Topic: Cost-Volume-Profit (CVP) Analysis

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MA – Mar 2025 – L2 – Q5 – Decision making techniques

Determine whether Moree Engineers LTD should make or buy extra seating assemblies for scooters, considering costs and opportunity costs.

Question

a) i)
Moree Engineers LTD (MEL) makes electrically-driven disability scooters aimed at elderly and/or disabled customers. At present, wheels and tyres are bought from external suppliers but all other parts are manufactured in-house. The scooters have a strong reputation due mainly to innovative designs, special power units that can be recharged at home and seats that enable easy access for a wide range of disabilities. MEL also sells power units to other firms.
Current monthly costs are as follows:

	Seating Department	Power Unit Department
Costs	GH¢	GH¢
Direct Materials	9,300	4,140
Direct Labour	12,600	9,450
Apportioned overheads	26,700	17,200
	48,600	30,790
Production level	60 units	90 units

The power unit department currently produces 90 units a month, 60 units are used in MEL’s own scooters while 30 units are sold externally at GH¢376 each.
A contract has been won to supply an additional 10 scooters per month. However, the directors are considering how best to meet the additional demand.
Sufficient capacity exists for the company to increase its monthly production to 70 scooters, except that making an extra 10 seating assemblies would require reallocation of labour and other resources from the power unit to the seating department. This would cut power unit output by 20 units per month.
The alternative course would be to buy 10 seating assemblies from an outside supplier and fit the 10 power units from the present production of 90 units. The cheapest quote for seating assemblies is GH¢610 per assembly.

Required:
Based on the figures given, show whether Moree Engineers LTD should make or buy the extra seats.

a) ii) Discuss FOUR other factors that should be considered before a final decision is taken to make or to buy the extra seats.

b) i). Bambo LTD produces three medical products namely, gloves, bandages and syringes. The budgeted sales in the coming year for the three products is GH¢4,530,000. The company accordingly projected GH¢750,000 post-tax profit on the three products for the period.
Detailed budgeted Cost and sales data for the coming year are as follows:

	Gloves	Bandages	Syringes
Sales Volume (%)	40%	25%	35%
Variable cost to Sales ratio	60%	67.5%	54.5%

The fixed cost for Bambo LTD amounted to GH¢1,330,000.
Other information:
Corporate tax rate is 25%

Required:
Calculate margin of safety in percentage (%) terms.

b) ii) Calculate post-tax revenue to achieve the projected profit.

Answer

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Tags: CVP Analysis, Multi-product, Post-tax revenue, Profit Calculation, Tax adjustment
Level: Level 2

Topic: Cost-Volume-Profit (CVP) Analysis
Series: MAR 2025

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.

Question

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.

Answer

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Tags: Batch Selection, CVP Analysis, Fixed and Variable Costs, Profit Maximization
Level: Level 2

Topic: Cost-Volume-Profit (CVP) Analysis
Series: Nov 2024

ICMA – Nov 2024 – L1 – Q3a – Value for Money (VFM)

Explains the components of Value for Money (VFM) in the public sector.

Question

Value for Money (VFM)
Value for Money (VFM) is an objective that can be applied to any organization whose main objective is non-financial but has restrictions on the amount of finance available for spending, which the public sector is no exception.

Required:
Explain the components of VFM.

Answer

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Tags: Economy, Effectiveness, Efficiency, Public Sector, Value for Money
Level: Level 1

Topic: Cost-Volume-Profit (CVP) Analysis
Series: Nov 2024

FM – May 2015 – L2 – SB – Q3 – Cost-Volume-Profit (CVP) Analysis

Evaluate Pakex's investment proposal using Residual Income and ROCE, including alternative proposal analysis for decision-making.

Question

Pakex is a division of an automobile group that has five years remaining on a leased premises in which it sells self-assembled motorcycles. The management is proposing an investment of ₦48 million on immediate improvements to the interior of the premises in order to stimulate sales by creating a more effective selling environment. The following information is available:

(i) The expected increase in revenue following the improvements is ₦40 million per annum. The average contribution to sales ratio is expected to be 40%.

