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 – Q2b – Budgetary control

Analyze the performance of a fast-food restaurant using flexible budgeting and discuss the usefulness of the original operating statement.

Otuo has recently opened a fast-food restaurant in a small town. Fast-food restaurants are characterized by their quick food service. The fast-food restaurant market in the town is dominated by a small number of long-established restaurants. Otuo is seeking to grow its business and attract the town’s residents with its burger meals.

The performance report for the first month of business is to be presented at the restaurant’s monthly management meeting. A draft performance report for the first month of business is reproduced below:

Budget Actual Variance
Sales (number of meals) 6,000 5,400 (600)
GH¢ GH¢ GH¢
Revenue 180,000 167,400 12,600 A
Direct Material 48,000 49,140 1,140 A
Direct Labour 33,000 27,000 6,000 F
Variable Production Overhead 21,000 18,900 2,100 F
Fixed costs 36,000 40,000 4,000 A
Profit 42,000 32,360 9,640 A

Required:
i) Explain the term flexible budget. (2 marks)
ii) Using a flexible budgeting approach, redraft the operating statement to provide a more realistic indication of the variances. (7 marks)
(Note: You are not required to explain the causes of the variances)
iii) In TWO (2) ways, explain why the original operating statement was of little use to management. (2 marks)
iv) Identify FOUR (4) non-financial measures that Otuo could use to monitor the performance of the new fast-food restaurant. (4 marks)

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  • 5 Marks

MA – Nov 2021 – L2 – Q2d – Standard Costing and Variance Analysis

Explain different types of standards used in performance measurement.

d) Standards are predetermined measurable quantities, set on defined conditions against which actual performance can be compared, usually for an element of work, operation, or activity. Standards are unit concepts that apply to particular products, individual operators, or processes.

Required:
Explain TWO (2) types of standards. (5 marks)

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  • 5 Marks

MA – May 2019 – L2 – Q2a – Cost-volume-profit (CVP) analysis

Determine the total variable cost per unit, total fixed overhead, and express the cost function based on given data.

Komosa Ltd is reviewing the selling price of its product for the coming year. A forecast of the annual costs that would be incurred by Komosa Ltd in respect of this product at differing activity levels is as follows:

Annual production (unit) 100,000 160,000 200,000
Direct materials (GH¢000) 200 320 400
Direct labour (GH¢000) 600 960 1,200
Overhead (GH¢000) 880 1,228 1,460

The cost behavior represented in the above forecast will apply for the whole range of output up to 300,000 units per annum of this product.

Required:
i) Calculate the total variable cost per unit and total fixed overhead. (4 marks)
ii) State the total cost function. (1 mark)

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  • 5 Marks

MA – Nov 2021 – L2 – Q2c – Models of evaluation Quality

Discuss circumstances that may create self-interest threats in performance management.

c) An Accountant is not immune from putting their interest ahead of organizational goals. The tendency to hide serious errors that might affect one’s competence as an Accountant cannot be discounted. This is especially the case when an increase in remuneration is based on performance assessment.

Required:
Explain TWO (2) examples of circumstances that may create self-interest threats in performance management. (5 marks)

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  • 4 Marks

MA – Nov 2021 – L2 – Q2b – Models of evaluation Quality

Identify challenges in developing Business Process Re-engineering (BPR).

b) Technology is what moves the wheel of competition. For example, banks have moved away from the cumbersome processes of cash deposits and withdrawals over the years. In fact, with some banks, customers can transact business in the comfort of their homes through internet banking. This is an aspect of Business Process Re-engineering (BPR).

Required:
State FOUR (4) challenges to be faced when developing BPR. (4 marks)

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  • 3 Marks

: MA – May 2019 – L2 – Q1c – Transfer Pricing

Discuss the limitations of using negotiated transfer prices within a company.

When negotiated transfer prices are used in the company, the managers who are involved in the proposed transfer within the company meet to discuss the terms and conditions of the transfer. They may decide not to go through with the transfer, but if they do, they must agree to a transfer price.

Required:
Explain THREE (3) limitations of negotiated transfer prices. (3 marks)

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  • 12 Marks

MA – May 2019 – L2 – Q1b – Divisional Performance

Evaluate divisional performance using ROI and RI and assess the impact of investment decisions on these metrics.

