UNIVERSITY OF GHANA

DISTANCE EDUCATION
DEPARTMENT OF ACCOUNTING
ACCT 404: MANAGEMENT ACCOUNTING

REVISION QUESTIONS

COST VOLUME PROFIT ANALYSIS & COST ESTIMATION

1. The market price of both Apples and oranges have dropped as a result of low demand to GH¢20
and GH¢12 respectively. AB Farms located at Kasoa produces 70% of Apples and 30% of
oranges on her farms incurring GH¢9 and GH¢8 as variable cost per bird respectively.
The following fixed costs are incurred annually:
GH₵

Staff Cost 48,000

Rent 12,000
Electricity 6,000
Depreciation 8,000
Other Overheads 2,000
Required:
a. Calculate the number of Apples and oranges to be produced to break-even.
b. If the profit target is GH¢40,000, how many birds should be produced to meet this target?
c. Outline four basic assumptions of Cost volume profit analysis.

2. A company sells 50,000 units of a product for GH¢10 per unit. The costs associated with the
production of the 50,000 units are:
GH¢

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 Direct materials 100,000
Labour 160,000
Other production overheads 80,000
Selling and administration overhead 50,000

It is also established that:

 There is no opening or closing stock.
 Half the labour costs are direct costs and are variable.
 The other half of the labour costs are indirect. 50% of these costs are fixed.
 30% of the other production overheads are fixed.
 30% of the selling and administration overheads are variable.
Requirement A
i. Provide a breakdown of the total variable costs and the total fixed costs, before calculating
the total contribution and the total profit on the sale of 50,000 units of this product.
ii. Determine the unit variable cost, contribution per unit and the breakeven point.

The company researches new methods of both selling and making the product. Four new strategies
are suggested: Strategy 1
Lower the sales price to GH¢9 per unit. Total sales would be estimated to increase to 60,000 units.
Strategy 2
Maintain the sales price at GH¢10 per unit and sales volume at 50,000 units but mechanise
production using machine A. This will cost GH¢25,000 per month to hire but will lead to a saving
of GH¢0.80 per unit on the variable labour costs.
Strategy 3
Maintain the sales price at GH¢10 per unit and sales volume at 50,000 units but mechanise
production using machine B. This will cost GH¢50,000 per month to hire but will lead to a
reduction in variable labour cost by 10% and a 15% reduction in material costs.

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Strategy 4
Lower the sales price to GH¢9 per unit. Total sales would be estimated to increase to 60,000 units
but also mechanise production by using either machine A or machine B. The choice of which
machine to use will be based on which of the two machines generates the greater profit.

Requirement B

i. Produce a profit statement for the current scenario before producing statements for the four
different strategies. For each strategy, the total contribution and total profit needs to be
specified, as well as the breakeven number.

4. A transport company has recorded the following data for a semi-variable cost, together with
the relevant price index relating to each year.
Year Miles Travelled (000) Cost Incurred (GH¢) Price Index
1 2,590 23,680 100
2 2,840 25,631 106
3 3,160 27,302 110
4 3,040 28,759 117
Required:
a. Determine the variable cost per mile travelled.
b. Determine the fixed cost component of the total cost.
c. What will be the cost incurred when 3,100,000 miles are covered in year 5 given expected
price index of 120?

ABSORPTION AND VARIABLE COSTING TECHNIQUES

5. The following information relates to XYZ for the fiscal year 2013, the company’s first year
of operations:
Units produced 15,000
Units sold 12,000

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 Selling price per unit GH¢20
Direct material per unit GH¢4
Direct labour per unit GH¢4
Variable manufacturing overhead per unit GH¢3
Variable selling cost per unit GH¢2
Annual fixed manufacturing overhead GH¢90,000
Annual fixed selling and administrative expense GH¢170,000
Required:
a. Determine the break-even sales in units and value for the company
b. If the company expects a profit of GH¢40,000, how many units of its product would be sold
in each year?
c. What is the margin of safety of the company in the fiscal year 2013?
d. Prepare an income statement using full or absorption costing
e. Prepare an income statement using a variable or marginal costing.

6. Dum and Sor Ltd manufacture a single product which on average is produced and sold in
quantities of 20,000 per month. The cost data for the product is as follows:
Per 20,000
Unit units
GH¢ GH¢
Direct materials 2 40,000
Direct wages 1 20,000

Prime cost 3 60,000

Variable overhead 2 40,000
Fixed overhead 3 60,000

Total cost 8 160,000

Sales 200,000

Profit 40,000

Your budget for the next 2 months is as follows:

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 Production Sales
(Units) (Units)
January 26,000 14,000
February 22,000 22,000

Required:
a. Prepare detailed budgets for each month, disclosing the profit reported under each of the
following methods:
i. Absorption (full) costing
ii. Variable (marginal)
costing
b. Prepare a reconciliation statement for the profits from the two techniques.

