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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  • 6 Marks

MA – May 2017 – L2 – Q1c – Performance analysis, Other aspects of performance measurement

Explain cost center, revenue/profit center, and investment center in terms of their managerial objectives and performance measurement indexes.

Explain in brief the following terminologies as used in performance evaluation, highlighting their managerial objectives and the performance measurement indexes:

i) Cost centre
ii) Revenue/profit centre
iii) Investment centre

(6 marks)

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  • 3 Marks

MA – May 2017 – L2 – Q1b – Other aspects of performance measurement

Explain three qualities of management accounting information in terms of their importance for decision making.

While managers can use different leadership styles, they all share the task of utilizing information to make decisions that achieve organizational goals. Accounting information for decision making will differ in terms of its details depending on the user.

Required:

Explain THREE qualities of Management Accounting information. (3 marks)

Answer:

The qualities of Management Accounting information include:

  1. Relevance:
    Information should be timely and bear on the decision-making process by possessing predictive or confirmatory (feedback) value.
  2. Faithful Representation:
    Information must be truthful, complete, neutral, and free from error.
  3. Comparability:
    Even though different companies may use different accounting methods, there is still sufficient basis for valid comparison.

Additional points from the original answer but not required since only three qualities were asked:

  • Consistency:
    Deviations in measured outcomes from period to period should be the result of deviations in underlying performance (not accounting quirks).
  • Verifiability:
    Different knowledgeable and independent observers reach similar conclusions.
  • Timeliness:
    Information should be available in sufficient time to be capable of influencing decisions.
  • Understandability:
    Information should be clear and concise to those with reasonable business knowledge.

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  • 10 Marks

MA – May 2017 – L2 – Q1a – Introduction to capital budgeting,

Calculate the break-even rate for a taxi service investment considering a 5% annual cash flow increase over five years.

Kwame, after his National Service and with no hope of securing a job in the formal sector, has decided to run a taxi service. The following forecast has been made for the operation of a service between Abisim and Sunyani:

  1. Revenue totaling GH¢300 a week for 52 weeks in a year. This is net of fuel and other variable costs.
  2. Tyres: four pieces for a year at GH¢120 per unit.
  3. Maintenance and servicing: GH¢120 per month.
  4. Salaries: GH¢3,000 per year.
  5. Insurance: GH¢350 per year.

The net cash flow will increase at 5% per annum for the next five years due to inflation. The cost of the vehicle is estimated at GH¢28,000. The project appears quite profitable based on the NPV criteria using the Government policy rate of 26%. However, the banks are offering rates far higher than the policy rate.

Required:

You are to calculate the break-even rate for the project.

(10 marks)

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  • 20 Marks

MA – Nov 2015 – L2 – Q5 – Cost-volume-profit (CVP) analysis

Evaluate assumptions in CVP analysis and compute break-even analysis for multi-product scenario.

a) For any cost-volume-profit analysis to be valid, a number of important assumptions must reasonably be satisfied within the relevant range. As a management accountant for your organization, evaluate any FOUR (4) assumptions that must be satisfied in cost-volume-profit analysis. (4 marks)

b) Anta Limited manufactures and sells Motor King to customers divided into High Quality, Medium Quality, and Low Quality categories. The sales price, involved cost, and commission on sales for each category are as follows:

Motor King Category Sales Price (GHS) Involved Cost (GHS) Commission on Sales (GHS)
High Quality 3,400 1,200 80
Medium Quality 2,300 1,080 60
Low Quality 1,700 690 40

It is on record that the sale quantities of Low Quality Motor King are twice that of Medium and High Quality Motor Kings. Annual fixed costs of GHS 310,000 are expected to be incurred.

You are required to:
i) Compute the sales mix. (1 mark)
ii) Compute the unit contribution margin for each brand of Motor King. (4 marks)
iii) Compute the weighted average unit contribution. (4 marks)
iv) Compute break-even sales in volume and in sales. (4 marks)
v) How many Motor Kings should be sold to earn a target profit of GHS 15,000? (3 marks)
(Total = 20 marks)

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  • 20 Marks

MA – Nov 2015 – L2 – Q4 – Other aspects of performance measurement

Discuss the relevant costs for EOQ, motives for holding stock, and compute EOQ and associated costs for Quaku Manu Limited.

