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  • 20 Marks

FR – July 2023 – L2 – Q4 – Performance Analysis

Assess the financial performance of Besease Ltd using financial ratios and prepare a report for the board of directors.

Besease Ltd won two prestigious awards in 2020 despite the negative impact of the COVID-19 pandemic. The Board of Directors seeks to assess the company’s performance for the year ended 31 December 2021 in comparison to 2020.

Below are the financial statements for the year ended 31 December 2021:

Statement of comprehensive income for the year ended 31 December

2021 (GH¢) 2020 (GH¢)
Revenue 7,315,927 6,184,754
Cost of sales (4,322,986) (3,441,339)
Gross profit 2,992,941 2,743,415
Other income 330,812 280,832
Administrative expenses (2,511,179) (2,648,987)
Operating profit 812,574 375,260
Finance cost (496,913) (174,872)
Profit before tax 315,661 200,388
Taxation (188,621) (30,700)
Profit for the year 127,040 169,688

Statement of financial position as at 31 December

2021 (GH¢) 2020 (GH¢)
Non-current assets
Property, Plant & Equipment 9,224,988 5,102,799
Intangible assets 35,824 33,350
Investments 36,629 36,629
Total non-current assets 9,297,441 5,172,778
Current assets
Inventories 2,878,337 1,329,279
Trade receivables 1,875,594 2,246,747
Cash and bank balances 527,412 372,081
Total current assets 5,281,343 3,948,107
Total assets 14,578,784 9,120,885
Equity & Liabilities
Equity
Share capital 217,467 217,467
Retained earnings 1,289,140 1,162,100
Credit reserve 826,528 1,102,037
Total equity 2,333,135 2,481,604
Non-current liabilities
Interest-bearing loans 6,708,598 2,800,223
Deferred taxation 187,624 186,304
Total non-current liabilities 6,896,222 2,986,527
Current liabilities
Trade payables 1,257,693 1,550,466
Taxation 118,337 101,391
Other payables 2,993,667 1,021,167
Accrued expenses 979,730 979,730
Total current liabilities 5,349,427 3,652,754
Total equity & liabilities 14,578,784 9,120,885

The Finance Manager has selected the following performance ratios:
i) Return on capital employed (capital employed = interest-bearing debt + shareholders’ equity) (%)
ii) Return on equity (%)
iii) Acid test ratio (times)
iv) Debt-to-equity ratio
v) Interest cover ratio (times)

Required:
Write a report to the Board of Directors assessing the comparative performance of Besease Ltd for the year ended 31 December 2021 using the given ratios.

Besease Ltd

Memorandum
To: The Board of Directors
From: The Finance Manager
Date: 1/4/2022
Subject: Analysis of the performance of Besease Ltd for the year 2021

This report assesses the performance of Besease Ltd for the year ended 31 December 2021 as compared to the performance of the comparative financial year ended 31 December 2020. The company’s performance is assessed on the basis of profitability, liquidity, efficiency, and its gearing.

Profitability

The company experienced revenue growth of 18.29% in 2021 compared to 2020. This growth led to an increase in the return on capital employed (ROCE), which rose from 7.10% in 2020 to 8.99% in 2021. This indicates that the company generated GH¢0.09 for every cedi of long-term capital employed, compared to GH¢0.07 in 2020, reflecting an improvement in profitability from the perspective of capital providers.

However, the return on equity (ROE), which focuses on returns to shareholders, declined from 6.84% in 2020 to 5.45% in 2021. This reduction is primarily due to the increased finance costs from loans acquired during the year. The finance cost increased by 184.16% as the company’s debt increased by 139.57%.

The company’s trading profit per cedi of revenue generated also declined in 2021 compared to 2020. In 2020, the trading profit per GH¢1 of revenue was GH¢0.44, while in 2021, it dropped to GH¢0.40. This decline suggests the company faced higher costs in 2021, with the cost of sales increasing by 25.62%, outpacing revenue growth.

Liquidity

The company’s liquidity position worsened in 2021 compared to 2020, as indicated by the reduction in the acid test ratio from 0.72:1 in 2020 to 0.44:1 in 2021. This shows that the company had fewer liquid assets to cover its current liabilities, meaning its ability to settle obligations with liquid assets deteriorated. Excluding inventory from current assets, the company could only cover 44% of its short-term obligations in 2021 compared to 72% in 2020.

