Subject: MANAGEMENT ACCOUNTING

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  • 20 Marks

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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  • 20 Marks

MA – Mar 2025 – L2 – Q4 – Capital Budgeting

Evaluate two projects using benefit-cost ratio for GKIA with given financial data and 20% required rate of return.

a). GKIA, an Early Childhood Development Centre (ECDC) under Ghana’s Ministry of Health (MOH) has obtained funding from the Global Fund (GF) to implement targeted programmes in line with the vision of the GF. In GF’s recent grant releases, GKIA received an amount of GH¢2 million and has the option of spending the amount on any project provided it falls within any of the thematic areas specified by the GF.
Accordingly, GKIA is considering spending the funds on either of two projects. The first option involves the construction, equipping and full furnishing of a 30-bed paediatric unit for the Centre. The second option involves the refurbishment of all existing leisure and recreational facilities that the Centre currently operates. Both options qualify for funding under the thematic areas of the GF.
The information in the table below presents financial details of both options that GKIA is considering.

Option A: Paediatric Unit Option B: Leisure and recreational facilities
Initial capital outlay GH¢2 million GH¢2 million
Year Costs (GH¢) Benefits (GH¢) Costs (GH¢) Benefits (GH¢)
1 175,000 150,000 150,000 1,000,000
2 218,750 225,000 187,500 1,050,000
3 262,500 562,500 225,000 997,500
4 301,875 1,687,500 258,750 847,875
5 332,062.50 5,906,250 271,687.50 975,056.25

The required rate of return on any investment project undertaken by GKIA is 20%.

Required:
As the Management Accountant of GKIA, you are required to evaluate the acceptability of each project on the basis of benefit-cost ratio.

b). The term Value for Money (VFM) is synonymous with spending in the public sector, where it is expected that little resources should be used to generate the best possible output/outcome for the public good.

Required:
Explain the ‘three Es’ that public sector management accountants will need to take into consideration when making public spending decisions.

c). In the application of the controllability principle, identify the cost centre manager who is responsible for any adverse impact of labour on production. (provide three reasons to justify your answer).

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  • 20 Marks

MA – Mar 2025 – L2 – Q3 – Standard costing and variance analysis

Calculate sales volume variance for four distribution areas using a contribution income statement for Azumah Enterprise.

a) The data below relates to Azumah Enterprise for the month of August. The data relates to activities for his four areas of distribution in Accra.

Distribution Area Selling Price Per Unit (GHc) Standard Variable Cost Price Per Unit (GHc)
Awoshie (A) 120 80
Banana-Inn (B) 100 60
Cantonments (C) 80 45
Dansoman (D) 45 25

Sales Units Budgeted Actuals
Awoshie (A) 65,000 48,000
Banana-Inn (B) 45,000 55,000
Cantonments (C) 35,000 28,000
Dansoman (D) 25,000 28,000

Required:
Estimate the sales volume variance for each distribution area and in total for the month using a contribution income statement.

b) There are many models of evaluation available to a Management Accountant. Benchmarking is one of such models.

Required:

Under what circumstances would benchmarking be an effective model of evaluating performance?

c) IFAC describes Environmental Management Accounting as “The management of environmental and economic performance via management accounting systems and practices that focus on both physical information on the flow of energy, water, materials, and wastes, as well as monetary information on related costs, earnings and savings.” The above quotation shows the increasing relevance of Environmental Management Accounting.

Required:

Discuss with examples FOUR categories of environmental costs.

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  • 20 Marks

MA – Mar 2025 – L2 – Q2 – Budgetary control

Explain eight stages in the budgeting process for a manufacturing organization.

a) The preparation of budgets is a lengthy process which requires great care if the ultimate master budget is to be useful for the purposes of management control within an organisation. Required: Explain EIGHT stages involved in the budgeting process in a manufacturing organisation

b) Budgeting serves a number of useful purposes. They include planning annual operations, coordinating the activities of the various parts of the organisation, communicating plans to various responsibility centre managers among others. Notwithstanding these useful purposes, budgeting has been criticised for several reasons. Required: Identify FIVE criticisms of budgeting.

c) Despite the benefits of minimised inventory cost, waste elimination and quick turnaround time for customers, a lean production model is beset with inherent limitations. Required: Explain FOUR limitations to the efficient implementation of a lean production model in an organization.

