Question Tag: Profit Calculation

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QMDM – JULY 2020 – L2 – Q6 – Breakeven Analysis for Office Chairs

Define revenue, cost, profit functions; calculate breakeven, revenue/income at breakeven, profit at 1,500 units, and units for GHe75,000 profit

Agorwu Company produces office chairs. The price per chair is GHe99.75 and the variable cost per chair is GHe49.75. The following fixed costs are incurred:

Depreciation of plant and equipment per year GHe20,000
Property taxes per year GHe12,000
Manager’s salary and fringe benefits per month GHe5,200

Perform a breakeven analysis of this company:

a. What is the total revenue function? (2 marks)

b. What is the total cost function? (2 marks)

c. What is the profit function? (2 marks)

d. What is the breakeven point in number of chairs? (2 marks)

e. What is the revenue at the breakeven point? (2 marks)

f. What is the income at the breakeven point? (2 marks)

g. Determine the profit when 1,500 chairs are produced in a year. (8 marks)

h. How many chairs must be sold for the company to make GHe75,000 in a year? (5 marks)

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IA – JULY 2020 – L1 – Q7 – Break-Even Analysis and Overhead Allocation

Calculate break-even units and sales revenue; translate percentages to absolute figures and calculate profit after tax; allocate overheads.

The following estimates have been drawn up by AIRTROTRO LIMITED that manufactures three products:

Engine GHS’000 Propeller GHS’000 Cabin GHS’000
Cost per unit:
Materials 70 84 66
Labour 50 36 10
Packing 10 10 84,000
Fixed Costs per year 120,000 70,000 150
Selling Price per unit 170 150 190

You are required to determine:

  1. The units of each product that must be manufactured and sold by the factory to break-even.
  2. The total sales revenue of AIRTROTRO LIMITED at break-even point.

b. The accountant of EXCAVATOR ASSEMBLY PLANT determined the following allocation percentages for the various departments – Manufacturing, Selling, and Administration. The Company’s annual sales turnover is GHS 50,000,000.

Expenditure Item Expenditure GHS % Allocation of Expenditure
Manufacturing (%) Selling (%) Administration (%)
Raw Materials 25,000,000 93 10 3
Labour 12,500,000 87.5 9.5 20
Insurance 750,000 35 45 5.5
Taxes 1,250,000 29.5 65 11
Depreciation 7,500,000 77 12

You are required to:

  1. Translate the percentages (%) into absolute figures (GHS) using the expenditure item as the base.
  2. Calculate the profit after tax of EXCAVATOR ASSEMBLY PLANT.

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EIB – OCT 2022 – L1 – Q3 – Price Mechanism, Elasticity, and Costs

Advantages of price mechanism, supply elasticity factors, costs, and profit computation.

(a) Mention two advantages of price mechanism. (4 marks

(b) Mention two factors that determine price elasticity of supply. (4 marks

(c) What are the firm’s explicit costs? (4 marks

(d) The fixed cost and the variable cost of production are collectively termed what? (4 marks

(e) A competitive firm’s price is GHC10, ATC is GHC 5, quantity supplied is 20, calculate its profit level. (4 marks

(Total marks:20)

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EIB – APR 2024 – L1 – Q3 – Market Structures and Price Controls

Defines perfect competition, lists features, calculates profit and shutdown, defines oligopoly, explains price ceiling effects.

(a) What is a Perfect Competitive Market in Economics? [2 marks]

(b) Identify three (3) features of Perfect Competition. [6 marks]

(c) Assuming a competitive firm’s Price (P) is GHC12, Average Total Cost (ATC) is GHC13, Average Variable Cost (AVC) is GHC10, and Quantity Supplied (QS) is 25. Calculate the firm’s Profit level and explain why it should or should not shut down in the short run. [6 marks]

(d) Explain the term Oligopoly as a Market Structure. [2 marks]

(e) What is Price Ceiling? Mention two (2) effects of Price Ceiling? [4 marks]

(Total: 20 marks)

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MA – Mar 2025 – L2 – Q5 – Decision making techniques

Determine whether Moree Engineers LTD should make or buy extra seating assemblies for scooters, considering costs and opportunity costs.

