Subject: INTRODUCTION TO MANAGEMENT ACCOUNTING

Search 500 + past questions and counting.
Professional Bodies Filter
Program Filters
Subject Filters
More
Tags Filter
More
Check Box – Levels
Series Filter
More
Topics Filter
More
  • 20 Marks

IMAC – DEC 2022 – L1 – Q5 – Cost Segregation and Estimation | Cost-Volume-Profit (CVP) Analysis

Estimation of fixed and variable costs using linear regression and discussion of assumptions underlying Cost-Volume-Profit (CVP) analysis.

a) Total production costs each week in a production department have been measured for the past five weeks, as follows:

Week Units Produced Total Cost (GH¢000)
1 5 20
2 9 27
3 4 17
4 5 19
5 6 23

Required:
i) Use linear regression analysis to obtain an estimate of fixed costs per week and the variable cost of production per unit (see formula table). (8 marks)
ii) Use your results to estimate total costs in a week when 8 units are produced. (3 marks)
iii) Explain why the regression analysis method of separating cost is considered more accurate than the high-low method. (4 marks)

b) The cost-volume-profit (CVP) analysis, also commonly known as breakeven analysis, looks to determine the breakeven point for different sales volumes and cost structures, which can be useful for managers making short-term business decisions. For CVP analysis to be effective, several assumptions are usually made.

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

iii) Explanation:
Regression analysis is more accurate than the high-low method because the regression equation estimates costs using information from ALL observations, whereas the high-low method uses only TWO observations. This method measures the difference between actual cost and estimated cost for each observation.
(4 marks)

b) Assumptions underlying breakeven (CVP) analysis:

  • Cost can be classified into fixed and variable elements only.
  • Variable cost may vary proportionately with the level of activity attained.
  • Activity is the only factor that drives cost of production.
  • Selling price of the product remains constant.
  • Stock levels do not change with activity level.
  • Level of technology remains constant.
    (Any 4 points @ 1.25 marks each = 5 marks)

 

  • 20 Marks

IMAC – DEC 2022 – L1 – Q4 – Accounting for Inventory and Labour

Explanation of inventory discrepancies, preparation of a FIFO inventory statement, sources of management information, and explanation of an investment center.

 

a) Inventory refers to the goods and materials that a business holds for the ultimate goal of resale, production, or utilization in the near future. Inventory could be in the form of raw materials, finished goods, work in progress, among others.

Required:
Identify FIVE (5) reasons actual inventory counted may be different from the balance in the inventory records. (5 marks)

a) Causes of discrepancies in closing inventory:

  • Theft by staff
  • Evaporation in the case of liquids and gas
  • Error in counting
  • Casting errors
  • Errors in recording
  • Over or understatement in stocks issued
  • Wrong classifications/coding
  • Error in counting at the time of receipt of stocks.
    (Any 5 points @ 1 mark each = 5 marks)

b) Statement of inventory movement (FIFO):

Date Receipt Issued Balance
2/1/2022 1,000 @ GH¢40 1,000 @ GH¢40 = GH¢40,000
5/1/2022 600 @ GH¢45 1,000 @ GH¢40 = GH¢40,000
600 @ GH¢45 = GH¢27,000
10/1/2022 800 @ GH¢40 200 @ GH¢40 = GH¢8,000
600 @ GH¢45 = GH¢27,000
11/1/2022 150 @ GH¢40 50 @ GH¢40 = GH¢2,000
600 @ GH¢45 = GH¢27,000
15/1/2022 1,200 @ GH¢42 50 @ GH¢40 = GH¢2,000
600 @ GH¢45 = GH¢27,000
1,200 @ GH¢42 = GH¢50,400
18/1/2022 850 @ GH¢42 50 @ GH¢40 = GH¢2,000
600 @ GH¢45 = GH¢27,000
350 @ GH¢42 = GH¢14,700
24/1/2022 900 @ GH¢48 1,000 @ GH¢42 = GH¢42,000
900 @ GH¢48 = GH¢43,200
(Marks are evenly spread using ticks = 10 marks)

c) Sources of management information: Examples

  • Internal: Ledger books, invoices, budget statements.
  • External: Internet, journals, print media, social media, reports from regulatory bodies.
    (2 marks)

d) An investment center is a segment of an organization that has the authority to invest resources of the organization, incur cost, and generate sufficient revenue to pay off the investment in assets. When a firm evaluates an investment center, it looks at the rate of return as measured by ROI and RI that it can earn on its investment.