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  • 20 Marks

MA – Mar 2025 – L2 – Q1 – Performance analysis

Analyze VAL's 2024 performance in financial, internal efficiency, and external effectiveness using provided data.

========== 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.

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  • 4 Marks

MA – Nov 2024 – L2 – Q5b – Profit Maximization and Batch Selection

Determination of the optimal number of printer batches to import and sell to maximize profit.

Awuah deals in online business, importing and selling printers. The cost of each set of printers varies depending on the number purchased, although printers can only be purchased in batches of 1,000 units. Awuah also has to pay import taxes which vary according to the quantity purchased. Awuah has already carried out some market research and identified that sales quantities are expected to vary depending on the price charged.

The following data has been established for the first month:

Number of Batches Imported and Sold Average Cost per Unit (Including Import Taxes) (GH¢) Total Fixed Costs per Month (GH¢) Expected Selling Price per Unit (GH¢)
1 10.00 10,000 20
2 8.80 10,000 18
3 7.80 12,000 16
4 6.40 12,000 13

Required:

Determine the number of batches of printers Awuah should import and sell to maximize profit.

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  • 16 Marks

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

Determination of the optimum production plan considering scarce resources.

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

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

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

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

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

The resource restrictions were evenly distributed throughout the year.

Required:

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

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  • 5 Marks

MA – Nov 2024 – L2 – Q4b – Standard Costing and Variance Investigation

Explanation of the use of standard costing in decision-making and key factors to consider before investigating variances.

Standard costing has been employed by organizations as a control technique to analyze the deviation of results from those that are expected.

Required:

i) Explain TWO ways managers have effectively deployed standard costing as a tool in decision-making analysis.

ii) Explain THREE key factors a manager should consider before deciding to institute an investigation into reported variances.

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  • 15 Marks

MA – Nov 2024 – L2 – Q4a – Cost-Benefit Analysis (CBA) for Public Sector Investment

Evaluation of a healthcare capital investment project using cost-benefit analysis.

The Faith Specialist Hospital (FSH) is a special government health facility under the Ghana Health Service (GHS) that provides specialized medical scans for complex health conditions. Management of FSH is planning to install an ultra-modern imaging machine that will improve the quality and accuracy of scans. The new installation will require an additional capital investment of GH¢420,000. The GHS policy on capital projects is that all new projects should achieve an internal rate of return of at least 30%.

Forecast demand for the services of this new machine over its five-year useful life are as follows:

Year Number of Scans
1 1,250
2 2,700
3 3,500
4 1,400
5 675

Projected charge per scan: GH¢650
Variable costs per scan:

  • Consumables: GH¢330
  • Labour and overheads: GH¢176

Operating fixed costs per year: GH¢264,000 (includes depreciation on a straight-line basis)

Apart from the financial forecasts above, it is also envisaged that the project will produce non-financial benefits in several forms. Although it is hard to place a precise value on this, expert opinion suggests that this could approximate GH¢70,000 per annum.

Required:

i) Using cost-benefit analysis (CBA) computations, evaluate if the project should be undertaken.

ii) Enumerate TWO limitations of evaluating projects in the public sector.

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  • 5 Marks

MA – Nov 2024 – L2 – Q3b – Activity-Based Costing (ABC) in the Service Sector

Assessment of ABC's applicability in the service sector and identification of four units in healthcare where it can be applied.

In their effort to build equitable, resilient, and sustainable systems for health, both The Global Fund and Gavi have approached you on the implementation of ABC systems to improve their customer profitability analysis.