a) i)
Moree Engineers LTD (MEL) makes electrically-driven disability scooters aimed at elderly and/or disabled customers. At present, wheels and tyres are bought from external suppliers but all other parts are manufactured in-house. The scooters have a strong reputation due mainly to innovative designs, special power units that can be recharged at home and seats that enable easy access for a wide range of disabilities. MEL also sells power units to other firms.
Current monthly costs are as follows:

Seating Department Power Unit Department
Costs GH¢ GH¢
Direct Materials 9,300 4,140
Direct Labour 12,600 9,450
Apportioned overheads 26,700 17,200
48,600 30,790
Production level 60 units 90 units

The power unit department currently produces 90 units a month, 60 units are used in MEL’s own scooters while 30 units are sold externally at GH¢376 each.
A contract has been won to supply an additional 10 scooters per month. However, the directors are considering how best to meet the additional demand.
Sufficient capacity exists for the company to increase its monthly production to 70 scooters, except that making an extra 10 seating assemblies would require reallocation of labour and other resources from the power unit to the seating department. This would cut power unit output by 20 units per month.
The alternative course would be to buy 10 seating assemblies from an outside supplier and fit the 10 power units from the present production of 90 units. The cheapest quote for seating assemblies is GH¢610 per assembly.

Required:
Based on the figures given, show whether Moree Engineers LTD should make or buy the extra seats.

a) ii) Discuss FOUR other factors that should be considered before a final decision is taken to make or to buy the extra seats.

b) i). Bambo LTD produces three medical products namely, gloves, bandages and syringes. The budgeted sales in the coming year for the three products is GH¢4,530,000. The company accordingly projected GH¢750,000 post-tax profit on the three products for the period.
Detailed budgeted Cost and sales data for the coming year are as follows:

Gloves Bandages Syringes
Sales Volume (%) 40% 25% 35%
Variable cost to Sales ratio 60% 67.5% 54.5%

The fixed cost for Bambo LTD amounted to GH¢1,330,000.
Other information:
Corporate tax rate is 25%

Required:
Calculate margin of safety in percentage (%) terms.

b) ii) Calculate post-tax revenue to achieve the projected profit.

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PM – May 2023 – L2 – SA – Q2 – Decision-Making Techniques

Construct payoff tables, determine profitable print numbers, and discuss decision rules for football program sales.

The local football club has asked for your advice on the number of programmes that should be printed for each game. The cost of printing and production of programmes for each game, as quoted by the local printer, is ₦1,000,000 plus ₦400 per copy. Advertising revenue which has been agreed for the season represents ₦800,000 for each game.

Programmes are sold for ₦150 each. A review of sales during the previous seasons indicates that the following pattern is expected to be repeated during the coming season of 50 games:

Number of programmes sold Number of games
10,000 5
20,000 20
30,000 15
40,000 10

Programmes not sold at the game are sold as waste paper to a paper manufacturer at ₦100 per copy.

Assuming that the four quantities listed are the only possibilities, you are required to:

a. Prepare a payoff table. (6 Marks)

b. Determine the number of programmes that would provide the highest profit if a constant number of programmes were to be printed for each game. (4 Marks)

c. Explain why you should buy 30,000 or 40,000 copies, assuming one of these is the most profitable quantity, despite the fact that the most probable sales are 20,000 copies per game. (2 Marks)

d. Calculate the profit which would arise from a perfect forecast of the numbers of programmes which would be sold at each game. (4 Marks)

e. Discuss the major limitations of the expected value criterion in decision making. (4 Marks)

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FA – May 2012 – L1 – SB – Q6 – Financial Statements Preparation

Prepare Statements of Affairs for two years and calculate opening capital, net worth, and profit.

Fortward Geso Trading Store maintained a single-entry system. The following information was extracted from the records:

Year Ended 31 December 2011 31 December 2010
Accrued expenses 10,000
Accounts receivable 196,000 130,000
Prepaid expenses 16,000
Bank balances (40,000) 200,000
Investment 500,000
Cash balance 366,000 106,000
Accounts payable 74,000 90,000
Land and buildings 1,500,000 1,500,000
Delivery van 260,000 260,000
Inventories 190,000 74,000
Loan from bank 300,000 300,000

The following additional information was also made available in respect of the 2011 accounting year:
(i) Provision for doubtful debts should be made for N3,000.
(ii) Depreciation is to be provided on book value as follows:
(a) Land and buildings 5%
(b) Delivery van 10%
(iii) Additional capital of N250,000 was introduced into the business during the year.
(iv) The owner of the store withdrew a total sum of N20,000 during the year.

