SMM – APR 2023 – L4 – Q1 – 5-Year Marketing Plan Amid High Rates
Develop a comprehensive 5-year marketing plan for a Ghanaian bank to increase assets and maximize profitability in the face of a 28% monetary policy rate and high interbank dollar rate of GHS10.7.
The current Bank of Ghana monetary policy rate is 28% and the average interbank dollar rate of GHS10.7 is considered very high. These have implications for Ghanaian banks’ lending to their customers. In view of these challenges, you have been appointed the new Head of Business Development and your Managing Director has asked you to prepare a 5-year marketing plan to increase your assets portfolio and maximize your profitability. (40 marks)
========== Question Title: MA – Mar 2025 – L2 – Q1 – Performance analysis
Level: LEVEL 2
Professional Bodies: ICAG
Programs: PROFESSIONAL PROGRAM
Subjects: Management Accounting
Topics: Performance analysis, Financial performance, Internal efficiency, External effectiveness
Series: MARCH 2025
Total Marks: 20
Question Tags: Performance analysis, Financial performance, Internal efficiency, External effectiveness, Revenue calculation, Profitability, Customer satisfaction, Operational efficiency
Question Short Summary: Analyze VAL’s 2024 performance in financial, internal efficiency, and external effectiveness using provided data.
——————————————————————— Question:
QUESTION ONE
Vovome Advisory Limited (VAL) began trading three years ago, on 1 January 2022. It specialises in the provision of expert advice to clients in accountancy, taxation and regulatory compliance. It has a team of professional advisers, each specialising in one of these three areas of advice.
VAL has a target for delivering its services to clients promptly. From the time the client asks for advice, VAL undertakes to provide a formal report to the client within 10 working days.
The following information relates to the financial year ended 31 December 2024:
i) The professional advisers are budgeted to work 220 days each year. They charge GH₵1,400 per day to new clients and GH₵1,200 to established clients.
ii) As a marketing measure intended to win new business, the advisers also give consultations to potential clients on a ‘no fee’ basis. These consultations, which are budgeted to take one day each, are accounted for as business development costs in the marketing budget.
iii) The professional advisers are also required to attend some ‘workshops’ with new clients who are having difficulties with implementing the advice that they have been given by VAL. These workshops, which are also given on a ‘no fee’ basis, are budgeted to last two days.
iv) VAL also has a help desk to provide client support. It responds to telephone and e-mail enquiries from all new and established clients.
v) The team of professional advisers is exactly 50. It is a policy of VAL to limit the team to 50, regardless of the volume of demand for its services.
vi) All professional advisers are paid a salary of GH₵100,000 per year. In addition, they are entitled to share equally in an annual bonus. The bonus is 50% of the amount by which fee income generated exceeds budget minus the revenue forgone as a result of having to give workshops for clients. This revenue forgone is assessed at a notional daily rate of GH₵1,200 per adviser/day.
vii) Operating expenses of the business, excluding salaries of the advisers, were GH₵3,100,000 in 2024. The budget for these expenses was GH₵2,800,000.
Other information:
Budget 2024
Actual 2024
Professional advisers, by category
Accounting
15
10
Tax
20
20
Compliance
15
20
Enquiries about seeking new advice
New clients
2,600
2,200
Established clients
4,000
3,700
Number of chargeable client days
New clients
2,600
2,750
Established clients
5,100
5,500
Average client days per job
4
4
Mix of chargeable client days
Accounting
1,155
1,650
Tax
1,540
3,300
Compliance
1,155
3,300
The following are actual results for each of the three years 2022-2024
2022
2023
2024
Number of clients
160
248
347
Number of complaints from clients
50
75
95
Number of accounts in dispute
10
7
5
Support desk: Percentage of calls resolved
86%
94%
97%
Percentage of jobs completed within 10 days
90%
95%
98%
Average time to complete a job (days)
12.6
10.7
9.5
Chargeable client days
7,200
7,750
8,250
Number of consultations (business development)
50
100
150
Number of workshops given
110
135
165
Revenue (GH₵000)
8,920
9,740
?
