PRACTICE QUESTION FOR MANAGEMENT

LEVEL 300

QUESTION 1
RH makes and sells one product, which has the following standard production cost.

GHȼ
Direct Labour 3 hours at GHȼ6 per hour 18
Direct Materials 4 kilograms at GHȼ7 per kg 28
Production Overhead Variable 3
Fixed 20
Standard production cost per unit 69

Normal output is 16,000 units per annum. Variable selling, distribution and administration costs
are 20 percent of sales value. Fixed selling, distribution and administration costs are
GHȼ180,000 per annum. There are no units in finished goods inventory at 1 October 20X2. The
fixed overhead expenditure is spread evenly throughout the year. The selling price per unit is
GHȼ140. Production and sales budgets are as follows:

Six months ending Six Months Ending

31 March 2018 30 September, 2018
Production 8,500 7,000
Sales 7,000 8,000

Required:
Prepare profit statements for each of the six-monthly periods, using the following methods of
costing.

(a) Marginal costing [15 marks]

(b) Absorption costing [15 marks]

QUESTION 2
a.Standard costing is an important management accounting technique which can benefit all forms

of business enterprises if fully understand and operated.

Required:

i. List three benefits of using standard costing.

ii. Distinguish between a favourable variance and adverse variance as used in standard costing

.1mark

iii. Briefly explain with examples the types of standard used in standard costing .8 marks.

QUESTION 3
Admer owns several home furnishing stores. In each store, consultations, if needed, are undertaken
by specialists, who also visit potential customers in their homes, using specialist software to help
customers realize their objectives. Customers visit the store to make their selections from the wide
range of goods offered, after which sales staff collect payment and raise a purchase order.
Customers then collect their self-assembly goods from the warehouse, using the purchase order as
authority to collect. Administration staff process purchase order and also arrange consultations.
Each store operates an absorption costing system and costs other than the cost of goods sold are
apportioned on the basis of sales floor area.

Results for one of Admer’s stores for the last three months are as follows:

Department Kitchens Bathrooms Dining Rooms Total

GHC GHC GHC GHC
Sales 210,000 112,500 440,000 762,500
Cost of goods sold (63,000) (37,500) (176,000) (276,500)
Other costs (130,250) (81,406) (113,968) (325,624)
Profit 16,750 (6,406) 150,032 160,376
The management accountant of Admer is concerned that the bathrooms department of the store
has been showing a loss for some time, and is considering a proposal to close the bathrooms
department in order to concentrate on the more profitable kitchens and dining rooms departments.
He has found that other costs for this store for the last three months are made up of:

GHC Employees
Sales 64,800 12
Consultation staff wages 24,960 4
Warehouse staff wages 30,240 6
Administration staff wages 30,624 4
General overheads (light, heat, rates, etc.) 175,000
325,624
He has also collected the following information for the last three months:
Department Kitchens Bathrooms Dining
Rooms
Number of items sold 1,000 1,500 4,000
Purchase orders 1,000 900 2,500
Floor area (square metres) 16,000 10,000 14,000
Number of consultations 798 200 250
The management accountant believes that he can use this information to review the store’s
performance in the last three months from an activity-based costing (ABC) perspective.
Required
a) Produce a profit statement using activity based costing from the information provided.
(8 marks)
b) Evaluate and discuss the proposal to close the bathrooms department. (6 marks)
The management accountant has recently recruited a trainee accountant. The trainee is currently
undertaking training in Admer’s cost accounting systems.
Required
c) Briefly describe the meaning of the following terms:
(i) Semi-variable cost
(ii) Cost centre

QUESTION 4
Kuapa Ltd manufactures and sells a single product which has the following cost
and selling price structure:
GH¢ per unit GH¢ per unit
Selling price 150
Direct material 40
Direct Labour 25
Variable Overhead 35
Fixed Overhead 20
120
Profit per unit 30
The fixed overhead absorption rate is based on the normal capacity of 2,500 units
per month. Assume that the same amount is spent each month on fixed overheads.
Budgeted sales for the next month are 3,000 units. You are required to calculate
a. The breakeven point in sales units and value
b. The margin of safety for the next month in units and percentage
c. The budgeted profit for the next month
d. The sales required to achieve a targeted profit of 150,000
e. Draw a breakeven chart to showing the revenue line, variable and fixed cost
line, breakeven point in value and in units, margin of safety, profit and loss.

