Series: APR 2023

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  • 4 Marks

MA – April 2022 – L2 – Q5B – Introduction to management accounting

Explain four reasons why organizations need to measure costs, including valuation, profit measurement, decision making and control.

Cost measurement reflects the relationships between inputs and outputs. It is designed to provide more accurate information about production, support activities and product cost so that management can focus its attention on the products and processes with the most leverage for increasing profits.

Required:

Explain FOUR (4) reasons why organisations need to measure cost. (4 marks)

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  • 4 Marks

MA – April 2022 – L2 – Q5B – Introduction to management accounting

Explain four reasons why organizations need to measure costs, including valuation, profit measurement, decision making and control.

Cost measurement reflects the relationships between inputs and outputs. It is designed to provide more accurate information about production, support activities and product cost so that management can focus its attention on the products and processes with the most leverage for increasing profits.

Required:

Explain FOUR (4) reasons why organisations need to measure cost. (4 marks)

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  • 16 Marks

MA – April 2022 – L2 – Q5a – Decision making techniques

Analyze the profitability of four strategic options for Kuntu Ltd and estimate the required selling price to achieve a target profit.

Kuntu Ltd manufactures one standard product, the standard marginal cost of which is as follows:

Cost Element GH¢
Direct material per unit 10.00
Direct wages per unit 7.50
Variable production overhead 1.25
Total Marginal Cost per Unit 18.75

The budget for the year includes the following:

  • Output (units): 80,000
  • Total fixed Overheads:
    • Production: GH¢1,000,000
    • Advertising: GH¢600,000
    • Marketing: GH¢500,000
  • Contribution: GH¢2,500,000

In reviewing the budget for the coming year, management is dissatisfied with the results likely to arise. An emergency board meeting was held to discuss possible strategies to improve the situation, and the following strategies were proposed:

Strategy 1: The Production Manager suggested reducing the selling price by 10%. This could increase output by 25%. It is estimated that these changes would result in an increase in fixed production overhead by GH¢50,000 and fixed marketing overhead by GH¢25,000.

Strategy 2: The Director of Finance suggested increasing the selling price by 10%. Additionally, with an increase in advertising cost by GH¢400,000, sales units would increase to 90,000 units. It is also estimated that this strategy would increase the fixed production overhead by GH¢25,000 and marketing overhead by GH¢20,000.

Strategy 3: The Marketing Director suggested that with an appropriate increase in advertising expenditure, sales could be increased by 20%, and a profit on turnover of 15% could be obtained. It is estimated that fixed production overhead would increase to GH¢1,040,000 and marketing overhead would increase by GH¢25,000.

Strategy 4: The Managing Director seeks a profit of GH¢600,000. He would like to know at what selling price the target profit could be achieved given the following estimates: An increase in advertising expenditure by GH¢360,000 would result in a 10% increase in sales. However, fixed production and marketing overheads would increase by GH¢25,000 and GH¢17,000 respectively.

Required:

i) Prepare a forecast profit statement for Strategy 1 and Strategy 2. (6 marks)

ii) Estimate the additional expenditure on advertisement to achieve results in Strategy 3. (5 marks)

iii) Estimate the selling price that is required to achieve a profit of GH¢600,000 in Strategy 4. (5 marks)

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  • 16 Marks

MA – April 2022 – L2 – Q5a – Decision making techniques

Analyze the profitability of four strategic options for Kuntu Ltd and estimate the required selling price to achieve a target profit.

Kuntu Ltd manufactures one standard product, the standard marginal cost of which is as follows:

Cost Element GH¢
Direct material per unit 10.00
Direct wages per unit 7.50
Variable production overhead 1.25
Total Marginal Cost per Unit 18.75

The budget for the year includes the following:

  • Output (units): 80,000
  • Total fixed Overheads:
    • Production: GH¢1,000,000
    • Advertising: GH¢600,000
    • Marketing: GH¢500,000
  • Contribution: GH¢2,500,000

In reviewing the budget for the coming year, management is dissatisfied with the results likely to arise. An emergency board meeting was held to discuss possible strategies to improve the situation, and the following strategies were proposed:

Strategy 1: The Production Manager suggested reducing the selling price by 10%. This could increase output by 25%. It is estimated that these changes would result in an increase in fixed production overhead by GH¢50,000 and fixed marketing overhead by GH¢25,000.

Strategy 2: The Director of Finance suggested increasing the selling price by 10%. Additionally, with an increase in advertising cost by GH¢400,000, sales units would increase to 90,000 units. It is also estimated that this strategy would increase the fixed production overhead by GH¢25,000 and marketing overhead by GH¢20,000.