You are required to:
Prepare the Statements of Affairs of Fortward Geso Trading Stores for the two years to show:
(a) The opening capital (6 Marks)
(b) Net worth of the business (6 Marks)
(c) Profit (3 Marks)

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QTB – May 2016 – L1 – SB – Q1a – Mathematics

Calculate profit in year 5 for new product with given growth rates for units produced, selling price, and production costs.

A company plans to introduce a new product into the market. 6,000 units are to be produced in the first year with an annual growth rate of 3.5%. Selling price is to be set at N1,050 per year with an annual growth rate of 6.5%.

Required:

If the production costs are to be pegged at N850 in the first year with an annual growth rate of 5%, calculate the profit earned in year 5.

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PM – May 2018 – L2 – Q5 – Strategic Management Accounting

Determine the optimal production plan for Classic Wears Plc. and calculate the total profit.

Classic Wears Plc. manufactures three unique jeans wears for which the maximum
revenue for the coming year is estimated as follows:

 

summarised unit cost data are as follows:

 

 

The products are processed on sewing machines housed in a building of three blocks.
Block A contains type I machine which has an estimated maximum of 19,600 machine
hours available in the forthcoming year with fixed overhead cost of N980,000 per
annum.
Block B contains type II machine of which 10,000 machine hours are estimated in the
forthcoming year with a fixed overhead cost of N750,000 per annum.
Block C also contains type II machine which also has an estimate of 8,000 machine
hours available in the forthcoming year. The fixed overhead cost of N370,000 is
estimated per annum for Block C.
The required machine hours for one unit of output for each Jeans on each type of
machine are as follows:

 

 

You are required to:
a. Determine the optimal production plan which Classic Wears Limited should
adopt. (12 Marks)
b. Calculate the total profit that would be made, if the production plan in (a)
above is adopted. (3 Marks)

 

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PM – May 2019 – L2 – Q5 – Transfer Pricing

Profitability analysis for two divisions, including transfer pricing and external supplier impacts.

TK is a company that produces toy television sets targeting children of the elite. The company has two divisions, Division S and Division B. Division S manufactures components for the televisions and sells components to Division B and to external customers. Division B uses five of the components in each of the toy television sets that it manufactures and sells television sets directly to external customers.

Division S
Budgeted variable manufacturing cost per component (N):

  • Direct material: 140
  • Direct labour: 180
  • Variable overhead: 120

Additional Information:

  • Fixed costs: N5,600,000
  • Production capacity: 175,000 components
  • External demand: 150,000 components
  • Potential demand from Division B: 80,000 components
  • Anticipated external market price for a component: N500

Division B

  • Sales price: N4,500
  • Budgeted variable manufacturing cost per television (N):
    • Direct material: 400
    • Direct labour: 620
    • Variable overhead: 160

Each toy television set produced needs five components. Fixed costs are budgeted to be N14,600,000 for next year. Annual sales of the toy television sets are expected to be 16,000 units.

Transfer Pricing Policy:

  • Transfer prices are set at opportunity cost.
  • Division S must satisfy the demand of Division B before selling components externally.
  • Division B is allowed to purchase components from Division S or from external suppliers.

Required:
a. Assuming that Division B buys all the components it requires from Division S:
Prepare a profit statement for each division detailing sales and costs, showing external sales and internal company transfers separately where appropriate. (6 Marks)

b. A specialist external supplier has approached Division B and offered to supply 80,000 components at a price of N420 each. The components fulfil the same function as those manufactured by Division S. The manager of Division B has accepted the offer and agreed to buy all the components it requires from this supplier:
i. Produce a revised profit statement for each division and for the total TK company.
ii. Division S has just received an enquiry from a new customer for the production of 25,000 components. The manager of Division S requires a total profit for the year for the division of N4,500,000.

  • Calculate the minimum price per component to sell the 25,000 components to the new customer that would enable the manager of Division S to meet the profit target. (4 Marks)

Note: This order will have no effect on the divisional fixed costs and no impact on the 150,000 components Division S sells to its existing external customers at N500 per component. Division B will continue to purchase the 80,000 components it requires from the specialist external supplier.