6. Action Ltd started a business on 1 May making one product only, the standard cost of which is
as follows:
Direct Direct Variable Fixed Standard labour material Overheads
production cost (GH¢) (GH¢) (GH¢) Overheads
(GH¢)
(GH¢)
5 8 2 5 20
The fixed production overhead figure has been calculated based on a budgeted normal output
of 36,000 units per year.
You are to assume that actual costs were the same as standard costs and that all the budgeted
fixed expenses are incurred evenly through the year. Selling, distribution and administration
expenses are fixed (120,000 per year) and variable (15% of sales value). The selling price is
GH¢35, and the number of units produced and sold was:
May (units) June (units)
Production 2,000 3,200
Sales 1,500 3,000

Required:

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Prepare the income statements for May and June based on: a.
Variable (marginal) costing principles b. Absorption (full)
costing principles

RELEVANT COST AND SHORT-TERM DECISION MAKING

7. Aprim Ltd produces 4 products and is planning its production mix for the next period.
Estimated cost, sales and production data are shown below:
Details A B C D
Selling price/unit GHC 50 70 80 100
Materials @ GHC4/kg 12 36 20 24
Direct labour @ GHC2/hr 6 4 14 10
Maximum demand (Units) 3,000 3,000 3,000 3,000
Required:
a. Assuming labour hours is a limiting factor in the period, advise management on the most
appropriate mix if labour hours is limited to 45,000 hours.
b. Assuming material is a limiting factor in the period, advise management on the most
appropriate mix if materials is limited to 55,000 kgs in the period.

8. Bouake Ltd produces computer component A for sale at GHS47 per unit to a Manufacturer of
computers. The company currently produces 15,000 units of the component per annum. The
total cost of production and unit cost are as follows:
Production Cost Unit
Cost
Details GHS GHS
Direct materials 210,000.00 14
Direct labour 180,000.00 12
Variable production cost 30,000.00 2
Fixed manufacturing overhead 150,000.00 10
Share of non-production overhead 105,000.00 7
675,000.00 45

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A supplier has offered to supply 15,000 units of the components per annum at a price of
GHS39 per unit over four years without any change in price. If Bouake ltd accepts the offer,
the following are the effects on current operation.

i. Direct labour will be redundant but at a redundancy cost of

GHS5,000.

ii. Direct materials and variable production cost will be avoidable iii.

Fixed manufacturing cost will be reduced by GHS18,750 per annum

iv. The share of the non-production overhead cost will stay as it is.

Required:
a. Should Bouake make or buy component A?
b. Enumerate three qualitative factors the company should consider before making the
decision.

9. Asanka Company requires three pieces of ‘adesa’ for what it produces. Currently, ‘adesa’
is made by Asanka, with the following per piece costs in a month when 3,000 pieces were
produced:
Direct materials GH¢3.00
Direct labour 1.20
Manufacturing overhead 2.0
Total GH¢6.20

Variable manufacturing overhead is applied at GH¢1.00 per piece. The other GH¢1.0 of
overhead consists of allocated fixed costs. Asanka will need 5,000 pieces of ‘adesa’ for next
year’s production. Benso Ltd has offered to supply 5,000 pieces of ‘adesa’ at a price of GH¢7.00
per piece. If Asanka accepts the offer, all the variable costs and GH¢1,200 of the fixed costs
will be avoided.
Required:
i. Should Asanka Company accept the offer from Benso Ltd?
ii. State any two (2) qualitative factors that should be considered in Asanka Company’s
decision.

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Page 8 of 14
BUDGETING PLANNING AND CONTROL & STANDARD COSTING AND VARIANCE
ANALYSIS

10. The draft balance sheet of ABC ltd as at March 31, 2014 is as shown below:
GH¢
Fixed Assets (Net Book Value) 200,000
Current Assets:
Stock of Finished Goods 74,800
Stock of Raw Materials 5,200
Debtors 30,000
Cash 40,000

350,000

Share Capital 220,000

Retained Profit 118,000
Trade Creditors 12,000
350,000

The company is preparing its budget for the next 3 months April, May and June. Budgeted
sales are as follows:
April 20,000 units
May 50,000 units
June 30,000 units
July 25,000 units
August 15,000 units

1. The selling price of each unit is GH¢10.

2. It is the company’s policy to maintain a stock of finished goods to equal to 20% of the
following month’s budgeted sales in units. The stock of finished goods at the end of March
is 4,000 units.
3. 5kg of materials are required for each unit of product, and each kg of material costs
GH¢0.40. It is the company’s policy to maintain material stock equal to 10% of the next
month’s production requirements. Materials at the beginning of April were 13,000 Kg.