  • 20 Marks

IMAC – DEC 2022 – L1 – Q3 – Scope of Management Accounting | Standard Costing and Variance Analysis

Explanation of responsibility accounting classifications, reasons for full costing, and calculation of material, labour, and overhead variances.

a) Responsibility Accounting is a system of accounting in which costs are identified with persons who are primarily responsible for making decisions about the costs in question. Responsibility Accounting classifies cost under two main headings.

Required:
Explain the TWO (2) classifications of cost under Responsibility Accounting. (2 marks)

b) Full costing is an accounting method used to determine the complete end-to-end cost of producing products or services. Accountants use the term full cost to mean more than a product’s manufacturing or production costs (including fixed manufacturing overhead).

Required:
Explain FOUR (4) reasons full cost of a product or service may be calculated. (8 marks)

c) Afram Ltd has just introduced a standard marginal costing system to assist in the planning and control of the production activities for its single product, Amino. The system became operational on 1 January 2022. The Functional Director responsible for cost and management accounting had a discussion with the Production Manager, and both have agreed on the following standard cost information to manufacture one unit of product, Amino.

Budgeted cost:

  • Direct materials: 4kg @ GH¢1.75 per kg
  • Direct labour: 2 hours @ GH¢10 per hour
  • Variable overhead: 2 hours @ GH¢8.25 per hour.

Actual Results:
The actual results for January 2022 are as follows:

  • Sales: 22,000 units yielding a total revenue of GH¢1,276,000
  • Production: 23,000 units
  • Direct Materials: 90,000 kgs at a cost of GH¢162,000
  • Direct labour: 48,000 hours at a cost of GH¢576,000
  • Variable overhead: GH¢350,000

The budgeted level of production and sales activity has been agreed with both production managers and sales staff at 24,000 units per month.

Required:
Calculate the following variances:
i) Direct Material Price
ii) Direct Material Usage
iii) Direct Labour Rate
iv) Direct Labour Efficiency
v) Variable Overhead Efficiency (10 marks)

a) Cost classification under Responsibility Accounting:

  • Controllable cost: Cost that the responsibility head can influence the size of.
  • Uncontrollable cost: Cost that the responsibility head cannot influence the size of.
    (2 marks)

b) Reasons for full cost:

  • Overheads are expenses that are incurred in the production of goods, and excluding them will understate the cost of production.
  • Full cost will be needed in inventory valuation for external reporting purposes.
  • It provides details of cost for effective pricing.
  • Calculating over and under absorbed overheads will help in cost control.
  • By comparing the full cost with the selling price, management will be in a position to know which products are sold at a loss.
    (Any 4 points @ 2 marks each = 8 marks)

c) Calculation of variances:

i) Material price variance:
AQ x (SP – AP)
90,000 x (GH¢1.75 – GH¢1.80) = GH¢4,500A

ii) Material usage variance:
SP x (SQ – AQ)
GH¢1.75 x (92,000 kg – 90,000 kg) = GH¢3,500F
SQ = 4kg x 23,000 units = 92,000 kg

iii) Labour rate variance:
AH x (SR – AR)
48,000 hrs x (GH¢10 – GH¢12) = GH¢96,000A

iv) Labour efficiency variance:
SR x (SH – AH)
GH¢10 x (46,000 hrs – 48,000 hrs) = GH¢20,000A
AR = GH¢576,000 / 48,000 hrs = GH¢12

v) Variable overhead efficiency variance:
SR x (SH – AH)
GH¢8.25 x (46,000 hrs – 48,000 hrs) = GH¢16,500A
SH = 2 hours x 23,000 units = 46,000 hrs
(2 marks for each variance = 10 marks)

  • 20 Marks

IMAC – DEC 2022 – L1 – Q2 – Budgeting

Preparation of a flexible budget and addressing negative cash balances in a cash budget.

a) A cash budget is an estimation of the cash flows of a business over a specific period of time. This budget is used to assess whether an entity has sufficient cash to continue operating over a given time frame. The cash budget provides a company with insight into its cash needs (and any surplus) and helps to determine an efficient allocation of cash.