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QMDM – JULY 2020 – L2 – Q6 – Breakeven Analysis for Office Chairs

Define revenue, cost, profit functions; calculate breakeven, revenue/income at breakeven, profit at 1,500 units, and units for GHe75,000 profit

Agorwu Company produces office chairs. The price per chair is GHe99.75 and the variable cost per chair is GHe49.75. The following fixed costs are incurred:

Depreciation of plant and equipment per year GHe20,000
Property taxes per year GHe12,000
Manager’s salary and fringe benefits per month GHe5,200

Perform a breakeven analysis of this company:

a. What is the total revenue function? (2 marks)

b. What is the total cost function? (2 marks)

c. What is the profit function? (2 marks)

d. What is the breakeven point in number of chairs? (2 marks)

e. What is the revenue at the breakeven point? (2 marks)

f. What is the income at the breakeven point? (2 marks)

g. Determine the profit when 1,500 chairs are produced in a year. (8 marks)

h. How many chairs must be sold for the company to make GHe75,000 in a year? (5 marks)

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IA – JULY 2020 – L1 – Q7 – Break-Even Analysis and Overhead Allocation

Calculate break-even units and sales revenue; translate percentages to absolute figures and calculate profit after tax; allocate overheads.

The following estimates have been drawn up by AIRTROTRO LIMITED that manufactures three products:

Engine GHS’000 Propeller GHS’000 Cabin GHS’000
Cost per unit:
Materials 70 84 66
Labour 50 36 10
Packing 10 10 84,000
Fixed Costs per year 120,000 70,000 150
Selling Price per unit 170 150 190

You are required to determine:

  1. The units of each product that must be manufactured and sold by the factory to break-even.
  2. The total sales revenue of AIRTROTRO LIMITED at break-even point.

b. The accountant of EXCAVATOR ASSEMBLY PLANT determined the following allocation percentages for the various departments – Manufacturing, Selling, and Administration. The Company’s annual sales turnover is GHS 50,000,000.

Expenditure Item Expenditure GHS % Allocation of Expenditure
Manufacturing (%) Selling (%) Administration (%)
Raw Materials 25,000,000 93 10 3
Labour 12,500,000 87.5 9.5 20
Insurance 750,000 35 45 5.5
Taxes 1,250,000 29.5 65 11
Depreciation 7,500,000 77 12

You are required to:

  1. Translate the percentages (%) into absolute figures (GHS) using the expenditure item as the base.
  2. Calculate the profit after tax of EXCAVATOR ASSEMBLY PLANT.

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EIB – OCT 2022 – L1 – Q3 – Price Mechanism, Elasticity, and Costs

Advantages of price mechanism, supply elasticity factors, costs, and profit computation.

(a) Mention two advantages of price mechanism. (4 marks

(b) Mention two factors that determine price elasticity of supply. (4 marks

(c) What are the firm’s explicit costs? (4 marks

(d) The fixed cost and the variable cost of production are collectively termed what? (4 marks

(e) A competitive firm’s price is GHC10, ATC is GHC 5, quantity supplied is 20, calculate its profit level. (4 marks

(Total marks:20)

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EIB – APR 2024 – L1 – Q3 – Market Structures and Price Controls

Defines perfect competition, lists features, calculates profit and shutdown, defines oligopoly, explains price ceiling effects.

(a) What is a Perfect Competitive Market in Economics? [2 marks]

(b) Identify three (3) features of Perfect Competition. [6 marks]

(c) Assuming a competitive firm’s Price (P) is GHC12, Average Total Cost (ATC) is GHC13, Average Variable Cost (AVC) is GHC10, and Quantity Supplied (QS) is 25. Calculate the firm’s Profit level and explain why it should or should not shut down in the short run. [6 marks]

(d) Explain the term Oligopoly as a Market Structure. [2 marks]

(e) What is Price Ceiling? Mention two (2) effects of Price Ceiling? [4 marks]

(Total: 20 marks)

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MA – Mar 2025 – L2 – Q5 – Decision making techniques

Determine whether Moree Engineers LTD should make or buy extra seating assemblies for scooters, considering costs and opportunity costs.

