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 – Dec 2023 – L2 – Q2b – Decision making techniques

This question outlines the conditions required for the successful operation of a JIT inventory management system.

Explain THREE (3) conditions that must prevail to make the operation of a Just-In-Time (JIT) inventory management system successful.

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  • 9 Marks

MA – Dec 2023 – L2 – Q2a – Decision making techniques

This question discusses three secondary activities in value chain analysis that enhance service differentiation.

Value creation activities may be classified as either direct (primary) or indirect (secondary). The indirect activities result in differentiation of services that customers are prepared to pay a premium for.

Required:
Explain THREE (3) secondary activities in value chain analysis.

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  • 3 Marks

MA – Dec 2023 – L2 – Q1c – Divisional performance

This question asks for a comparison between profit centers and investment centers in management accounting.

State ONE (1) similarity and TWO (2) differences between a Profit centre and an Investment centre.

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  • 2 Marks

: MA – Dec 2023 – L2 – Q1b – Divisional Performance

This question defines the concept of responsibility accounting in management accounting systems.

Define the term responsibility accounting.

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  • 15 Marks

MA – Dec 2023 – L2 – Q1a – Divisional performance

This question assesses the ROI and RI of two divisions, Ken and Yon, and compares their performance.

Ken and Yon are two divisions of a large company that operate in similar markets. The divisions are treated as investment centres, and every month each division prepares an operating statement and submits it to the parent company. Operating statements for the two divisions for October are stated below:

Operating Statements for October Ken (GH¢000) Yon (GH¢000)
Sales revenue 900 555
Variable costs 345 312
Controllable fixed costs (includes depreciation on division assets) 433 222
Uncontrollable apportioned central costs 15 5
Divisional net assets for the year 9,760 1,260

The company currently has a target return on capital of 12% per annum. However, the company believes its cost of capital is likely to rise and it is considering increasing the target return on capital. Currently, the performance of each division and the divisional management are assessed primarily based on Return on Investment (ROI) using controllable profit.

Required:

i) Calculate the annualised Return on Investment (ROI) for divisions Ken and Yon, and discuss their relative performances. (6 marks)
ii) Calculate the annualised Residual Income (RI) using controllable profit for divisions Ken and Yon, and evaluate their division’s performances. (6 marks)
iii) Using appropriate ratios, evaluate the efficiency of the two divisions. (3 marks)

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  • 3 Marks

MA – May 2018 – L2 – Q5b – Standard costing and variance analysis

Prepare the standard cost card per unit of product Jupiter.

Prepare the standard cost card per unit of product Jupiter.

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  • 12 Marks

MA – May 2018 – L2 – Q5a – Standard Cost Variances Analysis

Calculate standard cost variances including sales price, material price, and labour efficiency.

The following information relates to product Jupiter, produced by Bfield Ltd during January. This represents the information that remains after a fire in the premises destroyed most of the accounting records.

Variances GH¢
Selling price 50,000 A
Materials price 28,500 F
Materials usage 7,500 A
Labour rate 18,700 F
Labour efficiency 20,400 A

Actual data

  • Sales (25,000 units at GH¢10) = GH¢250,000
  • Materials costs (112,500 kg at GH¢1.20) = GH¢135,000
  • Labour costs (75,000 hrs. at GH¢1.9) = GH¢142,500

There was no opening or closing inventories.

Required:
Calculate the following:
i) Standard selling price per unit; (3 marks)
ii) Standard cost of material per kilogram; (3 marks)
iii) Standard kilograms of materials required per unit; (2 marks)
iv) Standard labour rate per hour; (2 marks)
v) Standard hours of labour required per unit. (2 marks)

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  • 3 Marks

MA – May 2018 – L2 – Decision Making Techniques

Discuss non-financial factors to consider when deciding whether to outsource.

Explain THREE non-financial factors PieceJoz FM should also consider when making the decision to outsource.

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  • 12 Marks

MA – May 2018 – L2 – Q4a – Relevant Cost and Revenue

Evaluate whether to organize a beauty pageant in-house or outsource to a third party using cost analysis.

PieceJoz FM, a media organization, is considering hosting a two-day beauty pageant in June 2018. The show will be expensive to run and promote. There will be three cash prizes on offer for the pageant, namely:

  • 1st Place – GH¢5,000
  • 2nd Place = GH¢2,000
  • 3rd Place = GH¢1,000.

Other costs will include:

  • Three judges of the show will each be paid GH¢400 per day plus a one-off travel expense allowance of GH¢150.
  • Promotional costs of GH¢3,000 have been spent to date. A further GH¢1,000 per month will have to be incurred for the five months leading up to the pageant and GH¢4,000 in the month of the show.
  • Utility costs incurred each day of the pageant are estimated to follow the function GH¢200 + 5X where X is the number of contestants performing. The council expects 30 contestants per day.
  • Stocks of wood and steel to construct the stage. 400 metres of wood already in stock will be used. This originally cost GH¢20 per metre but will not be replaced. It was due to be sold to an employee at a price of GH¢8 per metre. 60 metres of steel that originally cost GH¢18 per metre is to be used. Steel has a scrap value of GH¢10 per metre. This steel will have to be replaced. The market price of steel has increased to GH¢15 per metre.
  • 140 labour hours to build the stage. Currently, PieceJoz FM maintenance employees are paid GH¢600 each, plus 20% employers’ costs for a 40-hour week. Two such employees will be idle for the week required to build the stage. The remaining labour will be hired in at a casual rate of GH¢10 per hour.

PieceJoz FM expects that:

  • 1,000 people will attend the beauty pageant on the first day and 2,000 on the final day.
  • Daily tickets will sell at GH¢12 per adult ticket and GH¢5 per child ticket. It is expected that ticket sales will be 40% children and 60% adult.
  • An event organizer called Magic Media has submitted a proposal to organize this program on behalf of PieceJoz FM at a fee of GH¢13,100 including utility cost of GH¢900.

Required:
a) Using the information above, advise, from a financial perspective, whether management of PieceJoz FM should organize the beauty pageant or outsource it to Magic Media.

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  • 10 Marks

MA – May 2018 – L2 – Q3c – Activity-Based Costing

Calculate the total overhead absorbed per unit using Activity-Based Costing and identify three types of cost controls.

Dunning Limited has recently introduced an Activity Based Costing System and has
provided the following details for the month of January:

During the month, 500 units of Product Y were produced. This production run required
100 parts and 150 maintenance hours; 5 material requisitions were made and 10
employees worked on the units.
Required:
i) Using Activity Based Costing, calculate the total amount of overhead absorbed by each
unit of Product Y. (7 marks)
ii) Identify THREE different types of controls and explain how activity based costing assists
in the control of costs?

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