(ii) The cost of capital is 16% and the division has a target Return on Capital Employed of 20% based on the net book value of the investment at the beginning of the year.

(iii) At the end of the five-year period, the premises improvements will have a NIL residual value.

(iv) The management staff turnover at Pakex division is high. The division’s investment decisions and management performance measurement are currently based on the figures for the first year of the proposal.

In addition to the above information, there is an alternative proposal that suggests a forecast of the increase in revenue per annum from the premises improvements as follows:

Year	1	2	3	4	5
Increase in Revenue	56	40	40	24	16

All other factors are expected to remain the same.

Required: a. Prepare a summary of the statement of the management’s investment proposal for years 1 to 5 showing Residual Income and Return on Capital Employed for each year using the straight-line depreciation method. (10 Marks)
b. Comment on the use of the figures from the Statement in (a) above as a decision-making and management performance measure. (4 Marks)
c. Calculate the Residual Income and Return on Capital Employed for year 1 using the alternative proposal. (6 Marks)

Answer

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Tags: Investment Appraisal, Management Performance, Residual Income, ROCE, Straight Line Depreciation
Level: Level 2

Topic: Cost-Volume-Profit (CVP) Analysis
Series: MAY 2015

PM – May 2015 – L2 – SA – Q1 – Cost-Volume-Profit (CVP) Analysis

Analyze Tadefo Limited's activity-based costing, discuss budgeting weaknesses, and describe the advantages of ABB and ZBB.

Question

TADEFO LIMITED is a manufacturing company which produces and assembles car components. The company has two main production departments: Machining and Assembling. Each of the two departmental managers is responsible for producing annual budgets based on targets set by the management. From last year’s budget, TADEFO Limited hoped to turn an expected 10 percent rise in total revenue into a 20 percent increase in the company’s profits.

The following budgeted information relates to TADEFO Limited for the forthcoming period:

Products Information:

Products	ACQ	BEZ	CFJ
Sales and production (units)	30,000	50,000	40,000
Selling price (per unit) (N)	73	45	95
Prime cost (per unit) (N)	65	32	84
Machine Dept. (hrs per unit)	4	2	5
Assembly Dept. (hrs per unit)	2	7	3

Overheads Re-Analyzed into Cost Pools:

Cost Pool	Amount (N’000)	Cost Driver	Quantity for the period
Machine services	359	Machine hours	425,000
Assembly services	328	Direct labour hours	532,000
Set-up costs	36	Set-ups	720
Order processing	165	Customer orders	34,000
Purchasing	88	Supplier’s orders	12,400
Total Overheads	976

You have also been provided with the following estimates for the period:

	ACQ	BEZ	CFJ
Number of set-ups	220	130	210
Customer orders	18,000	10,000	10,000
Suppliers’ orders	5,200	3,600	4,200

Required: a. Prepare and present a profit statement using activity-based costing. (14 Marks)
b. What would you consider to be the weaknesses of an incremental budgeting system for a company such as TADEFO Limited? (5 Marks)
c. Describe Activity-Based Budgeting (ABB) and comment on the advantages of its use by TADEFO Limited. (5 Marks)
d. Explain how the use of Zero-Based Budgeting (ZBB) can motivate employees. (3 Marks)
e. “Encouraging employee participation in budget setting is beneficial” Discuss. (3 Marks)

Answer

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Tags: ABB, Activity-Based Costing, Budget Weakness, Cost Allocation, Employee Motivation, ZBB
Level: Level 2

Topic: Cost-Volume-Profit (CVP) Analysis
Series: MAY 2015

PM – May 2021 – L2 – Q3 – Cost-Volume-Profit (CVP) Analysis

Forecast future sales using historical data and analyze which data period provides a better basis for forecasting.

