Question Tag: Profit Calculation

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  • 20 Marks

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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  • 15 Marks

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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  • 10 Marks

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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  • 15 Marks

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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  • 15 Marks

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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  • 1 Marks

FA – May 2018 – L1 – SA – Q16 – Correction of Errors

Calculates profit or loss for the period based on opening and closing capital and withdrawals.

If opening capital was N125,000, closing capital was N137,000, and the owner’s withdrawals were N123,000, the amount of profit or loss for the period was:
A. Loss of N139,000
B. Loss of N135,000
C. Profit of N111,000
D. Profit of N135,000
E. Profit of N139,000

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  • 1 Marks

FA – May 2018 – L1 – SA – Q6 – Correction of Errors

Calculates the corrected profit after adjusting errors in revenue and expense entries.

At the end of a financial period, the statement of profit or loss of a company showed a profit of N2,400,000. It was however, discovered that revenue of N240,000 was recorded as expenses while expenses of N80,000 had been recorded as revenue. What should be the correct profit for the period?
A. N2,080,000
B. N2,560,000
C. N2,640,000
D. N2,680,000
E. N2,720,000

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  • 20 Marks

PM – Mar/Jul 2020 – L2 – Q3 – Activity-Based Costing vs. Traditional Costing for Sedeco Nigeria

Calculation of unit costs for three products using traditional and activity-based costing approaches.

Sedeco Nigeria Limited manufactures and sells three products, Alpha, Beta, and Gamma. For some time now, the company has been concerned about its cost allocation system and has been searching for a more efficient way of cost allocation. The company recently employed a management accountant who informed the management that activity-based costing is a more efficient cost allocation system, leading to improvements in cost accuracy and reduction.

The management accountant discovered that the company has direct materials, direct labor, and five indirect cost pools which represent the five activity areas. The prior product costing system uses the two direct cost categories and a single indirect cost pool where overheads are allocated using direct labor hours. The following information is provided for the next period:

Direct labor is paid at N100 per hour. Overhead costs in the period are expected to be as follows:

Also, the company is considering the pricing of the three products because sales prices have remained uncertain as shown in the table below:

Required:
a. Calculate the unit costs of each product using:
(i) Prior product costing approach (traditional cost)
(ii) The Activity-Based Costing method (ABC). (10 Marks)

b. Compute the expected sales prices for the three products and the profit or loss that will arise from the implementation of the ABC costing approach and the traditional costing method. (8 Marks)

c. State reasons why the activity-based costing approach may be preferred to the traditional absorption costing approach in a modern manufacturing environment. (2 Marks)

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  • 1 Marks

FA – Nov 2022 – L1 – SA – Q17 – Accounting from Incomplete Records

Calculate the profit based on the opening and closing capital and drawings.

A business proprietor failed to maintain proper records, but you managed to ascertain that his opening capital, closing capital, and drawings during the year were N225,000, N260,000, and N10,000 respectively. Determine the profit for the period.
A. N25,000
B. N45,000
C. N55,000
D. N65,000
E. N75,000

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  • 15 Marks

MI – May 2021 – L1 – SB – Q1b – Cost-Volume-Profit (CVP) Analysis

Calculate various financial metrics for Sekeseke Manufacturing.

Sekeseke manufacturing company sold 250,000 units of its product called “CHAIN” at N20 per unit. The variable costs of N15 per unit consist of manufacturing cost of N12 and selling expenses of N3. The fixed costs incurred evenly throughout the year amounted to N486,000 consisting of administrative overhead of N300,000 and selling overheads of N186,000.

You are required to calculate:
i. The breakeven point in Units and Naira (4 Marks)
ii. The contribution/sales ratio (2 Marks)
iii. The number of units that must be sold to earn a profit of N75,000 (2 Marks)
iv. The number of units that must be sold to earn an after-tax profit of N112,000, if the tax rate is 30% (3 Marks)
v. The number of units required to break even if the variable cost increased by 6% and fixed cost by 2.5% (4 Marks)

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  • 1 Marks

FA – May 2024 – L1 – SA – Q2 – Recording Financial Transactions

Calculates profit based on opening and closing capital with drawings.

A business proprietor failed to maintain proper records, but you managed to ascertain that his opening capital, closing capital, and drawings during the year were N225,000, N260,000, and N10,000 respectively. Determine the profit for the period.

A. N25,000
B. N45,000
C. N55,000
D. N65,000
E. N75,000

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  • 14 Marks

FR – Nov 2015 – L2 – Q4b and c- Financial Reporting Standards and Their Applications

This question involves recalculating profit and financial position based on a change in the method for determining contract completion and explaining the difference between accounting estimates and policies.

LB Ltd is a construction contract company involved in building commercial properties. Its current policy for determining the percentage of completion of its contracts is based on the proportion of cost incurred to date compared to the total expected cost of the contract.

