Question Tag: Contribution analysis

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  • 15 Marks

PM – May 2015 – L2 – SB – Q6 – Costing Systems and Techniques-

Determine the most profitable product mix for Markus Limited, and prepare a profitability statement for the optimal product mix.

Markus Limited manufactures three products and operates a marginal costing system.

The following information has been extracted from the company’s records:

Products X Y Z
Units budgeted to be produced and sold 3,600 6,000 3,400
Selling Price (₦) 120 110 100
Requirement per Unit:
Direct Material (kg) 5 3 4
Direct Labour (Hours) 4 3 2
Direct Labour Hour rate (₦) 4 4 4
Direct Material Cost per Kg (₦) 8 8 8
Variable Overheads (₦) 14 26 16
Fixed Overheads (₦) 20 20 20
Maximum possible sales (units) 8,000 10,000 3,000

All the three products are produced from the same direct material using the same types of machine and labour. Direct labour, which is the key factor, is limited to 37,200 hours.

Required: a. Determine the most profitable product mix. (6 Marks)
b. Prepare a statement of profitability for the product mix. (9 Marks)

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  • 20 Marks

PM – May 2021 – L2 – Q2 – Budgeting and Budgetary Control

Recommend the appropriate forecast for PQR Plc, analyze the limiting factor, and explain the budgeting process.

PQR Plc is preparing its budgets for the upcoming year and has forecasted two demand scenarios for its product range:

You are to assume only one forecast (either Forecast 1 or Forecast 2) will be selected. The expected variable unit costs for each product are:

The general fixed costs are budgeted at ₦20,000 for the year, with no specific fixed costs expected per product. Additionally, all three products use the same direct material, with a limited supply of 22,020 kgs available for the budget year.

Required:
a. Recommend, with supporting calculations, whether forecast 1 or forecast 2 should be adopted for the budget period. (11 Marks)
b. Prepare a report, addressed to the managing director, to explain the budget preparation process, with particular reference to: i. The principal budget factor (3 Marks)
ii. The budget manual (3 Marks)
iii. The role of the budget committee (3 Marks)

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  • 15 Marks

PM – Nov 2014 – L2 – Q7 – Decision-Making Techniques

Analyze profit for Omola Industries under various price and demand forecasts for a new product based on market research.

Omola Industries Limited is introducing a new product. The original information, available to the company from its archive, suggests that the product will sell for N190 per unit. Other information from the initial source is as follows:

  • Variable cost per unit: N100
  • Fixed cost: N20,000,000
  • Annual production and sales estimate: 700,000 units

To source credible information, the board inaugurated a market research team to assess sales volume, sales price, and variable cost. The research results are as follows:

  1. Selling Price Regimes: N180, N190, and N200
  2. Sales Demand Forecasts: Provided with pessimistic, most likely, and optimistic forecasts, along with subjective probabilities.

The company also committed to an annual contract cost of N5,000,000.

Required:

(a) Compute the initial profit achievable by the company. (2 Marks)

(b) Calculate the profit achievable under the three price scenarios based on the credible information. (7 Marks)

(c) Determine the value of the new information obtained from market research. (3 Marks)

(d) Identify three other sources of information available to an organization. (3 Marks)

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  • 15 Marks

PM – Nov 2015 – L2 – Q6 – Decision-Making Techniques

Evaluate whether Tee Company should replace Green with Brace and the best timing for changeover.

Tee Company makes and sells a product, the Green, which is nearing the end of its life. A replacement product, Brace, has been designed and test marketed, and the company is trying to decide when to replace Green with Brace. Tee Company only has the capability to produce one of the two products at a time.

Sales of Green are expected to be 100,000 units in the first quarter of Year 7 and are forecast to fall after that so that each quarter’s sales will be 10% less than those of the previous quarter. Green has a selling price of ₦14 per unit, and its Contribution to Sales ratio (C/S ratio) is 40%. The fixed costs of making Green in Year 7 will be ₦200,000 per quarter.

Test market results for Brace were very good, and demand for similar products is growing rapidly. Tee Company believes that sales of Brace can be predicted by the following equation:

Y = 80,000 + 6,000 T

Where:

  • Y = Sales of Brace in units per quarter
  • T = Time, measured in quarters. For the first quarter of Year 7 (January to March Year 7), T = 1; for the second quarter of Year 7, T = 2; etc.

The selling price of Brace will be ₦16, and its contribution per unit will be ₦6. Fixed costs will increase to ₦240,000 per quarter if Green is replaced by Brace.