Efficiency

There was a decline in inventory turnover efficiency, with the average days inventory remained unsold increasing from 141 days in 2020 to 243 days in 2021. This indicates that the company took longer to sell its inventory, which is not favorable for working capital management.

On the other hand, the company improved in collecting receivables. The average collection period for trade receivables reduced from 133 days in 2020 to 94 days in 2021. This improvement suggests the company was more effective in converting receivables into cash in 2021.

However, the company had a shorter credit period from its suppliers in 2021 compared to 2020. The trade payable days fell from 164 days in 2020 to 106 days in 2021, indicating that suppliers were being paid earlier in 2021 than in the previous year. While this may suggest better supplier relations, it could also imply less favorable credit terms and potentially more strain on cash flows.

Gearing

The company’s debt-to-equity ratio increased significantly from 1.13:1 in 2020 to 2.88:1 in 2021, indicating a substantial rise in financial leverage. The company is now more reliant on debt financing, increasing its financial risk.

Additionally, the interest cover ratio, which measures the company’s ability to cover interest payments, decreased from 2.15 times in 2020 to 1.64 times in 2021. This suggests that the company had less profit available to cover its interest obligations in 2021, further increasing financial risk.

Conclusion

The company’s overall profitability improved in 2021, but returns for shareholders declined. Liquidity and financial risk worsened, and inventory management efficiency decreased.

  • 10 Marks

AA – Nov 2019 – L2 – Q4b – Internal Audit and Its Relationship with External Audit

Defines outsourcing and discusses the advantages and disadvantages of outsourcing the internal audit function.

he management of your company is carrying out major restructuring of the operations of the company for more effective and efficient achievement of objectives and targets. One of the major decisions taken was the outsourcing of the Internal Audit Function.

Required:
i) Define outsourcing. (2 marks)
ii) Identify FOUR (4) advantages and FOUR (4) disadvantages of outsourcing the internal audit function. (8 marks)

i) Definition of Outsourcing:
Outsourcing is the process of purchasing key functions from an outside supplier. In other words, it involves contracting out certain functions, such as internal audit or information technology, to third-party service providers.
(2 marks)

ii) Advantages of Outsourcing the Internal Audit Function:

  1. Cost Efficiency:
    • Outsourcing can be more cost-effective than maintaining an in-house internal audit function, as it reduces the need for full-time staff and infrastructure.
  2. Access to Expertise:
    • Outsourcing provides access to specialized skills and expertise that may not be available internally, ensuring a high level of service.
  3. Indemnity Coverage:
    • Third-party service providers may offer indemnity insurance, protecting the company from losses due to errors or mismanagement during the audit.
  4. Flexibility and Scalability:
    • Outsourced services can be scaled up or down based on the company’s changing needs without the commitment to full-time employees.

(4 points for 4 marks)

Disadvantages of Outsourcing the Internal Audit Function:

  1. Loss of Control:
    • The company may lose direct control over the internal audit process, leading to concerns about the quality or timeliness of the work.
  2. Time Demand on Management:
    • Management may spend more time managing the contract and overseeing the outsourced provider, which can be time-consuming.
  3. Risk of Litigation:
    • If the outsourced provider fails to deliver as expected, the company may face legal action or challenges in enforcing contractual obligations.
  4. Lack of Organizational Knowledge:
    • External auditors may not have an in-depth understanding of the company’s culture, processes, and internal operations, which can affect the quality of the audit.

(4 points for 4 marks)

(Total: 10 marks)

  • 4 Marks

AA – May 2016 – L2 – Q5a – Audit and Assurance Evidence

This question explains the purpose and objectives of a value for money (VFM) audit.

(a) Explain the purpose of value for money audit. (4 marks)

The purpose of a value for money (VFM) audit is to assess whether an entity is obtaining the best possible combination of services for the lowest level of resources used. VFM audits focus on the 3 Es:

  1. Economy:
    • Ensuring that resources (such as labor, materials, and equipment) are acquired at the lowest possible cost without compromising quality.
  2. Efficiency:
    • Evaluating the relationship between the resources used (inputs) and the outputs achieved. An efficient operation is one that maximizes outputs while minimizing the resources used.
  3. Effectiveness:
    • Determining whether the intended goals and objectives of the entity are being achieved. This involves assessing whether the activities of the entity are producing the desired outcomes.

