Question Tag: Decision Making

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SCS – Nov 2024 – L3 – Q4a – Capital Budgeting Framework

Explanation of the five key elements in the capital budgeting framework for investment appraisal.

One of the Board members, Dr. Halimatu Sadia, has expressed concerns regarding Dr. Ayimadu Baffour’s consistent failure to conduct investment appraisals and capital budgeting when making long-term investment decisions.

Required:

Advise Dr. Ayimadu Baffour on the capital budgeting and strategic planning framework used for conducting investment appraisals by briefly outlining the FIVE key elements of the framework.

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SCS – Nov 2024 – L3 – Q1a – Charles Handy’s Cultural Types

Discuss the application of Charles Handy's cultural types to BOGML's growth phases and analyze their impact.

Charles Handy identified four distinct categories of corporate culture (cultural stereotypes) that can exist within an organization. Since its formation, BOGML has exhibited all four categories of corporate culture during different phases of its growth.

Required:
Identify and explain the specific and appropriate category of corporate culture applicable, and discuss its impact on the company for each of the following phases of growth when Dr. Ayimadu Baffour:

i) Created the functional departments.
ii) Stated that BOGML is built around him and without him the company will not exist.
iii) Insisted on retaining all authority for decision-making.
iv) Emphasized getting work done through teamwork.

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MA – Nov 2024 – L2 – Q5a – Limiting Factor Decision and Profit Maximization

Determination of the optimum production plan considering scarce resources.

Manche produces two products from different quantities of the same resources using a just-in-time (JIT) production system. The selling price and resource requirements of each of the products are shown below:

Product C L
Unit Selling Price (GH¢) 130 160
Resources per Unit:
Direct Labour (GH¢8 per hour) 3 hours 5 hours
Material A (GH¢3 per kg) 5 kg 4 kg
Material B (GH¢7 per litre) 2 litres 1 litre
Machine Hours (GH¢10 per hour) 3 hours 4 hours
Fixed Overhead (GH¢8 per hour) 1 hour 1 hour

Market research shows that the maximum demand for products C and L during August 2024 is 500 units and 800 units respectively. This does not include an order that Manche has agreed with a commercial customer for the supply of 250 units of C and 350 units of L at selling prices of GH¢100 and GH¢135 per unit, respectively. Failure by Manche to deliver the order in full by the end of August will cause Manche to incur a GH¢5,000 financial penalty.

At a recent meeting between the Purchasing Manager and Production Manager to discuss the production plans of C and L for August, the following resource restrictions for the year were identified:

  • Direct Labour Hours: 90,000 hours
  • Machine Hours: 90,000 hours

The resource restrictions were evenly distributed throughout the year.

Required:

i) Prepare the optimum production plan for August 2024 using relevant computations. 
ii) Determine the contribution from adopting this plan. 
iii) Using relevant computations, show whether Manche should complete the order from the commercial customer assuming any excess labour hours for not making the contract can be used to produce 300 units of product ‘F’ with a contribution of GH¢55 per unit.

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MA – Nov 2024 – L2- Q1b – Return on Investment (ROI)

Computation of ROI for different one-off transactions and advice on whether they should be undertaken.

Dondo LTD is a manufacturing company based in Nsawam. The following data represents the budgeted performance of Dondo LTD for the year 2025:

Amount (GH¢’000)
Profit 660
Plant and equipment (net of depreciation) 1,560
Working capital 750

Dondo LTD is considering undertaking the following separate one-off transactions:

  1. A cash discount of GH¢16,000 will be offered to its customers annually. This will, on average, reduce the trade receivables figure by GH¢60,000.
  2. An increase in average inventories by GH¢80,000 throughout the year. The increased inventory level is expected to increase sales, resulting in GH¢30,000 increased contribution per annum.
  3. At the beginning of the year, the company will buy a plant worth GH¢360,000. This is expected to reduce operating costs by GH¢105,000. The plant has a five-year useful life with nil residual value.

Required:

i) Compute the ROI for each of the one-off transactions above. 
ii) Advise Dondo LTD on whether the above one-off transactions should be carried out.

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BMIS-Nov 2024-L1-Q1C- Decision-Making in Hospital Management

Centralised vs Decentralised decision-making in hospital management.

For each of the decisions below, identify whom you would expect to make the decision and briefly explain why.

