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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  • 10 Marks

MA – April 2022 – L2 – Q3b – Activity-based costing

Differentiate between Activity-Based Budgeting and Incremental Budgeting, explain ABB processes, and discuss arguments for and against ABB.

Kankum Industries is considering switching from Incremental Budgeting to Activity-Based Budgeting (ABB) because of the argued pricing specificity of the ABB approach. The Chairman of the Finance Sub-Committee of the board, who does not have an accounting background, has contacted you for clarification on some key issues relating to ABB in order to assist in his explanation to the board.

Required:

i) Differentiate between Activity-Based Budgeting and Incremental Budgeting. (3 marks)

ii) Explain the process in ABB. (3 marks)

iii) State TWO (2) arguments in favour and TWO (2) arguments against ABB. (4 marks)

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  • 10 Marks

MA – April 2022 – L2 – Q3a – Standard costing and variance analysis

Prepare a standard cost card and calculate variances for Plytimba's recent financial period.

Plytimba manufactures high-quality wooden chairs using odum sourced from sustainable forests. The company began trading two years ago having identified a niche market for the product.

During the year, Plytimba was forced to purchase wood from a different company as the usual supplier did not have sufficient stock available. The company operates a standard variable costing system and details relating to the most recent financial period are shown below.

Budgeted Information:

  • Production in units: 134,400
  • Direct materials: 10,080 square metres odum wood = GH¢282,240
  • Direct labour: 33,600 hours = GH¢483,840
  • Variable production overhead (based on direct labour hours): GH¢225,792
  • Fixed production overhead: GH¢29,200

Actual Information:

  • Production in units: 135,000
  • Direct materials: 10,800 square metres odum wood = GH¢300,240
  • Direct labour hours: 27,000 hours = GH¢486,000
  • Variable production overhead: GH¢194,400
  • Fixed production overhead: GH¢30,150

Required:

i) Prepare a Standard Cost Card for one wooden chair. (4 marks)

ii) Calculate SIX (6) variances in as much detail as the information above permits. (6 marks)

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  • 15 Marks

MA – May 2021 – L2 – Q2b – Budgetary control

Prepare various budgets (sales, production, material usage, material purchase, and labour usage) for Jatokrom Manufacturing for the first three months.

b) Jatokrom Manufacturing Company Ltd (Jatokrom) produces shea butter body lotion, christened Zimbi, for both local and the West African market under the One-District-One-Factory government initiative. A unit of Zimbi is sold for GH¢10. Conventionally, the selling price for the product changes every other month by 10% due to the erratic nature of the environment in which Jatokrom operates. The last time the selling price was increased was the immediate month preceding the first month of this planning period.
The demand for the product for the planning period averages every 30 days (equivalent to a month) as follows:

Month 1 2 3 4
Demand (Units) 17,700 18,120 19,500 18,600
  • It is the policy of Jatokrom to keep closing inventory of finished goods to be equivalent to the sales level of 10 working days of next month’s sales. However, experience shows that 3% of each production goes defective and has to be scrapped with no scrap value.
  • Product Zimbi requires 2kg of material X. However, it is expected that a normal loss of 20% of material X will occur in the production process.
  • It is the policy of Jatokrom to keep material inventory to cover 10 days of the following period’s production. Material usage in month 5 is estimated to be 65,207.5kg. The price of material X is budgeted to be GH¢3.50/kg.
  • A unit of Zimbi requires 1.5 hours to produce with a 75% productivity level because of regular maintenance. The Labour rate per hour is GH¢6, but only 39,500 hours can be worked within regular working hours. Overtime hours are paid at time and a half.

Required: Prepare the following budgets for the first three months for Jatokrom Company Ltd.
i) Sales (3 marks)
ii) Production (3 marks)
iii) Material Usage (3 marks)
iv) Material Purchase (3 marks)
v) Labour usage and cost (3 marks)

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  • 5 Marks

MA – May 2021 – L2 – Q2a – Other aspects of performance measurement

Identify and explain consequences of environmentally unfriendly corporate practices on profits.

a) The Climate Adaptation Summit (CAS 2021) sought to tackle head on, the imminent catastrophe, which, the unattended climate change can unleash on the world. This is perceived to be more disastrous than the COVID-19 pandemic. So far, accountants have not agreed on how to quantify damages caused to the environment by a company’s operations in the accounts unless they come in the form of a fine.

Required:
Identify and explain FOUR (4) consequences of environmentally unfriendly practices of corporate entities that may negatively influence their profits. (5 marks)

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  • 5 Marks

MA – April 2022 – L2 – Q2c – Standard costing and variance analysis

Explain the advantages and disadvantages of using standard costing in performance measurement.

Standards are one of the important quantitative tools that management uses to control and measure the performance of business operations. Most often than not, it is the wish of management that actual results equate to standards. However, this is often not the case.

