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- 1 Marks
BMIS – L1 – SA – Q5.4 – Introduction to business strategy
Characteristics defining a strategic decision.
Question
Which THREE of the following characteristics would define a decision as being strategic in nature?
A The decision will have implications for operational decisions
B The decision concerns the allocation of resources
C The decision concerns competitive tactics
D The decision concerns the implementation of a business’s plans
E The decision concerns the scope of a business’s activities
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- 20 Marks
FM – L2 – Q125 – Public Financial Management
Discuss benefits of PEFA reports and methodology for measuring PFM performance in Zamara.
Question
(a) PEFA reports on countries’ PFM performance has gained prominence in Zamara in recent times. This is largely attributed to the robustness of its scoring methodology, the wide coverage of their measurements and factors considered in drawing conclusion of the status of a PFM system.
(i) Discuss the benefits of PEFA reports in promoting open and orderly PFM systems across the world.
(ii) Explain the methodology of PEFA in measuring PFM performance.
(b) A country performance of PFM dimensions are as follows:
(i) For the legislation scrutiny and audit indicator, a score of A, A and D were obtained on three dimensions. This indicator is measured using Method 1 (Weakest Link).
(ii) Budget preparation process as an indicator of PFM performance was measured using three dimensions and the scores obtained are B, C, D. This indicator is measured using method 2 (Average Method).
Required:
Compute the score of each indicator in (i) and (ii) for the country and interpret your result.
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- 20 Marks
FM – L2 – Q124 – Public Financial Management
Discuss three outcomes and seven pillars of an open and orderly PFM system per PEFA framework.
Question
(a) Governments have been encouraged to invest in building strong public financial management. The Public Expenditure and Financial Accountability (PEFA) framework has been developed to assess the public financial management systems of countries with the aim of helping them to improve their public financial management system.
Required:
(i) With reference to the PEFA, discuss the THREE outcomes that a country derives from establishing an open and orderly public financial management system.
(ii) Explain the seven pillars of an open and orderly public financial management system.
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- 8 Marks
MA – L2 – Q55 – Decision making techniques
Provide the optimal production plan for Harmony Company Ltd with limited labour hours for three products.
Question
Harmony Company Ltd is preparing for next season’s operations. The company has provided the following information relating to its three products:
| TA | GB | DC | |
|---|---|---|---|
| GH¢ | GH¢ | GH¢ | |
| Selling price | 18.5 | 16.2 | 12.6 |
| Material cost | 8.75 | 10.5 | 3.5 |
| Labour cost | 7.7 | 4.4 | 7.7 |
Labour hours per unit:
| TA | GB | DC | |
|---|---|---|---|
| Labour hours | 3.5 | 2.0 | 3.5 |
Annual Demand:
2,150 units (TA), 3,235 units (GB), 1,556 units (DC)
The company can only make available a total of 18,560 hours in the short run.
Required:
(a) Provide the optimal production plan for Harmony Ltd for the ensuing period.
(b) What is the total incremental benefit of producing DC instead of GB, assuming available resources can only meet demand of DC?
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- 10 Marks
MA – L2 – Q51 – Decision Making Techniques
Determine the optimal plant hire contract for Terra Works Ltd using expected value based on sales probabilities.
Question
Terra Works Limited is a company that is engaged in site clearance and site preparation work. Information about its operations is as follows:
(1) It is Terra Works Limited’s policy to hire all the plant and machinery it needs rather than to purchase its own plant and machinery.
(2) Terra Works Limited will enter into an advance hire agreement contract for the coming year at one of three levels – high, medium, or low – which correspond to the requirements of a high, medium, or low level of orders obtained.
(3) The level of orders obtained will not be known when the advance hire agreement contract is entered into. Probabilities have been estimated by management as to the likelihood of the orders being at a high, medium, or low level.
(4) Where the advance hire agreement entered into is lower than that required for the level of orders actually obtained, a premium rate must be paid to obtain the additional plant and machinery required.
(5) No refund is obtainable where the advance hire agreement for plant and machinery is at a level in excess of that required to satisfy the site clearance and preparation orders actually obtained.
A summary of the information relating to the above points is as follows:
| Level of Sales orders | Probability | Revenue GH¢000 | Variable costs GH¢000 | Plant and machinery hire costs | |
|---|---|---|---|---|---|
| Advance GH¢000 | Conversion GH¢000 | ||||
| High | 0.25 | 15,000 | 10,500 | 2,300 | 1,500 |
| Medium | 0.45 | 8,500 | 5,950 | 1,500 | 850 |
| Low | 0.30 | 4,000 | 2,800 | 1,000 | – |
| Low to medium | 850 | ||||
| Medium to high | 1,300 | ||||
| Low to high | 2,150 |
Required:
(a) Prepare a table showing the outcomes for each decision and outcome combination.
(b) Prepare a pay-off matrix and determine the advance hire contract that maximizes the expected value.
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- 15 Marks
MA – L2 – Q46 – Decision making techniques
Compute Ouluto Limited's net profit for February 20X9 based on the optimum product mix, given resource constraints and cost data.
