Subject: INTRODUCTION TO MANAGEMENT ACCOUNTING

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  • 20 Marks

IMAC – JULY 2023 – L1 – Q5 – Budgeting | Forecasting

Prepare seasonally adjusted sales forecast and production overheads budget, and explain key components of time series analysis.

Question:
a) Balan Ltd is engaged in manufacturing and selling a single product and is in the process of preparing its budget for 2024. The following information is available:

Sales:
Balan Ltd has developed the linear relationship Y = 20,000 + 4,000X, where X represents the time period (X = 1 for the 1st quarter of 2024) and Y represents the sales trend in units.

The following seasonal variations are required to be adjusted to the sales trend in order to arrive at the sales forecast:

Quarter Jan-Mar Apr-Jun Jul-Sep Oct-Dec
Index value 110 90 80 120

A unit of product can be sold at GH¢1,000 during the first three quarters, and this price will be increased by 10% in the fourth quarter of 2024.

Production Overheads:
Based on the past 6 quarters’ results, the following statistical data has been gathered:
n = 6 (where ‘n’ is the number of quarters considered)
∑X = 306 (where ‘X’ is the production quantity in thousands of units)
∑Y = 146,400 (where ‘Y’ is the total production overheads in GH¢ thousands)
∑XY = 7,578,400
∑X² = 15,886

Balan Ltd estimates a linear relationship between output (X) and production overheads (Y), and the total production overheads can be expressed as Y = a + bX.

Balan Ltd does not maintain finished goods inventories. You are one of the Management Accounting executives of Balan Ltd and have been requested to assist in compiling budget figures.

Required:
i) Prepare the seasonally adjusted quarterly sales forecast in unit and in value for the calendar year 2024. (4 marks)
ii) Prepare the quarterly production overheads budget for the calendar year 2024. (5 marks)

b) Explain the following terms:
i) Trend-Cycle (C) (2 marks)
ii) Seasonal Components (S) (2 marks)
iii) Irregular Components (I) (2 marks)

c) The purpose of Management Accounting is to provide information for planning, control, and decision making. Information for control of the performance is an important management task.

Required:
Outline THREE (3) activities involved in providing information for control purposes. (5 marks)

b.) Seasonal adjustment separates a time series into trend-cycle, seasonal, and
irregular components.

i) Trend-Cycle (C):
This component represents the long-term movement or pattern in a time series, which is typically derived from surrounding years or periods of observations. It shows the underlying direction in which the data is moving, whether upward, downward, or stagnant, over an extended period. (2 marks)

ii) Seasonal Components (S):
Seasonal components are regular, predictable fluctuations that occur within specific periods such as months or quarters. These effects are stable in timing, direction, and magnitude and can be caused by factors like weather patterns, holidays, or other recurring events. (2 marks)

iii) Irregular Components (I):
Irregular components are unpredictable fluctuations in a time series that cannot be attributed to trend or seasonal effects. They are usually short-term, random variations caused by unforeseen events such as natural disasters, strikes, or economic shocks. (2 marks)

c) Activities Involved in Providing Information for Control Purposes:

  1. Monitoring Actual Performance: This involves tracking and measuring actual outcomes against planned or budgeted objectives to assess performance.
  2. Evaluating Actual Performance: This step involves analyzing the data to determine how well the organization has met its goals and identifying areas of improvement.
  3. Taking Control Action: If there are deviations from the plan, corrective actions are taken to bring performance back in line with objectives. This may involve adjusting processes, reallocating resources, or revising targets.

(3 points @ 1.667 marks each = 5 marks)

 

  • 20 Marks

IMAC – JULY 2024 – L1 – Q4 – Cost-Volume-Profit (CVP) Analysis

Calculate overhead absorption rates, explain under and over absorbed overheads, and discuss the effect of over absorbed overhead on profit and CVP analysis assumptions.

a) The statement below shows the summary of overheads that have been apportioned to the four departments operating in MMS Ltd with additional information.