In summary, a VFM audit aims to ensure that an organization is managing its resources in a way that delivers the highest value for money, balancing cost, productivity, and outcomes.

  • 9 Marks

FR – May 2017 – L2 – Q4b – Financial Statement Analysis

Write a report analyzing the performance of Shine Ltd compared to Diamond Ltd and the industry averages based on profitability, liquidity, gearing, and efficiency.

As the Financial Controller of Shine Ltd, write a report to the Managing Director analyzing the performance of your company, comparing the results against that of Diamond Ltd (a key competitor) and against the industry average using the following measures:

  • Profitability
  • Liquidity
  • Gearing
  • Efficiency

To: Managing Director
From: Financial Controller
Subject: Performance Analysis for Shine Ltd – Year Ended 31 December 2016

This report provides an analysis of the financial performance of Shine Ltd compared to Diamond Ltd, our key competitor, and the industry averages using the measures of profitability, liquidity, gearing, and efficiency.

1. Profitability

Profit Margin: Shine Ltd has a profit margin of 36.33%, which is significantly higher than Diamond Ltd’s 30.22% and also above the industry average of 35%. This indicates that Shine Ltd is more efficient in converting revenue into profit.

Return on Capital Employed (ROCE): Shine Ltd’s ROCE of 28.74% is slightly lower than Diamond Ltd’s 30.52% and below the industry average of 30%. This suggests that Shine Ltd is not utilizing its capital as effectively as Diamond Ltd in generating returns.

Return on Equity (ROE): Shine Ltd’s ROE of 11.53% is more than double that of Diamond Ltd (5.29%), but it is still significantly lower than the industry average of 20%. This indicates that while Shine Ltd is outperforming Diamond Ltd, there is room for improvement in generating returns for shareholders.

2. Liquidity

Current Ratio: Shine Ltd’s current ratio of 3.35 is better than Diamond Ltd’s 2.46 and higher than the industry average of 2.50. This suggests that Shine Ltd is in a stronger position to cover its short-term obligations.

Quick Ratio: Shine Ltd’s quick ratio of 2.85 is also superior to Diamond Ltd’s 2.06 and the industry average of 2.00. This further reinforces Shine Ltd’s strong liquidity position and its ability to meet immediate liabilities without relying on inventory sales.

3. Gearing

Interest Cover: Shine Ltd’s interest cover ratio is 2.00, which is similar to Diamond Ltd’s 1.98 and marginally below the industry average of 2.50. This indicates that Shine Ltd’s ability to meet interest payments is comparable to that of Diamond Ltd, but both are below industry standards, suggesting potential pressure in covering interest expenses.

Debt to Equity Ratio: Shine Ltd’s debt to equity ratio of 25.28% is similar to Diamond Ltd’s 25.09% and much lower than the industry average of 45%. This indicates that Shine Ltd has a lower reliance on debt financing compared to the industry, which reduces financial risk.

4. Efficiency

Accounts Receivable Collection Period: Shine Ltd takes 49.91 days to collect receivables, which is longer than Diamond Ltd’s 44.64 days and the industry average of 30 days. This indicates that Shine Ltd is slower in collecting payments from customers, which could negatively impact cash flow.

Accounts Payable Payment Period: Shine Ltd takes 36.50 days to pay its suppliers, which is shorter than Diamond Ltd’s 46.93 days and the industry average of 45 days. This indicates that Shine Ltd is paying its suppliers faster than its competitor and the industry norm, which may affect its working capital management.

Inventory Turnover Period: Shine Ltd’s inventory turnover period is 50.60 days, slightly longer than Diamond Ltd’s 48.49 days and the industry average of 40 days. This indicates that Shine Ltd is holding inventory for a longer period, which could increase storage costs or risk of obsolescence.

Conclusion

Overall, Shine Ltd is performing well in terms of profitability and liquidity, outperforming Diamond Ltd and meeting or exceeding industry averages in several areas. However, there are concerns with the company’s efficiency, particularly in managing receivables and inventory. There is also a need to improve interest cover to reduce financial risk. Addressing these areas could further enhance Shine Ltd’s competitive position and financial health.

