MANAGEMENT ACCOUNTING – Page 7

MA – L2 – Q14 – Budgetary control

Prepare a budgeted profit or loss statement for Mampong Delivery Co. for Year 2, considering revenue, salaries, fuel, and operational costs.

Question

A company operating out of Mampong provides three types of delivery service to customers: service A, service B, and service C. Customers are a mix of firms with a contract for service with the company, and non-contract customers.
The following information relates to performance in the year to 31st December Year 1:

	Service A	Service B	Service C
Number of deliveries made	350,000	250,000	20,000
% of deliveries to contract customers	60%	60%	80%
Price charged per delivery:
Contract customers	GH¢9	GH¢15	GH¢300
Premium for non-contract customers	+30%	+50%	+20%

The premium for non-contract customers is in addition to the rate charged to contract customers.
All employees in the company were paid GH¢45,000 per year and sundry operating costs, excluding salaries and fuel costs, were GH¢4,000,000 for the year.
The following operational data for the year relates to deliveries:

	Services A and B	Service C
Average kilometres per vehicle/day	400	600
Number of vehicles	50	18
Operating days in the year	300	300

For Year 2, the company has agreed a fixed price contract for fuel. As a result of this contract, fuel prices will be:
(a) GH¢0.40 per kilometre for Services A and B
(b) GH¢0.80 per kilometre for Service C.
Sales prices will be 3% higher in Year 2 than in Year 1, and salaries and operational expenses will be 5% higher. Sales volume will be exactly the same as in Year 1.
The number of employees will also be the same as in Year 1: 60 employees working full-time on Services A and B and 25 employees working full-time on Service C.
Required:
(a) Prepare a budgeted statement of profit or loss for the year to 31st December Year 2.

(b) Comment on vehicle utilisation.

Answer

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Tags: Budgeting, Cost allocation, Financial Performance, Fuel Costs, Operational Costs, Performance Analysis, Profit or Loss, Revenue Calculation, Sales Projections, Services
Level: Level 2

Topic: Budgetary Control

MA – L2 – Q13 – Cash budgets and master budgets

Prepare a cash budget for the Department of Commerce for Q2 202X, showing monthly and quarterly cash forecasts.

Question

On 31st March 202X, the bank balance standing in the books of the Department of Commerce was GHC 900,000. The Department provides you with the information below.

Month	IGF GHC000	GoG releases GHC000	Donation GHC000	Wages and salaries GHC000	Goods and services GHC000	Office equipment GHC000	Advances GHC000
Jan	4,100	2,000		1,200	1,000		50
Feb	900	500		320	300		40
March	1,300	500	400	320	400		50
April	1,200	600	200	620	320		40
May	1,000	600		550	220		60
June	1,000	600	200	660	420	500	50

Relevant notes to the data:
(i) The Internally Generated Funds (IGF) is made up of 70% cash and 30% receivables. The receivables are collectible as follows: 60% in the month following the service delivery and the remaining 40% in the second month following the service delivery. The department is entitled to retention of 80% of IGF collected and the remaining 20% is payable into the National Treasury Fund in the month in which it was collected.
(ii) The department also enjoys a budget allocation from the Government of Ghana (GoG) and the government promises to make payments according to the schedule shown.
(iii) The department anticipates that it will receive some donations as scheduled above. It is expected that 30%, 40%, and 70% of donations in March, April, and June respectively will be in cash. The remaining portions are expected to come in the form of materials.
(iv) Wages and salaries will be paid at the end of each month.
(v) Goods and services are paid for one month in arrears.
(vi) The office equipment acquired in January will be paid for in the third month following the purchase and the one to be acquired in June will be paid for immediately.
(vii) The office equipment is to be depreciated at 2.5% of cost per month.
(viii) Staff of the department are granted advances under an advance scheme approved by the government. The advances will be recovered in four equal instalments beginning from the month following the month in which the advance is granted.

Required:
Prepare a cash budget for the department for the Second Quarter of 202X showing clearly the cash forecast for individual months and the total for the quarter as a whole.

Answer

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Tags: Advances, Budgetary Control, Cash Budgeting, Cash Flow, Consolidated Fund, Donations, Government Grants, Internally Generated Funds, Payments, Receipts
Level: Level 2

Topic: Cash budgets and master budgets

MA – L2 – Q12a – Activity-based costing

Calculate product costs for two products using traditional absorption costing based on machine hours.

Question

MCC has total budgeted production overheads for next year of GH₵816,000 and has traditionally absorbed overheads on a machine hour basis. It makes two products, Product A and Product B.