Question

Some time ago, Robert launched a new product. Initially, sales were strong, but recent figures have raised concerns. Robert seeks a more accurate sales forecast to create detailed cash projections. The sales data below illustrates an underlying trend derived from an averaging method:

Year	Quarter	Trend Point (x)	Sales (Cartons) (y)
2016	3rd	1	10,000
2016	4th	2	10,760
2017	1st	3	10,920
2017	2nd	4	11,000
2017	3rd	5	11,050
2017	4th	6	11,080
2018	1st	7	11,085
2018	2nd	8	11,095
2018	3rd	9	11,120
2018	4th	10	11,130

On average, quarters 1 and 3 are 5% and 6% above the trend, respectively, while quarters 2 and 4 are 2% and 9% below it. Preliminary calculations for the 10 periods yield:

Linear Regression:
Slope: 82.67
Intercept: 10,472.33
Coefficient of determination: 0.535

Forecasting is needed for quarters 3 and 4 in 2019 and quarters 1 and 2 in 2020. There is a debate about using data from all 10 periods versus only the last 5. Analysis for the last five periods includes:

Results of last five periods‟ observations

(Note: y values are scaled down by 100 for ease of calculation.)

Required:
a. Forecast sales for the four quarters using the 10-period data. (8 Marks)
b. Prepare similar forecasts using the last five periods of data. (8 Marks)
c. Evaluate which data set provides the better forecast. (4 Marks)

Answer

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Tags: Coefficient of Determination, Linear Regression, Sales Forecasting, Seasonality, Trend Analysis
Level: Level 2

Topic: Cost-Volume-Profit (CVP) Analysis
Series: MAY 2021

PM – Nov 2014 – L2 – Q5 – Cost-Volume-Profit (CVP) Analysis

Calculate break-even points for Colour-Effects Limited's products under various revenue mixes and sales scenarios.

Question

Colour-Effects Limited retails two products: Common and Executive traveling bags. The budgeted income statement for year 2015 is as follows:

Required:

(a) Calculate the break-even units, assuming that the planned revenue mix is maintained. (3 Marks)

(b) Determine the break-even point in units if only Common bags are sold and if only the Executive bags are sold. (6 Marks)

(c) Calculate the budgeted operating profit and break-even point if 200,000 units are sold, but only 20,000 are Executive bags. (6 Marks)

Answer

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Tags: Break-even Analysis, Contribution margin, Operating Profit, Revenue Mix
Level: Level 2

Topic: Cost-Volume-Profit (CVP) Analysis

TAX – May 2024 – L2 – SA – Q4 – Cost-Volume-Profit (CVP) Analysis

Compute minimum tax liability for Pkikan Nigeria Ltd and discuss exemptions and basis.

Question

Pkikan Nigeria Limited has been in business for several years and prepares accounts annually to December 31. The following data is available for the year ended December 31, 2021:

Description	Amount (N’000)
Turnover	1,300
Cost of Sales	(400)
Gross Profit	900
Less: Total Expenses	(1,100)
Net Loss for the Year	(200)

Additional information:

You were informed that:
(ii) After the review of the company‟s accounting records, N400,000 meant for the Managing Director of the company was erroneously included in the turnover for the year.
(iii) The issued share capital of the business was N1.8 million, out of which, the shareholders representing N300,000 are yet to pay the final call.
(iv) The net assets of the company was N850,000.
(v) There was a loss brought forward of N210,000 relating to the previous year ofassessment and the agreed capital allowance with the Revenue was N385,000.

Required:
a. Compute the minimum tax liability for the assessment year. (14 Marks)
b. Explain the reasons for calculating minimum tax liability. (3 Marks)
c. Identify companies exempt from minimum tax liability calculations. (3 Marks)

Answer

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Tags: Corporate Tax, Exemptions, Minimum Tax Liability, Nigeria Tax Law
Level: Level 2

Topic: Cost-Volume-Profit (CVP) Analysis
Series: MAY 2024

PM – May 2024 – L2 – SC – Q7 – Cost-Volume-Profit (CVP) Analysis

Analysis of production constraints to determine optimal production levels and profit maximization using contribution analysis.