QUESTION 5
Changein2012 Company Ltd has been operating for the past twenty years and produces three
products cocoa products (x,y and z). In the last decade product “x” has performed very well in the
market until the company decided to boost their market value by introducing product “y”. With
the exception of product “x” which operates in the company’s own premises, the company has
operated and produced the other products from a rented apartment for all this years. The annual
rent of GS¢50,000 per product had been paid the previous year in advance for the next three years.
The cost of the factory premises that is used to produce product “x” is GS¢30,000 and is subject
to an annual depreciation of 5% per annum on straight-line basis. Over the years, special manager
has been managing the product “x” as a divisional manager and in tandem with his performance,
is entitled to a fixed salary of GS¢35,000 per annum.

All the products has a maximum capacity to produce 100,000 products per annum however, apart
from product “z” that produces at full capacity, Product “x and y” produces at 60% and 80%
respectively. At the beginning of the current year, the company’s financial manager has proposed
a production scale as 100,000 units, 60,000 units and 80,000 units of product “X,Y, and Z”
respectively. The other costs and selling price per unit were given below:
X Y Z
GS¢ GS¢ GS¢
Cocoa beans 4 10 8
Direct labour 4 5 6
Variable production overheads 3 5 4
Salesmen salary 2 4 2
Variable sales commission 3 6 5
Selling price per unit 22 29 24
You have just being appointed by the company and immediately tasked to write a MEMO to the
Board of Trustees advising them on the following:
a) Should the company drop any “financially non-performing product”?
b) Supposing the company has received a request from a customer to produce 30,000 units of
product “X” at a special price of GS¢16, would you advise them to accept it?

QUESTION 6
The sales and production details of Eyram manufacturing Ltd. for July, 2012 are summarised as
follows:
a. Estimated sales:
Product K: 40,000 units at GH¢30.00 per unit
Product L: 20,000 units at GH¢65.00 per unit
b. Estimated inventories, July 1, 2012: GH¢
Material A: 4,000 kgs. Product K: 3,000 units at GH¢17 per unit 51,000
Material B: 3,500 kgs. Product L: 2,700 units at GH¢35 per unit 94,500
Total 145,500
There were no work in process inventories estimated for July 1, 2006.
c. Desired inventories at July 31, 2012:
Material A: 3,000 kgs. Product K: 2,500 units at GH¢17 per unit 42,500
Material B: 2,500 kgs. Product L: 2,000 units at GH¢35 per unit 70,000
Total 112,500
There were no work in process inventories desired for July 31, 2006.
d. Direct materials used in production:
Product K Product L
Material A: 0.7 kgs. per unit 3.5 kgs. per unit
Material B: 1.2 kgs. per unit 1.8 kgs. per unit
e. Unit costs for direct materials:
Material A: GH¢4.00 per kg.
Material B: GH¢2.00 per kg.
f. Direct labour requirements:
Department 1 Department 2
Product K 0.4 hour per unit 0.15 hour per unit
Product L 0.6 hour per unit 0.25 hour per unit
g. Department 1 Department 2
Direct labour rate GH¢12.00 per hour GH¢16.00 per hour
h. Estimated factory overhead costs for July:
GH¢
Indirect factory wages 200,000
Depreciation of plant and equipment 40,000
Power and light 25,000
Indirect materials 34,000
Total 299,000
Required:
i. Prepare all the functional budgets for the month of July.
ii. Prepare the projected income statement and statement of financial statement for the
month of July 2012.
iii. Assuming the company allows a one month 5% credit facility to its customer and accepts
10% credit facility from suppliers, prepare a cash budget for July 2012.

QUESTION 7
RH makes and sells one product, which has the following standard production cost.

GHȼ
Direct Labour 3 hours at GHȼ6 per hour 18
Direct Materials 4 kilograms at GHȼ7 per kg 28
Production Overhead Variable 3
Fixed 20
Standard production cost per unit 69

Normal output is 16,000 units per annum. Variable selling, distribution and administration costs
are 20 percent of sales value. Fixed selling, distribution and administration costs are
GHȼ180,000 per annum. There are no units in finished goods inventory at 1 October 20X2. The
fixed overhead expenditure is spread evenly throughout the year. The selling price per unit is
GHȼ140. Production and sales budgets are as follows:

Six months ending Six Months Ending

31 March 2018 30 September, 2018
Production 8,500 7,000
Sales 7,000 8,000

Required:
Prepare profit statements for each of the six-monthly periods, using the following methods of
costing.

(c) Marginal costing [15 marks]

(d) Absorption costing [15 marks]

QUESTION 8
Admer owns several home furnishing stores. In each store, consultations, if needed, are undertaken
by specialists, who also visit potential customers in their homes, using specialist software to help
customers realize their objectives. Customers visit the store to make their selections from the wide
range of goods offered, after which sales staff collect payment and raise a purchase order.
Customers then collect their self-assembly goods from the warehouse, using the purchase order as
authority to collect. Administration staff process purchase order and also arrange consultations.
Each store operates an absorption costing system and costs other than the cost of goods sold are
apportioned on the basis of sales floor area.