	Product A	Product B
Direct material cost per unit	GH₵20	GH₵60
Direct labour cost per unit	GH₵50	GH₵40
Machine time per unit	3 hours	4 hours
Annual production	6,000 units	4,000 units

Required:
(a) Calculate the product cost for each of the two products on the assumption the firm continues to absorb overhead costs on a machine hour basis.

The company is considering changing to an activity based costing (ABC) system and has identified the following information:

	Product A	Product B
Number of setups	18	32
Number of purchase orders	48	112

Overhead cost analysis	GH₵
Machine-related overhead costs	204,000
Setup related overhead costs	280,000
Purchasing-related overhead costs	332,000
Total production overheads	816,000

Required:
(b) Calculate the unit cost for each of the two products on the assumption that the firm changes to an ABC system, using whatever assumptions you consider appropriate.

Answer

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Tags: Absorption costing, Activity Based Costing, Cost drivers, Overhead allocation, Production costing
Level: Level 2

Topic: Activity-based costing

MA – L2 – Q11 – Activity-based costing

Calculate budgeted production cost per unit for products using traditional and activity-based costing methods.

Question

ADDO COMPANY
ADDO Company has a single production process, for which the following costs have been estimated for the period ending 31st December Year 7:

	GH¢
Material receipt and inspection costs	31,200
Power costs	39,000
Material handling costs	27,300

ADDO Company makes three products – X, Y, and Z. These products are made by the same group of employees, using power drills. The employees are paid GH¢8 per hour. The following budgeted information has been obtained for the period ending 31st December Year 7:

	Product X	Product Y	Product Z
Production quantity (units)	2,000	1,500	800
Batches of material	10	5	15
Direct material (metres)	5	3	4
Direct material cost (GH¢)	6	4	6
Direct labour (minutes)	30	20	15
Number of power drill operations (per unit)	3	2	3

Overhead costs are currently absorbed into the cost of production units using an absorption rate per direct labour hour. A factory-wide absorption rate is used for work in all the production departments.
An activity-based costing investigation has revealed that the cost drivers for the overhead costs are as follows:

Material receipt and inspection: number of batches of material
Power: number of power drill operations
Material handling: quantity of material (metres) handled.

Required:
Prepare a summary of the budgeted production cost per unit for each of the products X, Y, and Z for the period ending 31 December Year 7:
(a) using the existing method for the absorption of overhead costs, and
(b) using an approach based on activity-based costing, and the information available about cost drivers.

Answer

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Tags: Activity Based Costing, Cost allocation, Cost drivers, Overhead absorption, Production costing
Level: Level 2

Topic: Activity-based costing

MA – L2 – Q10 – Performance analysis

Explain benchmarking and its benefits, describe its implementation in a purchasing department, and discuss potential implementation challenges.

Question

AMINU COMPANY

AMINU Company manufactures and distributes generic paper-based products and currently has an annual turnover of GH¢10 million.

At present, the management of AMINU Company are uncertain whether the purchasing department is maximising its potential in terms of purchasing efficiency and effectiveness.

The management are currently considering the introduction of a system of benchmarking to measure the performance of the purchasing department.

Required:

(a) Explain the term ‘benchmarking’ and briefly discuss the potential benefits that can be obtained as a result of undertaking a successful programme of benchmarking.

(b) Describe how a system of benchmarking could be introduced to measure the performance of the purchasing department.

(c) Discuss the problems that the management of AMINU Company might encounter in implementing a system of benchmarking and recommend how such problems should be successfully addressed.

Answer

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Tags: Benchmarking, Cost Management, Management Accounting, Performance Measurement, Purchasing efficiency
Level: Level 2

Topic: Performance Analysis

MA – L2 – Q9 – Models of evaluation Quality

Distinguish between cost control and cost reduction, and discuss the emphasis on cost reduction in management accounting training.

Question

It has been suggested that much of the training of management accountants is concerned with cost control whereas the major emphasis should be on cost reduction.

Required:
(a) Distinguish between cost control and cost reduction;
(b) Discuss the proposition contained in the statement.

Answer

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Tags: Cost Control, Cost Efficiency, Cost Management, Cost Reduction, Management Accounting, Performance Improvement, Quality management
Level: Level 2

Topic: Models of Evaluation Quality

MA – L2 – Q7 – Models of Evaluation Quality

Explain how TQM, ABC, balanced scorecard, JIT, and value analysis analyze cost and quality relationships.