Question

Jumbo Tailors Nigeria Limited manufactures three unique wears for which the maximum revenue for the coming year is estimated as follows:

Product	Estimated Revenue (₦)
Trousers	8,250,000
Jackets	9,880,000
Skirts	12,390,000

Summarized unit cost data are as follows:

Product	Direct Material (₦)	Direct Labour (₦)	Variable Costs (₦)	Fixed Costs (₦)
Trousers	1,000	500	800	250
Jackets	900	450	1,600	500
Skirts	700	350	1,000	400

The allocation of fixed costs was derived from last year’s production level and may be reviewed if current output plans differ.

Estimated Selling Prices:

Trousers: ₦3,300
Jackets: ₦3,800
Skirts: ₦2,950

The products are processed on sewing machines housed in three blocks. Block A contains type I machines, with an estimated maximum machine hour capacity of 39,200 hours and a fixed overhead cost of ₦1,960,000 per annum. Block B contains type II machines, with 20,000 machine hours available and a fixed overhead cost of ₦1,500,000 per annum. Block C also contains type II machines, with 16,000 machine hours available and a fixed overhead cost of ₦740,000 per annum.

The required machine hours per unit of output for each product on each machine type are as follows:

Product	Type I Machine (hours)	Type II Machine (hours)
Trousers	2	3
Jackets	4	6
Skirts	6	2

Required:
a. Determine the optimal production plan which Jumbo Tailors Nigeria Limited should adopt. (12 Marks)
b. Calculate the total profit that would be made if the production plan in (a) above is adopted. (3 Marks)

Answer

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Tags: Contribution analysis, Machine Utilization, Optimal production, Profit Maximization
Level: Level 2

Topic: Cost-Volume-Profit (CVP) Analysis
Series: MAY 2024

PM – May 2022 – L2 – SA – Q5 – Cost-Volume-Profit (CVP) Analysis

Analysis of Abayomi Plc's financial data to determine break-even sales and evaluate budget adjustments.

Question

Abayomi Plc produces and sells two major products, A and B. The budgeted income statement for the year to December 31, 2022 is given below:

The budgeted selling prices of the products are:

A: ₦120
B: ₦180

Required:
a. Determine the breakeven sales in units for each of the products, using the budgeted data. (6 Marks)

Now assume that the following changes are made to the budget:
(i) Unit selling price of product B is reduced to ₦160.
(ii) Direct material cost is expected to drop by 10% for product A and 20% for product B.
(iii) Direct labour costs for each product will increase by 10%.
(iv) Additional ₦456,000 will be spent on advertising.
(v) 80% of total revenue will be derived from product B.

Answer

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Tags: Break-even Sales, Cost Analysis, Product pricing, Profitability
Level: Level 2

Topic: Cost-Volume-Profit (CVP) Analysis
Series: MAY 2022

MA – Mar 2025 – L2 – Q5 – Decision making techniques

Determine whether Moree Engineers LTD should make or buy extra seating assemblies for scooters, considering costs and opportunity costs.

Question

	Seating Department	Power Unit Department
Costs	GH¢	GH¢
Direct Materials	9,300	4,140
Direct Labour	12,600	9,450
Apportioned overheads	26,700	17,200
	48,600	30,790
Production level	60 units	90 units

Required:
Based on the figures given, show whether Moree Engineers LTD should make or buy the extra seats.

a) ii) Discuss FOUR other factors that should be considered before a final decision is taken to make or to buy the extra seats.

	Gloves	Bandages	Syringes
Sales Volume (%)	40%	25%	35%
Variable cost to Sales ratio	60%	67.5%	54.5%

The fixed cost for Bambo LTD amounted to GH¢1,330,000.
Other information:
Corporate tax rate is 25%

Required:
Calculate margin of safety in percentage (%) terms.

b) ii) Calculate post-tax revenue to achieve the projected profit.

Answer

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Tags: CVP Analysis, Multi-product, Post-tax revenue, Profit Calculation, Tax adjustment
Level: Level 2

Topic: Cost-Volume-Profit (CVP) Analysis
Series: MAR 2025

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.