Net profit (GH₵000)
1,740
1,940
?
Required:
Using the information provided, analyse and discuss the performance of VAL for the year ended 31 December 2024, under the following headings:
a) Financial performance and competitiveness;
b) Internal efficiency; and
c) External effectiveness.
Compute adjusted financial ratios for 2022 and 2023, excluding business unit sale, and assess Ben Garzy LTD’s financial performance post-sale and IT system deployment.
Ben Garzy LTD has recently undertaken significant strategic initiatives, including the sale of a key business unit and the implementation of a new information technology (IT) system aimed at enhancing operational efficiency.
Below are excerpts from the company’s most recent financial statements:
Income Statements for the Year ended 31 December
2023 GH¢’000
2022 GH¢’000
Revenue
45,000
60,000
Cost of Sales
(27,000)
(36,000)
Gross Profit
18,000
24,000
Gain on Sale of Business Unit
2,000
–
Distribution Expenses
(4,000)
(6,000)
Administrative Costs
(5,500)
(3,800)
Finance Costs
(600)
(1,200)
Profit Before Tax
9,900
13,000
Tax Expense
(2,500)
(3,900)
Net Profit
7,400
9,100
Additional Information:
On 1 January 2023, Ben Garzy LTD completed the sale of a business unit for GH¢10 million, resulting in a gain of GH¢2 million. This sale was approved by shareholders, who received a special dividend of GH¢0.50 per share from the proceeds. The business unit’s financial performance included in the 2022 income statement was as follows:
Revenue: GH¢20,000
Cost of Sales: GH¢12,000
Gross Profit: GH¢8,000
Distribution Costs: GH¢1,500
Administrative Expenses: GH¢2,000
Profit Before Interest and Tax: GH¢4,500
During 2023, Ben Garzy LTD deployed an advanced IT system across its operations to enhance efficiency, reduce costs and improve financial reporting accuracy. This development is expected to influence the company’s financial metrics and operational outcomes.
The following financial ratios were calculated for Ben Garzy LTD for the year ended 31 December 2022:
Gross Profit Margin: 40.0%
Operating Profit Margin: 21.7%
Return on Capital Employed (ROCE): 44.38%
Net Asset Turnover: 2.73 times
Required:
a) Compute the comparable financial ratios for Ben Garzy LTD;
i) For the year ended 31 December 2022, excluding the financial contribution of the sold business unit.
(6 marks)
ii) For the year ended 31 December 2023, excluding the gain on the sale of the business unit.
(6 marks)
b) Assess the financial performance and position of Ben Garzy LTD as at 31 December 2023, taking into consideration the effects of the business unit sale and the implementation of the new IT system on the company’s operational efficiency and overall financial health.
Nsawkaw PLC (NK), a gold processing and trading company, has been identified by Djaraye Private Equity Fund (DPEF) as a target for long-term equity investment. As a financial consultant of DPEF, you have been tasked to evaluate the integrated financial condition of NK and make an investment recommendation.
Below are the summarised versions of NK’s Consolidated Financial Statements for the year ended June 30, 2024 (together with its comparative period):
Summarised Consolidated Statement of Profit or Loss for the year ended 30 June 2024
2024 (GH¢000)
2023 (GH¢000)
Revenue
2,538,000
2,125,000
Operational expenses
(1,909,100)
(1,592,900)
Interest costs
(186,700)
(157,250)
Taxation
(234,000)
(198,500)
Profit after tax
208,200
176,350
Other comprehensive income
17,900
10,550
Total comprehensive income
226,100
186,900
Summarised Consolidated Statement of Changes in Equity for the year ended 30 June 2024
Equity Holders of the Parent (GH¢000)
Non-controlling Interests’ Equity (GH¢000)
Total Equity (GH¢000)
2024
Balances b/d
457,200
65,600
522,800
Total comprehensive income
190,800
35,300
226,100
Dividends
(110,000)
(8,700)
(118,700)
Balances c/d
538,000
92,200
630,200
2023
Balances b/d
355,000
46,650
401,650
Total comprehensive income
160,500
26,400
186,900
Dividends
(58,300)
(7,450)
(65,750)
Balances c/d
457,200
65,600
522,800
Summarised Statement of Financial Position as at 30 June 2024
2024 (GH¢000)
2023 (GH¢000)
Non-current assets
Property, plant, and equipment
718,000
657,000
Others
156,000
99,000
Total Non-current assets
874,000
756,000
Current assets
Trade receivables
140,000
121,000
Others
236,500
123,050
Total Current assets
376,500
244,050
Total Assets
1,250,500
1,000,050
Total Equity and Liability
1,250,500
1,000,050
Additional information:
The total number of equity shares outstanding was 1.2 million and 1.4 million at 30 June 2023 and 30 June 2024 respectively.