Required:

Assess the applicability of Activity-Based Costing (ABC) in the services sector. In explaining your answer, identify four units in the healthcare sector where ABC systems are applicable and specify an appropriate cost driver for each.

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  • 18 Marks

MA – Nov 2018 – L2 – Q3b – Relevant cost and revenue

Analysis of machine utilization, identification of bottlenecks, and comparison of marginal costing versus throughput accounting in a production setting.

KYC Ltd makes three products: Hand Chew (HC), Yogurt Swallow (YS), and Canned Lick (CL). All three products are sold as a package and so are offered for sale each month to be able to provide a complete market service. The products are fragile, and their quality deteriorates rapidly once they are manufactured. The products are produced on two types of machines and worked on by a single grade of direct labour. Five direct employees are paid GH¢8 per hour for a guaranteed minimum of 160 hours each per month. All of the products are first molded on machine type 1 and then finished and sealed on machine type 2. The machine hour requirements for each of the products are as follows:

Product Machine Type 1 (Hours/Unit) Machine Type 2 (Hours/Unit)
HC 1.5 1
YS 4.5 2.5
CL 3 2

The capacity of the available machines type 1 and 2 are 600 hours and 500 hours per month respectively. Details of the selling prices, unit costs, and monthly demand for the three products are as follows:

Product HC (GH¢/Unit) YS (GH¢/Unit) CL (GH¢/Unit)
Selling price 91 174 140
Component cost 22 19 16
Other direct material cost 23 11 14
Direct labour cost at GH¢8 per hour 6 48 36
Overheads 24 62 52
Profit 16 34 22

Maximum monthly demand (units):

  • HC: 120
  • YS: 70
  • CL: 60

Although KYC Ltd uses marginal costing and contribution analysis as the basis for its decision-making activities, profits are reported in the monthly management accounts using the absorption costing basis. Finished goods (inventories) are valued in the monthly management accounts at full absorption cost.

Required:

i) Calculate the machine utilization rate per month for each machine and explain which of the machines is the bottleneck/limiting factor. (4 marks)

ii) Using the current system of marginal costing and contribution analysis, calculate the profit-maximizing monthly output of the three products. (5 marks)

iii) Explain why throughput accounting might provide more relevant information in KYC’s circumstances. (4 marks)

iv) Using a throughput approach, calculate the throughput-maximizing monthly output of the three products. (5 marks)

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  • 20 Marks

MA – Nov 2020 – L2 – Q5 – High/Low Analysis, Cost-Volume-Profit (CVP) Analysis

Determine maintenance costs using the high-low method, and calculate break-even point, required sales for target profit, and margin of safety for Quickspray Ltd.

Quickspray Ltd offers professional car spraying services at Suame Magazine. The company is planning its activities for the month of June 2018 for its saloon car spraying section. The company charges a service fee of GH¢1,000 and incurs fixed cost (excluding fixed maintenance cost) and variable cost per unit (excluding variable maintenance cost) of GH¢35,000 and GH¢644.39 respectively for spraying a saloon car.

The following data also relates to Quickspray Ltd on the maintenance hours of its key machine, revenue, and profit for the six months ended April 2018:

Month Maintenance Hours Revenue (GH¢) Profit (GH¢)
November 2017 1,200 19,000 700
December 2017 1,425 24,000 1,425
January 2018 1,410 20,100 650
February 2018 1,400 20,000 1,000
March 2018 1,175 18,000 (125)
April 2018 1,275 19,000 175

Total fixed cost increases by GH¢1,120 when maintenance hours go beyond 1,400.

Required:

a) Determine the total maintenance cost of production, using the high-low method if:

i) Maintenance hours for May are budgeted to be 1,520.
ii) Maintenance hours for June are budgeted to be 1,075.

b) Calculate for the month of May the:

i) Break-even point in units and value.
ii) Sales level required to make an after-tax profit of GH¢21,150, assuming Quickspray Ltd is in the 25% tax bracket.
iii) Margin of safety if the target after-tax profit of GH¢21,150 is achieved.