Strategy 3: The Marketing Director suggested that with an appropriate increase in advertising expenditure, sales could be increased by 20%, and a profit on turnover of 15% could be obtained. It is estimated that fixed production overhead would increase to GH¢1,040,000 and marketing overhead would increase by GH¢25,000.

Strategy 4: The Managing Director seeks a profit of GH¢600,000. He would like to know at what selling price the target profit could be achieved given the following estimates: An increase in advertising expenditure by GH¢360,000 would result in a 10% increase in sales. However, fixed production and marketing overheads would increase by GH¢25,000 and GH¢17,000 respectively.

Required:

i) Prepare a forecast profit statement for Strategy 1 and Strategy 2. (6 marks)

ii) Estimate the additional expenditure on advertisement to achieve results in Strategy 3. (5 marks)

iii) Estimate the selling price that is required to achieve a profit of GH¢600,000 in Strategy 4. (5 marks)

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  • 5 Marks

MA – April 2022 – L2 – Q4b – Budgetary control

Explain factors to consider when involving staff in the budgeting process.

Most CEOs and their deputies feel reluctant to allow employees of their entities to participate in the budgeting process. They are of the opinion that such “openness” may expose them to pressure from staff on what is due to them.

Required:

Explain THREE (3) factors that will be considered when involving staff in the budgeting process.

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  • 5 Marks

MA – April 2022 – L2 – Q4b – Budgetary control

Explain factors to consider when involving staff in the budgeting process.

Most CEOs and their deputies feel reluctant to allow employees of their entities to participate in the budgeting process. They are of the opinion that such “openness” may expose them to pressure from staff on what is due to them.

Required:

Explain THREE (3) factors that will be considered when involving staff in the budgeting process.

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  • 15 Marks

MA – April 2022 – L2 – Q4a – Discounted cash flow

Evaluate the acceptability of a project using the Net Present Value (NPV) method considering cash flows and cost of capital.

Phil Company is considering replacing its existing machine on the introduction of a new product. The existing machine would be sold for GH¢2 million and replaced with a new machine at the beginning of the year at the cost of GH¢16 million. This new machine would be sold at the end of year 4 for GH¢1 million.

A market research recently carried out at a cost of GH¢1.5 million indicates a unit selling price of GH¢300 in year 1, rising by 10% per annum. Sales volume for the four-year life of the project has been estimated as follows:

Year Units
1 60,000
2 85,000
3 85,000
4 80,000

Possible unit variable costs are as follows:

Probability GH¢
0.4 240
0.6 260

Incremental fixed cost as a result of the project is GH¢15 per unit plus GH¢1,000,000 per annum staff cost.

The introduction of the new product is expected to reduce the market demand for an existing product by 5,000 units per annum. The existing product has a unit contribution of GH¢75.

Other annual fixed costs associated with the new product include the following:

  • Amortization of goodwill: GH¢50,000
  • Depreciation: GH¢250,000

Phil Company’s cost of capital is 12%.

Required:

Evaluate the acceptability of the project.

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  • 15 Marks

MA – April 2022 – L2 – Q4a – Discounted cash flow

Evaluate the acceptability of a project using the Net Present Value (NPV) method considering cash flows and cost of capital.

Phil Company is considering replacing its existing machine on the introduction of a new product. The existing machine would be sold for GH¢2 million and replaced with a new machine at the beginning of the year at the cost of GH¢16 million. This new machine would be sold at the end of year 4 for GH¢1 million.

A market research recently carried out at a cost of GH¢1.5 million indicates a unit selling price of GH¢300 in year 1, rising by 10% per annum. Sales volume for the four-year life of the project has been estimated as follows:

Year Units
1 60,000
2 85,000
3 85,000
4 80,000

Possible unit variable costs are as follows:

Probability GH¢
0.4 240
0.6 260

Incremental fixed cost as a result of the project is GH¢15 per unit plus GH¢1,000,000 per annum staff cost.

The introduction of the new product is expected to reduce the market demand for an existing product by 5,000 units per annum. The existing product has a unit contribution of GH¢75.

Other annual fixed costs associated with the new product include the following:

  • Amortization of goodwill: GH¢50,000
  • Depreciation: GH¢250,000

Phil Company’s cost of capital is 12%.

Required:

Evaluate the acceptability of the project.

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  • 10 Marks

MA – April 2022 – L2 – Q3b – Activity-based costing

Differentiate between Activity-Based Budgeting and Incremental Budgeting, explain ABB processes, and discuss arguments for and against ABB.

Kankum Industries is considering switching from Incremental Budgeting to Activity-Based Budgeting (ABB) because of the argued pricing specificity of the ABB approach. The Chairman of the Finance Sub-Committee of the board, who does not have an accounting background, has contacted you for clarification on some key issues relating to ABB in order to assist in his explanation to the board.