Department 1 2 3 4
Total overheads (GH¢) 45,000 35,000 20,000 40,000
Labour hours 1,200 1,000 800 1,500
Units produced 8,000 6,000 4,000 7,000
Machine hours 2,500 3,000 1,800 4,000
Prime cost per unit (GH¢) 42 25 30 34

Required:
i) Calculate THREE (3) plant-wide (blanket) overhead absorption rates. (6 marks)
ii) Calculate TWO (2) overhead absorption rates for department 1. (3 marks)

b) Explain under and over absorbed overheads. (3 marks)

c) State the effect of over absorbed overhead on reported profit. (3 marks)

d) State FOUR (4) assumptions underlying cost-volume-profit (CVP) analysis. (5 marks)

  • 20 Marks

IMAC – JULY 2023 – L1 – Q3 – Standard Costing and Variance Analysis

Discuss differences between private and public sector entities and calculate standard costing variances for materials, labour, and overheads.

a) Public Sector in Ghana includes the Metropolitan, Municipal and District Assemblies
(MMDA’s) and the Ministries, Departments and Agencies (MDA’s). The private sector
dominates in terms of numbers and are significantly different in operations from the public
sector.
Required:
In reference to the above statement, explain FOUR (4) key differences between a private
sector entity and a public sector entity. (10 marks)
b) Konka Ltd produces a product – “the telescope”.
Actual results for the period were:
Production: 430 units made
Materials: 1,075 kg were used.
1,200 kg of materials were purchased at a cost of GH¢17,700
Direct labour: 1,700 hours were worked at a cost of GH¢14,637
Variable production overheads expenditure: GH¢3,870.

The standard cost card for the product is as follows:
GH¢
Direct material 2 kg x GH¢15 30
Direct labour 4hrs x GH¢8.50 34
Variable overhead 4hrs x GH¢2.00 8
The cost card is based on production and sales of 450 units in each period.
The company values its inventories at standard cost.
Required:
Calculate the following variances for Konka Ltd:
i) Material price variance
ii) Material usage variance
iii) Labour rate variance
iv) Labour efficiency variance
v) Variable overhead expenditure variance
(10 marks)

a)
Key Differences between a Private Sector Company and a Public Sector Organization:

Aspect Private Sector (Limited Company) Public Sector Organization
Ownership Shareholders The people (through the government)
Management The owners or managers appointed by owners Government appointees
Objectives To make a profit To provide a service
Funding From shareholders or borrowing from financial institutions By grants from the government
(10 marks)

b)
i) Materials Price Variance
1,200 kg of materials should cost (1,200 kg × GH¢15) = GH¢18,000
Actual cost = GH¢17,700
Materials price variance = GH¢300 Favorable (F)
(2 marks)

ii) Materials Usage Variance
430 units of output should use (430 units × 2 kg) = 860 kg
Actual usage = 1,075 kg
Materials usage variance in kg = 215 kg Adverse (A)
Standard price per kg of materials = GH¢15
Materials usage variance = 215 kg × GH¢15 = GH¢3,225 Adverse (A)
(2 marks)

iii) Labour Rate Variance
1,700 labour hours should cost (1,700 hrs × GH¢8.50) = GH¢14,450
Actual cost = GH¢14,637
Labour rate variance = GH¢187 Adverse (A)
(2 marks)

iv) Labour Efficiency Variance
430 units of output should take (430 units × 4 hrs) = 1,720 hrs
Actual hours worked = 1,700 hrs
Labour efficiency variance in hours = 20 hrs Favorable (F)
Standard rate per labour hour = GH¢8.50
Labour efficiency variance = 20 hrs × GH¢8.50 = GH¢170 Favorable (F)
(2 marks)

v) Variable Overhead Expenditure Variance
1,700 hours should cost (1,700 hrs × GH¢2) = GH¢3,400
Actual cost = GH¢3,870
Variable overhead expenditure variance = GH¢470 Adverse (A)
(2 marks)

  • 20 Marks

IMAC – JULY 2023 – L1 – Q2 – Budgeting | Marginal Costing and Absorption Costing

Explain types of budgeting and prepare a flexible budget for cost control, including variance analysis.