Results for one of Admer’s stores for the last three months are as follows:

Department Kitchens Bathrooms Dining Rooms Total

GHC GHC GHC GHC
Sales 210,000 112,500 440,000 762,500
Cost of goods sold (63,000) (37,500) (176,000) (276,500)
Other costs (130,250) (81,406) (113,968) (325,624)
Profit 16,750 (6,406) 150,032 160,376
The management accountant of Admer is concerned that the bathrooms department of the store
has been showing a loss for some time, and is considering a proposal to close the bathrooms
department in order to concentrate on the more profitable kitchens and dining rooms departments.
He has found that other costs for this store for the last three months are made up of:

GHC Employees
Sales 64,800 12
Consultation staff wages 24,960 4
Warehouse staff wages 30,240 6
Administration staff wages 30,624 4
General overheads (light, heat, rates, etc.) 175,000
325,624
He has also collected the following information for the last three months:
Department Kitchens Bathrooms Dining
Rooms
Number of items sold 1,000 1,500 4,000
Purchase orders 1,000 900 2,500
Floor area (square metres) 16,000 10,000 14,000
Number of consultations 798 200 250
The management accountant believes that he can use this information to review the store’s
performance in the last three months from an activity-based costing (ABC) perspective.
Required
d) Produce a profit statement using activity based costing from the information provided.
(8 marks)
e) Evaluate and discuss the proposal to close the bathrooms department. (6 marks)
The management accountant has recently recruited a trainee accountant. The trainee is currently
undertaking training in Admer’s cost accounting systems.
Required
f) Briefly describe the meaning of the following terms:
(i) Semi-variable cost
(ii) Cost centre

QUESTION 9
RH makes and sells one product, which has the following standard production cost.

GHȼ
Direct Labour 3 hours at GHȼ6 per hour 18
Direct Materials 4 kilograms at GHȼ7 per kg 28
Production Overhead Variable 3
Fixed 20
Standard production cost per unit 69

Normal output is 16,000 units per annum. Variable selling, distribution and administration costs
are 20 percent of sales value. Fixed selling, distribution and administration costs are
GHȼ180,000 per annum. There are no units in finished goods inventory at 1 October 20X2. The
fixed overhead expenditure is spread evenly throughout the year. The selling price per unit is
GHȼ140. Production and sales budgets are as follows:

Six months ending Six Months Ending

31 March 2018 30 September, 2018
Production 8,500 7,000
 Sales 7,000 8,000

Required:
Prepare profit statements for each of the six-monthly periods, using the following methods of
costing.

QUESTION 10
I) With the aid of diagrams, explain the following types of Cost
a. Fixed cost
b. Stepped fixed cost
c. Variable cost
d. Semi-variable cost

II) Adongo Ltd recorded the following data for a semi-variable cost for the
second half of 2018:
Activity level Cost incurred
Month (units) (GH¢)
July 10,500 92,000
August 15,000 110,000
September 12,000 98,000
October 13,000 102,000
November 14,500 108,000
December 11,000 94,000

Required
a. Using the high and low method, Calculate the variable cost per unit and the
total fixed cost.
b. Predict the cost of producing 16,500 units

QUESTION 11
Kuapa Ltd manufactures and sells a single product which has the following cost
and selling price structure:
GH¢ per unit GH¢ per unit
Selling price 150
Direct material 40
Direct Labour 25
Variable Overhead 35
Fixed Overhead 20
120
Profit per unit 30
The fixed overhead absorption rate is based on the normal capacity of 2,500 units
per month. Assume that the same amount is spent each month on fixed overheads.
Budgeted sales for the next month are 3,000 units. You are required to calculate
f. The breakeven point in sales units and value
g. The margin of safety for the next month in units and percentage
h. The budgeted profit for the next month
i. The sales required to achieve a targeted profit of 150,000
j. Draw a breakeven chart to showing the revenue line, variable and fixed cost
line, breakeven point in value and in units, margin of safety, profit and loss.

QUESTION 4
a.Standard costing is an important management accounting technique which can benefit all forms

of business enterprises if fully understand and operated.

Required:

iv. List three benefits of using standard costing.

v. Distinguish between a favourable variance and adverse variance as used in standard costing

.1mark

vi. Briefly explain with examples the types of standard used in standard costing .8 marks.