Prepare a contract account, statement of financial position, and calculate the expected profit on a construction project.

Question

Piano Construction Company Limited has been in operation for many years. The following relates to Contract AO50 on the Akure-Owo site as at 31st Dec., 2017.

Item	Amount (N’000)
Wages	42,156
Materials delivered directly to site	54,203
Materials from main stores	657
Materials transferred to Akure-Ibadan Site	1,590
Plant purchased at cost	12,500
Plant transferred to Akure-Owo Site	5,250
Sub-contractor’s charges	19,580
Site expenses	5,086
Materials on site at 31st Dec.	18,300
Plant on site at 31st Dec.	14,750
Accrued wages at 31st Dec.	921
Prepayments at 31st Dec.	507
Value of work certified	117,500
Cost of work certified	102,300
Progress payments received from client	115,000

Head office charges are 10% of wages.

The contract value is N550,000,000 and it is anticipated that there will be further costs of N375,000,000 (including rectification claims). As this is the 1st year of the contract, no profit has been taken previously.

Required:

Prepare the Contract Account for project AO50 for the year ended 31st December, 2017. (15 Marks)
Prepare the Statement of financial position extracts as at 31st December, 2017. (3 Marks)
What is the expected profit on the contract on completion? (2 Marks)

Answer

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Tags: Construction Project, Contract Costing, Cost Management, Financial Reporting, Profit Calculation
Level: Level 1

Topic: Costing Methods
Series: MAR/JULY 2020

MI – Mar-Jul 2020 – L1 – SA – Q10 – Cost Classification

Identify the cost that is charged against revenue irrespective of production volume.

Question

Costs that are charged against revenue irrespective of the volume of production achieved are known as:

A. Semi-variable costs
B. Period costs
C. Direct costs
D. Marginal costs
E. Conversion costs

Answer

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Tags: Cost Classification, Cost Management, Period Costs
Level: Level 1

Topic: Cost Classifications
Series: MAR/JULY 2020

MI – Mar-Jul 2020 – L1 – SA – Q9 – Costing Techniques

Identify the statement that is not an argument for using marginal costing in routine costing.

Question

Which of the following is NOT an argument for the use of marginal costing in routine costing?

A. Simple to operate
B. Apportionment of fixed costs is avoided
C. Under or over absorption of overheads is almost entirely avoided
D. Inventory valuation at full production costs is in line with accounting standards
E. Fixed costs are incurred on a time basis and do not relate to activity

Answer

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Tags: Cost Management, Marginal Costing, Routine Costing
Level: Level 1

Topic: Costing Techniques
Series: MAR/JULY 2020

MI – Mar-Jul 2020 – L1 – SA – Q8 – Costing Methods

Identify the item that is not a problem associated with site and contract works.

Question

Which of the following is NOT a problem associated with site and contract works?

A. Pilferage of materials, tools, etc
B. Unauthorised use of equipment and vehicles
C. Simple quantity budget for materials usage
D. Incorrect labour bookings
E. General difficulties of recording and paperwork

Answer

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Tags: Contract Costing, Cost Management, Site Works
Level: Level 1

Topic: Costing Methods
Series: MAR/JULY 2020

Question Tag: Cost Management

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AA – Nov 2024 – L2 – Q2b – Advantages of Outsourcing Internal Audit

Explain the advantages and disadvantages of outsourcing the internal audit function.

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FM – Nov 2022 – L3 – Q7 – Corporate Governance and Financial Strategy

Analyze the Chairman's proposals to improve EPS and discuss methods to align stakeholder objectives.

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PSAF – May 2017 – L2 – SB – Q2 – Financial Reporting and Accountability in the Public Sector

Explain Zero-Based Budgeting stages, benefits, drawbacks, and users in the public sector.

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MI – Nov 2020 – L1 – SA – Q11 – Costing Techniques

Identify the method that allocates overhead to products based on activities that give rise to costs.

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MI – Nov 2020 – L1 – SA – Q1 – Forecasting Techniques

The question asks to calculate the Economic Order Quantity (EOQ) based on holding costs, ordering costs, and annual demand.

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MI – Nov 2015 – L1 – SB – Q2 – Budgeting

Compiles functional budgets for sales, production, and material purchases for six months.

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MI – Nov 2015 – L1 – SB – Q1 – Costing Techniques

Involves calculating the life cycle target cost and addressing cost reduction actions for a new product.

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MI – Nov 2015 – L1 – SA – Q12 – Budgeting

Identifies which option is not considered a functional budget.

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MI – May 2018 – L1 – SA – Q7 – Costing Techniques

Features of standard cost.

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MI – May 2018 – L1 – SA – Q2 – Cost Classifications

Definition of cost behavior.

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MI – May 2023 – L1 – SB – Q2a – Decision-Making Techniques

This question asks for the qualitative factors to consider when making a make or buy decision.

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MI – May 2017 – L1 – SA – Q9 – Costing Techniques

Determine when overhead is under-absorbed.

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MI – May 2017 – L1 – SA – Q3 – Costing Methods

Identify the element not used in process costing.

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MI – Mar-Jul 2020 – L1 – SB – Q3 – Decision-Making Techniques

Determine the optimal production plan and prepare the income statement based on the given production constraints and sales data.

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MI – Mar-Jul 2020 – L1 – SB – Q2b – Costing Techniques

Prepare ledger accounts for a backflush accounting system based on the given data for production and sales.

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MI – Mar-Jul 2020 – L1 – SB – Q2a – Costing Techniques

List the characteristics of a Just-In-Time (JIT) environment in manufacturing.

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MI – Mar-Jul 2020 – L1 – SB – Q1 – Costing Methods

Prepare a contract account, statement of financial position, and calculate the expected profit on a construction project.

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MI – Mar-Jul 2020 – L1 – SA – Q10 – Cost Classification

Identify the cost that is charged against revenue irrespective of production volume.

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MI – Mar-Jul 2020 – L1 – SA – Q9 – Costing Techniques

Identify the statement that is not an argument for using marginal costing in routine costing.

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MI – Mar-Jul 2020 – L1 – SA – Q8 – Costing Methods

Identify the item that is not a problem associated with site and contract works.

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