Required:
Identify THREE (3) ways a business can address negative monthly cash balances in a cash budget. (6 marks)

b) The following budget report was prepared for the second quarter of 2022.

Budget Actual Variance
Production Level 6,000 units 7,200 units
Revenue and Cost: GH¢ GH¢ GH¢
Sales 120,000 140,600 20,600 F
Direct Material (30,000) (39,600) 9,600 A
Direct Labour (24,000) (25,920) 1,920 A
Variable Overheads (12,000) (21,600) 9,600 A
Semi-Variable Overheads (30,000) (34,600) 4,600 A
Profit 24,000 18,880 5,120 A

The budgeted fixed overhead cost in the semi-variable overhead cost was GH¢12,000.

Required:
Prepare a budget report using the flexible budget for the second quarter of 2022. (14 marks)

a) Managing shortfall in cash budget:

  • Review sales terms to encourage early payment.
  • Defer the purchase of fixed assets.
  • Reschedule the payment of fixed assets bought.
  • Negotiate trade terms with suppliers for a longer credit period.
  • Discount some short-term investments.
  • Inject additional cash.

b) Preparation of flexible budget:

Budget Flexed Budget Actual Variance
Production (units) 6,000 7,200 7,200 1,200
GH¢ GH¢ GH¢ GH¢ GH¢
Sales 120,000 144,000 140,600 3,400 A
Direct Material (30,000) (36,000) (39,600) 3,600 A
Direct Labour (24,000) (28,800) (25,920) 2,880 F
Variable Overheads (12,000) (14,400) (21,600) 7,200 A
Semi-variable Overheads (30,000) (33,600) (34,600) 1,000 A
Profit 24,000 31,200 18,880 12,320 A
  • 20 Marks

IMAC – DEC 2022 – L1 – Q1 – Budgeting | Marginal Costing and Absorption Costing

Features of a service, calculation of overhead absorption rates and production cost, addressing negative cash balances, and preparation of a flexible budget.

a) Services are the non-physical, intangible parts of the Ghanaian economy, as opposed to goods, which we can touch or handle. Services, such as banking, education, medical treatment, and transportation make up a significant percentage of the economy.

Required: State and explain THREE (3) features of a service. (6 marks)

b) Edwin Ltd manufactures aviation components and parts to order, and the following are budgeted overheads for the year based on normal activity levels:

Department Budgeted overhead Labour hours
Welding GH¢12,000 3,000
Assembly GH¢20,000 2,000

Selling and administration overheads are 25% of factory cost.

An order for 350 units of engine parts, Job X 01, incurred the following cost:

  • Material cost: GH¢24,000
  • Labour:
    • Welding: 200 hours @ GH¢5 per hour
    • Assembly: 400 hours @ GH¢2 per hour
  • GH¢1,000 was paid for the hiring of a special x-ray machine for testing the welds.

Required: i) Calculate the overhead absorption rate for each department. (2 marks)

ii) Calculate the production cost for Job X01. (10 marks)

iii) Calculate the total cost of Job X01. (2 marks)

a) Features of a service:

  1. Simultaneity: Production and consumption of a service occur simultaneously, e.g., a haircut service is used immediately as provided.
  2. Heterogeneity: Services provided can vary from one provider to another, making each service unique despite its nature.
  3. Intangibility: Services cannot be touched or felt unlike physical goods, e.g., banking services.
  4. Perishability: Services cannot be stored for later use; they must be consumed when offered, e.g., a consultation. (3 points @ 2 marks each = 6 marks)

b) i) Overhead absorption rate:

  • Welding: GH¢12,000 / 3,000 hours = GH¢4 per hour
  • Assembly: GH¢20,000 / 2,000 hours = GH¢10 per hour (2 marks)

ii) Production cost for Job X01:

Cost Centre GH¢
Direct materials 24,000
Direct labour:
Welding: 200 hrs x GH¢5 1,000
Assembly: 400 hrs x GH¢2 800
Direct expenses 1,000
Prime cost 26,800
Production overheads:
Welding: 200 hrs x GH¢4 800
Assembly: 400 hrs x GH¢10 4,000
Total production cost 31,600
(10 marks)

iii) Total cost of Job X01:

Description GH¢
Production cost 31,600
Selling & administration (25% of factory cost) 7,900
Total cost 39,500
(2 marks)
  • 20 Marks

IMAC – AUG 2022 – L1 – Q5 – Costs and Cost Behaviour

Establishment of total cost function using high-low method, profit calculation for a specific production level, and identification of advantages and disadvantages of high-low method.

a) Takyi Carpentry makes twin-desk for local schools in the Daboase District. To facilitate control, the owner of the shop has asked you to assist him in analysing cost into fixed and variable elements.

