Subject: MANAGEMENT ACCOUNTING

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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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  • 10 Marks

MA – Nov 2024 – L2 – Q3a – Flexible Budget and Variance Analysis

Preparation of a flexible budget and calculation of sales, material, and labour variances.

The budget and actual income statement of Shatta Company PLC for the month of April have been presented in the table below:

Budget Actual
Output (production and sales) 10,000 9,000
GH¢ GH¢
Sales Revenue 175,000 162,000
Raw Materials (80,000) (100,000 meters) (64,380) (74,000 meters)
Labour (35,000) (5,000 hours) (30,960) (4,300 hours)
Fixed Overheads (35,000) (36,225)
Operating Profit 25,000 30,435

Required:

i) Prepare a flexible budget for Shatta Company PLC.

ii) Calculate the following variances using the marginal costing system:

  • Sales (price, volume)
  • Material (price and usage)
  • Labour (rate and efficiency)

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  • 5 Marks

MA – Nov 2024 – L2 – Q2b – Ethical Standards in Business

Explanation of the need for ethical standards in business with reference to threats to ethical behavior.

According to the IESBA Handbook of the International Code of Ethics for Professional Accountants, 2024 Edition, a distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest and uphold ethical standards.

Required:

Explain the need for ethical standards in business (make reference to threats to ethical behavior).

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  • 15 Marks

MA – Nov 2024 – L2 – Q2a – Budgetary Control

Preparation of a budgeted profit and loss account for Ankawa LTD for the year ending 31 December 2025.

Ankawa LTD makes and sells a single product ‘Dee’. The following information is available for use in the budgeting process for the year 2025.

i) Sales targets have been proposed for four quarters in 2025 and the first quarter in 2026:

Year Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 1 (2026)
Sales (GH¢) 240,000 160,000 144,000 224,000 192,000

Selling price per unit of Dee is expected to be GH¢20.

ii) Inventory levels

  • At 31 December 2024: Finished units of Dee: 3,000 units

  • Raw materials: 7,000kg

  • Closing inventory of finished product Dee at the end of each quarter is budgeted as a percentage of sales units of the following quarter:

    • Quarters 1 and 2: 25%
    • Quarters 3 and 4: 35%

  • Closing inventory of raw materials is budgeted to fall by 600kg at the end of each quarter.

iii) Product Dee unit data:

  • Material: 8kg at GH¢1.60 per kg
  • Direct labour: 1.2 hours at GH¢3.50 per hour

iv) Other budgeted quarterly expenditure for 2025:

Quarter Fixed Overhead (GH¢) Capital Expenditure (GH¢)
Quarter 1 10,000 10,000
Quarter 2 18,000 –
Quarter 3 27,000 –
Quarter 4 30,000 –

v) Depreciation

  • Property is depreciated on a straight-line basis at 5% per annum based on total cost.
  • Value of property as at 31 December 2024: GH¢100,000.

vi) Inventory of product Dee is valued on a marginal cost basis for internal budget purposes.

Required:

Prepare the budgeted profit and loss account for the year ended 31 December 2025.

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  • 10 Marks

MA – Nov 2024 – L2- Q1b – Return on Investment (ROI)

Computation of ROI for different one-off transactions and advice on whether they should be undertaken.

Dondo LTD is a manufacturing company based in Nsawam. The following data represents the budgeted performance of Dondo LTD for the year 2025:

Amount (GH¢’000)
Profit 660
Plant and equipment (net of depreciation) 1,560
Working capital 750

Dondo LTD is considering undertaking the following separate one-off transactions:

  1. A cash discount of GH¢16,000 will be offered to its customers annually. This will, on average, reduce the trade receivables figure by GH¢60,000.
  2. An increase in average inventories by GH¢80,000 throughout the year. The increased inventory level is expected to increase sales, resulting in GH¢30,000 increased contribution per annum.
  3. At the beginning of the year, the company will buy a plant worth GH¢360,000. This is expected to reduce operating costs by GH¢105,000. The plant has a five-year useful life with nil residual value.

Required:

i) Compute the ROI for each of the one-off transactions above. 
ii) Advise Dondo LTD on whether the above one-off transactions should be carried out.

