Question Tag: Capacity

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  • 10 Marks

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

This question asks for the calculation of five types of fixed overhead variances based on given production data.

The data below relates to Odeneho Plc and they are in respect of the production of its product, Milcho, for the first quarter ended 31 March 2022.

  • Budgeted output: 5,000 units
  • Standard hours to produce one unit: 2 hours
  • Budgeted fixed production overhead: GH¢25,000
  • Actual fixed production overhead incurred: GH¢25,840
  • Actual hours worked: 10,500
  • Actual units produced: 4,980

Required:
Determine the following:
i) Fixed overhead expenditure variance.
(2 marks)

ii) Fixed overhead capacity variance.
(2 marks)

iii) Fixed overhead efficiency variance.
(2 marks)

iv) Fixed overhead volume variance.
(2 marks)

v) Fixed production overhead variance.
(2 marks)

i) Fixed overhead expenditure variance

Budgeted fixed production overhead−Actual fixed production overhead incurred=GH¢25,000−GH¢25,840=GH¢840

(2 marks)

ii) Fixed overhead capacity variance

(Actual hours worked×Fixed overhead absorption rate)−Budgeted fixed production overhead=(10,500×GH¢2.50)−GH¢25,000=GH¢1,250F

(2 marks)

iii) Fixed overhead efficiency variance

(Standard hours for actual output×Fixed overhead absorption rate)−(Actual hours worked×Fixed overhead absorption rate)=(4,980×2×GH¢2.50)−(10,500×GH¢2.50)=GH¢1,350A

(2 marks)

iv) Fixed overhead volume variance

Capacity variance+Efficiency variance=GH¢1,250F+GH¢1,350A=GH¢100A

(2 marks)

v) Fixed production overhead variance

Fixed overhead expenditure variance+Fixed overhead volume variance=GH¢840A+GH¢100A=GH¢940A

(2 marks)

  • 12 Marks

BCL – Nov 2016 – L1 – Q3b – Contract Law

Explain the legal terms: Capacity, Acceptance, Misrepresentation, Goods, Quantum Meruit.

Explain the following terms as used in the legal business environment:
i) Capacity
ii) Acceptance
iii) Misrepresentation
iv) Goods
v) Quantum Meruit

i) Capacity:

  • A person is said to have capacity when they are of sound mind and have attained the age of majority (i.e., 18 years in Ghana). In order to form a wholly valid contract, parties must be over 18 years of age and be of sound mind. Under Section 2 of the Sale of Goods Act, capacity to buy and sell is regulated by the general law concerning capacity to contract and to transfer and acquire property.
    (2 marks)

ii) Acceptance:

  • In order to constitute a valid contract, there must be an offer and an unqualified acceptance. Acceptance may be oral, written, or implied from conduct. Under Section 52 of the Sale of Goods Act, 1962 (Act 137), the buyer is deemed to have accepted the goods when:
    • He intimates to the seller that he accepts them; or
    • He does not, within a reasonable time after delivery of the goods, inform the seller that he rejects them; or
    • He wrongfully refuses or neglects to place the goods at the disposal of the seller after notifying the seller that he rejects them.
      (4 marks)

iii) Misrepresentation:

  • A misrepresentation is (a) a false statement, (b) of material fact, (c) made by a party to a contract or his agent, (d) inducing the other to enter into the contract.
    (2 marks)

iv) Goods:

  • Goods are defined as “movable property of every description, and include growing crops or plants and other things attached to or forming part of the land which are agreed to be severed before sale by or under the contract of sale” (Section 81 of Sale of Goods Act, 1962, Act 137).
    (2 marks)

v) Quantum Meruit:

  • Where there is a breach of an essential condition in a contract, the injured party may either (a) seek to enforce the contract and sue for damages; or (b) treat the contract as discharged, in which case they cannot sue for damages for its breach. However, where they adopt the second course and treat the contract as discharged, they are entitled to bring a quasi-contractual action for compensation for work done or services rendered. This is called a Quantum Meruit action (literally meaning “how much is it worth?”).
    (2 marks)
  • 10 Marks

BCL – Nov 2023 – L1 – Q2a – Contract Law

Discuss the concept of necessaries, enforceability of contracts with minors, and capacity in contract law.

a) Papa Kwesi, a 16-year-old native of Cantonments, is a fashion enthusiast. He orders goods online from Labalaba Ltd, and his parents readily pay. On 28 March 2023, he ordered the following items from Labalaba Ltd: 3 wristwatches, 6 pairs of “bugger” trousers, 4 fanciful pairs of shoes, 5 current brands of shirts, and 3 brand new pairs of shoes for his girlfriend. The total cost of goods ordered was GH¢20,000.