Required:

i) Differentiate between Activity-Based Budgeting and Incremental Budgeting. (3 marks)

ii) Explain the process in ABB. (3 marks)

iii) State TWO (2) arguments in favour and TWO (2) arguments against ABB. (4 marks)

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  • 10 Marks

MA – April 2022 – L2 – Q3b – Activity-based costing

Differentiate between Activity-Based Budgeting and Incremental Budgeting, explain ABB processes, and discuss arguments for and against ABB.

Kankum Industries is considering switching from Incremental Budgeting to Activity-Based Budgeting (ABB) because of the argued pricing specificity of the ABB approach. The Chairman of the Finance Sub-Committee of the board, who does not have an accounting background, has contacted you for clarification on some key issues relating to ABB in order to assist in his explanation to the board.

Required:

i) Differentiate between Activity-Based Budgeting and Incremental Budgeting. (3 marks)

ii) Explain the process in ABB. (3 marks)

iii) State TWO (2) arguments in favour and TWO (2) arguments against ABB. (4 marks)

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  • 10 Marks

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

Prepare a standard cost card and calculate variances for Plytimba's recent financial period.

Plytimba manufactures high-quality wooden chairs using odum sourced from sustainable forests. The company began trading two years ago having identified a niche market for the product.

During the year, Plytimba was forced to purchase wood from a different company as the usual supplier did not have sufficient stock available. The company operates a standard variable costing system and details relating to the most recent financial period are shown below.

Budgeted Information:

  • Production in units: 134,400
  • Direct materials: 10,080 square metres odum wood = GH¢282,240
  • Direct labour: 33,600 hours = GH¢483,840
  • Variable production overhead (based on direct labour hours): GH¢225,792
  • Fixed production overhead: GH¢29,200

Actual Information:

  • Production in units: 135,000
  • Direct materials: 10,800 square metres odum wood = GH¢300,240
  • Direct labour hours: 27,000 hours = GH¢486,000
  • Variable production overhead: GH¢194,400
  • Fixed production overhead: GH¢30,150

Required:

i) Prepare a Standard Cost Card for one wooden chair. (4 marks)

ii) Calculate SIX (6) variances in as much detail as the information above permits. (6 marks)

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  • 10 Marks

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

Prepare a standard cost card and calculate variances for Plytimba's recent financial period.

Plytimba manufactures high-quality wooden chairs using odum sourced from sustainable forests. The company began trading two years ago having identified a niche market for the product.

During the year, Plytimba was forced to purchase wood from a different company as the usual supplier did not have sufficient stock available. The company operates a standard variable costing system and details relating to the most recent financial period are shown below.

Budgeted Information:

  • Production in units: 134,400
  • Direct materials: 10,080 square metres odum wood = GH¢282,240
  • Direct labour: 33,600 hours = GH¢483,840
  • Variable production overhead (based on direct labour hours): GH¢225,792
  • Fixed production overhead: GH¢29,200

Actual Information:

  • Production in units: 135,000
  • Direct materials: 10,800 square metres odum wood = GH¢300,240
  • Direct labour hours: 27,000 hours = GH¢486,000
  • Variable production overhead: GH¢194,400
  • Fixed production overhead: GH¢30,150

Required:

i) Prepare a Standard Cost Card for one wooden chair. (4 marks)

ii) Calculate SIX (6) variances in as much detail as the information above permits. (6 marks)

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  • 5 Marks

MA – April 2022 – L2 – Q2c – Standard costing and variance analysis

Explain the advantages and disadvantages of using standard costing in performance measurement.

Standards are one of the important quantitative tools that management uses to control and measure the performance of business operations. Most often than not, it is the wish of management that actual results equate to standards. However, this is often not the case.

Required:

Explain THREE (3) advantages and TWO (2) disadvantages of standard costing. (5 marks)

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  • 5 Marks

MA – April 2022 – L2 – Q2c – Standard costing and variance analysis

Explain the advantages and disadvantages of using standard costing in performance measurement.

Standards are one of the important quantitative tools that management uses to control and measure the performance of business operations. Most often than not, it is the wish of management that actual results equate to standards. However, this is often not the case.

Required:

Explain THREE (3) advantages and TWO (2) disadvantages of standard costing. (5 marks)

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  • 3 Marks

MA – April 2022 – L2 – Q2b – Advanced variance analysis

Calculate and comment on the Throughput Accounting Ratios of three products for Drogo.

Drogo uses the Throughput Accounting technique for efficient allocation of scarce resources. In the second quarter of 2021, the throughput per bottleneck resource for its three products were given as follows:

  • Product A: GH¢4
  • Product B: GH¢6
  • Product C: GH¢9

The total factory cost was GH¢67,500, and the bottleneck resource was 15,000 machine hours.