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  • 5 Marks

MA – Nov 2020 – L2 – Q4b – Standard Costing and Variance Analysis

Discuss the advantages and disadvantages of using standard costing in cost management.

b) Explain THREE (3) advantages and TWO (2) disadvantages of standard costing.

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  • 11 Marks

MA – Nov 2020 – L2 – Q4a – Discounted Cash Flow

Calculate the cost of capital to break-even for a van investment over five years and discuss the advantages and disadvantages of the payback method.

a) Jayjay & Co is a medium-sized company that is engaged in delivery services. As a result of the recent increase in the demand for its services, the Managing Director (MD) is planning to acquire a delivery van at the cost of GH¢85,000. The expected net cash flow per year is as follows:

Year Net Cash Flow (GH¢)
1 25,000
2 28,000
3 39,000
4 34,000
5 24,000

The Sales Manager has indicated to the MD that the company will recoup its investment in less than four years, and for that reason, it’s a good investment. The Management Accountant, however, has drawn the MD’s attention to the fact that the Sales Manager has not factored in the time value of money and the cost of capital into his analysis.

Required:

i) Calculate the cost of capital that, when used, will make the investment break-even when the useful life of the van is five years with a residual value of GH¢8,500.
ii) Explain TWO (2) advantages and TWO (2) disadvantages of the payback method of investment appraisal and show how it compares to the discounted cash flow method.

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  • 10 Marks

MA – Nov 2020 – L2 – Q3b – Standard Costing and Variance Analysis

Calculate various variances including sales volume contribution, price, mix, yield, labour rate, labour efficiency, and idle time variances for Zip Ltd.

b) Zip Ltd, a premium food manufacturer, is reviewing its operations for a three-month period for 2019. The company operates a standard marginal costing system and manufactures one product, ZP, for which the following standard revenue and cost data per unit of product is available:

  • Selling price: GH¢12.00
  • Direct material A: 2.5 kg at GH¢1.70 per kg
  • Direct material B: 1.5 kg at GH¢1.20 per kg
  • Direct labour: 0.45 hours at GH¢6.00 per hour
  • Fixed production overheads for the three-month period were expected to be GH¢62,500.

Actual data for the three-month period was as follows:

  • Sales and production: 48,000 units of ZP were produced and sold for GH¢580,800
  • Direct material A: 121,951 kg were used at a cost of GH¢200,000
  • Direct material B: 67,200 kg were used at a cost of GH¢84,000
  • Direct labour: Employees worked for 18,900 hours, but 19,200 hours were paid at a cost of GH¢117,120
  • Fixed production overheads: GH¢64,000

Required: Calculate the following variances:

i) Sales volume contribution and sales price variances
ii) Price, mix, and yield variances for each material
iii) Labour rate, labour efficiency, and idle time variances

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  • 10 Marks

MA – Nov 2020 – L2 – Q3a – Performance Analysis, Other Aspects of Performance Measurement

Identify and explain the four perspectives of the Balanced Scorecard.

a) The aim of a balanced scorecard is to provide a comprehensive framework for translating a company’s strategic objectives into a coherent set of performance measures. It allows managers to look at the business from four different perspectives.

Required: Identify and explain these FOUR (4) perspectives.

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  • 15 Marks

MA – Nov 2020 – L2 – Q2b – Budgetary Control, Cash Budgets and Master Budgets

Prepare various budgets and an income statement for October 2019 for Mercury Company’s TomaCan product.

Mercury Company’s management wants to prepare budgets for one of its products, TomaCan, for October 2019.