Question

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.

Answer

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Tags: Batch Selection, CVP Analysis, Fixed and Variable Costs, Profit Maximization
Level: Level 2

Topic: Cost-Volume-Profit (CVP) Analysis
Series: Nov 2024

ICMA – Nov 2024 – L1 – Q3a – Value for Money (VFM)

Explains the components of Value for Money (VFM) in the public sector.

Question

Required:
Explain the components of VFM.

Answer

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Tags: Economy, Effectiveness, Efficiency, Public Sector, Value for Money
Level: Level 1

Topic: Cost-Volume-Profit (CVP) Analysis
Series: Nov 2024

FM – May 2015 – L2 – SB – Q3 – Cost-Volume-Profit (CVP) Analysis

Evaluate Pakex's investment proposal using Residual Income and ROCE, including alternative proposal analysis for decision-making.

Question

(i) The expected increase in revenue following the improvements is ₦40 million per annum. The average contribution to sales ratio is expected to be 40%.

(ii) The cost of capital is 16% and the division has a target Return on Capital Employed of 20% based on the net book value of the investment at the beginning of the year.

(iii) At the end of the five-year period, the premises improvements will have a NIL residual value.

In addition to the above information, there is an alternative proposal that suggests a forecast of the increase in revenue per annum from the premises improvements as follows:

Year	1	2	3	4	5
Increase in Revenue	56	40	40	24	16

All other factors are expected to remain the same.

Answer

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Tags: Investment Appraisal, Management Performance, Residual Income, ROCE, Straight Line Depreciation
Level: Level 2

Topic: Cost-Volume-Profit (CVP) Analysis
Series: MAY 2015

PM – May 2015 – L2 – SA – Q1 – Cost-Volume-Profit (CVP) Analysis

Analyze Tadefo Limited's activity-based costing, discuss budgeting weaknesses, and describe the advantages of ABB and ZBB.

Question

The following budgeted information relates to TADEFO Limited for the forthcoming period:

Products Information:

Products	ACQ	BEZ	CFJ
Sales and production (units)	30,000	50,000	40,000
Selling price (per unit) (N)	73	45	95
Prime cost (per unit) (N)	65	32	84
Machine Dept. (hrs per unit)	4	2	5
Assembly Dept. (hrs per unit)	2	7	3

Overheads Re-Analyzed into Cost Pools:

Cost Pool	Amount (N’000)	Cost Driver	Quantity for the period
Machine services	359	Machine hours	425,000
Assembly services	328	Direct labour hours	532,000
Set-up costs	36	Set-ups	720
Order processing	165	Customer orders	34,000
Purchasing	88	Supplier’s orders	12,400
Total Overheads	976

You have also been provided with the following estimates for the period:

	ACQ	BEZ	CFJ
Number of set-ups	220	130	210
Customer orders	18,000	10,000	10,000
Suppliers’ orders	5,200	3,600	4,200

Answer

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Tags: ABB, Activity-Based Costing, Budget Weakness, Cost Allocation, Employee Motivation, ZBB
Level: Level 2

Topic: Cost-Volume-Profit (CVP) Analysis
Series: MAY 2015

PM – May 2021 – L2 – Q3 – Cost-Volume-Profit (CVP) Analysis

Forecast future sales using historical data and analyze which data period provides a better basis for forecasting.

Question

Year	Quarter	Trend Point (x)	Sales (Cartons) (y)
2016	3rd	1	10,000
2016	4th	2	10,760
2017	1st	3	10,920
2017	2nd	4	11,000
2017	3rd	5	11,050
2017	4th	6	11,080
2018	1st	7	11,085
2018	2nd	8	11,095
2018	3rd	9	11,120
2018	4th	10	11,130

On average, quarters 1 and 3 are 5% and 6% above the trend, respectively, while quarters 2 and 4 are 2% and 9% below it. Preliminary calculations for the 10 periods yield:

Linear Regression:
Slope: 82.67
Intercept: 10,472.33
Coefficient of determination: 0.535

Results of last five periods‟ observations

(Note: y values are scaled down by 100 for ease of calculation.)