Required:

Calculate and comment on the Throughput Accounting Ratios of the three products. (3 marks)

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  • 3 Marks

MA – April 2022 – L2 – Q2b – Advanced variance analysis

Calculate and comment on the Throughput Accounting Ratios of three products for Drogo.

Drogo uses the Throughput Accounting technique for efficient allocation of scarce resources. In the second quarter of 2021, the throughput per bottleneck resource for its three products were given as follows:

  • Product A: GH¢4
  • Product B: GH¢6
  • Product C: GH¢9

The total factory cost was GH¢67,500, and the bottleneck resource was 15,000 machine hours.

Required:

Calculate and comment on the Throughput Accounting Ratios of the three products. (3 marks)

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  • 12 Marks

MA – April 2022 – L2 – Q2a – Activity-based costing

Evaluate the bottleneck resource at Pikambi Hospital and suggest ways to reduce turnaround time.

The Pikambi Hospital serves a community with a population of about 20,000. For Out Patients Department (OPD) services, there are three basic stages to seeing the doctor which have been described below:

Stage 1
Records: This is where files of patients are kept. On arrival, a patient presents the identity card together with the National Health Insurance Scheme (NHIS) card. There are two biometric verification machines to confirm the validity of the card and recording of basic personal data on the claim forms. The process takes approximately 10 minutes per machine. Workers here work from 6:00 am to 4:00 pm.

Stage 2
Vitals: Here vital personal information about the patient’s current health status is checked; i.e. temperature, pulse, blood pressure, weight, and sugar levels. There is one machine with 5 nurses. It takes some 6 minutes for one patient to go through the process. The unit also works from 6:00 am to 4:00 pm.

Stage 3
Consultation: There are six doctors who run six-hour shifts a day. Each doctor spends an average of 15 minutes seeing a patient. The community has been complaining about the turnaround period and blames it on the incompetence of the nurses to the extent that sometimes patients stay in queues for long hours and return home unattended.

Required:

i) With appropriate computations, evaluate and assess the bottleneck resource(s) at Pikambi Hospital. (6 marks)

ii) Suggest THREE (3) ways by which the turnaround time can be reduced at the hospital. (6 marks)

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  • 12 Marks

MA – April 2022 – L2 – Q2a – Activity-based costing

Evaluate the bottleneck resource at Pikambi Hospital and suggest ways to reduce turnaround time.

The Pikambi Hospital serves a community with a population of about 20,000. For Out Patients Department (OPD) services, there are three basic stages to seeing the doctor which have been described below:

Stage 1
Records: This is where files of patients are kept. On arrival, a patient presents the identity card together with the National Health Insurance Scheme (NHIS) card. There are two biometric verification machines to confirm the validity of the card and recording of basic personal data on the claim forms. The process takes approximately 10 minutes per machine. Workers here work from 6:00 am to 4:00 pm.

Stage 2
Vitals: Here vital personal information about the patient’s current health status is checked; i.e. temperature, pulse, blood pressure, weight, and sugar levels. There is one machine with 5 nurses. It takes some 6 minutes for one patient to go through the process. The unit also works from 6:00 am to 4:00 pm.

Stage 3
Consultation: There are six doctors who run six-hour shifts a day. Each doctor spends an average of 15 minutes seeing a patient. The community has been complaining about the turnaround period and blames it on the incompetence of the nurses to the extent that sometimes patients stay in queues for long hours and return home unattended.

Required:

i) With appropriate computations, evaluate and assess the bottleneck resource(s) at Pikambi Hospital. (6 marks)

ii) Suggest THREE (3) ways by which the turnaround time can be reduced at the hospital. (6 marks)

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  • 6 Marks

MA – April 2022 – L2 – Q1c – Performance analysis

Explain the different types of benchmarking relevant to the CEO of Gyakie Ltd.

Gyakie currently faces tough competition with the major players in its market. To secure or increase its market position, the CEO has suggested a benchmarking exercise, although he has little knowledge in benchmarking exercises.

Required:

Explain the meaning of the following types of benchmarking to the CEO:

i) Internal benchmarking (2 marks)

ii) Competitive benchmarking (2 marks)

iii) Functional benchmarking (2 marks)

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  • 6 Marks

MA – April 2022 – L2 – Q1c – Performance analysis

Explain the different types of benchmarking relevant to the CEO of Gyakie Ltd.

Gyakie currently faces tough competition with the major players in its market. To secure or increase its market position, the CEO has suggested a benchmarking exercise, although he has little knowledge in benchmarking exercises.