a) Explain the following:
i) Incremental Budgeting (2 marks)
ii) Zero-Based Budgeting (2 marks)
iii) Activity-Based Budgeting (2 marks)

b) Cox Ltd is a manufacturing company that produces a body shaping drink for the African market. The company employs a marginal costing system as an integral part of its reporting systems. During the reporting period, there was no opening or closing inventory. The company produces its budgeted and actual results for December 31, 2022, as follows:

Budget Actual
Production/sales (units) 2,000 1,400
Sales (GH¢) 60,000 42,400
Variable Costs:
Direct material (GH¢) (20,000) (13,200)
Direct labour (GH¢) (10,000) (7,600)
Variable overhead (GH¢) (6,000) (4,400)
Contribution (GH¢) 24,000 17,200
Fixed cost (GH¢) (20,000) (20,800)
Net profit/loss (GH¢) 4,000 (3,600)

Required:
Prepare a budget that will be useful for management cost control purposes and briefly comment on the company’s performance in December 2022. (14 marks)

a)
i) Incremental Budgeting:
This is the system of budgeting where the previous period’s or year’s budget is used as a basis for preparing the current period’s budget by making incremental adjustments influenced by factors such as inflation, expansion needs, and growth. It is simple to apply in practice because you need not develop a decision package or justify the inclusion of the cost of an item into the budget. However, this method perpetuates past inefficiencies and does not lead to optimal and efficient allocation of budgetary resources. (2 marks)

ii) Zero-Based Budgeting:
This is a process of budgeting whereby all activities contained in the budget are re-evaluated each time the budget is prepared. Every item of expenditure must be justified in its entirety to be included in the next year’s budget. This approach adds a psychological impetus to employees to avoid wasteful expenditure, but it creates extra paperwork as the process of preparing the decision packages under Zero-Based Budgeting can be repetitive and cumbersome. (2 marks)

iii) Activity-Based Budgeting:
This is a method of budgeting based on an activity framework and the utilization of cost driver data in the budget-setting and variance feedback process. It involves defining activities that drive costs and using the level of activity to decide how much resource should be allocated and to determine how well an activity is being managed and to explain variances from the budget. While it helps managers to identify the cost of an activity and facilitate cost reduction, it can sometimes be difficult to trace objectively the cost of an activity to a product. (2 marks)

b)
Cox Limited – Cost Card

Cost Element Calculation GH¢
Selling price (GH¢60,000 / 2,000 units) 30
Direct material (GH¢20,000 / 2,000 units) 10
Direct labour (GH¢10,000 / 2,000 units) 5
Variable overhead (GH¢6,000 / 2,000 units) 3
Budgeted production cost 18
(2 marks)

Flexible Budget for the Month, 31 December 2022

Performance Area Fixed Budget Flexible Budget Actual Result Variance
Production/Sales 2,000 units 1,400 units 1,400 units
Sales (GH¢) 60,000 42,000 42,400 400F
Variable Costs:
Direct material (GH¢) 20,000 14,000 13,200 800F
Direct labour (GH¢) 10,000 7,000 7,600 600A
Variable overhead (GH¢) 6,000 4,200 4,400 200A
Total variable cost (GH¢) (36,000) (25,200) (25,200) 0.00
Contribution (GH¢) 24,000 16,800 17,200 400F
Fixed cost (GH¢) (20,000) (20,000) (20,800) 800A
Net profit/loss (GH¢) 4,000 (3,200) (3,600) 400A
(Marks are evenly spread for flexible budget and variance = 10 marks)

Commentary:
Sales variance was GH¢400F. This means that budgeted selling price is
(GH¢60,000/2,000units) GH¢30 and actual selling price is (GH¢42,400/1,400 units)
GH¢30.285. The overall performance is GH¢400 worse than budgeted. That is, the
flexible budget is GH¢3,200 compared with actual loss of GH¢3,600. Control of
direct material cost has been very good as this has been GH¢800 better than
expected. Direct labor cost is overspent as does fixed overhead by GH¢600 and
GH¢200 respectively.
(2 marks)

  • 20 Marks

IMAC – MAR 2023 – L1 – Q5 – Budgeting | Cost Segregation and Estimation

Explain cost estimation in budgeting, prepare sales and production budgets, and calculate variable and fixed overheads using the high-low method.

a) Cost estimation techniques play an important role in budget preparation.