Other comprehensive income attributable to non-controlling interests for the years ended 30 June 2023 and 2024 amounted to GH¢8.05 million and GH¢9.6 million respectively.
Non-current liabilities at 30 June 2023 and 30 June 2024 amounted to GH¢250,800 and GH¢308,510 respectively.
The following metrics have been gleaned from NK’s published sustainability reports across the two years:
Metric
2024
2023
Scope 1 & 2 carbon emissions (tonnes of CO2)
650
780
Scope 3 carbon emissions (tonnes of CO2)
2,400
2,380
Women in senior management (%)
21
16
Total recordable injury frequency rate (TRIFR) per 100 full-time workers
3.3
4.1
The scope and definitions of the above sustainability measures have remained materially unchanged across the two years.
Required:
Compute the following ratios for the years ended 2024 & 2023:
Dukuly LTD, a public entity, has been expanding through acquisitions. It is assessing two potential acquisition targets, Suah LTD and Nagbe LTD, both operating in the same industry.
The financial statements of Suah LTD and Nagbe LTD for the year ended 30 September 2024 have been provided, along with a set of financial ratios calculated for Suah LTD.
Required: Using the calculated ratios for Nagbe LTD from Question 4a, assess the relative financial performance and financial position of Suah LTD and Nagbe LTD, to assist the directors of Dukuly LTD in making an acquisition decision.
Dukuly LTD, a public entity, has been expanding through acquisitions. It is assessing two potential acquisition targets, Suah LTD and Nagbe LTD, which operate in the same industry. The indicative price for acquiring either entity is GH¢12 million.
The financial statements for Suah LTD and Nagbe LTD are provided as follows:
Statement of Profit or Loss for the year ended 30 September 2024
Item
Suah LTD (GH¢’000)
Nagbe LTD (GH¢’000)
Revenue
25,000
40,000
Cost of Sales
(19,000)
(32,800)
Gross Profit
6,000
7,200
Distribution & Admin Expenses
(1,250)
(2,300)
Finance Costs
(250)
(900)
Profit Before Tax
4,500
4,000
Income Tax Expense
(900)
(1,000)
Profit for the Year
3,600
3,000
Statement of Financial Position as at 30 September 2024
Item
Suah LTD (GH¢’000)
Nagbe LTD (GH¢’000)
Non-Current Assets
4,800
10,300
Current Assets
4,800
8,700
Total Assets
9,600
19,000
Equity
2,600
5,600
Non-Current Liabilities
5,000
9,200
Current Liabilities
2,000
4,200
Total Equity & Liabilities
9,600
19,000
Additional Information:
Carrying Amount of Plant Assets:
Suah LTD: GH¢4,800,000
Nagbe LTD: GH¢2,000,000
The following ratios for Suah LTD are provided:
Ratio
Suah LTD
Return on Capital Employed (ROCE)
62.5%
Net Asset Turnover
3.3 times
Gross Profit Margin
24.0%
Profit Margin (Before Interest & Tax)
19.0%
Current Ratio
2.4:1
Inventory Holding Period
31 days
Trade Receivables Collection Period
31 days
Trade Payables Payment Period
24 days
Gearing Ratio
65.80%
Acid Test Ratio
1.6:1
Required: Using the financial statements provided, calculate the corresponding ratios for Nagbe LTD to compare with Suah LTD.