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  • 10 Marks

MA – Nov 2024 – L2 – Q1a – Transfer Pricing

Explanation of three reasons why Kako PLC determines transfer pricing centrally.

Kako PLC is a multinational company with production divisions trading in many countries across the globe. Trade takes place between a number of the divisions in different countries, with intermediate products being transferred between them. Where a transfer takes place between divisions trading in different countries, it is the policy of the board of the company to determine centrally the right transfer price without reference to the managers in the division.

Required:

i) Explain THREE possible reasons for Kako PLC to determine transfer prices of goods from the head office.

ii) Explain TWO criticisms of the central determination of transfer pricing.

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  • 15 Marks

MA – May 2019 – L2 – Q5 – Standard Costing and Variance Analysis

Calculate material variances and explain the significance of planning and operational variances.

Emefa Ltd bakes cakes by mixing three ingredients, namely Flour, Sugar, and Butter, in the standard proportions of 5:3:2, respectively. However, the production process does not always mix the ingredients in these proportions, but the cake can be sold if the mixture is within certain limits.

The new production manager (a celebrity chef) has argued that the business should use only organic ingredients in its cake production. Organic ingredients are more expensive but should produce a product with an improved flavor and give health benefits for the customers. It was hoped that this would stimulate demand and enable an immediate price increase for the cakes.

The standard prices for the ingredients are:

  • Flour: GH¢ 2.50 per kilo
  • Sugar: GH¢ 3.00 per kilo
  • Butter: GH¢ 2.00 per kilo

There is a 5% normal loss in the production process.

The budget for production and sales in the period was 50,000 cakes. Actual production and sale of cake mixture was 228,000 kg. During the period, the inputs were as follows:

Ingredient Kg GH¢
Flour 96,000 249,600
Sugar 72,000 216,000
Butter 50,000 105,000

Required:
a) Calculate the following variances:
i) Material Mix Variance (3 marks)
ii) Material Yield Variance (3 marks)
iii) Material Usage Variance (3 marks)
b) Differentiate between planning variances and operational variances. (2 marks)
c) Explain why separating variances into their planning and operational components provides better information for planning and control purposes. (4 marks)

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  • 20 Marks

MA – Nov 2021 – L2 – Q5 – Cost-Volume-Profit (CVP) Analysis

Calculate breakeven point, profit under full capacity, and analyze profitability options for Claudia Footwear.

a) Claudia Footwear (CFW) has developed a new range of high-quality affordable sandals for beachwear. The sandals are based on an innovative design that protects feet from the effects of sun, salt, and sand. The company has already received some sales orders for 9,000 sandals which form 75% of the operating capacity of CFW, and production is due to commence next month. The Management Accountant has prepared the following projections based on 75% operating capacity for the trading year ahead:

Notes:

  1. Production overhead is made up of fixed and variable costs in the proportion of 7:3, respectively.
  2. GH¢36,000 of the total administration, selling, and distribution costs is fixed, and the remainder varies with sales volume.

Required:
i) Calculate the breakeven point in units and value. (4 marks)
ii) Calculate the profit that could be expected if the company operated at full capacity. (3 marks)

b) In order to enhance profitability, CFW has proposed the following options:

Option one:
If the selling price per unit were reduced by GH¢4, the increase in demand would utilize 90% of the company’s capacity without any additional advertising expenditure.

Option two:
To attract sufficient demand to utilize full capacity would require a 15% reduction in the current selling price. In addition, however, CFW would have to spend GH¢5,000 on a special advertising campaign.

Option three:
To attract sufficient demand to utilize full operating capacity without changing the selling price per unit, CFW has to spend GH¢35,000 on a special advertising campaign.

Required:
Present a statement showing the effect of the three alternatives compared with the original budget and advise management of CFW which of the FOUR possible plans ought to be adopted (the original budget plan or any of the three options). (10 marks)

c) State TWO (2) limitations and ONE (1) usefulness of Cost-Volume-Profit analysis. (3 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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  • 10 Marks

MA – May 2019 – L2 – Q3b – Relevant cost and revenue

Explain lifecycle costing and calculate the cost per unit of software considering the entire lifecycle.