Signed:
Financial Controller

  • 6 Marks

FR – May 2017 – L2 – Q4a – Financial Statement Analysis

Calculate comparable financial ratios for Diamond Ltd and Shine Ltd based on profitability, liquidity, gearing, and efficiency.

The following information has been extracted from the recently published accounts of Diamond Ltd and Shine Ltd.

Statement of Profit or Loss for the year ended 31 December 2016
The following are the latest industry average ratios:
Required:
Calculate comparable ratios (to two decimal places where appropriate) for the two companies. All calculations must be clearly shown.

Diamond Ltd and Shine Ltd

  • 20 Marks

CR – Aug 2022 – L3 – Q5 – Analysis and interpretation of financial statements

This question requires writing a report that assesses the comparative performance of a company using various financial ratios (profitability, liquidity, efficiency, and gearing).

Wadie Ltd has been in operation for the past ten years. The company started operations in Kumasi with just three employees, but currently operates in all regions of Ghana, with over five hundred employees.

The final meeting for the year of the Board of Directors of the company is to be convened, and as a tradition, the Finance Manager presented an analysis of the financial performance of the company for the financial year ended 31 December 2021. Below are the financial statements for the year ended 31 December 2021:

Statement of Comprehensive Income for the year 31 December

Additional Information:

i) Finance income relates to interest earned on the company’s investment in Government of Ghana loan notes.

ii) Dividend payable represents the dividend declared or approved by shareholders at the last Annual General Meeting.

Required:

As the Finance Manager of the company, write a report to the Board of Directors, assessing the comparative performance of the company for the year ended 31 December 2021. Your report should use THREE (3) profitability ratios, TWO (2) liquidity ratios, THREE (3) efficiency ratios, and TWO (2) gearing ratios.

 

To: The Board of Directors
From: The Finance Manager
Date: 3rd April 2022
Subject: Performance Assessment of Wadie Ltd for the Year Ended 31 December 2021

This report provides an analysis of the performance of Wadie Ltd for the year ended 31 December 2021, compared with the previous year (2020). The assessment is based on profitability, liquidity, efficiency, and gearing ratios.

Profitability Ratios

Liquidity Ratios

Efficiency Ratios

Gearing Ratios


Conclusion

Overall, Wadie Ltd’s financial performance for the year ended 31 December 2021 has deteriorated compared to 2020. The company has experienced a sharp decline in profitability, weakened liquidity, and deteriorating efficiency in managing trade receivables and payables. While the debt-to-equity ratio has decreased, indicating lower financial risk, the company’s ability to meet its interest obligations has worsened significantly. Immediate action is needed to improve cash flow management and operational efficiency.

Signed,
Finance Manager

  • 10 Marks

CR – Nov 2016 – L3 – Q4b – Analysis and interpretation of financial statements

Write a report comparing Decimal Ltd’s financial performance with industry averages in terms of profitability, liquidity, efficiency, and shareholders’ investment.

Below are the financial ratios for the year 2015 for Decimal Ltd, a company engaged in the buying and shipment of agricultural products. The ratios for the industry have also been provided.

Ratios Decimal Ltd Industry Average
Quick ratio 0.52:1 0.84:1
Current ratio 1.20:1 1.80:1
Debtors collection period 46 days 41 days
Creditors payment period 70 days 50 days
Inventory holding period 58 days 48 days
Dividend yield 3.6% 9.0%
Debt to equity 85% 45%
Dividend cover 1.4 times 3.4 times
Gross profit margin 18% 28%
Net profit margin 8% 12.8%
Return on capital employed 28% 14%
Net assets turnover 4.2 times 1.9 times

Required:
Write a report to the Shareholders of Decimal Ltd assessing its performance in comparison with the industry in respect of profitability, liquidity, efficiency, and shareholders’ investment.
(10 marks)

Report to the Shareholders of Decimal Ltd

To: The Shareholders of Decimal Ltd
From: Financial Analyst
Date: [Insert Date]
Subject: Performance Comparison with Industry Averages

Introduction:
This report provides an analysis of Decimal Ltd’s financial performance for the year 2015 in comparison with the industry averages, focusing on the areas of profitability, liquidity, efficiency, and shareholders’ investment.

i) Profitability:
Decimal Ltd’s profitability ratios are below the industry averages.