Below is his six-year financial information:

Year No. of Twin-Desk Revenue (GH¢) Profit (GH¢)
2016 1,800 19,600 6,000
2017 1,700 22,000 6,200
2018 1,750 20,300 5,800
2019 2,100 26,200 8,000
2020 1,950 22,400 7,500
2021 2,050 21,800 6,800

Required: i) Establish total cost function using high-low method. (5 marks)

ii) Calculate profit for making 3,500 units of the twin-desk if the selling price is fixed at GH¢20. (3 marks)

iii) Identify TWO (2) advantages and TWO (2) disadvantages of using high-low method. (4 marks)

iv) Identify THREE (3) importance for classifying cost as fixed and variable. (3 marks)

b) For managers within a company, exercising control through standards and standard costing is a creative program aimed at determining whether the organisations’ resources are being used optimally. Standard costs are typically determined during the budgetary control process because it uses predetermined standard costs for direct material, direct labour and factory overheads.

Required: Explain THREE (3) benefits to a company that uses standard costing. (5 marks)

i) Establish total cost function using high-low method:

Year No. of Twin-Desk Total Cost (GH¢)
2016 1,800 13,600
2017 1,700 15,800
2018 1,750 14,500
2019 2,100 18,200
2020 1,950 14,900
2021 2,050 15,000

Using high and low points:

  • High point: 2,100 units and GH¢18,200
  • Low point: 1,700 units and GH¢13,600

iii) Advantages and disadvantages of using high-low method: Advantages:

  1. Simplicity: Easy to use and understand.
  2. Limited Data Requirement: Requires only two data points, making it useful when limited data is available.

Disadvantages:

  1. Inaccuracy: May result in high variances as it only uses two extreme points.
  2. Not Representative: May not represent the entire data set accurately if the high and low points are outliers.

iv) Importance for classifying cost as fixed and variable:

  1. Decision Making: Helps in making informed business decisions, such as pricing and budgeting.
  2. Break-even Analysis: Essential for calculating the break-even point and understanding cost behavior.
  3. Cost Control: Facilitates effective cost control and management by understanding cost behavior patterns.

b) Benefits of standard costing:

  1. Budgeting and Planning: Provides a basis for planning the use of organizational resources effectively.
  2. Performance Measurement: Allows for evaluation of managerial performance by comparing actual results with standard costs.
  3. Motivation: Acts as a motivating tool for managers and employees to achieve set targets.
  • 20 Marks

IMAC – AUG 2022 – L1 – Q4 – Inventory Management

Calculation of cost of goods issued and closing inventory using the weighted average method, and identification of causes for material and labour cost variances.

Question: a) The following extracts are from the books of Bediako Enterprise in the month of February:

Date Description Units Per unit cost (GH¢)
01 Receipts 400 42
04 Receipts 700 45
07 Issue 450
10 Receipts 600 48
14 Issue 700
20 Receipts 1,200 50

Required: Using the Weighted Average Method;

i) Calculate the cost of goods issued to Cost of Sales. (3 marks)

ii) Compute the value of closing inventory. (12 marks)

b) Identify TWO (2) possible causes for each of the following variances:

i) Material cost variance.

ii) Labour cost variance. (5 marks)

b)
i) Possible Causes of the Materials Price Variance
If the standard price is reasonable, then a materials price variance may be caused
by such valid factors as the following:
 Rush deliveries
 Market-driven pricing changes, such as changes in the prices of commodities
 Bargaining power changes by suppliers, who may be able to impose higher
prices than expected
 Buying in unusually large or small volumes in comparison to what was expected
when the standard was created
 A change in the quality of the materials purchased
ii) The possible causes of labor rate variance are:
 Payment at a higher or lower rate than the standard
 Changes in employee skills
 Recruitment of new personnel
 Changes in compensation methods, etc.
(Any 2 points for each variance @ 1.25 mark each = 5 marks)