Real Expansion Plc is a large group that seeks to grow by acquisition. The directors have identified two potential entities and obtained copies of their financial statements. The accountant of the company computed key ratios to evaluate the performance of these companies relating to:
Profitability and returns;
Efficiency in the use of assets;
Corporate leverage; and
Investor-based decisions.
The computation generated hot arguments among the directors, and they decided to engage a Consultant to provide expert advice on which company to acquire.
Extracts from these financial statements are given below:
Required:
(a) As the Consultant to the company, carry out a financial analysis on the financial statements and advise the company appropriately. (15 Marks)
(b) State the major limitations of ratio analysis for performance evaluation. (5 Marks)
Ehis Marvel, a public company, is a high street retailer that sells clothing and food. The managing director is very disappointed with the current year’s result. The company expanded its operations and commissioned a famous designer to restyle its clothing products. This has led to increased sales in both retail lines, yet overall profits are down.
Extract from the Income Statement for the two years to March 31, 2016, are shown:
Ehis Marvel Plc – Statement of cash flow for the year to March 31, 2016
(ii) The share price of Ehis Marvel Plc averaged N6.00 during the year to March 31, 2015, but was only N3.00 at March 31, 2016.
Required:
Write a report analysing the financials of Ehis Marvel Plc, utilising the above ratios and the information in the statement of cash flows for the two years ended March 31, 2016. Your report should refer to the relative performance of the clothing and food sales and be supported by any further ratios you consider appropriate.
You're reporting an error for "CR – May 2016 – L3 – Q2 – Introduction to Corporate Reporting"
20 Marks
CR – May 2019 – L3 – Q2 – Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)
Assess the accounting treatment of a policy change and analyze the profitability, liquidity, and efficiency ratios of the company based on the financial statements.
Below is the draft financial statement of Lanwani Plc., a manufacturer of fast-moving consumer goods.
Statement of financial position as at
Statement of profit or loss
Additional Information:
The company changed its accounting policy from the cost model to the revaluation model for its property. The revaluation reserve represents the revaluation surplus recognized in 2017. No adjustment was made for 2016.
Development costs of ₦45 billion were capitalized during 2017. The related asset is not expected to generate economic benefits until 2020.
Required:
a. Assess the accounting treatment of the change in accounting policy and state the impact on the return on capital employed (ROCE). (3 Marks)
b. Analyze the profitability, liquidity, and efficiency of Lanwani Plc. (15 Marks)
c. Briefly discuss TWO limitations of the analysis done in (b) above. (2 Marks)
Scenario:
Luck & Co. has been making losses over the last few years. Its statement of financial position at 31 December, 2013, showed the following:
Statement of Financial Position as at 31 December, 2013
Assets
N
Property, plant, and equipment
80,000
Inventory
20,000
Receivables
40,000
Total Assets
140,000
Equity and Liabilities
N
Ordinary Capital
100,000
Retained Earnings
(140,000)
Secured Loan Stock
100,000
Payables
80,000
Total Equity & Liabilities
140,000
On liquidation, the assets would realise the following:
Assets
N
Property, plant, and equipment
30,000
Inventory
12,000
Receivables
36,000
Total Realisable Value
78,000
If the company continues to trade for the next four years, profit after charging N20,000 per annum as depreciation on the property, plant and equipment would be as follows:
Year
Profit (N)
2014
4,000
2015
20,000
2016
26,000
2017
28,000
Total
78,000
Assume that there would be no surplus cash to settle the payables and loan stock holders until after four years when inventory and receivables could be realised at their book values.
Required:
Evaluate the financials and advise the management of Luck & Co on the options available to them and redraft the statement of financial position of Luck & Co after the exercise. (9 Marks)
Osamco Limited, a manufacturer of wire and cables, was bought from its conglomerate parent company in a management buyout deal in August 2010. Six years later, the managers are considering the possibility of listing the company’s shares on the Nigerian Stock Exchange.
