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- 20 Marks
Question
a) Kwame Adjei has been invited to bid for a contract to construct a place of convenience for a school at Gorlu in the Upper East Region. He has estimated the following expenses to be incurred to execute the contract.
- Cost of concrete mixer bought at GH¢70,000 three years ago, has a written down value of GH¢52,000.
- Stones bought six months ago at GH¢1,800 per trip currently sells at GH¢2,200 per trip. The contractor constantly uses the stones.
- 200 bags of cement bought three months ago at GH¢40 per bag, currently sells at GH¢45 per bag.
- Sand to be bought at GH¢900 per trip.
- Each mason is to be paid GH¢80 per day.
- 600 pieces of 5” blocks sells at GH¢3 per piece.
Required: i) Identify and explain TWO (2) costs that cannot be used in bidding for the contract. (4 marks)
ii) Identify and explain THREE (3) costs that can be used to bid for the contract. (6 marks)
b) Outline FIVE (5) qualities of good management accounting information system. (5 marks)
c) State and explain FIVE (5) uses of costs and management accounting information to a profit-making organisation. (5 marks)
Answer
a) i) Irrelevant costs:
- Cost of the concrete mixer of GH¢70,000 (Sunk cost)
- Written down value of concrete mixer GH¢52,000 (Sunk cost)
- Purchase price of stones GH¢1,800 (Historical cost)
- Purchase price of cement GH¢40 per bag (Historical cost)
ii) Relevant costs:
- Replacement cost of stones GH¢2,200 per trip (Current cost)
- Replacement cost of cement GH¢45 per bag (Current cost)
- Cost of sand GH¢900 per trip (Future cost)
- Cost of masons GH¢80 per day (Future cost)
- Cost of 600 pieces of 5” blocks GH¢3 per piece (Future cost)
b) Qualities of good management accounting information system:
- Completeness: Includes all necessary information.
- Understandability: Easily understood by users.
- Relevance: Pertinent to specific decisions.
- Reliability: Accurate and not misleading.
- Comparability: Prepared consistently for comparison.
c) Uses of costs and management accounting information:
- Ascertaining production cost per unit.
- Determining product selling price.
- Controlling and managing costs.
- Assessing profitability by division, activity, or unit.
- Identifying inefficiencies and wastages in production.
- Presenting relevant data for decision-making.
- Estimating future costs.
- Topic: Relevant Cost and Revenue
- Series: MAY 2021
- Uploader: Joseph