Required:
Explain the statement above. (3 marks)

b) Obsaw Ltd is in the process of preparing budgets for the year 2021. Based on past experience, the following trend equation has been developed in the year 2019 for the estimation of quarterly sales:

S = 21,900 + 900Q
Where, S = quarterly sales in units
Q = time period (Quarter I of year 2019 is time period 1)

The following set of seasonal variation index values has been derived using a multiplicative model, based on year 2019 actual sales:

Quarter of the calendar year Q1 Q2 Q3 Q4
Seasonality -30% -10% +30% +10%

The management expects that the above trend and seasonal effect will continue until year 2023.
The company’s policy is to maintain a finished goods inventory of 20% of the demand for the following month. Monthly sales in each quarter are evenly distributed.

Required:
i) Prepare the quarterly sales budget (in units) for the calendar year 2021. (4 marks)
ii) Prepare the quarterly production budget (in units) for the calendar year 2021. (3 marks)

c) Obsaw Ltd recorded the highest and the lowest production overheads (POHs) during the year 2020 as follows:

Production (units) POHs (GH¢ million)
Highest 37,000
Lowest 18,000

POHs are expected to increase by 10% per year and fixed production overheads are absorbed to products based on the budgeted production.

Required:
i) Using the high-low method, prepare the quarterly variable production overheads budget for the year 2021. (Use the production budget in b) ii) above.) (3 marks)
ii) Calculate the fixed production overheads absorption rate per unit for the year 2021. (2 marks)

d) Explain how standard costs for material and labour might be compiled. (5 marks)

a)
Cost estimation involving forecasting a future cost relating to a process based on past information, by techniques such as High-Low Method, Least-square method, engineering method, etc. Budgets are prepared by organizations for a future period. Therefore, the costs relating to those future periods will have to be calculated based on a cost estimation technique.
(3 marks)

b)
i) Quarterly Sales Budget (in units) for 2021

2021 Q1 Q2 Q3 Q4
Trend 30,000 30,900 31,800 32,700
Seasonal Index 0.70 0.90 1.30 1.10
Sales (units) 21,000 27,810 41,340 35,970

(4 marks)

ii) Quarterly Production Budget (in units) for 2021

2021 Q1 Q2 Q3 Q4 2022 Q1
Sales 21,000 27,810 41,340 35,970 23,520
– Opening FG (1,400) (1,854) (2,756) (2,398)
+ Closing FG 1,854 2,756 2,398 1,568
Production 21,454 28,712 40,982 35,140

(3 marks)

c)
i) Using High-Low Method for Variable Production Overheads Budget (2021)

Output POHs (GH¢ million)
Highest 37,000
Lowest 18,000
Difference 19,000

Variable overheads per unit:
GH¢200 per unit
Increase of 10% (for 2021):
GH¢220 per unit

2021 Q1 Q2 Q3 Q4
Variable Overhead Budget (GH¢) 4,719,880 6,316,640 9,016,040 7,730,800

(3 marks)

ii) Fixed Production Overheads Absorption Rate per unit for 2021

  • Fixed production overheads = [18,600,000 — (18,000 × 200)] = GH¢15,000,000
  • Increase of 10% for 2021 = GH¢16,500,000
  • Total production for 2021 (Units) = 126,288
  • Fixed POHs absorption rate per unit for 2021 = GH¢130.65
    (2 marks)

d)
To compile standard costs, it is necessary to establish standards i.e., planned amounts for each of the following:

Material:

  1. Price: Established with the assistance of the buying department; it is necessary to take account of quantity discounts and price increases.
  2. Quantity: (Including an allowance for wastage) should be available from the production department.
  3. Quality/Type: This is closely linked to quantity and design of the product and may involve a decision by the production department as to which material is most suitable.