  1. Decisions about the medical treatment or surgical treatment for individual patients.
  2. Establishing policy on hygiene standards in the hospitals.
  3. Scheduling operations in the operating theatres of each hospital.
  4. Discharging patients from hospital.
  5. Deciding the visiting times for patients in each hospital.
  6. Prescribing drugs for the treatment of patients.
  7. Hiring new staff, such as hospital porters and nurses.
  8. Dealing with payments from insurance companies for the treatment of insured patients.

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BMIS – Nov 2024 – L1 – Q1c- Types of Organisations

Identify who should make various decisions in a hospital management context, explaining why.

Within the same business organisation, some decision-making might be centralised, with decisions made by senior management. Other decisions might be decentralised, and taken by managers or employees involved in operations.

Okpoti LTD owns and operates five private hospitals. It has a head office and each hospital has its own management team and staff (including medical staff such as doctors and nurses).

Decisions are expected to be made on the following:

  1. Decisions about the medical treatment or surgical treatment for individual patients.
  2. Establishing policy on hygiene standards in the hospitals.
  3. Scheduling operations in the operating theatres of each hospital.
  4. Discharging patients from hospital.
  5. Deciding the visiting times for patients in each hospital.
  6. Prescribing drugs for the treatment of patients.
  7. Hiring new staff, such as hospital porters and nurses.
  8. Dealing with payments from insurance companies for the treatment of insured patients.

Required:
For each of the decisions above identify from the list below whom you would expect to make the decision and briefly explain why.
i) Head office management
ii) The management of each hospital
iii) Staff in each hospital

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AAA – Nov 2022 – L3 – SB – Q3 – Audit Reporting

Examines joint auditors' roles, options for audit disputes, acquisition processes, and reporting requirements.

During the audit of Kofo Plc in 2018, it was observed that there was an omission of liability to the tune of N2 billion. Upon investigation, it was discovered that the error was as a result of unrecorded liability relating to unremitted statutory taxes to the government in prior years. A compensating error was noticed in unsubstantiated investment and receivables balances schedule provided by the management.

The explanation provided by management for this error was that having noted this disparity, the internal audit team was commissioned to reconcile the ledger balances to establish the actual payment to be made to the government. The result of that exercise led to an initial adjustment of N500 million. However, upon further review by the Internal Audit and Risk Management team, the total disparity noted was N5 billion as opposed to the N2 billion initially noted. The reason being that the report with which the Internal Audit Team carried out the reconciliation was understated. Some liability balances were excluded from the report as a result of the approach used to set up the Information System (I.T) System. Therefore, the general command entered into the system to spool the report did not capture the entire transactions. To gain comfort, the audit team:

(i) Reviewed the reconciliation memo to have an understanding of management’s thought process;
(ii) Requested the updated spool of ledger balances from the I.T system;
(iii) Asked the Information Technology team to perform a walkthrough test of the transaction spool;
(iv) Requested the breakdown of the excluded balances and traced them to the supporting documents to which they relate; and
(v) Checked to see that there were no unusual remittances from the bank statements.

You are a member of the audit team which reviewed Kofo Plc’s compliance with International Standards on Auditing (ISA 250) on Non-Compliance with Laws and Regulations (NOCLAR).

Required:

a. Outline the audit procedures to be performed to help identify instances of non-compliance with laws and regulations. (5 Marks)

b. State what the auditor should do when they become aware of an issue of non-compliance with laws and regulations. (5 Marks)

c. State the types of policies and procedures the entity may implement to assist in the prevention and detection of non-compliance with laws and regulations. (4 Marks)

d. Discuss what the auditor should do under the following situations:

  • i. Reporting non-compliance to those charged with governance (2 Marks)
  • ii. Reporting non-compliance in the audit report (2 Marks)
  • iii. Reporting non-compliance to the authorities (2 Marks)

(Total 20 Marks)

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FM – Nov 2017 – L3 – Q6 – Ethical Issues in Financial Management

Explore ethical considerations in capital investment and apply the Black-Scholes model in company valuation.