What are the two most relevant costs for determining the Economic Order Quantity? Give THREE (3) specific examples in each case. (6 marks)
b) Examine the THREE (3) motives for holding stocks. (3 marks)
c) Explain Economic Order Quantity and discuss TWO (2) of its relevance. (3 marks)
d) Quaku Manu Limited purchases and sells CDs. The company has been experiencing stock shortages and excess stocks at certain times in the year. The manager is concerned about the impact of overstocking and understocking and is therefore requesting you to assist in determining the most economic quantity of CDs to order. He has made the following information available to you:

Item Value
Sales per annum GHS 20,000,000
Units of items sold 200,000 units
Markup on cost of purchases 25% of purchase price
Ordering cost per order GHS 200
Holding cost per unit 5% of unit price

Required:
i) Determine the economic order quantity. (2 marks)
ii) What is the annual ordering cost? (2 marks)
iii) Determine the annual holding cost. (2 marks)
iv) How many times in a year will the company order for goods? (1 mark)
v) What is the purchase value per order quantity? (1 mark)
(Total = 20 marks)

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  • 8 Marks

MA – May 2016 – L2 – Q5c – Decision Making Techniques, Other Aspects of Performance Measurement

Explain contract manufacturing, its recent popularity, and factors ensuring its effectiveness.

Contract manufacturing has grown in popularity in recent years because of its usefulness to companies.

Required:

i) Explain contract manufacturing.
(2 marks)

ii) Outline THREE main reasons for the recent surge in contract manufacturing.
(3 marks)

iii) Explain TWO factors that will ensure effective contract manufacturing.
(3 marks)

 

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  • 10 Marks

MA – May 2016 – L2 – Q5b – Decision Making Techniques, Relevant Cost and Revenue, Divisional Performance

Decision Making Techniques, Relevant Cost and Revenue, Divisional Performance

Unity Company Ltd is preparing for next season’s operations. The company has provided the following information relating to its three products:

TO GE DA
Selling Price GH¢18.5 GH¢16.2 GH¢12.6
Material Cost (@ GH¢1.75 per kg) GH¢8.75 GH¢10.5 GH¢3.5
Labour Cost (@ GH¢2.2 per labour hour) GH¢7.7 GH¢4.4 GH¢7.7
Annual Demand 2,150 units 3,235 units 1,556 units

The company can only make available a total of 18,560 hours in the short run.

Required:

i) Provide the optimal production plan for Unity Ltd for the ensuing period.
(5 marks)

ii) What is the total incremental benefit of producing DA instead of GE, assuming available resources can only meet the demand for DA?
(3 marks)

iii) Indicate the shadow price of the production plan and state the basic assumption under which this price will apply.
(2 marks)

 

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  • 2 Marks

MA – May 2016 – L2 – Q5a – Decision Making Techniques, Relevant Cost and Revenue

Explain the concept of shadow price in decision making.

Explain the term shadow price.

(2 marks)

 

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  • 13 Marks

MA – May 2016 – L2 – Q4b – Decision Making Techniques,Relevant Cost and Revenue,

Evaluate a supplier's offer based on Economic Order Quantity and differentiate between a bin card and a store ledger card.

MM Company Ltd., a manufacturer of groundnut paste, wishes to know whether it is advisable to stick to its economic orders or accept a special order from a foreign supplier for the supply of groundnuts. The following information has been provided:

  • Purchase price per bag of groundnut: GH¢360
  • Holding cost per annum is 10% of the cost of a bag of groundnut
  • Ordering cost per annum: GH¢7.7
  • Annual demand of groundnut paste: 6,000 bags
  • Normal usage per month: 520 bags
  • Minimum usage per month: 500 bags
  • Maximum usage per month: 700 bags

Required:

i) The foreign supplier promises a reduction in the price of a bag of groundnut by 8% if MM Company is willing to order 3,000 units each time it wants to order. Advise MM.
(10 marks)

ii) What is the difference between a bin card and a store ledger card?
(3 marks)

 

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  • 2 Marks

MA – May 2016 – L2 – Q4a – Relevant Cost and Revenue

Calculate the amount of material ordered based on given inventory information.

Material X is a key raw material of XOXO Ltd. The storekeeper is interested in knowing the units they have placed on order because the supporting documents have been destroyed by fire. She is able to provide the following information: Immediately before the fire, materials in inventory were 1,250 units; materials requested by the factory but yet to be supplied were 375 units, and inventory balance was 3,255 units.

What is the amount of material X that XOXO has ordered from its suppliers?

(2 marks)

 

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