Labour:

  1. Identify the tasks: that are to be carried out on the product.
  2. Skill level: required or grade of worker needed.
  3. Time allowed: It may be necessary to use work study to decide on the production method and the associated standard time.
  4. Rate of pay: This will be dependent on the grade of employee and may be subject to a company-wide or national wage agreement.
    (5 marks)
    (Total: 20 marks)
  • 20 Marks

IMAC – July 2023 – L1 – Q1 – Cost-Volume-Profit (CVP) Analysis | Process Costing

Prepare the Process Account for Omicron vaccine production and calculate the break-even point and required units to achieve target profit before and after tax

a) Adom Ltd manufactures Omicron vaccine for the treatment of COVID-19 in Africa. The manufacturing process uses two raw materials (M & W) which are mixed in the proportions (2:3). Materials are priced: M = GH¢10 per kg and W = GH¢3.2 per kg. Normal weight loss of 5% of material input is expected during the process, and material losses recorded in the manufacturing process have no saleable value. At the end of production, 18,260 kg of Omicron vaccine were manufactured from 19,320 kg of raw materials. Conversion costs in the period were GH¢57,316. There was no work in process at the beginning or end of the period.

Required:
Prepare the Process Account of the Omicron vaccine for the period. (10 marks)

b) Manna Industries sold 150,000 units of its product at GH¢20 per unit. Variable costs are GH¢15 per unit (manufacturing cost of GH¢12 and selling expenses of GH¢3). Fixed costs are incurred uniformly throughout the year and amount to GH¢972,000, that is, manufacturing costs of GH¢600,000 and selling expenses of GH¢372,000.

Required:
i) Calculate the break-even point in units and Ghana cedis. (4 marks)
ii) Calculate the number of units that must be sold to earn an income of GH¢75,000 before income tax. (2 marks)
iii) Calculate the number of units that must be sold to earn an after-tax profit of GH¢100,000 if the income tax rate is 40%. (4 marks)

 

  • 20 Marks

IMAC – MAR 2023 – L1 – Q4 – Accounting for Inventory and Labour | Standard Costing and Variance Analysis

Discuss tasks suitable for piece rate and hourly rate payment systems and compute labor variances and standard costing variances.

a) Employees may be paid either using piece rate or hourly rate.

Required:
In reference to the statement above, state THREE (3) tasks/jobs that:
i) Piece rate may be used. (3 marks)
ii) Hourly rate may be used. (3 marks)

b) Krenkren enterprise uses the hourly rate to pay her employees. The current rate is GH¢6 per hour. However, employees are paid 1.5 times for each overtime hour worked. Each employee is to work a minimum of 40 hours a week without a guaranteed payment. Any extra hour will attract overtime rate.

Extract from the time sheet for a week has been provided below:

Name Staff Number Hours worked
Kwame Sarfo H 1356 56
John Addae H 3456 38
Thomas Appia F 2254 48
Rose Danso F 8645 50

Required:
Calculate the basic pay for each of the staff. (9 marks)

c) The following standard costs apply to the manufacture of a product by Pontir Ltd:

  • Standard weight to produce one unit: 12 kgs
  • Standard price per kg: GH¢9
  • Standard hours to produce one unit: 10
  • Standard rate per hour: GH¢4

Actual production and costs for one accounting period were:

Cost Element Actual Usage Actual Cost (GH¢)
Material 3,770 kgs 35,815
Labour 2,755 hours 11,571

The actual output was 290 units.

Required:
Calculate relevant material and labor cost variances and present these in a format suitable for presentation to the management of Pontir Ltd. (5 marks)

a)
i) Tasks that may use Piece rate as a mode of payment:

  • Molding of blocks
  • Production of pieces of furniture
  • Sewing of dresses
  • Baking of bread
    (Any 3 points @ 1 mark each = 3 marks)

ii) Tasks that may use Hourly rate as a mode of payment:

  • Dressing of hair at the salon
  • Clerical work at the office
  • Servicing of cars
  • Maintenance of machines
  • Repair of equipment
    (Any 3 points @ 1 mark each = 3 marks)

b)
Computation of basic pay:

