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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  • 4 Marks

MA – April 2022 – L2 – Q5B – Introduction to management accounting

Explain four reasons why organizations need to measure costs, including valuation, profit measurement, decision making and control.

Cost measurement reflects the relationships between inputs and outputs. It is designed to provide more accurate information about production, support activities and product cost so that management can focus its attention on the products and processes with the most leverage for increasing profits.

Required:

Explain FOUR (4) reasons why organisations need to measure cost. (4 marks)

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  • 16 Marks

MA – April 2022 – L2 – Q5a – Decision making techniques

Analyze the profitability of four strategic options for Kuntu Ltd and estimate the required selling price to achieve a target profit.

Kuntu Ltd manufactures one standard product, the standard marginal cost of which is as follows:

Cost Element GH¢
Direct material per unit 10.00
Direct wages per unit 7.50
Variable production overhead 1.25
Total Marginal Cost per Unit 18.75

The budget for the year includes the following:

  • Output (units): 80,000
  • Total fixed Overheads:
    • Production: GH¢1,000,000
    • Advertising: GH¢600,000
    • Marketing: GH¢500,000
  • Contribution: GH¢2,500,000

In reviewing the budget for the coming year, management is dissatisfied with the results likely to arise. An emergency board meeting was held to discuss possible strategies to improve the situation, and the following strategies were proposed:

Strategy 1: The Production Manager suggested reducing the selling price by 10%. This could increase output by 25%. It is estimated that these changes would result in an increase in fixed production overhead by GH¢50,000 and fixed marketing overhead by GH¢25,000.

Strategy 2: The Director of Finance suggested increasing the selling price by 10%. Additionally, with an increase in advertising cost by GH¢400,000, sales units would increase to 90,000 units. It is also estimated that this strategy would increase the fixed production overhead by GH¢25,000 and marketing overhead by GH¢20,000.

Strategy 3: The Marketing Director suggested that with an appropriate increase in advertising expenditure, sales could be increased by 20%, and a profit on turnover of 15% could be obtained. It is estimated that fixed production overhead would increase to GH¢1,040,000 and marketing overhead would increase by GH¢25,000.

Strategy 4: The Managing Director seeks a profit of GH¢600,000. He would like to know at what selling price the target profit could be achieved given the following estimates: An increase in advertising expenditure by GH¢360,000 would result in a 10% increase in sales. However, fixed production and marketing overheads would increase by GH¢25,000 and GH¢17,000 respectively.

Required:

i) Prepare a forecast profit statement for Strategy 1 and Strategy 2. (6 marks)

ii) Estimate the additional expenditure on advertisement to achieve results in Strategy 3. (5 marks)

iii) Estimate the selling price that is required to achieve a profit of GH¢600,000 in Strategy 4. (5 marks)

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  • 20 Marks

MA – May 2021 – L2 – Q5b – Decision making techniques, Budgetary control

Recommend the quantities Agrow Ltd should produce in-house and purchase externally, along with the total annual cost.

Agrow Ltd is a community company that manufactures and sells car components; Wiper, Driving mirror, and Brake pad. The budgeted information for the next year is expected to be as follows:

WIPERS DRIVING MIRROR BRAKE PAD
Production (units) 50,000 25,000 35,000
GH¢ GH¢ GH¢ GH¢
Selling price per unit 34 30 28
Direct material per unit 9 10 5
Direct labour cost per unit 18 3 12
Variable production overhead 1 2 1

Direct labour is paid at GH¢12 per hour. While other production factors are unlimited, labour is limited to 102,500 hours. Hence, an extra component must be purchased from an external supplier.

Total fixed cost per annum is expected to be as follows:

Cost GH¢
Incurred as a direct consequence of making any quantity of Wiper 140,000
Incurred as a direct consequence of making any quantity of Driving mirror 255,000
Incurred as a direct consequence of making any quantity of Brake pad 150,000
Other Fixed Cost 60,000
Total Fixed Cost 605,000

An external supplier has offered to supply a unit of the following at their respective prices:

Component GH¢
Wiper 32
Driving mirror 24
Brake pad 23

Required:

a) Advise which of the products Agrow Ltd should make in-house or outsource. (7 marks)

b) Recommend the quantities that Agrow Ltd should make and the quantities it should buy externally to obtain the required quantities of all the parts and calculate the total annual cost. (10 marks)

c) State THREE (3) factors to consider before setting a selling price of a product. (3 marks)

(Total: 20 marks)

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  • 5 Marks

MA – May 2021 – L2 – Q4c – Standard costing and variance analysis Series

Explain two approaches used in establishing standard costs within an organization.

c) State and explain TWO (2) approaches that can be used in setting a standard within an organisation.

(5 marks)

 

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  • 5 Marks

MA – April 2022 – L2 – Q4b – Budgetary control

Explain factors to consider when involving staff in the budgeting process.

Most CEOs and their deputies feel reluctant to allow employees of their entities to participate in the budgeting process. They are of the opinion that such “openness” may expose them to pressure from staff on what is due to them.

Required:

Explain THREE (3) factors that will be considered when involving staff in the budgeting process.

