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 – Mar-Jul 2020 – L1 – SA – Q5 – Costing Techniques

Identify the effect of increasing automation that is not related to costing.

Question

Which of the following is NOT an effect of increasing automation from a costing viewpoint?

A. Reduction in direct labour costs per unit
B. Reduction in overhead cost
C. Change in cost structures
D. Makes labour hours increasingly unsuitable as an overhead absorption base
E. Fewer production workers and more support staff

Answer:

Answer

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Tags: Automation, Cost Management, Costing Techniques, Overhead Costs
Level: Level 1

Topic: Costing Techniques
Series: MAR/JULY 2020

MI – Mar-Jul 2020 – L1 – SA – Q4 – Costing Techniques

Identify the cost that does not arise as a result of labour turnover.

Question

Labour turnover is the ratio of the number of employees leaving a company to the total number on the payroll in that period. Which of the following costs does not arise as a result of labour turnover?

A. Redundancy Cost
B. Separation Cost
C. Replacement Cost
D. Training Cost
E. Learning Cost

Answer

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Tags: Cost Management, Costing Techniques, Human Resources, Labour Turnover
Level: Level 1

Topic: Costing Techniques
Series: MAR/JULY 2020

MI – Mar-Jul 2020 – L1 – SA – Q2 – Costing Methods

Identify the incorrect method of allocating service department costs.

Question

In a manufacturing set-up, the service department provides services to other service departments as well as the production department. Which of the following is NOT a method of allocating the service department cost?

A. Specified order of closing
B. Repeated distribution method
C. Indirect allocation method
D. Simultaneous equation method
E. Matrix method

Answer

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Tags: Cost Allocation, Cost Management, Costing Methods, Overhead Allocation, Service Department
Level: Level 1

Topic: Costing Methods
Series: MAR/JULY 2020

MI – Mar-Jul 2020 – L1 – SA – Q1 – Basic Variance Analysis

Identify which option is not a typical cause of material variances in a manufacturing setup.

Question

Which of the following is NOT a typical cause of material variances?

A. Paying higher or lower prices than planned
B. Losing or gaining quantity discounts
C. Buying complementary materials due to availability of planned material
D. Buying lower or higher quality than planned
E. Greater or lower yield from materials than planned

Answer

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Tags: Basic Variance Analysis, Cost Management, Management Information, Material variances, Variances
Level: Level 1

Topic: Basic Variance Analysis
Series: MAR/JULY 2020

MA – Mar 2023 – L2 – Q2a – Standard costing and variance analysis

Prepare a production plan to maximize profit using throughput approach with given labor hours and demand.

Question

The statement below relates to the costs and selling price of a unit of three products produced by a company:

Additional information provided:
Labour rate per hour for all the products is GH¢8
Demand for the year in units: A – 4,000; B – 2,500; C – 3,600
Available labour hours: 65,000
Required:
i) Prepare a production plan that will maximize profit using the throughput approach.
(9 marks)
ii) Calculate the Through Put Accounting Ratio for each product assuming that the conversion
cost is based on the annual demand.
(6 marks)

Answer

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Tags: Cost Management, Limiting factors, Production planning, Profit Maximization, Throughput Accounting

Topic: Throughput Accounting
Series: MAR 2023

MA – Nov 2020 – L2 – Q4b – Standard Costing and Variance Analysis

Discuss the advantages and disadvantages of using standard costing in cost management.

Question

b) Explain THREE (3) advantages and TWO (2) disadvantages of standard costing.

Answer

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Tags: Cost Management, Standard Costing, Variance Analysis
Level: Level 2

Topic: Standard Costing and Variance Analysis
Series: NOV 2020

MA – Nov 2020 – L2 – Q2b – Budgetary Control, Cash Budgets and Master Budgets

Prepare various budgets and an income statement for October 2019 for Mercury Company’s TomaCan product.

Question

Mercury Company’s management wants to prepare budgets for one of its products, TomaCan, for October 2019.

The firm sells the product for GH¢75 per unit and has the following expected sales (in units) for these months in 2019:

July	August	September	October	November	December
6,000	7,000	8,000	9,000	10,000	11,000

The production process requires 5 kilos of Atadwe and 3 kilos of Ginger. The firm’s policy is to maintain an ending finished goods inventory each month equal to 15% of the following month’s budgeted sales, but in no case less than 1,300 units. All materials inventories are to be maintained at 10% of the production needs for the next month, but not to exceed 3,000 kilos. The firm expects all inventories at the end of September to be within the guidelines. The purchase department expects the materials to cost GH¢1.75 per kilo for Ginger and GH¢5.00 per kilo for Atadwe respectively.