Name Staff Number Hours Worked Rate (GH¢) Overtime Hours Overtime Rate Basic Pay (GH¢)
Kwame Sarfo H 1356 56 6 16 1.5 × 6 384
John Addae H 3456 38 6 0 0 228
Thomas Appia F 2254 48 6 8 1.5 × 6 312
Rose Danso F 8645 50 6 10 1.5 × 6 330

Total: (9 marks)

c)
Summary of variances for one accounting period
(F = Favourable; A = Adverse)

Materials:

Variance Type Amount (GH¢) Favourable/Adverse
Price 1,885 A
Usage 2,610 A
Cost 4,495 A

Labour:

Variance Type Amount (GH¢) Favourable/Adverse
Rate 551 A
Efficiency 580 F
Cost 29 F

Workings:
Materials:

  • Actual cost: GH¢35,815
  • Price variance: GH¢1,885 A
  • Actual quantity purchased/used: 3,770 × GH¢9 = GH¢33,930
  • Usage variance: GH¢2,610 A
  • Standard quantity for actual production at standard price: 290 × 12 × GH¢9 = GH¢31,320
  • Cost variance: GH¢4,495 A

Labour:

  • Actual cost: GH¢11,571
  • Rate variance: GH¢551 A
  • Actual quantity purchased/used: 2,755 × GH¢4 = GH¢11,020
  • Efficiency variance: GH¢580 F
  • Standard quantity for actual production at standard price: 290 × 10 × GH¢4 = GH¢11,600
  • Cost variance: GH¢29 F
    Total: (5 marks)
  • 20 Marks

IMAC – MAR 2023 – L1 – Q3 – Marginal Costing and Absorption Costing | Scope of Management Accounting

Explain qualities of management accounting information, and differences between marginal and absorption costing.

a) Management accounting systems obtain information from both internal and external sources. Cost accounting system is one major source of management accounting information, and such information is only useful to managers if it possesses certain qualities.

Required:
In reference to the statement above, explain FIVE (5) qualities of management accounting information.
(10 marks)

b) Explain the following briefly:
i) Cost center (2.5 marks)
ii) Profit center (2.5 marks)

c) Explain TWO (2) differences between a marginal costing system and an absorption costing system.
(5 marks)

a)
Qualities of cost and management information:

  1. Relevance: Information should be timely and bear on the decision-making process by possessing predictive or confirmatory (feedback) value.
  2. Faithful representation: Information must be honestly presented, complete, neutral, and free from material error and misstatement.
  3. Comparability: Even though different companies may use different accounting methods, there is still sufficient basis for valid comparison.
  4. Consistency: Deviations in measured outcomes from period to period should be the result of deviations in underlying performance (not accounting quirks).
  5. Verifiability: Different knowledgeable and independent observers reach similar conclusions.
  6. Timeliness: Cost and revenue information not readily available to the organization at the right time for decision making is of no use. Information must flow to the decision maker at the right time and at the right place so that it can be of use to the decision maker.
    (Any 5 points @ 2 marks each = 10 marks)

b)
i) Cost center: This is a segment of the organization that has the authority to incur and control cost. Expense center is a responsibility center incurring only expense items and producing no direct revenue from the sale of goods or services. An example of expense centers are service centers, thus the maintenance department and accounting department of an organization. (2.5 marks)

ii) Profit center: Profit center is a responsibility center having both revenues and expenses objectives because segmental earnings equal segmental revenues minus related expenses; therefore, the manager must be able to control both of these categories of revenue and cost. (2.5 marks)

c)
The following are the major differences between marginal costing and absorption costing:

  1. Cost Inclusion: Marginal Costing apportions only variable costs to the products, while Absorption Costing absorbs both fixed and variable costs into the product cost.
  2. Profit Calculation: Marginal costing profit is calculated using the Contribution Margin (Sales – Variable Costs), whereas Absorption Costing calculates profit after deducting both fixed and variable costs from sales.
  3. Overhead Treatment: Marginal Costing treats fixed overheads as period costs, charged against revenue in the period incurred, while Absorption Costing includes fixed overheads in the product cost.
  4. Stock Valuation: Under Marginal Costing, stock is valued at variable cost, whereas under Absorption Costing, stock is valued at full cost (including fixed overheads).
  5. Presentation of Profit: Marginal Costing profit varies directly with sales volume, while Absorption Costing profit can vary with changes in stock levels due to fixed overheads absorption.
    (Any 2 points @ 2.5 marks each = 5 marks)
    (Total: 20 marks)
  • 20 Marks

IMAC – Mar 2023 – L1 – Q2 – Budgeting | Cost and Cost Behaviour

Prepare functional budgets for sales, production, and direct material purchases for Naa Sei enterprise.