Required:

Explain the meaning of the following types of benchmarking to the CEO:

i) Internal benchmarking (2 marks)

ii) Competitive benchmarking (2 marks)

iii) Functional benchmarking (2 marks)

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  • 4 Marks

MA – April 2022 – L2 – Q5B – Introduction to management accounting

Explain four reasons why organizations need to measure costs, including valuation, profit measurement, decision making and control.

Cost measurement reflects the relationships between inputs and outputs. It is designed to provide more accurate information about production, support activities and product cost so that management can focus its attention on the products and processes with the most leverage for increasing profits.

Required:

Explain FOUR (4) reasons why organisations need to measure cost. (4 marks)

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  • 4 Marks

MA – April 2022 – L2 – Q5B – Introduction to management accounting

Explain four reasons why organizations need to measure costs, including valuation, profit measurement, decision making and control.

Cost measurement reflects the relationships between inputs and outputs. It is designed to provide more accurate information about production, support activities and product cost so that management can focus its attention on the products and processes with the most leverage for increasing profits.

Required:

Explain FOUR (4) reasons why organisations need to measure cost. (4 marks)

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  • 16 Marks

MA – April 2022 – L2 – Q5a – Decision making techniques

Analyze the profitability of four strategic options for Kuntu Ltd and estimate the required selling price to achieve a target profit.

Kuntu Ltd manufactures one standard product, the standard marginal cost of which is as follows:

Cost Element GH¢
Direct material per unit 10.00
Direct wages per unit 7.50
Variable production overhead 1.25
Total Marginal Cost per Unit 18.75

The budget for the year includes the following:

  • Output (units): 80,000
  • Total fixed Overheads:
    • Production: GH¢1,000,000
    • Advertising: GH¢600,000
    • Marketing: GH¢500,000
  • Contribution: GH¢2,500,000

In reviewing the budget for the coming year, management is dissatisfied with the results likely to arise. An emergency board meeting was held to discuss possible strategies to improve the situation, and the following strategies were proposed:

Strategy 1: The Production Manager suggested reducing the selling price by 10%. This could increase output by 25%. It is estimated that these changes would result in an increase in fixed production overhead by GH¢50,000 and fixed marketing overhead by GH¢25,000.

Strategy 2: The Director of Finance suggested increasing the selling price by 10%. Additionally, with an increase in advertising cost by GH¢400,000, sales units would increase to 90,000 units. It is also estimated that this strategy would increase the fixed production overhead by GH¢25,000 and marketing overhead by GH¢20,000.

Strategy 3: The Marketing Director suggested that with an appropriate increase in advertising expenditure, sales could be increased by 20%, and a profit on turnover of 15% could be obtained. It is estimated that fixed production overhead would increase to GH¢1,040,000 and marketing overhead would increase by GH¢25,000.

Strategy 4: The Managing Director seeks a profit of GH¢600,000. He would like to know at what selling price the target profit could be achieved given the following estimates: An increase in advertising expenditure by GH¢360,000 would result in a 10% increase in sales. However, fixed production and marketing overheads would increase by GH¢25,000 and GH¢17,000 respectively.

Required:

i) Prepare a forecast profit statement for Strategy 1 and Strategy 2. (6 marks)

ii) Estimate the additional expenditure on advertisement to achieve results in Strategy 3. (5 marks)

iii) Estimate the selling price that is required to achieve a profit of GH¢600,000 in Strategy 4. (5 marks)

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  • 16 Marks

MA – April 2022 – L2 – Q5a – Decision making techniques

Analyze the profitability of four strategic options for Kuntu Ltd and estimate the required selling price to achieve a target profit.

Kuntu Ltd manufactures one standard product, the standard marginal cost of which is as follows:

Cost Element GH¢
Direct material per unit 10.00
Direct wages per unit 7.50
Variable production overhead 1.25
Total Marginal Cost per Unit 18.75

The budget for the year includes the following:

  • Output (units): 80,000
  • Total fixed Overheads:
    • Production: GH¢1,000,000
    • Advertising: GH¢600,000
    • Marketing: GH¢500,000
  • Contribution: GH¢2,500,000

In reviewing the budget for the coming year, management is dissatisfied with the results likely to arise. An emergency board meeting was held to discuss possible strategies to improve the situation, and the following strategies were proposed:

Strategy 1: The Production Manager suggested reducing the selling price by 10%. This could increase output by 25%. It is estimated that these changes would result in an increase in fixed production overhead by GH¢50,000 and fixed marketing overhead by GH¢25,000.

Strategy 2: The Director of Finance suggested increasing the selling price by 10%. Additionally, with an increase in advertising cost by GH¢400,000, sales units would increase to 90,000 units. It is also estimated that this strategy would increase the fixed production overhead by GH¢25,000 and marketing overhead by GH¢20,000.