Oria Software Ltd, a computer software company, is developing a new accounting package, “Future Accounting”. The following are the budgeted amounts for the product over a four-year product life-cycle:

Year Year 0 Year 1 Year 2 Year 3 Year 4
Estimated quantity in units 3,500 5,000 2,000 500
GH¢ GH¢ GH¢ GH¢ GH¢
Research & Development costs 360,000
Design costs 240,000 250,000
Production costs:
Variable cost per unit 42 35 35 40
Fixed costs 150,000 150,000 120,000 100,000
Marketing costs:
Variable cost per unit 40 35 10 22
Fixed costs 30,000 20,000 12,000 15,000
Distribution costs:
Variable cost per unit 20 22 18 10
Fixed costs 50,000 60,000 40,000 30,000
Customer service costs:
Variable cost per unit 8 12 14 10
Fixed costs 80,000 85,000 45,000 –

To be profitable, Oria Software Ltd must generate revenues to cover costs for all six business functions taken together and, in particular, its high non-production costs. The company has therefore proposed a selling price of GH¢250 per software over the entire product life cycle.

Required:
i) Explain lifecycle costing and identify TWO (2) benefits Oria Software Ltd will derive from using lifecycle costing. (3 marks)
ii) Calculate the cost per software taking into account the entire lifecycle and comment on the proposed selling price. (7 marks)

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  • 15 Marks

MA – May 2019 – L2 – Q3a – Relevant cost and revenue

Discuss blanket overhead rate and prepare an overhead analysis sheet, including re-apportionment of service department costs.

Bobich Ltd manufactures plastic containers for the pharmaceutical industry. The factory, in which the company undertakes all its production, has two production departments, namely: Cutting and Shaping, and two service departments, namely: Stores and Maintenance.

The information below was extracted from the company’s budget for its financial year ended 31 March 2019:

Allocated Overhead Costs GH¢
Cutting Department (Cutting) 14,000
Shaping Department (Shaping) 16,000
Stores Department (Stores) 3,500
Maintenance Department (Maintenance) 2,800
Other Production Overheads GH¢
Factory rent 525,000
Factory building insurance 70,000
Plant & machinery insurance 39,000
Plant & machinery depreciation 58,500
Canteen subsidy 150,000
Direct Costs GH¢
Cutting Department 144,000
Shaping Department 210,000

The following additional information is also provided:

Cutting Shaping Stores Maintenance
Floor area (square meters) 18,000 12,000 3,000 2,000
Value of Plant & Machinery (GH¢) 300,000 50,000 25,000 15,000
Number of stores requisitions 1,000 500 – –
Maintenance hours required 2,700 2,000 300 –
Number of employees 34 60 4 2
Machine hours 12,000 2,200 – –
Labour hours 9,000 15,000 – –

Required:
i) Explain what is meant by the term “blanket overhead rate.” (2 marks)
ii) Prepare an overhead analysis sheet based on the above information. You must clearly state the basis used for any apportionments. (7 marks)
iii) Re-apportion the service department costs and calculate the most appropriate overhead rate for each department. (Rate should be calculated to two decimal places). (3 marks)
iv) State THREE (3) reasons why companies calculate pre-determined overhead absorption rates. (3 marks)

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  • 5 Marks

MA – Nov 2021 – L2 – Q4c – Budgetary Control

Explain factors that may lead to harmful behavior due to budgetary control.

c) The entire process of budgetary control may negatively affect the behavior of management and staff, leading to the non-achievement of goals.

Required:
Explain THREE (3) factors that may account for such harmful behavior. (5 marks)

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  • 3 Marks

MA – Nov 2021 – L2 – Q4b – Discounted Cash Flow

Discuss non-financial factors that Bee Ltd should consider before outsourcing production.

b) Bee Ltd could outsource the production of Ohenewa to an overseas manufacturer. The Accountant has presented figures to show that the NPV of the project based on outsourcing the production is GH¢0.5 million higher than the positive NPV of in-house production.