  • Gross profit margin of 18% is significantly lower than the industry average of 28%, indicating that the company is not controlling its costs effectively or is facing pricing pressures.
  • Net profit margin of 8% is also below the industry average of 12.8%, showing that Decimal Ltd is less efficient in converting revenue into profit.
    However, return on capital employed (ROCE) of 28% is higher than the industry average of 14%, which suggests that Decimal Ltd is utilizing its capital more effectively than its peers.

ii) Liquidity:
Decimal Ltd’s liquidity position is weaker compared to the industry.

  • The quick ratio of 0.52:1 and the current ratio of 1.20:1 are both below the industry averages of 0.84:1 and 1.80:1, respectively. This indicates that Decimal Ltd may face difficulties in meeting its short-term obligations as they fall due.
  • The longer debtors collection period of 46 days compared to the industry average of 41 days suggests that Decimal Ltd is slower in collecting payments from customers, which may impact cash flow.

iii) Efficiency:
In terms of efficiency, Decimal Ltd shows mixed results.

  • Inventory holding period of 58 days is higher than the industry average of 48 days, implying that the company holds inventory longer than necessary, which may tie up working capital.
  • However, creditors payment period of 70 days exceeds the industry average of 50 days, indicating that Decimal Ltd takes longer to pay its suppliers, which can provide a short-term liquidity advantage.
  • Net assets turnover of 4.2 times is significantly better than the industry average of 1.9 times, suggesting that Decimal Ltd is generating more revenue per unit of asset compared to its peers.

iv) Shareholders’ Investment:
Decimal Ltd’s performance in terms of shareholders’ investment is weaker than the industry.

  • Dividend yield of 3.6% is much lower than the industry average of 9%, meaning shareholders receive lower returns on their investments.
  • Dividend cover of 1.4 times is also below the industry average of 3.4 times, suggesting that Decimal Ltd retains less profit to support future dividends.

Conclusion:
Overall, Decimal Ltd shows a strong return on capital employed and asset turnover but underperforms in profitability, liquidity, and shareholder returns compared to the industry. Management should focus on improving cost control, liquidity, and inventory management to enhance overall performance and investor confidence.

Signed:
[Financial Analyst Name]

  • 20 Marks

CR – Dec 2022 – L3 – Q5 – Analysis and Interpretation of Financial Statements

Evaluate Partey Ltd's performance using key financial ratios for profitability, liquidity, efficiency, and gearing.

Partey Ltd is a company engaged in continuous casting and cold rolling of aluminum products in Ghana. The company has been in operation for several decades, and its operations did not change in the year ended 31 December 2021.

Below are financial statements for the years 2021 and 2020:

Statement of Profit or Loss and Other Comprehensive Income

2021 (GH¢000) 2020 (GH¢000)
Revenue 389,507 445,963
Cost of sales (240,731) (237,345)
Gross profit 148,776 208,618
Other income 19,315 10,983
Distribution costs (76,366) (108,137)
Administrative expenses (74,520) (46,216)
Operating profit 17,205 65,248
Finance cost (21,287) (21,537)
Profit before tax (4,082) 43,711
Tax expense – (16,521)
Profit for the year (4,082) 27,190

Statement of Financial Position

2021 (GH¢000) 2020 (GH¢000)
Non-current assets:
Property, plant and equipment 196,784 183,190
Investment securities 137 348
Total non-current assets 196,921 183,538
Current assets:
Inventories 50,400 66,351
Trade receivables 23,769 27,688
Other receivables 9,343 1,833
Cash and cash equivalents 45,969 20,699
Total current assets 129,481 116,571
Total assets 326,402 300,109
Equity and Liabilities:
Stated capital 10,000 10,000
Retained earnings 124,575 111,676
Total equity 134,575 121,676
Non-current liabilities:
15% Loan notes 8,580 10,247
20% Loan notes (NGIC Pension Fund) 100,000 100,000
Total non-current liabilities 108,580 110,247
Current liabilities:
Trade payables 80,182 65,082
Current tax – 3,104
Accrued expenses 3,065 –
Total current liabilities 83,247 68,186
Total equity and liabilities 326,402 300,109

Required:

a) As the Finance Manager of Partey Ltd, you have been tasked by the Board of Directors to produce a report. Assess the performance of the company over time based on profitability, liquidity, efficiency, and gearing.
(Note: Your report should include TWO (2) ratios each of profitability, liquidity, efficiency, and gearing).
(16 marks)

b) Management of the company wants to achieve improvement in technology and production processes to stimulate growth. However, this will require further injection of funds and less strain on operating cash flows. To achieve this, the Board of Directors of the company has resolved to convince the company’s largest debtholder, NGIC Pension Fund, to exercise the conversion right attached to the debt. The total value of the debt included in the financial statements for both financial years is GH¢100 million. The debt was issued at a coupon rate of 20% per annum. The annual coupon payments are also included in the financial statements above for both financial years. NGIC Pension Fund is also the second-largest shareholder of the company.