The following financial information is made available:
OSAMCO LIMITED Income Statement for the Year Ended June 30, 2016
Item
Amount (N’million)
Turnover
91.25
Cost of sales
(79.00)
Profit before interest and taxation
12.25
Interest
(3.25)
Profit before taxation
9.00
Taxation
(1.25)
Profit attributable to ordinary shareholders
7.75
Dividend
(0.75)
Retained profit
7.00
Statement of Financial Position as at June 30, 2016
Average performance ratios for the industry sector in which Osamco Limited operates are as stated below:
Industry Sector Ratios
Ratio
Industry Average
Return before interest and tax on long-term capital employed
24%
Return after tax on equity
16%
Operating profit as a percentage of sales
11%
Current ratio
1.6:1
Quick (acid test) ratio
1.0:1
Total debt: equity (gearing)
24%
Dividend cover
4.0
Interest cover
4.5
Required:
(a) Evaluate the financial state and performance of Osamco Limited by comparing it with that of its industry sector. (10 Marks)
(b) Discuss four probable reasons why the management of Osamco Limited is considering Stock Exchange listing. (5 Marks)
a. Recording the substance of transactions, rather than their legal form, is an important principle in financial reporting. The use of off-statement of financial position financing arrangement enables companies to obtain financing without showing debts in their books.
Required:
Describe how the use of off-statement of financial position financing can mislead users of financial statements, making specific reference to THREE user groups and giving examples where recording the legal form of transactions may mislead them. (6 Marks)
Markus Limited manufactures three products and operates a marginal costing system.
The following information has been extracted from the company’s records:
Products
X
Y
Z
Units budgeted to be produced and sold
3,600
6,000
3,400
Selling Price (₦)
120
110
100
Requirement per Unit:
Direct Material (kg)
5
3
4
Direct Labour (Hours)
4
3
2
Direct Labour Hour rate (₦)
4
4
4
Direct Material Cost per Kg (₦)
8
8
8
Variable Overheads (₦)
14
26
16
Fixed Overheads (₦)
20
20
20
Maximum possible sales (units)
8,000
10,000
3,000
All the three products are produced from the same direct material using the same types of machine and labour. Direct labour, which is the key factor, is limited to 37,200 hours.
Required: a. Determine the most profitable product mix. (6 Marks)
b. Prepare a statement of profitability for the product mix. (9 Marks)
The summarized comparative financial statements of Odua Plc. for the years ended December 31, 2016, and 2015 are as follows:
Statement of Profit or Loss and Other Comprehensive Income for the Year Ended December 31
2016 (N’m)
2015 (N’m)
Revenue
550
400
Cost of Sales
(400)
(200)
Gross Profit
150
200
Operating Costs
(72)
(60)
Operating Profit
78
140
Investment Income
–
–
(Loss)/Gain on Revaluation of Investments
(10)
20
Finance Costs
(10)
(6)
Profit Before Taxation
58
154
Income Tax Expense
(8)
(30)
Profit for the Year
50
124
Other Comprehensive Income
Revaluation Losses on PPE
(90)
–
Total Comprehensive Income for the Year
(40)
124
Statement of Financial Position as of December 31
2016 (N’m)
2015 (N’m)
Assets
Non-Current Assets
Property, Plant, and Equipment
430
490
Investments (Fair Value)
70
80
Total Non-Current Assets
500
570
Current Assets
Inventory
80
38
Trade Receivables
104
56
Bank
–
20
Total Current Assets
184
114
Total Assets
684
684
Equity and Liabilities
Equity
Equity Shares of N0.50 Each
240
240
Revaluation Reserve
20
110
Retained Earnings
180
130
Total Equity
440
480
Non-Current Liabilities
Bank Loan
100
100
Current Liabilities
Trade Payables
100
78
Bank Overdraft
40
–
Current Tax Payable
4
26
Total Current Liabilities
144
104
Total Equity and Liabilities
684
684
Additional Information:
The Managing Director asserts that Odua Plc has retained book value and has not deteriorated, appraising the company’s new strategy.
In recent years, Odua Plc has faced difficulties maintaining sales due to a shift to online shopping. In response, Odua launched a price-cutting strategy on January 1, 2016.
Odua installed a new product movement and control system on January 1, 2016, costing N40 million and depreciated over five years, replacing an older system disposed of at zero consideration.