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  • 3 Marks

MA – May 2021 – L2 – Q4b – Discounted cash flow

Identify and explain two advantages of the Net Present Value technique

b) Identify and explain TWO (2) advantages of the Net Present Value technique. (3 marks)

 

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  • 15 Marks

MA – April 2022 – L2 – Q4a – Discounted cash flow

Evaluate the acceptability of a project using the Net Present Value (NPV) method considering cash flows and cost of capital.

Phil Company is considering replacing its existing machine on the introduction of a new product. The existing machine would be sold for GH¢2 million and replaced with a new machine at the beginning of the year at the cost of GH¢16 million. This new machine would be sold at the end of year 4 for GH¢1 million.

A market research recently carried out at a cost of GH¢1.5 million indicates a unit selling price of GH¢300 in year 1, rising by 10% per annum. Sales volume for the four-year life of the project has been estimated as follows:

Year Units
1 60,000
2 85,000
3 85,000
4 80,000

Possible unit variable costs are as follows:

Probability GH¢
0.4 240
0.6 260

Incremental fixed cost as a result of the project is GH¢15 per unit plus GH¢1,000,000 per annum staff cost.

The introduction of the new product is expected to reduce the market demand for an existing product by 5,000 units per annum. The existing product has a unit contribution of GH¢75.

Other annual fixed costs associated with the new product include the following:

  • Amortization of goodwill: GH¢50,000
  • Depreciation: GH¢250,000

Phil Company’s cost of capital is 12%.

Required:

Evaluate the acceptability of the project.

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  • 12 Marks

MA – May 2021 – L2 – Q4a – Discounted cash flow

Evaluate two machines using Net Present Value and Discounted Payback Period methods to determine the preferred investment.

a) Oseikrom Ventures is considering minimising its production cost through automation of its production system. Two machines are being considered to save cost. The estimated data for the two machines available on the market are as follows:

Machine A (GH¢’000) Machine B (GH¢’000)
Initial cost (Year 0) 120,000 120,000
Residual value (Year 5) 20,000 30,000
Working capital requirement (Year 0) 15,000 10,000

Annual cost savings:

Year 1 2 3 4 5
Machine A 40,000 40,000 40,000 20,000 20,000
Machine B 20,000 30,000 50,000 70,000 20,000

The company’s cost of capital is 10%.

Required:
Using the following methods, which machine should be selected?
i) Net Present Value (8 marks)
ii) Discounted Payback Period (4 marks)

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  • 10 Marks

MA – May 2021 – L2 – Q3b – Other aspects of performance measurement

b) The Estate Manager of Swift International Company was charged to coordinate the procurement process for the award of a contract to construct a warehouse for the company. In the process, the Chief Executive Officer (CEO) called on the manager to ensure the contract is awarded to Gyidi Construction Works, whose owner is the CEO's friend. When the bids were evaluated, Gyidi placed fourth in terms of responsiveness but being guided by the CEO’s directive, the project was awarded to Gyidi Construction Works. Being guilty of not acting professionally, the estate manager admitted that he had acted unethically. Required: Identify and explain FOUR (4) threats to ethical behaviour as a Management Accountant. (10 marks)

b) The Estate Manager of Swift International Company was charged to coordinate the procurement process for the award of a contract to construct a warehouse for the company. In the process, the Chief Executive Officer (CEO) called on the manager to ensure the contract is awarded to Gyidi Construction Works, whose owner is the CEO’s friend. When the bids were evaluated, Gyidi placed fourth in terms of responsiveness but being guided by the CEO’s directive, the project was awarded to Gyidi Construction Works. Being guilty of not acting professionally, the estate manager admitted that he had acted unethically.

Required:
Identify and explain FOUR (4) threats to ethical behaviour as a Management Accountant. (10 marks)

 

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  • 10 Marks

MA – May 2021 – L2 – Q3a – Activity-based costing

Calculate the product unit costs for Santo's product lines using activity-based costing.

a) Santo has three product lines: P1, P2, and P3. Since its inception, the company has been using a single direct labour cost percentage to assign overhead costs to products. Despite P3 being a relatively new product line, it is attracting additional business. However, increasing overhead costs have resulted in loss-making in recent times. P2 particularly has been a significant product line since its inception. However, it has lost considerable market share due to an increase in overhead cost in recent times and a consequent increase in price per unit. Management is, therefore, convinced that the costing system needs some review. A team led by the management accountant was put together to develop an improved system of costing based on activities. The team spent several weeks collecting data for the different activities and products.

Below is data on Santo’s three product lines and overhead costs for the current accounting period:

P1 P2 P3
Production volume (units) 7,500 12,500 4,000
Selling price per unit (GH¢) 47 80 68
Material cost per unit (GH¢) 18 25 16
Direct labour cost per unit (GH¢) 4 8 6.4
Materials movements (in total) 4 25 50
Machine hours per unit 0.5 0.5 0.2
Set-ups (in total) 1 5 10
The proportion of engineering work 30% 20% 50%
Orders packed (in total) 1 7 22

Activities overhead cost:

  • Machine maintenance and depreciation: GH¢390,000
  • Material receiving and handling: GH¢150,000
  • Engineering: GH¢100,000
  • Packing: GH¢60,000
  • Set-up labour: GH¢18,688
  • Total: GH¢718,688

Required: Identify for each overhead activity, an appropriate cost driver from the information supplied, and then calculate the product unit costs using a system that assigns overheads based on the use of activities. (10 marks)

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