The firm sells the product for GH¢75 per unit and has the following expected sales (in units) for these months in 2019:

July August September October November December
6,000 7,000 8,000 9,000 10,000 11,000

The production process requires 5 kilos of Atadwe and 3 kilos of Ginger. The firm’s policy is to maintain an ending finished goods inventory each month equal to 15% of the following month’s budgeted sales, but in no case less than 1,300 units. All materials inventories are to be maintained at 10% of the production needs for the next month, but not to exceed 3,000 kilos. The firm expects all inventories at the end of September to be within the guidelines. The purchase department expects the materials to cost GH¢1.75 per kilo for Ginger and GH¢5.00 per kilo for Atadwe respectively.

The production process requires direct labor at two Skill Levels (SL). The rate for labor at SL1 is GH¢45 per hour, and for SL2 is GH¢25 per hour. SL1 can process one batch of TomaCan per hour, while SL2 uses double the time of SL1 for the same output. Each batch consists of 10 units.

Variable manufacturing overhead is GH¢100 per batch plus GH¢75 per direct labor-hour. Fixed production overhead is GH¢51,240. It is the plan of Mercury Company to spend a third of variable and fixed production overhead costs on selling and administration expenses. The company is in the 25% tax bracket but enjoys a rebate of 50% because of its location. The company uses an actual cost system. The unit cost of production in October is the same as that of September.

Required: On the basis of the preceding data and projections, prepare the following budgets:

i) Production budget for October (in units).
ii) Direct materials purchases budget for October (in kilos).
iii) Direct materials purchases budget for October (in Cedis).
iv) Direct manufacturing labor budget for October (in Cedis).
v) Income statement for the month of October 2019.

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  • 7 Marks

MA – Nov 2018 – L2 – Q3a – Cost-volume-profit (CVP) analysis

Calculation of the Economic Order Quantity (EOQ) and analysis of the impact of a quantity discount on total inventory costs.

The quarterly demand for an item of raw materials is estimated at 2,000 units at a purchase price of GH¢180 per unit. It is estimated that the cost per order will be GH¢270 and the cost of holding a unit of material in inventory will be GH¢24.

Required:

i) Compute the optimal order quantity, and total minimum costs. (4 marks)

ii) Suppose a supplier offers 5% quantity discount for purchase of 8,000 units, should the offer be accepted? (3 marks)

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  • 5 Marks

MA – Nov 2020 – L2 – Q2a – Introduction to Management Accounting

Distinguish between Target Costing and Kaizen Costing in cost management.

a) In cost management, Target costing and Kaizen costing play key roles. Distinguish between these two cost techniques.

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  • 15 Marks

MA – Nov 2018 – L2 – Q2b – Budgetary control

Preparation of a budgeted profit and loss account for Uswa Ltd and explanation of the term "budget manual."

Uswa Ltd is engaged in manufacturing and sale of footwear. The company maintains one central factory and warehouse and sells its products through company-operated retail outlets as well as through distributors. Management is in the process of preparing the budget for the year 2018 on the basis of the following information:

  • The marketing director has provided the following annual sales projections:
Category No. of Units Retail Price Range (GH¢)
Men 1,200,000 100 – 400
Women 500,000 85 – 250
  • It has been estimated that 30% of the units would be sold through distributors who paid GH¢95 and GH¢70 per footwear for men and women respectively.
  • The remaining 70% will be sold through company-operated retail outlets.
  • The previous pattern of sales indicates that 60% of these units are sold at the minimum price; 10% units are sold at the maximum price and remaining 30% at a price of GH¢200 and GH¢120 per footwear for men and women respectively.
  • The company incurs a variable cost of GH¢45 per footwear regardless of whether sales are through company-operated retail outlet or distributors.
  • The company operates 22 outlets all over the country. The fixed costs per outlet are GH¢12,000 per month and include rent, electricity, maintenance, etc.
  • Fixed costs for the factory and head office are GH¢4.5 million and GH¢1.5 million per month respectively.

Required:

i) Prepare a budgeted profit and loss account for the year 2018 for Uswa Ltd. (13 marks)

ii) Explain the term “budget manual.” (2 marks)

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