Strategy 3: The Marketing Director suggested that with an appropriate increase in advertising expenditure, sales could be increased by 20%, and a profit on turnover of 15% could be obtained. It is estimated that fixed production overhead would increase to GH¢1,040,000 and marketing overhead would increase by GH¢25,000.

Strategy 4: The Managing Director seeks a profit of GH¢600,000. He would like to know at what selling price the target profit could be achieved given the following estimates: An increase in advertising expenditure by GH¢360,000 would result in a 10% increase in sales. However, fixed production and marketing overheads would increase by GH¢25,000 and GH¢17,000 respectively.

Required:

i) Prepare a forecast profit statement for Strategy 1 and Strategy 2. (6 marks)

ii) Estimate the additional expenditure on advertisement to achieve results in Strategy 3. (5 marks)

iii) Estimate the selling price that is required to achieve a profit of GH¢600,000 in Strategy 4. (5 marks)

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  • 5 Marks

MA – April 2022 – L2 – Q4b – Budgetary control

Explain factors to consider when involving staff in the budgeting process.

Most CEOs and their deputies feel reluctant to allow employees of their entities to participate in the budgeting process. They are of the opinion that such “openness” may expose them to pressure from staff on what is due to them.

Required:

Explain THREE (3) factors that will be considered when involving staff in the budgeting process.

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  • 5 Marks

MA – April 2022 – L2 – Q4b – Budgetary control

Explain factors to consider when involving staff in the budgeting process.

Most CEOs and their deputies feel reluctant to allow employees of their entities to participate in the budgeting process. They are of the opinion that such “openness” may expose them to pressure from staff on what is due to them.

Required:

Explain THREE (3) factors that will be considered when involving staff in the budgeting process.

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  • 15 Marks

MA – April 2022 – L2 – Q4a – Discounted cash flow

Evaluate the acceptability of a project using the Net Present Value (NPV) method considering cash flows and cost of capital.

Phil Company is considering replacing its existing machine on the introduction of a new product. The existing machine would be sold for GH¢2 million and replaced with a new machine at the beginning of the year at the cost of GH¢16 million. This new machine would be sold at the end of year 4 for GH¢1 million.

A market research recently carried out at a cost of GH¢1.5 million indicates a unit selling price of GH¢300 in year 1, rising by 10% per annum. Sales volume for the four-year life of the project has been estimated as follows:

Year Units
1 60,000
2 85,000
3 85,000
4 80,000

Possible unit variable costs are as follows:

Probability GH¢
0.4 240
0.6 260

Incremental fixed cost as a result of the project is GH¢15 per unit plus GH¢1,000,000 per annum staff cost.

The introduction of the new product is expected to reduce the market demand for an existing product by 5,000 units per annum. The existing product has a unit contribution of GH¢75.

Other annual fixed costs associated with the new product include the following:

  • Amortization of goodwill: GH¢50,000
  • Depreciation: GH¢250,000

Phil Company’s cost of capital is 12%.

Required:

Evaluate the acceptability of the project.

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  • 15 Marks

MA – April 2022 – L2 – Q4a – Discounted cash flow

Evaluate the acceptability of a project using the Net Present Value (NPV) method considering cash flows and cost of capital.

Phil Company is considering replacing its existing machine on the introduction of a new product. The existing machine would be sold for GH¢2 million and replaced with a new machine at the beginning of the year at the cost of GH¢16 million. This new machine would be sold at the end of year 4 for GH¢1 million.

A market research recently carried out at a cost of GH¢1.5 million indicates a unit selling price of GH¢300 in year 1, rising by 10% per annum. Sales volume for the four-year life of the project has been estimated as follows:

Year Units
1 60,000
2 85,000
3 85,000
4 80,000

Possible unit variable costs are as follows:

Probability GH¢
0.4 240
0.6 260

Incremental fixed cost as a result of the project is GH¢15 per unit plus GH¢1,000,000 per annum staff cost.

The introduction of the new product is expected to reduce the market demand for an existing product by 5,000 units per annum. The existing product has a unit contribution of GH¢75.

Other annual fixed costs associated with the new product include the following:

  • Amortization of goodwill: GH¢50,000
  • Depreciation: GH¢250,000

Phil Company’s cost of capital is 12%.

Required:

Evaluate the acceptability of the project.

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  • 10 Marks

MA – April 2022 – L2 – Q3b – Activity-based costing

Differentiate between Activity-Based Budgeting and Incremental Budgeting, explain ABB processes, and discuss arguments for and against ABB.

Kankum Industries is considering switching from Incremental Budgeting to Activity-Based Budgeting (ABB) because of the argued pricing specificity of the ABB approach. The Chairman of the Finance Sub-Committee of the board, who does not have an accounting background, has contacted you for clarification on some key issues relating to ABB in order to assist in his explanation to the board.