You have recently taken up employment with Large Plc., a Nigerian company with manufacturing subsidiaries in many countries across Africa. As the Financial Analyst, you report directly to the Managing Director who currently requires briefings on the following areas:

(i) Ethical issues and capital investment decisions,
(ii) Options and company valuation

Required:

a. Explain, with examples, ethical issues that might affect capital investment decisions and discuss the importance of such issues for Strategic Financial Management. (8 Marks)

b. Explain the circumstances in which the Black-Scholes Option Pricing (BSOP) model could be used to assess the value of a company, including the data required for the variables used in the model. (7 Marks)

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FR – Nov 2023 – L2 – Q6b – Ethical Issues in Financial Reporting

List three types of non-financial information useful to stakeholders for decision-making.

Businesses are increasingly accepting that they are not only accountable to investors and lenders, but also accountable to a much wider group of people or stakeholders to which non-financial information is useful in understanding and taking informed decisions on financial statements of the entities.

Required:
State THREE of such useful non-financial information. (3 Marks)

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PM – May 2021 – L2 – Q1 – Costing Systems and Techniques

Analyze linear programming application in production and pricing strategy for maximizing scarce resources.

The Managing Director of NTAMS Manufacturing Company Limited, located in Lagos, attended a seminar titled “Optimizing scarce resource utility in a manufacturing setting with particular reference to linear programming.” Upon his return, he initiated a management meeting to discuss key insights, prompted by the board’s decision to prioritize two primary products.

The following are cost data for the anticipated products “Biggi” and “Smalli”:

Costs Biggi (₦) Smalli (₦)
Material Costs (5kg @ ₦50/kg) 250 (3kg @ ₦50/kg) 150
Labour Costs:
Machining Time (4 hours @ ₦15/hr) 60 (2 hours @ ₦15/hr) 30
Processing Time (4 hours @ ₦10/hr) 40 (5 hours @ ₦10/hr) 50

The company adheres to a pricing policy where total cost of production is marked up by 20%. Annual overhead is ₦10,000,000, allocated on a 3:2 basis between Biggi and Smalli, with a projected production of 200,000 Biggis and 100,000 Smallis.

Available resources for the upcoming year:

  • Materials: 1,800,000 kg
  • Machine Time: 800,000 hours
  • Other Processing Time: 1,400,000 hours

Required:

As the management accountant:

  1. Explain briefly the concept of linear programming and its usefulness.
    (5 Marks)
  2. Compute the Prices for Biggi and Smalli using the company’s pricing policy.
    (5 Marks)
  3. Advise the company on the output levels needed to maximize total profit, with full financial analysis support.
    (10 Marks)
  4. Explain the meaning and limitations of “shadow prices” and calculate them for constraints.
    (12 Marks)
  5. Assuming consistent conditions for three years with an investment cost of ₦45,000,000 and a 15% cost of capital:
    • Determine if this venture is justified.
      (4 Marks)
    • Find the breakeven discount factor for this project.
      (4 Marks)

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BMF – Nov 2023 – L1 – SA – Q4 – Basic Management Functions

Identify an advantage of decentralised decision-making in organizations.

Which of the following is an advantage of a decentralised decision-making process?
A. Facilitates effective co-ordination of activities
B. Promotes the usage of initiative instead of getting instructions about what to do
C. Managers at head office are able to apply a “corporate view” to the entire business
D. Fewer managers might be needed
E. Uses specialised management support teams for the entire organisation

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PM – Mar/Jul 2020 – L2 – Q1 – Decision Making and Capacity Constraints for Benco Limited

Evaluate which of two components, K or T, should be produced and sold to maximize profit based on given cost and capacity constraints.

Benco Limited produces two critical components, K and T, both of which are used in petroleum refinery. The components are made by passing each one through two fully automatic computer-controlled machine lines – A and B – with respective maximum capacity of 13,600 hours and 15,360 hours. The following details are available:
(i) Due to production constraints, the company has decided to produce only one of the two components, K or T, for the next period but not both.
(ii) Market demand is limited to 59,200 units of K and 80,000 units of T.
(iii) Products unit data:

(iv) The maximum quantity of material X available is 136,000kg. The material is purchased at ₦50 per kg.
(v) Variable machine overhead for machine line A and line B is estimated at ₦500 and ₦600 per machine hour respectively.
(vi) The company operates a JIT system.