Required:

Explain THREE (3) advantages and TWO (2) disadvantages of standard costing. (5 marks)

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  • 8 Marks

MA – May 2021 – L2 – Q1b – Divisional performance, Performance analysis

Evaluate the impact of a new investment on a division’s Return on Investment, Residual Income, and manager’s bonus.

b) Peah is a divisional manager of Monrovia Ltd. He is paid a bonus of 5% on the division’s residual income after charging the bonus. The division is currently considering an additional investment of GH¢200,000 with 10 years useful life but nil residual value. The investment is expected to yield a profit after depreciation of GH¢51,600. This will augment the existing capital employed of GH¢1,050,000 that currently offers GH¢264,400 profit after depreciation annually. The company’s policy is to accept investment projects that provide a return of at least 22%.

Required: i) Calculate the Return on Investment and Residual Incomes of the division before considering the new investment. (2 ½ marks)
ii) Advise the division on whether the new investment should be taken or not. (2 ½ marks)
iii) What will be the percentage change in the bonus of Peah if the new investment is added to the division’s existing operations? (3 marks)

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  • 3 Marks

MA – April 2022 – L2 – Q2b – Advanced variance analysis

Calculate and comment on the Throughput Accounting Ratios of three products for Drogo.

Drogo uses the Throughput Accounting technique for efficient allocation of scarce resources. In the second quarter of 2021, the throughput per bottleneck resource for its three products were given as follows:

  • Product A: GH¢4
  • Product B: GH¢6
  • Product C: GH¢9

The total factory cost was GH¢67,500, and the bottleneck resource was 15,000 machine hours.

Required:

Calculate and comment on the Throughput Accounting Ratios of the three products. (3 marks)

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  • 6 Marks

MA – May 2021 – L2 – Q1a – Performance analysis, Introduction to management accounting

Discuss problems associated with performance measurement of not-for-profit organizations and components of value for money criteria.

a) Generally, evaluating not-for-profit organisations’ performance is difficult but can be managed when ‘value for money’ criteria is used.
Required:
i) Explain FOUR (4) problems associated with performance measurement of not-for-profit organisations. (6 marks)
ii) Explain the THREE (3) main components of ‘value for money criteria’ and their usefulness to not-for-profit organisations. (6 marks)

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  • 15 Marks

MA – May 2017 – L2 – Q5 – Standard costing and variance analysis

Prepare a statement reconciling budgeted profit with actual profit, showing individual variances in detail.

You are the Management Accountant of ABS Limited. The following computer printout shows details relating to June 2017.

Description Actual Budget
Sales volume (units) 4,900 5,000
Selling price per unit (GH¢) 11.00 10.00
Production volume (units) 5,400 5,000
Direct materials:
– Quantity (kg) 10,600 10,000
– Price per kg (GH¢) 0.60 0.50
Direct labour:
– Hours per unit 0.55 0.50
– Rate per hour (GH¢) 3.80 4.00
Fixed overhead:
– Production (GH¢) 10,300 10,000
– Administration (GH¢) 3,100 3,000

ABS Limited uses a standard absorption costing system. There was no opening or closing work-in-progress.

Required:

Prepare a statement that reconciles the budgeted profit with the actual profit for June 2017, showing individual variances in detail. (15 marks)

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  • 12 Marks

MA – April 2022 – L2 – Q2a – Activity-based costing

Evaluate the bottleneck resource at Pikambi Hospital and suggest ways to reduce turnaround time.

The Pikambi Hospital serves a community with a population of about 20,000. For Out Patients Department (OPD) services, there are three basic stages to seeing the doctor which have been described below:

Stage 1
Records: This is where files of patients are kept. On arrival, a patient presents the identity card together with the National Health Insurance Scheme (NHIS) card. There are two biometric verification machines to confirm the validity of the card and recording of basic personal data on the claim forms. The process takes approximately 10 minutes per machine. Workers here work from 6:00 am to 4:00 pm.

Stage 2
Vitals: Here vital personal information about the patient’s current health status is checked; i.e. temperature, pulse, blood pressure, weight, and sugar levels. There is one machine with 5 nurses. It takes some 6 minutes for one patient to go through the process. The unit also works from 6:00 am to 4:00 pm.

Stage 3
Consultation: There are six doctors who run six-hour shifts a day. Each doctor spends an average of 15 minutes seeing a patient. The community has been complaining about the turnaround period and blames it on the incompetence of the nurses to the extent that sometimes patients stay in queues for long hours and return home unattended.

Required:

i) With appropriate computations, evaluate and assess the bottleneck resource(s) at Pikambi Hospital. (6 marks)

ii) Suggest THREE (3) ways by which the turnaround time can be reduced at the hospital. (6 marks)

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