Naa Sei enterprise wishes to prepare his functional budgets for the year 2023. The following information has been provided.

Sales

Year Quarter Units
2023 1 1,200
2023 2 1,500
2023 3 2,000
2023 4 1,800

2024

Year Quarter Units
2024 1 2,200
2024 2 2,300

The projected selling price is GH¢15 for the first two quarters, and this will increase by 10% in the third quarter. There will be no further price increase.

Inventory policy
i) Finished Goods: The company plans to keep 10% of the following quarter’s sales quantity. The opening inventory of finished goods is 120 units.
ii) Direct Materials: Only one material is used in production. 5 kilograms of the material are required for the production of a unit of a product. Closing inventory is expected to be 20% of the following quarter’s requirement. The cost of material is expected to be GH¢2 per kilogram.

Required:
Prepare the following functional budgets for each of the four quarters in 2023.
a) Sales
b) Production
c) Direct material purchases in value

a)
Sales budget

Quarter 1 2 3 4
Quantity 1,200 1,500 2,000 1,800
Selling price/unit (GH¢) 15 15 16.5 16.5
Revenue (GH¢) 18,000 22,500 33,000 29,700

Total: (4 marks)

b)
Production budget

Quarter 1 2 3 4 5 6
Quantity 1,200 1,500 2,000 1,800 2,200 2,300
Add closing stock 150 200 180 220 230
Less opening stock 120 150 200 180 220
Production quantity 1,230 1,550 1,980 1,840 2,210

Total: (6 marks)

c)
Material purchases budget

Quarter 1 2 3 4 5
Production quantity 1,230 1,550 1,980 1,840 2,210
Requirement /unit 5 5 5 5 5
Total requirement 6,150 7,750 9,900 9,200 11,050
Add closing stock 1,550 1,980 1,840 2,210
Less opening stock 1,230 1,550 1,980 1,840
Requirement 6,470 8,180 9,760 9,570
Selling price/unit GH¢ 2 2 2 2
Cost of materials (GH¢) 12,940 16,360 19,520 19,140

Total: (10 marks)

  • 20 Marks

IMAC – Mar 2023 – L1 – Q1 – Pricing

Calculation of the production cost and selling price per loaf of bread, including direct materials, labor, and overheads.

Mootomooto Bakery produces bread that is sold by agents within the Kumasi Metropolis.

For every batch of bread, 15 bags of flour are used. Below are details of the cost of processing a batch of bread:

i) Direct materials:

  • Flour: 15 bags at GH¢220 per bag.
  • Sugar: 10 kilograms at GH¢15 per kilogram
  • Margarine: 20 kilograms at GH¢25 per kilogram
  • Egg: 1 crate at GH¢30 per crate

Other direct materials: GH¢550

ii) Direct expenses: GH¢650.
iii) Direct Labour per batch: 20 contract workers, each works for 6 hours to be paid GH¢6 per hour.
iv) Fixed overheads: The details of monthly production overheads, which are absorbed per number of bags of flour produced, are given below:

Description Amount (GH¢)
Salaries 32,000
Depreciation 8,000
Light and power 15,000
Rent and rates 7,500
Sanitation 5,500
Office expenses 12,000

It is estimated that 2,500 bags of flour will be baked in a month.

v) Administrative expenses: Administrative expenses are estimated at 10% of production cost.
vi) Commission on sales and distribution expenses: 8% of the selling price.

Required:
a) Calculate the production cost of a loaf of bread if each bag yields 120 loaves. (12 marks)
b) Calculate the selling price per loaf if profit is 14% of selling price. (8 marks)

 

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