Required:
a. Calculate which of the components, K or T, should be produced and sold in the year in order to maximise profits. You should state the number of units to be produced and sold and the resulting contribution. (10 Marks)
b. Benco Limited wishes to consider additional sales outlets which could earn contribution at the rate of ₦400 and ₦600 per machine hour for machine line A and line B respectively. Such additional sales outlets would be taken up only to utilise any surplus hours not required for the production of the components. Calculate whether Benco Limited should now produce either component K or T and what quantity to be produced and the resulting contribution. (9 Marks)
c. Suggest ways in which the company may overcome the capacity constraints which limit the opportunities available to it in the year, and indicate the types of costs which may be incurred in overcoming each constraint. (10 Marks)

d. Illustrate the use of opportunity cost in the charging of each of material, labour and overhead elements in comparison with historic absorption cost elements. For each element, you should illustrate your answer with figures of your choice.
(11 Marks)

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BMF – May 2023 – L1 – SB – Q2 – Investment Decisions

Use the IRR method to evaluate two projects and recommend which one should be selected.

Johnson and Jacob Limited is considering whether to invest in one of these two projects. The expected cash flows are as stated below:

Year Project Blue (N’000) Project Pink (N’000)
0 (33,000) (30,000)
1 18,000 3,000
2 6,000 3,000
3 3,000 6,000
4 15,000 30,000

The company anticipates a cost of capital of 12%. Using the Internal Rate of Return (IRR) method of investment appraisal, which of the projects should be selected?

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MI – May 2023 – L1 – SB – Q4b – Information Systems

This question asks how good information systems can assist organizations.

Identify and explain FOUR ways good information systems can assist organizations.

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BMF – May 2017 – L1 – SA – Q6 – Basic Management Functions

Multiple-choice question on the advantages of decentralized decision-making in management.

Decentralised decision-making is advantageous because
A. Managers at the head office are able to apply a corporate view of the entire business.
B. It gives senior managers greater control over business activities thereby allowing them to coordinate activities more effectively.
C. It is possible to use specialised management support teams for the whole organization.
D. It helps to develop junior managers with initiative and talents and prepare them for higher positions.
E. It is cheaper since fewer managers are needed.

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MI – May 2017 – L1 – SA – Q1 – Costing Techniques

Identify the cost type for Plant and Equipment procured three years ago.

The cost of Plant and Equipment procured three years ago is a good example of a:
A. Controllable cost
B. Notional cost
C. Budgeted cost
D. Sunk cost
E. Relevant cost

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FA – May 2017 – L1 – SA – Q8 – Users of Accounting Information and Their Needs

Examines the fundamental objective of accounting.

The core objective of accounting is to
A. Keep record of transactions
B. Produce a trial balance
C. Maintain records of assets and liabilities
D. Provide financial information to users for decision making
E. Maintain register for non-current assets

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BMF – Mar July 2020 – L1 – SB – Q6 -Basics of Business Finance and Financial Markets

Evaluating two projects based on discounted payback period and advising management.

Perfumes Nigeria Limited is considering the purchase of a new machine and has two alternatives. The company uses discounted payback period as a criterion for project selection and has a policy of not investing in any project unless the discounted payback period is less than 4 years. The expected cash flow profiles of the two projects are as shown below:

Year Machine Perf. (₦) Machine Fumes (₦)
2020 (2,000,000) (2,000,000)
2021 200,000 1,000,000
2022 400,000 1,000,000
2023 1,200,000 200,000
2024 1,400,000 100,000
2025 1,600,000 100,000

The company’s cost of capital is 10%.

Required:
Evaluate the two projects and offer your advice to support the investment decision of the management of the company. Assume 360 days make a year and express discounted payback period in years plus days. Show all workings. (20 marks)

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FA – May 2017 – L1 – SA – Q2 – Qualitative Characteristics of Useful Financial Information

Defines relevant financial information as per the Conceptual Framework.

Relevant financial information, according to the Conceptual Framework is

A. Capable of making a difference in the decisions made by users
B. Incapable of making a difference in the decisions made by users
C. Capable of making a difference in the performance of the company
D. Incapable of making a difference in the performance of the company
E. Capable of multiple interpretations

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BMF – Mar July 2020 – L1 – SA – Q7 – Basic Management Functions

Understanding decision-making levels in an organization according to Robert Anthony.

Decision-making in an organization is classified into three levels according to Robert Anthony. Which of the following is NOT one of these levels?
A. Strategic level
B. Tactical level
C. Operational level
D. Intermediate level
E. Managerial level

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