  • 20 Marks

IMAC – Aug 2022 – L1 – Q3 – Scope of Management Accounting

Discuss the objectives and qualities of management accounting, differentiate operational control from cost control, and explain specific order costing characteristics.

a) Management Accounting is that branch of accounting known for management decision-making. It is a more intimate merger of the two older professions of management and accounting, wherein the information needs of the manager determine the accounting means for their satisfaction.

In Management Accounting, managers use accounting information in decision-making and to assist in the management and performance of their control functions. Management accounting information should comply with certain qualities and characteristics to be useful in planning, control, and decision-making.

Required:
i) Identify THREE (3) objectives of Management Accounting. (6 marks)
ii) Explain FIVE (5) qualities of management accounting information. (5 marks)

b) All deployed cost-accounting controls and processes should bring to focus opportunities for improvement and engender decision-makers’ trust in results. Operational control and cost control management approaches are needed to add insight into where and how cost improvements can be implemented.

Required:
Distinguish between operational control and cost control. (4 marks)

c) Specific order costing methods are appropriate for business organizations that are involved in the construction, manufacturing, or assembling of products to individual customers’ specifications.

Required:
State THREE (3) characteristics of Specific Order Costing. (5 marks)

a)
i) Objectives of Management Accounting

  • Planning: Setting the objectives of the organization and designing measures to ensure their achievement.
  • Control: Monitoring the actual performance and comparing that with the plan to take action on deviations.
  • Decision-making: Providing information for both long-term and short-term decisions, e.g., make or buy, special pricing, and deletion of a segment.

(3 points @ 2 marks each = 6 marks)

ii) Qualities of Management Accounting Information
Management accounting information should comply with various qualities including:

  • Verifiability
  • Objectivity
  • Timeliness
  • Comparability
  • Reliability
  • Understandability
  • Relevance

(Any 5 points @ 1 mark each = 5 marks)

b)
Operational Control vs. Cost Control

  • Operational Control: A system put in place to ensure that day-to-day activities are directed toward the expected outcomes. (2 marks)
  • Cost Control: Monitoring costs to ensure they align with the planned budget. (2 marks)

c)
Characteristics of Specific Order Costing

  • Cost of each cost object is calculated separately.
  • Expenses are classified into cost elements and traced to the cost unit.
  • Several jobs can be undertaken at the same time.
  • Each job is identified for cost accumulation purposes.
  • Job cards are issued for each job containing details of the customer.

(Any 3 points @ 1.67 marks each = 5 marks)

  • 20 Marks

IMAC – AUG 2022 – L1 – Q2 – Budgeting

Preparation of production forecast and material purchase budget for Kikaw Ltd, and identification of benefits of budgeting.

Kikaw Ltd engages in the manufacturing and trading of two products namely: Product A and Product B. Kikaw Ltd is presently in the process of preparing budgets for the year ending 31 March 2023, and the following information was estimated.

Purchases: Material cost per unit:

Product A
Material X (GH¢200 per Kg) GH¢550

Sales: The following quarterly sales have been forecasted. Monthly sales are evenly distributed within each quarter.

Apr-Jun 2022 Jul-Sep 2022 Oct-Dec 2022 Jan-Mar 2023 Apr-Jun 2023
Product A (Units) 84,000 88,200 93,000 96,000 100,800
Product B (Units) 63,000 66,000 67,800 69,000 72,000

Additional information:

  • Kikaw Ltd operates FIFO method in issuing inventory and maintains a material inventory of 20% of the following quarter’s production requirement.
  • The policy of the company is to maintain month-end inventory of finished goods equal to 50% of sales of the following month.