Required:
Explain THREE (3) non-financial factors that Bee Ltd would need to consider before making the decision either to outsource or produce in-house. (3 marks)

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  • 12 Marks

MA – Nov 2021 – L2 – Q4a – Discounted Cash Flow

Calculate and evaluate the payback period for the Ohenewa project based on provided cash flows.

a) Bee Ltd manufactures high-quality mobile phones for its local market. Due to less competition, Bee Ltd sales have grown significantly over the past few years and are expected to grow. Bee Ltd is planning to launch a new model, ‘Ohenewa’.

The company has already spent GH¢1 million on Research and Development and will require a further investment of GH¢5.5 million in production equipment. This cost excludes the GH¢1.1 million installation fee. The project has a life span of five years. In the end, the equipment will have a residual value of GH¢0.6 million. Sales and production of Ohenewa over its lifecycle are expected to be:

Year Units
1 6,500
2 7,500
3 8,000
4 7,800
5 7,000

The selling price in Year 1 and Year 2 will be GH¢750 per unit. However, the selling price will be reduced to GH¢600 per unit in Year 3 and will remain at this level for the remainder of the project. The variable cost as a percentage of sales is 55% over the entire product lifecycle. The fixed overhead, including depreciation cost expected to be incurred directly due to increasing the production capacity, is GH¢2 million per annum.

Other information:

  • A cost of capital of 12% per annum is used to evaluate projects of this type.
  • Bee Ltd has a history of accepting similar projects which pay back within three years.
  • Ignore inflation and taxation.

Required:
i) Calculate the Payback Period for the Ohenewa project. (10 marks)
ii) Evaluate the acceptability of the project based on the calculation in i) above. (2 marks)

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  • 10 Marks

MA – Nov 2021 – L2 – Q3b – Cash Budgets and Master Budgets

Extract the cash budget for the second quarter showing the cash balance for each month.

b) The budgeted Income Statement for Zeedan Company for the year 2020 is presented below.

Description GH¢
Sales revenue 930,000
Cost of sales 558,000
Gross profit 372,000
Total expenses 225,000
Net profit 147,000

Notes:
i) Monthly sales in each quarter are the same. The sales for January are GH¢50,000 and this will remain unchanged up to March when it will increase by GH¢20,000 from April and remain unchanged for the remaining two months in the quarter. Third quarter monthly sales will be GH¢90,000 each while those of the fourth quarter are GH¢100,000 each.
ii) 20% of all sales are on a cash basis, 40% of the monthly sales are paid in the month after sales, and the balance is paid the second month after sales. No bad debt is expected.
iii) The monthly cost of sales represents 60% of the current month’s sales. Inventory is kept at 60% of the following month’s cost of sales. All purchases are paid in full after one month.
iv) Included in the expenses is a depreciation of GH¢87,000. The monthly expenses paid as and when incurred are GH¢10,000. This is fixed in January but increased by 20% effective April.

Required:
Extract the Cash Budget for the second quarter of the year, showing the cash balance for each month in the quarter.

(10 marks)

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  • 10 Marks

MA – Nov 2021 – L2 – Q3a – Standard Costing and Variance Analysis

Calculate and interpret the efficiency, capacity, and production volume ratios based on provided data.

a) GG Ltd is into fuel processing and transportation. GG Ltd produces three types of fuel, namely: Petrol, Diesel, and Pre-mix fuel.

The standard time for the production of the fuel types are:

  • Petrol: 50 minutes per metric tonne
  • Diesel: 30 minutes per metric tonne
  • Pre-mix fuel: 45 minutes per metric tonne.

The production budget for August is as follows:

  • Petrol: 42,000 metric tonnes
  • Diesel: 60,000 metric tonnes
  • Pre-mix fuel: 45,000 metric tonnes

The actual data for the month were as follows:

  • Labour: 100,000 hours
  • Production:
    • Petrol: 45,000 metric tonnes
    • Diesel: 50,000 metric tonnes
    • Pre-mix fuel: 40,000 metric tonnes.

Required:
Compute and interpret the following:
i) The efficiency ratio. (3 marks)
ii) The capacity ratio. (3 marks)
iii) The production volume or activity ratio. (4 marks)

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