a) i)
Moree Engineers LTD (MEL) makes electrically-driven disability scooters aimed at elderly and/or disabled customers. At present, wheels and tyres are bought from external suppliers but all other parts are manufactured in-house. The scooters have a strong reputation due mainly to innovative designs, special power units that can be recharged at home and seats that enable easy access for a wide range of disabilities. MEL also sells power units to other firms.
Current monthly costs are as follows:

Seating Department Power Unit Department
Costs GH¢ GH¢
Direct Materials 9,300 4,140
Direct Labour 12,600 9,450
Apportioned overheads 26,700 17,200
48,600 30,790
Production level 60 units 90 units

The power unit department currently produces 90 units a month, 60 units are used in MEL’s own scooters while 30 units are sold externally at GH¢376 each.
A contract has been won to supply an additional 10 scooters per month. However, the directors are considering how best to meet the additional demand.
Sufficient capacity exists for the company to increase its monthly production to 70 scooters, except that making an extra 10 seating assemblies would require reallocation of labour and other resources from the power unit to the seating department. This would cut power unit output by 20 units per month.
The alternative course would be to buy 10 seating assemblies from an outside supplier and fit the 10 power units from the present production of 90 units. The cheapest quote for seating assemblies is GH¢610 per assembly.

Required:
Based on the figures given, show whether Moree Engineers LTD should make or buy the extra seats.

a) ii) Discuss FOUR other factors that should be considered before a final decision is taken to make or to buy the extra seats.

b) i). Bambo LTD produces three medical products namely, gloves, bandages and syringes. The budgeted sales in the coming year for the three products is GH¢4,530,000. The company accordingly projected GH¢750,000 post-tax profit on the three products for the period.
Detailed budgeted Cost and sales data for the coming year are as follows:

Gloves Bandages Syringes
Sales Volume (%) 40% 25% 35%
Variable cost to Sales ratio 60% 67.5% 54.5%

The fixed cost for Bambo LTD amounted to GH¢1,330,000.
Other information:
Corporate tax rate is 25%

Required:
Calculate margin of safety in percentage (%) terms.

b) ii) Calculate post-tax revenue to achieve the projected profit.

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PM – May 2023 – L2 – SA – Q2 – Decision-Making Techniques

Construct payoff tables, determine profitable print numbers, and discuss decision rules for football program sales.

The local football club has asked for your advice on the number of programmes that should be printed for each game. The cost of printing and production of programmes for each game, as quoted by the local printer, is ₦1,000,000 plus ₦400 per copy. Advertising revenue which has been agreed for the season represents ₦800,000 for each game.

Programmes are sold for ₦150 each. A review of sales during the previous seasons indicates that the following pattern is expected to be repeated during the coming season of 50 games:

Number of programmes sold Number of games
10,000 5
20,000 20
30,000 15
40,000 10

Programmes not sold at the game are sold as waste paper to a paper manufacturer at ₦100 per copy.

Assuming that the four quantities listed are the only possibilities, you are required to:

a. Prepare a payoff table. (6 Marks)

b. Determine the number of programmes that would provide the highest profit if a constant number of programmes were to be printed for each game. (4 Marks)

c. Explain why you should buy 30,000 or 40,000 copies, assuming one of these is the most profitable quantity, despite the fact that the most probable sales are 20,000 copies per game. (2 Marks)

d. Calculate the profit which would arise from a perfect forecast of the numbers of programmes which would be sold at each game. (4 Marks)

e. Discuss the major limitations of the expected value criterion in decision making. (4 Marks)

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FA – May 2012 – L1 – SB – Q6 – Financial Statements Preparation

Prepare Statements of Affairs for two years and calculate opening capital, net worth, and profit.

Fortward Geso Trading Store maintained a single-entry system. The following information was extracted from the records:

Year Ended 31 December 2011 31 December 2010
Accrued expenses 10,000
Accounts receivable 196,000 130,000
Prepaid expenses 16,000
Bank balances (40,000) 200,000
Investment 500,000
Cash balance 366,000 106,000
Accounts payable 74,000 90,000
Land and buildings 1,500,000 1,500,000
Delivery van 260,000 260,000
Inventories 190,000 74,000
Loan from bank 300,000 300,000

The following additional information was also made available in respect of the 2011 accounting year:
(i) Provision for doubtful debts should be made for N3,000.
(ii) Depreciation is to be provided on book value as follows:
(a) Land and buildings 5%
(b) Delivery van 10%
(iii) Additional capital of N250,000 was introduced into the business during the year.
(iv) The owner of the store withdrew a total sum of N20,000 during the year.