Required: a) Prepare a production forecast in units for Products A and B separately on quarterly basis, for the year ending 31 March 2023. (9 marks)

b) Prepare Material Purchase budget for material X in quantity for the first three quarters for product A only. (7 marks)

c) Identify FOUR (4) benefits Kikaw Ltd will gain from preparing budgets. (4 marks)

Answer: a) Production forecast for Product A and B:

Apr-Jun 2022 Jul-Sep 2022 Oct-Dec 2022 Jan-Mar 2023
Product A
Sales 84,000 88,200 93,000 96,000
Add: Closing stock 14,700 15,500 16,000 16,800
Less: Opening stock (14,000) (14,700) (15,500) (16,000)
Production 84,700 89,000 93,500 96,800
Apr-Jun 2022 Jul-Sep 2022 Oct-Dec 2022 Jan-Mar 2023
Product B
Sales 63,000 66,000 67,800 69,000
Add: Closing stock 11,000 11,300 11,500 12,000
Less: Opening stock (10,500) (11,000) (11,300) (11,500)
Production 63,500 66,300 68,000 69,500
(9 marks)

b) Material X Purchase budget (in kgs) for Product A:

Apr-Jun 2022 Jul-Sep 2022 Oct-Dec 2022
Production 84,700 89,000 93,500
Requirement (84,700 x 2.75) (89,000 x 2.75) (93,500 x 2.75)
Material required 232,925 244,750 257,125
Add: Closing stock 48,950 51,425 53,240
Less: Opening stock (46,585) (48,950) (51,425)
Purchases 235,290 247,225 258,940
(7 marks)

c) Benefits of preparing budgets:

  1. Planning: Helps in setting the objectives of the organization and designing measures to ensure their achievement.
  2. Coordination: Ensures the activities of various parts of an organization are coordinated towards a common goal.
  3. Communication: Communicates the plans to various responsibility center managers.
  4. Motivation: Motivates managers to strive to achieve the organizational goals.
  5. Control: Compares actual results with the budget and takes controlling measures. (4 points @ 1 mark each = 4 marks)
  • 20 Marks

IMAC – AUG 2022 – L1 – Q1 – Budgeting

Differences in operating profit under marginal and absorption costing, preparation of profit statements, production forecast, and material purchase budget.

a) Marginal costing and Absorption costing are cost management techniques used to allocate cost to the products produced for their valuation. There are differences in the operating profit when either marginal costing or absorption costing is deployed.

Required: State TWO (2) reasons that account for the differences in the operating profit under Marginal costing and Absorption costing systems. (4 marks)

b) Adam Ltd is a producer of product Wale. In a period, it produced 20,000 units and sold 18,000 units of product Wale. The selling price per unit of the output is GH¢5. In the planned production period, relevant cost and revenue data were stated as:

GH¢
Sales 100,000
Production cost:
Variable 35,000
Fixed 15,000
Administration and selling overhead:
Fixed 25,000

Required: Prepare a profit or loss statement based on the following costing systems: i) Marginal costing systems. (8 marks) ii) Absorption costing systems. (8 marks)

a) Factors causing differences in profit:

  • Fixed factory overhead: Marginal costing system excludes fixed factory overhead from stock valuation, whereas absorption costing system includes fixed factory overhead into stock valuation.
  • Differences in closing stock: Differences in closing stock values may cause differences in the reported profit under both marginal and absorption costing. (2 points @ 2 marks each = 4 marks)Profit Statement (Marginal Costing):
    Description GH¢
    Sales (18,000 x GH¢5) 90,000
    Less: Marginal cost of production:
    Variable production cost 35,000
    Closing stock (2,000 x GH¢1.75) (3,500)
    Total marginal cost (31,500)
    Contribution 58,500
    Less: Fixed production cost 15,000
    Fixed selling and administration 25,000
    Total expenses (40,000)
    Net profit 18,500
    (8 marks)
  • Profit Statement (Absorption Costing):
    Description GH¢
    Sales (18,000 x GH¢5) 90,000
    Less: Production cost:
    Variable production cost 35,000
    Fixed production cost 15,000
    Closing stock (2,000 x GH¢2.50) (5,000)
    Total production cost (45,000)
    Gross profit 45,000
    Less: Selling and administration overheads (25,000)
    Net profit 20,000
    (8 marks)

Take control of your business data with insight and in-depth understanding by taking this course. 

Services

Contact Info

  • +233203701923
    +233543919232
  • info@noohrabusiness.com

Get In Touch

Follow us on our social media and get daily updates.

Facebook-f Twitter Linkedin-in Envelope