The share price declined from N2.80 per share on December 31, 2015, to N1.60 per share on December 31, 2016.
Required:
Evaluate and interpret the following ratios under the headings of profitability, efficiency, short-term liquidity, long-term solvency and stability, and stock market performance for each financial year:
Profitability Ratios: Gross Margin, Net Margin, ROCE, ROE
Efficiency Ratios: Inventory Days, Receivables Days, Payables Days
Liquidity Ratios: Current Ratio, Acid Test Ratio
Solvency Ratios: Interest Cover, Gearing
Market Ratios: Earnings Per Share, Price Earnings Ratio
Quintet Plc sells provisions through its stores located in various retail shopping centers in the major cities in Nigeria. It has recently been experiencing declining profitability, and the board is concerned whether this issue is specific to the company or related to the sector as a whole. Additionally, concerns regarding the company’s solvency have been raised. To address these, the company has engaged a consulting firm specializing in corporate report analysis to provide average ratios across the business sector to rate performance.
Below are the ratios provided by the consulting firm for Quintet Plc’s business sector based on the year ending June 30, 2015:
Debt to equity: 38%
Gross profit margin: 35%
Operating profit margin: 12%
Return on year-end capital employed (ROCE): 16.8%
Net asset turnover: 1.4 times
Current ratio: 1.25:1
Average inventory turnover: 3 times
Trade payables’ payment period: 64 days
The financial statements of Quintet Plc for the year ending September 30, 2015, are as follows:
Income Statement
Item
Amount (N’000)
Revenue
224,000
Opening Inventory
33,200
Purchases
175,600
Closing Inventory
(40,800)
Gross Profit
56,000
Operating Costs
(39,200)
Finance Costs
(3,200)
Profit Before Tax
13,600
Income Tax Expense
(4,000)
Profit for the Year
9,000
Statement of Financial Position
Item
Amount (N’000)
Assets
Non-current assets
Property and shop fittings
102,400
Deferred development expenditure
20,000
Total Non-current assets
122,400
Current Assets
Inventory
40,800
Bank
4,000
Total Current Assets
44,800
Total Assets
167,200
Equity and Liabilities
Equity
Equity shares of N1 each
60,000
Property revaluation reserve
12,000
Retained earnings
34,400
Total Equity
106,400
Non-current Liabilities
10% loan notes
32,000
Current Liabilities
Trade payables
21,600
Current tax payable
7,200
Total Current Liabilities
28,800
Total Equity and Liabilities
167,200
Note:
Net asset is defined by the consulting firm as total assets less current liabilities.
The deferred development expenditure relates to a one-off payment for a franchise as a sole distributor of a particular product under negotiation but not concluded as of September 30, 2015, although payment has been made.
Required:
a) Compute the equivalent ratios for Quintet Plc provided by the consulting firm for the business sector. (9 Marks)
b) Write a report to the board assessing the profitability and solvency performance of Quintet Plc compared to its business sector averages. For clarity, solvency measures both liquidity and gearing. (11 Marks)
You are the Chief Accountant of Jolmarg Nigeria Limited. Pepeyoyo Limited is a competitor in the same industry as Jolmarg and has been operating for the past 20 years.
The following is the result of Pepeyoyo Limited for the last three years ended December 31:
Ratios
2016
2017
2018
Gross profit margin (%)
34
34.4
35.4
ROCE (%)
21.1
21.5
17.8
Net profit margin (%)
11.9
12.4
11.4
Asset turnover (times)
1.78
1.73
1.56
Gearing ratio (%)
15.6
24.3
23.6
Debt ratio (%)
18.5
32.0
30.9
Interest cover (times)
16.7
8.1
5.5
Current ratio
3:1
2.8:1
2.7:1
Quick ratio
1.2:1
1.1:1
1.1:1
Receivable collection period (days)
46
52
64
Inventory turnover period (days)
158
171
182
Payable payment period (days)
35
42
46
Required:
a. Write a report to the finance director of Jolmarg Nigeria Limited analyzing the performance (profitability, liquidity, and long-term financial stability) of Pepeyoyo Limited based on the information available. (10 Marks)
b. Identify FIVE areas which require further investigation, including references to other pieces of information which would complement your analysis of the performance of Pepeyoyo Limited. (10 Marks)
Many firms still focus on profitability as their main measure of performance, despite increasing evidence that non-financial measures are often more important.