You are required to:
Prepare the Statements of Affairs of Fortward Geso Trading Stores for the two years to show:
(a) The opening capital (6 Marks)
(b) Net worth of the business (6 Marks)
(c) Profit (3 Marks)

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QTB – May 2016 – L1 – SB – Q1a – Mathematics

Calculate profit in year 5 for new product with given growth rates for units produced, selling price, and production costs.

A company plans to introduce a new product into the market. 6,000 units are to be produced in the first year with an annual growth rate of 3.5%. Selling price is to be set at N1,050 per year with an annual growth rate of 6.5%.

Required:

If the production costs are to be pegged at N850 in the first year with an annual growth rate of 5%, calculate the profit earned in year 5.

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PM – May 2018 – L2 – Q5 – Strategic Management Accounting

Determine the optimal production plan for Classic Wears Plc. and calculate the total profit.

Classic Wears Plc. manufactures three unique jeans wears for which the maximum
revenue for the coming year is estimated as follows:

 

summarised unit cost data are as follows:

 

 

The products are processed on sewing machines housed in a building of three blocks.
Block A contains type I machine which has an estimated maximum of 19,600 machine
hours available in the forthcoming year with fixed overhead cost of N980,000 per
annum.
Block B contains type II machine of which 10,000 machine hours are estimated in the
forthcoming year with a fixed overhead cost of N750,000 per annum.
Block C also contains type II machine which also has an estimate of 8,000 machine
hours available in the forthcoming year. The fixed overhead cost of N370,000 is
estimated per annum for Block C.
The required machine hours for one unit of output for each Jeans on each type of
machine are as follows:

 

 

You are required to:
a. Determine the optimal production plan which Classic Wears Limited should
adopt. (12 Marks)
b. Calculate the total profit that would be made, if the production plan in (a)
above is adopted. (3 Marks)

 

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PM – May 2019 – L2 – Q5 – Transfer Pricing

Profitability analysis for two divisions, including transfer pricing and external supplier impacts.

TK is a company that produces toy television sets targeting children of the elite. The company has two divisions, Division S and Division B. Division S manufactures components for the televisions and sells components to Division B and to external customers. Division B uses five of the components in each of the toy television sets that it manufactures and sells television sets directly to external customers.

Division S
Budgeted variable manufacturing cost per component (N):

  • Direct material: 140
  • Direct labour: 180
  • Variable overhead: 120

Additional Information:

  • Fixed costs: N5,600,000
  • Production capacity: 175,000 components
  • External demand: 150,000 components
  • Potential demand from Division B: 80,000 components
  • Anticipated external market price for a component: N500

Division B

  • Sales price: N4,500
  • Budgeted variable manufacturing cost per television (N):
    • Direct material: 400
    • Direct labour: 620
    • Variable overhead: 160

Each toy television set produced needs five components. Fixed costs are budgeted to be N14,600,000 for next year. Annual sales of the toy television sets are expected to be 16,000 units.

Transfer Pricing Policy:

  • Transfer prices are set at opportunity cost.
  • Division S must satisfy the demand of Division B before selling components externally.
  • Division B is allowed to purchase components from Division S or from external suppliers.

Required:
a. Assuming that Division B buys all the components it requires from Division S:
Prepare a profit statement for each division detailing sales and costs, showing external sales and internal company transfers separately where appropriate. (6 Marks)

b. A specialist external supplier has approached Division B and offered to supply 80,000 components at a price of N420 each. The components fulfil the same function as those manufactured by Division S. The manager of Division B has accepted the offer and agreed to buy all the components it requires from this supplier:
i. Produce a revised profit statement for each division and for the total TK company.
ii. Division S has just received an enquiry from a new customer for the production of 25,000 components. The manager of Division S requires a total profit for the year for the division of N4,500,000.

  • Calculate the minimum price per component to sell the 25,000 components to the new customer that would enable the manager of Division S to meet the profit target. (4 Marks)

Note: This order will have no effect on the divisional fixed costs and no impact on the 150,000 components Division S sells to its existing external customers at N500 per component. Division B will continue to purchase the 80,000 components it requires from the specialist external supplier.

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