Required:

i) Differentiate between Activity-Based Budgeting and Incremental Budgeting. (3 marks)

ii) Explain the process in ABB. (3 marks)

iii) State TWO (2) arguments in favour and TWO (2) arguments against ABB. (4 marks)

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  • 10 Marks

MA – April 2022 – L2 – Q3b – Activity-based costing

Differentiate between Activity-Based Budgeting and Incremental Budgeting, explain ABB processes, and discuss arguments for and against ABB.

Kankum Industries is considering switching from Incremental Budgeting to Activity-Based Budgeting (ABB) because of the argued pricing specificity of the ABB approach. The Chairman of the Finance Sub-Committee of the board, who does not have an accounting background, has contacted you for clarification on some key issues relating to ABB in order to assist in his explanation to the board.

Required:

i) Differentiate between Activity-Based Budgeting and Incremental Budgeting. (3 marks)

ii) Explain the process in ABB. (3 marks)

iii) State TWO (2) arguments in favour and TWO (2) arguments against ABB. (4 marks)

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  • 10 Marks

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

Prepare a standard cost card and calculate variances for Plytimba's recent financial period.

Plytimba manufactures high-quality wooden chairs using odum sourced from sustainable forests. The company began trading two years ago having identified a niche market for the product.

During the year, Plytimba was forced to purchase wood from a different company as the usual supplier did not have sufficient stock available. The company operates a standard variable costing system and details relating to the most recent financial period are shown below.

Budgeted Information:

  • Production in units: 134,400
  • Direct materials: 10,080 square metres odum wood = GH¢282,240
  • Direct labour: 33,600 hours = GH¢483,840
  • Variable production overhead (based on direct labour hours): GH¢225,792
  • Fixed production overhead: GH¢29,200

Actual Information:

  • Production in units: 135,000
  • Direct materials: 10,800 square metres odum wood = GH¢300,240
  • Direct labour hours: 27,000 hours = GH¢486,000
  • Variable production overhead: GH¢194,400
  • Fixed production overhead: GH¢30,150

Required:

i) Prepare a Standard Cost Card for one wooden chair. (4 marks)

ii) Calculate SIX (6) variances in as much detail as the information above permits. (6 marks)

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  • 10 Marks

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

Prepare a standard cost card and calculate variances for Plytimba's recent financial period.

Plytimba manufactures high-quality wooden chairs using odum sourced from sustainable forests. The company began trading two years ago having identified a niche market for the product.

During the year, Plytimba was forced to purchase wood from a different company as the usual supplier did not have sufficient stock available. The company operates a standard variable costing system and details relating to the most recent financial period are shown below.

Budgeted Information:

  • Production in units: 134,400
  • Direct materials: 10,080 square metres odum wood = GH¢282,240
  • Direct labour: 33,600 hours = GH¢483,840
  • Variable production overhead (based on direct labour hours): GH¢225,792
  • Fixed production overhead: GH¢29,200

Actual Information:

  • Production in units: 135,000
  • Direct materials: 10,800 square metres odum wood = GH¢300,240
  • Direct labour hours: 27,000 hours = GH¢486,000
  • Variable production overhead: GH¢194,400
  • Fixed production overhead: GH¢30,150

Required:

i) Prepare a Standard Cost Card for one wooden chair. (4 marks)

ii) Calculate SIX (6) variances in as much detail as the information above permits. (6 marks)

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  • 5 Marks

MA – April 2022 – L2 – Q2c – Standard costing and variance analysis

Explain the advantages and disadvantages of using standard costing in performance measurement.

Standards are one of the important quantitative tools that management uses to control and measure the performance of business operations. Most often than not, it is the wish of management that actual results equate to standards. However, this is often not the case.

Required:

Explain THREE (3) advantages and TWO (2) disadvantages of standard costing. (5 marks)

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  • 5 Marks

MA – April 2022 – L2 – Q2c – Standard costing and variance analysis

Explain the advantages and disadvantages of using standard costing in performance measurement.

Standards are one of the important quantitative tools that management uses to control and measure the performance of business operations. Most often than not, it is the wish of management that actual results equate to standards. However, this is often not the case.

Required:

Explain THREE (3) advantages and TWO (2) disadvantages of standard costing. (5 marks)

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  • 3 Marks

MA – April 2022 – L2 – Q2b – Advanced variance analysis

Calculate and comment on the Throughput Accounting Ratios of three products for Drogo.

Drogo uses the Throughput Accounting technique for efficient allocation of scarce resources. In the second quarter of 2021, the throughput per bottleneck resource for its three products were given as follows:

  • Product A: GH¢4
  • Product B: GH¢6
  • Product C: GH¢9

The total factory cost was GH¢67,500, and the bottleneck resource was 15,000 machine hours.