One of LB Ltd’s contracts has an agreed price of GHS 500 million and estimated total costs of GHS 400 million. The cumulative progress of this contract is:

Year ended 30 September 2011 30 September 2012
Costs incurred 160 290
Work certified and billed 150 320
Billing received 140 300

Based on the above, LB Ltd prepared and published its financial statements for the year ended 30 September 2011. Relevant extracts are:

STATEMENT OF PROFIT OR LOSS

Description GHSm
Revenue 200
Cost of sales (160)
Profit ((100 x 160/400)) 40

STATEMENT OF FINANCIAL POSITION

Description GHSm
Current assets: Amounts due from customers
Contract costs to date 160
Profit recognised 40
Total assets 200
Progress billings (150)
Net assets 50
Contract receivables (150-140) 10

LB Ltd has received some adverse publicity in the financial press for taking its profit too early in the contract process, leading to disappointing profits in the later stages of contracts. Most of LB Ltd’s competitors take profit based on the percentage of completion as determined by the work certified compared to the contract price.

Required:

(i) Assuming LB Ltd changes its method of determining the percentage of completion of contracts to that used by its competitors, and that this would represent a change in an accounting estimate, calculate equivalent extracts of profit or loss and statement of financial position for the year ended 30 September 2012. (7 marks)

(ii) Explain why the above represents a change in accounting estimate rather than a change in accounting policy. (2 marks)

c)

LB Ltd also sells building materials to other contractors from its warehouse and is considering setting up another retail branch in a different part of the country.

The directors have been told that the branch can be run directly through the head office or set up as a separate entity, but are not sure how the accounting will work.

Required:
Explain to the directors how this transaction should be treated in the books of LB Ltd.
(5 marks)

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  • 15 Marks

MA – May 2019 – L2 – Q4 – Cost-volume-profit (CVP) analysis

Evaluate different options to improve profitability and perform CVP analysis including break-even and margin of safety calculations.

Boasiako Ltd manufactures high-quality coffee biscuits that are sold to hotels and restaurants in Koforidua. Two months ago, it had prepared a budget for the forthcoming financial year.

Details of the budget are presented below:
Sales GH¢6,000,000
Less:
Direct materials GH¢2,080,000
Direct labour GH¢1,160,000
Variable overheads GH¢840,000
Fixed overheads GH¢972,600
Total costs GH¢5,052,600
Profit GH¢947,400

The budget above has been prepared on the assumption that sales will be 800,000 packets of biscuits. However, due to changing economic conditions, the sales forecast for the year is now 720,000 packets of biscuits. It is expected that the selling price per unit, direct costs per unit, and variable overhead cost per unit will not change from those budgeted. It is also expected that fixed overheads will be the same as those budgeted.

Management is now considering a number of options to improve profitability for the forthcoming financial year:

Option 1:
Decrease the selling price by 20%. It is anticipated that this would increase sales volume by 25% on the forecast sales for the current year.

Option 2:
Decrease all variable costs by 10% and decrease fixed costs by 10%. This is not expected to have any impact on the sales level.

Option 3:
Decrease the selling price by 10% and decrease fixed costs by 5%. This is expected to increase sales volume by 25% on the forecast sales for the current year.

Required:
a) Calculate the expected profit for the current year (forecast sales). (2 marks)
b) Based on the forecast activity for the year, calculate:
i) The breakeven point in packets of biscuits.
ii) The margin of safety in percentage terms.
iii) The sales revenue required to earn a profit of GH¢1,440,000. (6 marks)
c) Evaluate the profitability of the three options and recommend the option that Boasiako Ltd should adopt. (7 marks)

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  • 5 Marks

FM – NOV 2015 – L2 – Q5b – Foreign exchange risk and currency risk management

Calculate the profit or loss on a foreign exchange transaction involving the import of musical instruments by Skytrain.

b. Skytrain, a music production company, imported musical instruments from Sweden for Krona 2,100,000 at a rate of Krona 7.00 to GH₵1.00. Skytrain sold the goods for GH₵600,000 after paying shipping cost of GH₵50,000 and bank transfer charges of GH₵5,000 and Krona 10,000. At the time of paying the bank charges, the Krona was traded at 5 to GH₵1.00.

 

Required:
Calculate the profit or loss on this transaction. (5 marks)

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  • 20 Marks

IMAC – AUG 2022 – L1 – Q5 – Costs and Cost Behaviour

Establishment of total cost function using high-low method, profit calculation for a specific production level, and identification of advantages and disadvantages of high-low method.

a) Takyi Carpentry makes twin-desk for local schools in the Daboase District. To facilitate control, the owner of the shop has asked you to assist him in analysing cost into fixed and variable elements.

Below is his six-year financial information:

Year No. of Twin-Desk Revenue (GH¢) Profit (GH¢)
2016 1,800 19,600 6,000
2017 1,700 22,000 6,200
2018 1,750 20,300 5,800
2019 2,100 26,200 8,000
2020 1,950 22,400 7,500
2021 2,050 21,800 6,800

Required: i) Establish total cost function using high-low method. (5 marks)

ii) Calculate profit for making 3,500 units of the twin-desk if the selling price is fixed at GH¢20. (3 marks)

iii) Identify TWO (2) advantages and TWO (2) disadvantages of using high-low method. (4 marks)

iv) Identify THREE (3) importance for classifying cost as fixed and variable. (3 marks)

b) For managers within a company, exercising control through standards and standard costing is a creative program aimed at determining whether the organisations’ resources are being used optimally. Standard costs are typically determined during the budgetary control process because it uses predetermined standard costs for direct material, direct labour and factory overheads.

Required: Explain THREE (3) benefits to a company that uses standard costing. (5 marks)

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