Required:
a. Explain the arguments for using the profit measure as the all-encompassing measure of the performance of a business. (5 Marks)
b. An insurance company is considering introducing a balanced scorecard. State the FOUR perspectives of the balanced scorecard and recommend, with explanations, two performance measures for each perspective. (10 Marks)
Ogbunigwe Nigeria Limited is a big and reputable publishing firm established in the early 1970’s. The company has recently been taken over by Wisdom International Publishing Company (WIPC) – a multinational company operating in several countries of the world.
Mr. Pampam, who is the Managing Director of WIPC, has been sent from the company’s headquarters to review, among other things, the budgeting and reporting system used by Ogbunigwe Nigeria Limited.
During his visit to all the departments, he discovered that monthly budgets are prepared for each department in the company. Upon request, the newly acquired company submitted the last budget statement for the notebook production department, which covered Quarter 3 of 2022, as shown below:
Budget statement for Quarter 3 Department: Notebook Production
Particulars
Actual Results (N’000)
Budget (N’000)
Variances (N’000)
Direct materials
1,512
1,440
(72)
Direct labor
738
720
(18)
Variable production overhead
474
432
(42)
Fixed production overhead
354
336
(18)
Variable administrative overhead
246
240
(6)
Fixed administrative overhead
300
288
(12)
Total costs
3,624
3,456
(168)
Sales value of production
4,650
4,464
186
Profit
1,026
1,008
18
The Head of Department of the notebook production department, Mr. Josiah Okoli, commented on the state of affairs of the department. He revealed that the budget statement presented was based on 72,000 units with a standard labor processing time of 2.85 hours per unit.
Mr. Pampam observed that Mr. Josiah Okoli was not enthusiastic about the budget system. He viewed it as a pressure system imposed by the company to portray some departmental managers in a bad light. He pointed out that the system was hurriedly introduced by Dynamic Financial Konsult about twelve months ago. The consultant did not provide sufficient explanation to assist users of the budget to understand the system. Mr. Josiah Okoli expressed doubt about the competence of the consultant and believed the system was not suitable for Ogbunigwe Nigeria Limited. He even stated that his department might have actually made a loss, as against the reported profit.
This situation cuts across many departments, making it imperative and urgent to resolve the issues with the budget system. Your advice to Mr. Pampam will assist tremendously in addressing these problems.
Required:
a. Redraft the budget statement in a more informative manner, showing the relevant variances. (12 Marks)
b. State the general behavioral problems associated with budgeting, and relate these issues to this situation. (4 Marks)
c. Recommend ways to make the budgeting system more useful and acceptable in the current situation. (4 Marks)
Lamido Limited is a courier service company that operates in Nigeria and West Africa.
Initially, Lamido Limited experienced strong growth, but in recent periods the company has been criticised for under-investing in its non-current assets.
Lamido Limited statement of financial position as at December 31:
The following information is also relevant:
Lamido Limited had exactly the same delivery volumes in 2022 as in 2021, with the customer base being the same in both years.
In October 2022, Lamido Limited had to renegotiate its operating licenses in three of its countries of operation. This led to an increase in the fees Lamido Limited had to pay to operate in these countries. The operating licenses in five other countries are due to expire in December 2022, and Lamido Limited is currently negotiating with the concerned authorities of these countries.
You are required to:
a. Calculate the following ratios for the years ended December 31, 2021, and 2022:
i. Operating profit margin
ii. Return on capital employed
iii. Net asset turnover
iv. Current ratio
v. Interest cover
vi. Gearing (Debt/equity)
(6 Marks)
b. Comment on the performance and position of Lamido Limited for the year ended December 31, 2022, and highlight any issues Lamido Limited should consider in the near future. (14 Marks)