The production process requires direct labor at two Skill Levels (SL). The rate for labor at SL1 is GH¢45 per hour, and for SL2 is GH¢25 per hour. SL1 can process one batch of TomaCan per hour, while SL2 uses double the time of SL1 for the same output. Each batch consists of 10 units.

Variable manufacturing overhead is GH¢100 per batch plus GH¢75 per direct labor-hour. Fixed production overhead is GH¢51,240. It is the plan of Mercury Company to spend a third of variable and fixed production overhead costs on selling and administration expenses. The company is in the 25% tax bracket but enjoys a rebate of 50% because of its location. The company uses an actual cost system. The unit cost of production in October is the same as that of September.

Required: On the basis of the preceding data and projections, prepare the following budgets:

i) Production budget for October (in units).
ii) Direct materials purchases budget for October (in kilos).
iii) Direct materials purchases budget for October (in Cedis).
iv) Direct manufacturing labor budget for October (in Cedis).
v) Income statement for the month of October 2019.

Answer

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Tags: Budgeting, Cost Management, Direct Materials, Income Statement, Production Budget
Level: Level 2

Topic: Budgetary control, Cash Budgets and Master Budgets
Series: NOV 2020

MA – Nov 2020 – L2 – Q2a – Introduction to Management Accounting

Distinguish between Target Costing and Kaizen Costing in cost management.

Question

a) In cost management, Target costing and Kaizen costing play key roles. Distinguish between these two cost techniques.

Answer

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Tags: Cost Management, Costing Techniques, Kaizen, Target costing
Level: Level 2

Topic: Introduction to management accounting
Series: NOV 2020

MA – May 2020 – L2 – Q4c – Decision making techniques, Relevant cost and revenue

Explain how a management accountant can use make or buy analysis and limiting factor principles to solve management problems.

Question

c) Explain how a management accountant can use make or buy analysis and the limiting factor principles to achieve optimal solutions to an internal management problem. (4 marks)

Answer

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Tags: Cost Management, Decision Making, Limiting factors, Make or buy decisions
Level: Level 2

Topic: Decision making techniques, Relevant Cost and Revenue
Series: MAY 2020

MA – May 2017 – L2 – Q3b – Decision making techniques

Describe the target costing process and outline possible steps to reduce a target cost gap.

Question

Wham Limited assembles and sells many types of android smartphones. It is considering extending its product range to include window phones. These smartphones produce better sound quality than traditional keypad phones and have a large number of potential additional features not possible with the previous technologies (station scanning, more choice, one-touch tuning, station identification text, and song identification text, etc.).

Android smartphones are produced by assembly workers assembling a variety of components. Production overheads are currently absorbed into product costs on an assembly labor hour basis. Wham Limited is considering a target costing approach for its new window phone product.

Required:

i) Briefly describe the target costing process that Wham Limited should undertake in order to successfully introduce its new window phone. (3 marks)

ii) Assuming a cost gap was identified in the process, outline possible steps Wham Limited could take to reduce the target cost gap. (3 marks)

Answer

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Tags: Cost gap reduction, Cost Management, New product introduction, Product pricing, Target costing
Level: Level 2

Topic: Decision making techniques
Series: MAY 2017

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 – Mar-Jul 2020 – L1 – SA – Q5 – Costing Techniques

Identify the effect of increasing automation that is not related to costing.

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MI – Mar-Jul 2020 – L1 – SA – Q4 – Costing Techniques

Identify the cost that does not arise as a result of labour turnover.

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MI – Mar-Jul 2020 – L1 – SA – Q2 – Costing Methods

Identify the incorrect method of allocating service department costs.

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MI – Mar-Jul 2020 – L1 – SA – Q1 – Basic Variance Analysis

Identify which option is not a typical cause of material variances in a manufacturing setup.

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MA – Mar 2023 – L2 – Q2a – Standard costing and variance analysis

Prepare a production plan to maximize profit using throughput approach with given labor hours and demand.

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MA – Nov 2020 – L2 – Q4b – Standard Costing and Variance Analysis

Discuss the advantages and disadvantages of using standard costing in cost management.

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MA – Nov 2020 – L2 – Q2b – Budgetary Control, Cash Budgets and Master Budgets

Prepare various budgets and an income statement for October 2019 for Mercury Company’s TomaCan product.

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MA – Nov 2020 – L2 – Q2a – Introduction to Management Accounting

Distinguish between Target Costing and Kaizen Costing in cost management.

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MA – May 2020 – L2 – Q4c – Decision making techniques, Relevant cost and revenue

Explain how a management accountant can use make or buy analysis and limiting factor principles to solve management problems.

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MA – May 2017 – L2 – Q3b – Decision making techniques

Describe the target costing process and outline possible steps to reduce a target cost gap.

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