Answer

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Tags: Coefficient of Determination, Linear Regression, Sales Forecasting, Seasonality, Trend Analysis
Level: Level 2

Topic: Cost-Volume-Profit (CVP) Analysis
Series: MAY 2021

PM – Nov 2014 – L2 – Q5 – Cost-Volume-Profit (CVP) Analysis

Calculate break-even points for Colour-Effects Limited's products under various revenue mixes and sales scenarios.

Question

Colour-Effects Limited retails two products: Common and Executive traveling bags. The budgeted income statement for year 2015 is as follows:

Required:

(a) Calculate the break-even units, assuming that the planned revenue mix is maintained. (3 Marks)

(b) Determine the break-even point in units if only Common bags are sold and if only the Executive bags are sold. (6 Marks)

(c) Calculate the budgeted operating profit and break-even point if 200,000 units are sold, but only 20,000 are Executive bags. (6 Marks)

Answer

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Tags: Break-even Analysis, Contribution margin, Operating Profit, Revenue Mix
Level: Level 2

Topic: Cost-Volume-Profit (CVP) Analysis

TAX – May 2024 – L2 – SA – Q4 – Cost-Volume-Profit (CVP) Analysis

Compute minimum tax liability for Pkikan Nigeria Ltd and discuss exemptions and basis.

Question

Pkikan Nigeria Limited has been in business for several years and prepares accounts annually to December 31. The following data is available for the year ended December 31, 2021:

Description	Amount (N’000)
Turnover	1,300
Cost of Sales	(400)
Gross Profit	900
Less: Total Expenses	(1,100)
Net Loss for the Year	(200)

Additional information:

Answer

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Tags: Corporate Tax, Exemptions, Minimum Tax Liability, Nigeria Tax Law
Level: Level 2

Topic: Cost-Volume-Profit (CVP) Analysis
Series: MAY 2024

PM – May 2024 – L2 – SC – Q7 – Cost-Volume-Profit (CVP) Analysis

Analysis of production constraints to determine optimal production levels and profit maximization using contribution analysis.

Question

Jumbo Tailors Nigeria Limited manufactures three unique wears for which the maximum revenue for the coming year is estimated as follows:

Product	Estimated Revenue (₦)
Trousers	8,250,000
Jackets	9,880,000
Skirts	12,390,000

Summarized unit cost data are as follows:

Product	Direct Material (₦)	Direct Labour (₦)	Variable Costs (₦)	Fixed Costs (₦)
Trousers	1,000	500	800	250
Jackets	900	450	1,600	500
Skirts	700	350	1,000	400

The allocation of fixed costs was derived from last year’s production level and may be reviewed if current output plans differ.

Estimated Selling Prices:

Trousers: ₦3,300
Jackets: ₦3,800
Skirts: ₦2,950

The required machine hours per unit of output for each product on each machine type are as follows:

Product	Type I Machine (hours)	Type II Machine (hours)
Trousers	2	3
Jackets	4	6
Skirts	6	2

Answer

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Tags: Contribution analysis, Machine Utilization, Optimal production, Profit Maximization
Level: Level 2

Topic: Cost-Volume-Profit (CVP) Analysis
Series: MAY 2024

PM – May 2022 – L2 – SA – Q5 – Cost-Volume-Profit (CVP) Analysis

Analysis of Abayomi Plc's financial data to determine break-even sales and evaluate budget adjustments.

Question

Abayomi Plc produces and sells two major products, A and B. The budgeted income statement for the year to December 31, 2022 is given below:

The budgeted selling prices of the products are:

A: ₦120
B: ₦180

Required:
a. Determine the breakeven sales in units for each of the products, using the budgeted data. (6 Marks)

Answer

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Tags: Break-even Sales, Cost Analysis, Product pricing, Profitability
Level: Level 2