Papa Kwesi’s mother decided to put a break on her son’s unrestricted love for ordering goods online. The parents decided that Papa Kwesi should pay for the goods from his savings. The parents felt that some of the items were unnecessary as he had them in abundance. The company subsequently issued the cost of the items in the name of Papa Kwesi.

Required: i) Explain in law of contract what is meant by Necessaries. (3 marks)

ii) In the scenario above, will Labalaba Ltd succeed on the claim against Papa Kwesi for the cost of the goods? Explain your answer. (3 marks)

iii) Which persons under the law of contract are said to lack capacity to enter into a contract?

(4 marks)

i) Necessaries: The term includes whatever is reasonably needed for subsistence, health, comfort, and education, considering the person’s age, station in life, and medical condition but excludes anything purely ornamental, solely for pleasure, or what is already supplied. (3 marks)

ii) In the above scenario, it is well established that an infant/minor is obliged to pay for necessaries that have been supplied. Necessaries is not confined to articles necessary to support life, but includes articles and services fit to maintain the particular person in the situation in life in which he moves. In the current scenario, it is observed that Papa Kwesi has ample supply of the goods he ordered. Some of the goods cannot be classified as necessaries even in his station in life, otherwise than they being fanciful and irrelevant. With the goods not being necessaries, recovery of the cost of the items will not be enforceable. (3 marks)

iii) Persons that lack capacity to enter into a contract:

  • Minors
  • Drunken or intoxicated persons
  • Mentally challenged persons
  • Unincorporated bodies
  • Government
  • Enemy alien                                                          (4 points @ 1 mark each = 4 marks)
  • 20 Marks

BCL – Nov 2017 – L1 – Q7 – Alternative forms and constitutions of business organisations

Analyze the legality of a partnership's formation and the circumstances under which a partner may be expelled.

a) Kwasi Mensa, aged 21 years, Patience Adibu, aged 14 years, and Kojo Ntim, aged 20 years, agreed to form a partnership. Available information, however, showed that Kojo Ntim was admitted to a psychiatric hospital for 2 years and was later discharged. In the case of Kwasi Mensa, he was declared bankrupt after he could not meet his financial obligations to a company in which he had previously invested. The three, however, went ahead and formed a partnership known as KKK firm.

Required:
Explain whether the KKK firm was formed in accordance with law. (5 marks)

b) State the reasons for which the Courts may order the expulsion of a partner. (10 marks)

c) What advantages does a partnership have over a company? (5 marks)

(Total: 20 marks)

a) Under Section 5(2)(d) of the Incorporated Private Partnership Act, 1962 Act 152, the following persons are disqualified from forming a partnership:

  • An infant (i.e., a child).
  • A person of unsound mind.
  • Persons who within the last 5 years have been found guilty of any offense involving fraud or dishonesty, whether convicted or not.
  • A body corporate.
  • An undischarged bankrupt.

In this scenario:

  • Kwasi Mensa was of age but declared bankrupt.
  • Patience Adibu was an infant.
  • Kojo Ntim was suspected of having a mental problem.

Based on the law, it is therefore evident that they cannot legally form a partnership. (5 marks)

b) The Courts may order the expulsion of a partner under the following circumstances:

  • When a partner has become permanently of unsound mind.
  • When a partner is permanently incapable of performing their duty/part of the partnership.
  • When a partner is guilty of conduct calculated to affect the firm’s business adversely.
  • When a partner willfully and persistently commits a breach of the partnership agreement, making it reasonably impracticable for the other partners to carry on the business in partnership with them.
  • When the Courts find it just and equitable to expel a partner.
    (5 points @ 2 marks each = 10 marks)

c) Advantages of a partnership over a company include:

  • Two or more partners provide more capital.
  • Financial and operational responsibilities are spread.
  • A wider pool of experience and skills is applied towards the business.
  • Except for the tax authorities, partners are under no obligation to show their accounts to anyone, thus maintaining the privacy of the business.
  • Quicker and speedier decision-making.
    (5 points @ 1 mark each = 5 marks)

(Total: 20 marks)

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