Ayittey Ltd is an organization with two divisions: A and B, each with its own cost and revenue streams. Each of the two divisions is classified as an Investment center. The company’s cost of capital is 12%. Historically, investment decisions have been made by calculating the return on investment (ROI). A new manager who has recently been appointed in Division A has argued that using residual income (RI) to make investment decisions would result in ‘better goal congruence’ throughout the company. The data below shows the current position of the division as at the end of 31 December, 2016:

Details of Projects Project A Project B
Capital required GH¢ 82.8 million GH¢ 40.6 million
Sales generated GH¢ 44.6 million GH¢ 21.8 million
Net Profit margin 28% 33%

The company is seeking to maximize shareholders’ wealth. Assuming that Division A acquires a more efficient asset at GH¢15 million and Division B sold one of its assets with a written down value of GH¢24 million, and profits are expected to increase and decrease by GH¢11 million and GH¢5 million for Division A and B respectively.

Required:
i) Calculate both the current Return on Investment (ROI) and Residual Income (RI) for each of the divisions. (5 marks)
ii) Calculate and comment on the effect of the decision to invest in the new asset and disposal of some assets on the current ROI and RI. (7 marks)

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  • 6 Marks

MA – Nov 2021 – L2 – Q2a – Models of evaluation Quality

Explain product and process benchmarking, and state difficulties in competitive benchmarking.

a) It is a fact that human beings are unique individuals, yet some look up to successful people as mentors, and there is nothing wrong with that. It is believed that it is not necessary to reinvent the wheel in everything we want to do. Where others have done it well, we can follow their steps.

In business, there are several areas where one company can benchmark successful ones to remain competitive. Successful organizations always seek to follow best practices to enhance their operations and meet customers’ satisfaction.

Required:
i) Explain product benchmarking. (2 marks)
ii) Explain process benchmarking. (2 marks)
iii) State TWO (2) difficulties that may be faced when embarking on Competitive Benchmarking. (2 marks)

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  • 10 Marks

MA – May 2019 – L2 – Q1a – Decision making techniques

Assess the financial impact of purchasing a new machine on a manufacturing company’s profitability.

Hukportie Ltd is a manufacturer of product “Okwada” which is sold for GH¢5 per unit. Variable costs of production are currently GH¢3 per unit, and fixed costs excluding depreciation is GH¢350,000. The current machine which was purchased for GH¢120,000 has a written down value of GH¢20,000 and a resale value of GH¢12,000. This can however be used for the next four years.

A new machine is available which would cost GH¢90,000. This could be used to make product “Okwada” for a variable cost of only GH¢2.50 per unit. Fixed costs, however, would increase by GH¢7,500 per annum as a direct consequence of purchasing the machine. The machine would have an expected life of 4 years and a resale value after that time of GH¢8,000. Sales of product Okwada are estimated to be 75,000 units per annum.

Hukportie limited expects to earn at least 12% per annum from its investments. Taxation and depreciation should be ignored.

Required:

Advise whether Hukportie Ltd should purchase the new machine. (10 marks)

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  • 20 Marks

MA – Nov 2021 – L2 – Q1 – Transfer Pricing

Discuss the objectives of transfer pricing and prepare profit statements for divisions in a group scenario.

Lamiokor and Zenator are two divisions of Tsorkor group. Lamiokor division manufactures an intermediate product known as component A which has no external market. Zenator division incorporates this intermediate product, component A, into a final product that it sells to external customers. One unit of component A is used in the production of one unit of the final product. Lamiokor has quoted a transfer price of GH¢45 for each unit of component A.

The details of monthly production costs for each division are as follows:

Lamiokor Division:

  • Variable cost: GH¢15 per Component A
  • Product Specific Fixed Cost: GH¢50,000 (Incurred only by Lamiokor division and specifically for the production of Component A)

Zenator Division:

  • Variable cost: GH¢9 per unit
  • Product Specific Fixed Cost: GH¢75,000 (Cost incurred only by Zenator when converting component A to the final product)

The relationship between monthly external customer demand and selling price of the final product is as follows:

Month Demand (Units) Selling price per Unit (GH¢)
1 1,000 120
2 3,000 100
3 4,000 90
4 5,000 80
5 6,000 67

Required:
a) Explain FOUR (4) objectives of transfer pricing.

(4 marks)

b) Based on a transfer price of GH¢45 per component A, prepare the monthly profit statement for:
i) Lamiokor Division (6 marks)
ii) Zenator Division (6 marks)
iii) Tsorkor Group (4 marks)

 

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