Question

7 COST AND QUALITY

Explain briefly how each of the following management accounting techniques can be used to analyse the relationship between cost and quality:

(1) Total Quality Management (TQM)

(2) Activity Based Costing (ABC)

(3) Balanced scorecard

(4) Just in Time management (JIT)

(5) Value analysis

Answer

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Tags: Activity Based Costing, Balanced Scorecard, Cost Management, Just-in-Time, Quality management, Total Quality Management, Value Analysis
Level: Level 2

Topic: Models of Evaluation Quality

MA – L2 – Q6 – Total Quality Management

List key aspects of TQM, explain quality-related costs, describe JIT management, and explain activity-based management.

Question

6 TOTAL QUALITY

(a) List the key aspects of Total Quality Management (TQM).

(b) What are quality-related costs? What is the TQM approach to quality-related costs, and how does this differ from the more traditional approach to these costs? (6 marks)

(d) Briefly explain the nature of activity based management (ABM).

Answer

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Tags: Activity Based Management, Cost Management, Just-in-Time, Quality Costs, Total Quality Management
Level: Level 2

Topic: Models of Evaluation Quality

MA – L2 – Q5 – Decision Making Techniques

List value chain activities, explain their strategic importance, and identify primary activities for a publisher and an insurance company.

Question

5 VALUE CHAIN

(a) List the primary activities and secondary activities in a value chain.

(b) Explain the significance of the value chain for business strategy.

(d) Identify the primary activities in the value chain for a company selling insurance policies (such as car insurance) by telephone.

Answer

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Tags: Business Strategy, Insurance, Primary Activities, Publishing, Secondary Activities, Value Chain
Level: Level 2

Topic: Decision making techniques

MA – L2 – Q4 – Performance Analysis

List the four aspects of a balanced scorecard and suggest its application for a football club with performance targets.

Question

4 BALANCED

A balanced scorecard approach may be used to set performance targets and monitor performance.

(a) List the four aspects of performance in a balanced scorecard approach.

(b) Suggest how a professional football club might use a balanced scorecard approach. Indicate what key aspects of performance might be identified and suggest performance targets that a football club might use in a balanced scorecard approach.

Answer

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Tags: Balanced Scorecard, Customer Perspective, Financial Perspective, Innovation, Internal Processes, Performance Measurement
Level: Level 2

Topic: Performance Analysis

Subject (SQ): MANAGEMENT ACCOUNTING

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MA – L2 – Q14 – Budgetary control

Prepare a budgeted profit or loss statement for Mampong Delivery Co. for Year 2, considering revenue, salaries, fuel, and operational costs.

MA – L2 – Q13 – Cash budgets and master budgets

Prepare a cash budget for the Department of Commerce for Q2 202X, showing monthly and quarterly cash forecasts.

MA – L2 – Q12a – Activity-based costing

Calculate product costs for two products using traditional absorption costing based on machine hours.

MA – L2 – Q11 – Activity-based costing

Calculate budgeted production cost per unit for products using traditional and activity-based costing methods.

MA – L2 – Q10 – Performance analysis

Explain benchmarking and its benefits, describe its implementation in a purchasing department, and discuss potential implementation challenges.

MA – L2 – Q9 – Models of evaluation Quality

Distinguish between cost control and cost reduction, and discuss the emphasis on cost reduction in management accounting training.

MA – L2 – Q7 – Models of Evaluation Quality

Explain how TQM, ABC, balanced scorecard, JIT, and value analysis analyze cost and quality relationships.

MA – L2 – Q6 – Total Quality Management

List key aspects of TQM, explain quality-related costs, describe JIT management, and explain activity-based management.

MA – L2 – Q5 – Decision Making Techniques

List value chain activities, explain their strategic importance, and identify primary activities for a publisher and an insurance company.

MA – L2 – Q4 – Performance Analysis

List the four aspects of a balanced scorecard and suggest its application for a football club with performance targets.

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Subject (SQ): MANAGEMENT ACCOUNTING

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Prepare a budgeted profit or loss statement for Mampong Delivery Co. for Year 2, considering revenue, salaries, fuel, and operational costs.

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Prepare a cash budget for the Department of Commerce for Q2 202X, showing monthly and quarterly cash forecasts.

You're reporting an error for "MA – L2 – Q13 – Cash budgets and master budgets"

Calculate product costs for two products using traditional absorption costing based on machine hours.

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Calculate budgeted production cost per unit for products using traditional and activity-based costing methods.

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Explain benchmarking and its benefits, describe its implementation in a purchasing department, and discuss potential implementation challenges.

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Distinguish between cost control and cost reduction, and discuss the emphasis on cost reduction in management accounting training.

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Explain how TQM, ABC, balanced scorecard, JIT, and value analysis analyze cost and quality relationships.

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List key aspects of TQM, explain quality-related costs, describe JIT management, and explain activity-based management.

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List value chain activities, explain their strategic importance, and identify primary activities for a publisher and an insurance company.

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