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4. Each unit produced requires 0.05 hours of direct labour. The company has no layoff policy
and in effect guarantee its direct labour employees that they will be paid for at least 40
hours per week at the direct labour rate of GH¢10 per hour. In exchange for this guarantee,
the direct labour force has agreed to work overtime when required at the same rate of
GH¢10 per hour. In each of April, May and June, the direct labour workforce has been
guaranteed a total of 1,500 paid hours.
5. Variable manufacturing overhead is GH¢1 per unit produced and fixed manufacturing
overhead is GH¢50,000 per month. The fixed manufacturing overhead figure includes
GH¢20, 000 depreciation.
6. Variable selling and administrative expenses are GH¢0.50 per unit sold and fixed selling
and administrative expenses are GH¢70,000 per month. The fixed selling and
administrative expenses include GH¢10,000 of depreciation.
7. The following information is also available for the period
i. An open line of credit is available at a local bank which allows the company to
borrow GH¢75,000 per quarter.
ii. The company must maintain a minimum cash balance of GH¢30,000
iii. All borrowings attract an interest of 16% pa payable only at the time of paying
the principal.
iv. To calculate the interest, assume any borrowing is made at the beginning of the
month, and repayments are made at the end of the month.
v. Cash dividends in the amount of GH¢49,000 are to be paid in April

vi. Equipment purchases of GH¢143,700 are scheduled for May and GH¢48,300 for
June.

8. All sales are on credit. The company’s cash collection pattern is: 70% collected in the month
of sale; 25% collected in the month following sale; and the remaining 5% is uncollectible.
9. Half of all purchases are paid for in the month of purchase; the other half is paid for in the
following month.

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 Required
Prepare the following budgets for April, May and June:
a.
Sales budget
b. Production budget
c. Direct materials purchases budget
d. Direct labour budget
e. Production overhead budget
f. Selling and administration budget
g. Cash budget

10.
Asempa Company has forecasted its sales for the last quarter of financial year end December 31 as
follows:

August GH¢150,000 (actual)

September GH¢160,000 (actual)
October GH¢180,000
November GH¢160,000
December GH¢200,000

Donewell has experienced cash collections from sales as 30 percent during the month of sale,
40 percent in the month after the sale, and 30 percent the second month after the sale.

Required:

a. Prepare a schedule of the expected cash receipts for the three months, October through
December.
b. What will the accounts receivable balance be on December 31?

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c. PEEZY Music Ltd is a merchandising business which sells electronic keyboards. Each month,
the company purchases enough keyboards to meet sales operations and maintain the ending
inventory at 20 per cent of the projected next month's sales. The firm is expected to follow this
policy on December 1. Budgeted sales from December to April are as follows:
Dec Jan Feb Mar Apr
Budgeted sales in units: 500 300 500 400 300

The average cost of a keyboard is GH¢200.

Required
Prepare a purchases budget of Peezy Music Ltd for December through March.

d. Anuka Ltd is working on its direct labour budget for the next two months. Each unit of output
requires 0.30 direct labour-hours. The direct labour rate is GH¢6.50 per direct labour-hour. The
production budget calls for producing 3000 units in August and 4000 units in September. The
company guarantees its direct labour workers a 40-hour paid work week. With the number of
workers currently employed, that means that the company is committed to paying its direct
labour workforce for at least 920 hours in total each month even if there is not enough work to
keep them busy.

Required:
Prepare the direct labour budget for the next two months, August and September.

11. The under listed data relate to actual output, costs and variances for the monthly accounting
period of a company that makes only one product. Opening and closing work in progress was
the same.
Variances: GHS
Direct materials price 30000F
Direct materials usage 18000A
Direct labour rate 16000A
Direct labour efficiency 32000F
Variable production overhead expenditure 12000A
Variable production overhead efficiency 8000F
Variable production overhead varies with labour hours worked. A standard marginal costing
system is operated.

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 Actual production of product BM 36,000 units
Actual costs incurred:
Direct materials purchased and used (300,000 kg) GHS420,000
Direct wages for 64,000 hours GHS272,000
Variable production overhead GHS76,000

Required:
a. Calculate the standard cost of materials and standard rate per labour hour.
b. Prepare a standard product cost sheet for one unit of product BM.

12. Sefakor manufactures a special product, with a standard cost of GH¢80 made up as follows:

GHS

Direct materials 15sq meters @ GH¢3 per sq. meter 45

Direct Labour (5 hrs @ GH¢4/hr) 20

Variable Overheads (5 hrs @ GH¢2/hr) 10

Fixed Overheads (5hrs @ GH¢1/hr) 5

80
 The standard selling price of the product is GH¢100
 The monthly budget projects production and sales of 1,000 units.

Actual figures for July are as follows:

 Sales 1,200 units at GH¢102 each

 Production 1,400 units
 Direct Material 22,000 sq. meters @ GH¢4 per sq. meter
 Direct Wages 6,800 hours at GH¢5 per hour
 Variable Overheads GH¢11,000
 Fixed Overheads GH¢6,000

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 Required:
Calculate all the relevant variances.
.

PERFORMANCE MEASUREMENT

a. The following information is given for two divisions of Adongo Entertainment Company is
given below:
ABC XYZ
Net income GH¢ 30,000 GH¢6,000
Capital investment GH¢200,000 GH¢300,000

Required:
i. Compute the return on investment (ROI) for each division.
ii. If Lynx Entertainment Company charges each division 15 per cent for capital employed,
compute residual income for the ABC and XYZ divisions.
iii. Identify the steps to follow in establishing the performance reward system for a company.

B. Explain the following as they relate to performance management.

i. responsibility centre
ii. cost centre
iii revenue centre
iv profit centre
v investment centre

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