The estimated tax expense on the company’s profit for the year ended 31 December 2021, if the debt owed to NGIC Pension Fund is converted, is GH¢3.172 million. Current tax liability at 31 December 2021 is expected to increase by the same amount.

Required:
Assess the performance of the company for the year ended 31 December 2021 upon conversion of the debt owed to NGIC Pension Fund on 1 January 2021 at its carrying amount.
(4 marks)

a) Performance Evaluation of Partey Ltd

  • Profitability Ratios:
    • Gross profit margin = (148,776 / 389,507) x 100 = 38.2% (2021); 46.78% (2020)
    • Return on equity = (Profit after tax / Equity) x 100 = (-4,082 / 134,575) x 100 = -3.03% (2021); 22.35% (2020)
  • Liquidity Ratios:
    • Current ratio = Current assets / Current liabilities = 129,481 / 83,247 = 1.56:1 (2021); 1.71:1 (2020)
    • Acid-test ratio = (Current assets – Inventories) / Current liabilities = (129,481 – 50,400) / 83,247 = 0.95:1 (2021); 0.73:1 (2020)
  • Efficiency Ratios:
    • Trade receivable days = (Trade receivables / Revenue) x 365 = (23,769 / 389,507) x 365 = 22.28 days (2021); 22.63 days (2020)
    • Inventory turnover = Cost of sales / Inventories = 240,731 / 50,400 = 4.77 times (2021); 3.58 times (2020)
  • Gearing Ratios:
    • Debt to equity ratio = (Long-term debt / Equity) x 100 = (108,580 / 134,575) x 100 = 80.68% (2021); 90.61% (2020)
    • Interest cover ratio = Operating profit / Interest expense = 17,205 / 21,287 = 0.81 times (2021); 3.03 times (2020)

(16 marks)

b) Performance upon conversion of debt:

Upon conversion of the GH¢100 million convertible debt:

  • Profit after tax: GH¢(-4,082,000 + 20,000,000 – 3,172,000) = GH¢12,746,000
  • Return on equity: (12,746 / 134,575) x 100 = 9.47%
  • Current ratio: 129,481 / (83,247 + 3,172) = 1.50:1
  • Debt to equity ratio: (8,580 / 234,575) x 100 = 3.66%
  • Interest cover ratio: 17,205 / (21,287 – 20,000) = 13.37 times

The company’s ability to cover its remaining interest payments is now much stronger, with an interest cover ratio of 13.37 times.

(4 marks)

  • 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)

  • 5 Marks

MA – Nov 2017 – L2 – Q2a – Introduction to management accounting

Identify and explain five features of a good coding system for efficient and effective information management, whether manual or computerized.

a) An efficient and effective coding system, whether manual or computerized should incorporate certain features.

Required: Identify and explain FIVE features of a good coding system.

(5 marks)

The requirements for an efficient coding system:

  • Every number used in the code should be unique and certain, i.e. it should be easily identified from the structure of the code.
  • Elasticity and comprehensiveness is an absolute must for a well-designed coding system. It should be possible to identify a code for every item and the coding system should be capable of expanding to accommodate new items.
  • The code should be brief, meaningful and significant.
  • The maintenance of the coding system should be centrally controlled. It should not be possible for individuals to independently add new codes to the existing coding system.
  • Codification systems should be of the same length. This makes errors easier to spot and it assists computerized data processing.
  • The coding system must allow for expansion.
  • The likelihood of errors going undetected should be minimized.
  • If the code consists of alphabetic characters, it should be derived from the item’s description or name (ie mnemonics should be used).
  • There should be readily available index or reference book of codes.
  • Existing codes should be reviewed regularly and out-of-date codes removed.

(Any 5 points for 5 marks)

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