Question
Ouluto Limited (OUL) is engaged in the manufacture and sale of three products viz. WBA, QPR and SC. The following information is available from OUL’s records for the month of February 20X9:
| WBA | QPR | SC | |
|---|---|---|---|
| Sales price per unit (GH₵) | 2,300 | 1,550 | 2,000 |
| Material cost per Kg. (GH₵) | 250 | 250 | 250 |
| Labour time per unit (Minutes) | 20 | 30 | 45 |
| Machine time per unit (Hours) | 4 | 2.5 | 3 |
| Net weight per unit of finished product (Kg.) | 6 | 4 | 5 |
| Yield (%) | 90 | 95 | 92 |
| Estimated demand (Units) | 10,000 | 20,000 | 9,000 |
Each worker is paid monthly wages of GH₵15,000 and works a total of 200 hours per month. OUL’s total overheads are estimated at 20% of the material cost.
Fixed overheads are estimated at GH₵5 million per month and are allocated to each product on the basis of machine hours. 100,000 machine hours are estimated to be available in February 20X9.
Required:
Based on optimum product mix, compute OUL’s net profit for the month of February 20X9.
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- 20 Marks
MA – L2 – Q45 – Decision making techniques
Compute units of each product for Image Solutions to maximize profit and calculate contribution at optimal mix, considering machine hour constraints.
Question
Image Solutions Limited deals in various products. Relevant details of the products are as under:
| PW | PX | PY | PZ | |
|---|---|---|---|---|
| Estimated annual demand (units) | 5,000 | 10,000 | 7,000 | 8,000 |
| Sales price per unit (GH¢) | 150 | 180 | 140 | 175 |
| Material consumption: | ||||
| R (kg) | 2 | 2.5 | 1.5 | 1.75 |
| T (kg) | 0.5 | 0.6 | 0.4 | 0.65 |
| Labour hours | 2 | 2.25 | 1.75 | 2.5 |
| Variable overheads (based on labour cost) | 75% | 80% | 100% | 90% |
| Fixed overheads per unit (GH¢) (based on 80% capacity utilisation) | 10 | 20 | 14 | 16 |
| Machine hours required: | ||||
| Processing machine hours | 5 | 6 | 8 | 10 |
| Packing machine hours | 2 | 3 | 2 | 4 |
Company has a long term contract for purchase of material R and T at a price of GH¢ 15 and GH¢ 20 per kg respectively. Wage rate for 8 hours shift is GH¢ 200.
The estimated overheads given in the above table are exclusive of depreciation expenses. The company provides depreciation on number of hours used basis. The depreciation on each machine based on full capacity utilisation is as follows:
| Hours | GH¢ | |
|---|---|---|
| Processing machine | 150,000 | 150,000 |
| Packing machine | 100,000 | 50,000 |
The company has launched an advertising campaign to promote the sale of its products. GH¢ 2 million have been spent on such campaign. This cost is allocated to the products on the basis of sale.
Required:
Compute the number of units of each product that the company should produce in order to maximize the profit and also compute the product wise and total contribution at optimal product mix.
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- 20 Marks
AA – L2 – Q18 – Planning an Audit
Explain the importance of planning an audit per ISA 300. Prepare an audit strategy for Brooksides for the year ending 31 December 20X8 using provided financial data.
Question
You are the audit manager in charge of the audit of Seaford Supplies Ltd., a limited liability company. The company’s year-end is 31 December, and Seaford Supplies Ltd. has been a client for seven years. The company purchases and resells fittings for ships including anchors, compasses, rudders, sails, etc. Clients vary in size from small businesses making yachts to large companies maintaining large luxury cruise ships. No manufacturing takes place in Seaford Supplies Ltd.
It is now early in 20X8. Information on the company’s financial performance is available as follows:
| 20X8 Forecast | 20X7 Actual | |
|---|---|---|
| ₵’000 | ₵’000 | |
| Revenue | 45,928 | 40,825 |
| Cost of sales | (37,998) | (31,874) |
| 7,930 | 8,951 | |
| Gross profit | ||
| Administration costs | (4,994) | (4,758) |
| Distribution costs | (2,500) | (2,500) |
| Net profit | 436 | 1,693 |
| 20X8 Forecast | 20X7 Actual | |
| ₵’000 | ₵’000 | |
| Non-current assets (at net book value) | 3,600 | 4,500 |
| Current assets | ||
| Inventory | 200 | 1,278 |
| Receivables | 6,000 | 4,052 |
| Cash and bank | 500 | 1,590 |
| 10,300 | 11,420 | |
| Total assets | ||
| Capital and reserves | ||
| Share capital | 1,000 | 1,000 |
| Accumulated profits | 5,300 | 5,764 |
| Total shareholders’ funds | 6,300 | 6,764 |
| Non-current liabilities | 1,000 | 2,058 |
| Current liabilities | 3,000 | 2,598 |
| 10,300 | 11,420 |
Other information
The industry that Seaford Supplies Ltd. operates in has seen moderate growth of 7% over the last year.
Non-current assets mainly relate to company premises for storing inventory. Ten delivery vehicles are owned with a net book value of ₵300,000.
One of the directors purchased a yacht during the year.
Inventory is stored in ten different locations across the country, with your firm again having offices close to seven of those locations.
A computerised inventory control system was introduced in August.
Inventory balances are now obtainable directly from the computer system. The client does not intend to count inventory at the year-end but to rely instead on the computerised inventory control system.
(a) According to ISA 300, the auditor should plan the audit work so that the engagement will be performed in an effective manner.
Required:
Explain why it is important to plan an audit
(b) Using the information provided above, prepare the audit strategy for Seaford Supplies Ltd. for the year ending 31 December 20X8.
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- Tags: Audit Efficiency, Audit Planning, Audit Strategy, ISA 300, Resource Allocation
- Level: Level 2
- Topic: Planning an Audit
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