Required:

Calculate and comment on the Throughput Accounting Ratios of the three products. (3 marks)

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  • 3 Marks

MA – April 2022 – L2 – Q2b – Advanced variance analysis

Calculate and comment on the Throughput Accounting Ratios of three products for Drogo.

Drogo uses the Throughput Accounting technique for efficient allocation of scarce resources. In the second quarter of 2021, the throughput per bottleneck resource for its three products were given as follows:

  • Product A: GH¢4
  • Product B: GH¢6
  • Product C: GH¢9

The total factory cost was GH¢67,500, and the bottleneck resource was 15,000 machine hours.

Required:

Calculate and comment on the Throughput Accounting Ratios of the three products. (3 marks)

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  • 12 Marks

MA – April 2022 – L2 – Q2a – Activity-based costing

Evaluate the bottleneck resource at Pikambi Hospital and suggest ways to reduce turnaround time.

The Pikambi Hospital serves a community with a population of about 20,000. For Out Patients Department (OPD) services, there are three basic stages to seeing the doctor which have been described below:

Stage 1
Records: This is where files of patients are kept. On arrival, a patient presents the identity card together with the National Health Insurance Scheme (NHIS) card. There are two biometric verification machines to confirm the validity of the card and recording of basic personal data on the claim forms. The process takes approximately 10 minutes per machine. Workers here work from 6:00 am to 4:00 pm.

Stage 2
Vitals: Here vital personal information about the patient’s current health status is checked; i.e. temperature, pulse, blood pressure, weight, and sugar levels. There is one machine with 5 nurses. It takes some 6 minutes for one patient to go through the process. The unit also works from 6:00 am to 4:00 pm.

Stage 3
Consultation: There are six doctors who run six-hour shifts a day. Each doctor spends an average of 15 minutes seeing a patient. The community has been complaining about the turnaround period and blames it on the incompetence of the nurses to the extent that sometimes patients stay in queues for long hours and return home unattended.

Required:

i) With appropriate computations, evaluate and assess the bottleneck resource(s) at Pikambi Hospital. (6 marks)

ii) Suggest THREE (3) ways by which the turnaround time can be reduced at the hospital. (6 marks)

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  • 12 Marks

MA – April 2022 – L2 – Q2a – Activity-based costing

Evaluate the bottleneck resource at Pikambi Hospital and suggest ways to reduce turnaround time.

The Pikambi Hospital serves a community with a population of about 20,000. For Out Patients Department (OPD) services, there are three basic stages to seeing the doctor which have been described below:

Stage 1
Records: This is where files of patients are kept. On arrival, a patient presents the identity card together with the National Health Insurance Scheme (NHIS) card. There are two biometric verification machines to confirm the validity of the card and recording of basic personal data on the claim forms. The process takes approximately 10 minutes per machine. Workers here work from 6:00 am to 4:00 pm.

Stage 2
Vitals: Here vital personal information about the patient’s current health status is checked; i.e. temperature, pulse, blood pressure, weight, and sugar levels. There is one machine with 5 nurses. It takes some 6 minutes for one patient to go through the process. The unit also works from 6:00 am to 4:00 pm.

Stage 3
Consultation: There are six doctors who run six-hour shifts a day. Each doctor spends an average of 15 minutes seeing a patient. The community has been complaining about the turnaround period and blames it on the incompetence of the nurses to the extent that sometimes patients stay in queues for long hours and return home unattended.

Required:

i) With appropriate computations, evaluate and assess the bottleneck resource(s) at Pikambi Hospital. (6 marks)

ii) Suggest THREE (3) ways by which the turnaround time can be reduced at the hospital. (6 marks)

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  • 6 Marks

MA – April 2022 – L2 – Q1c – Performance analysis

Explain the different types of benchmarking relevant to the CEO of Gyakie Ltd.

Gyakie currently faces tough competition with the major players in its market. To secure or increase its market position, the CEO has suggested a benchmarking exercise, although he has little knowledge in benchmarking exercises.

Required:

Explain the meaning of the following types of benchmarking to the CEO:

i) Internal benchmarking (2 marks)

ii) Competitive benchmarking (2 marks)

iii) Functional benchmarking (2 marks)

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  • 6 Marks

MA – April 2022 – L2 – Q1c – Performance analysis

Explain the different types of benchmarking relevant to the CEO of Gyakie Ltd.

Gyakie currently faces tough competition with the major players in its market. To secure or increase its market position, the CEO has suggested a benchmarking exercise, although he has little knowledge in benchmarking exercises.

Required:

Explain the meaning of the following types of benchmarking to the CEO:

i) Internal benchmarking (2 marks)

ii) Competitive benchmarking (2 marks)

iii) Functional benchmarking (2 marks)

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