To avoid disruption of the production of Tee’s other products, the changeover between Green and Brace must take place on either 1 January Year 7 or 1 July Year 7. The costs of changeover will differ depending upon which date is chosen, and the following information is available:

  1. Some of the machinery used to make the Green will no longer be required for the Brace. The written-down value of this machinery will be ₦250,000 on 1 January Year 7, and ₦220,000 by 1 July Year 7. Its net realizable value at 1 January Year 7 will be ₦140,000, but by 1 July Year 7, it will be ₦30,000.
  2. Some redundancies will result from the change of products. Redundancy payments of ₦40,000 will be made if the changeover occurs on 1 January, but these will rise to ₦50,000 by 1 July. The five administration workers concerned are each paid ₦20,000 per annum and will not be replaced. Their wages are not included in the costs given above.

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  • 15 Marks

PM – May 2024 – L2 – SC – Q7 – Cost-Volume-Profit (CVP) Analysis

Analysis of production constraints to determine optimal production levels and profit maximization using contribution analysis.

Jumbo Tailors Nigeria Limited manufactures three unique wears for which the maximum revenue for the coming year is estimated as follows:

Product Estimated Revenue (₦)
Trousers 8,250,000
Jackets 9,880,000
Skirts 12,390,000

Summarized unit cost data are as follows:

Product Direct Material (₦) Direct Labour (₦) Variable Costs (₦) Fixed Costs (₦)
Trousers 1,000 500 800 250
Jackets 900 450 1,600 500
Skirts 700 350 1,000 400

The allocation of fixed costs was derived from last year’s production level and may be reviewed if current output plans differ.

Estimated Selling Prices:

  • Trousers: ₦3,300
  • Jackets: ₦3,800
  • Skirts: ₦2,950

The products are processed on sewing machines housed in three blocks. Block A contains type I machines, with an estimated maximum machine hour capacity of 39,200 hours and a fixed overhead cost of ₦1,960,000 per annum. Block B contains type II machines, with 20,000 machine hours available and a fixed overhead cost of ₦1,500,000 per annum. Block C also contains type II machines, with 16,000 machine hours available and a fixed overhead cost of ₦740,000 per annum.

The required machine hours per unit of output for each product on each machine type are as follows:

Product Type I Machine (hours) Type II Machine (hours)
Trousers 2 3
Jackets 4 6
Skirts 6 2

Required:
a. Determine the optimal production plan which Jumbo Tailors Nigeria Limited should adopt. (12 Marks)
b. Calculate the total profit that would be made if the production plan in (a) above is adopted. (3 Marks)

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  • 30 Marks

PM – May 2024 – L2 – SA – Q1 – Costing Systems and Techniques

Calculation of machine utilization rates, identification of bottlenecks, and application of throughput accounting.

Tani Kamac (TK) makes three products A, B, and C. All three products must be offered for sale each month to provide a complete market service. The products are fragile, and their quality deteriorates rapidly once they are manufactured. The products are produced on two types of machines and worked on by a single grade of direct labor. Five direct employees are paid ₦80 per hour for a guaranteed minimum of 160 hours each per month. All products are first molded on machine type 1 and then finished and sealed on machine type 2. The machine hours required for each product are as follows:

Product A (hrs/unit) Product B (hrs/unit) Product C (hrs/unit)
Machine 1 1.5 4.5 3.0
Machine 2 1.0 2.5 2.0

The capacity of machine type 1 is 600 hours per month, and machine type 2 is 500 hours per month.

Additional details:

Product A Product B Product C
Selling Price (₦) 910 1,740 1,400
Component Cost (₦) 220 190 160
Other Direct Material Cost (₦) 230 110 140
Direct Labor Cost at ₦80/hr 60 480 360
Overheads (₦) 240 620 520
Profit (₦) 160 340 220
Maximum Monthly Demand (units) 120 70 60

TK uses marginal costing and contribution analysis for decision-making, while profits are reported using absorption costing.

Required:
a. Calculate the machine utilization rate per month for each machine and explain which of the machines is the bottleneck/limiting factor. (4 Marks)
b. Using the current system of marginal and contribution analysis, calculate the profit-maximizing monthly output of the three products. (4 Marks)
c. Explain why throughput accounting might provide more relevant information in TK’s circumstances. (6 Marks)
d. Using a throughput approach, calculate the throughput-maximizing monthly output of the three products. (5 Marks)
e. Explain the throughput accounting approach to optimizing inventory and its valuation. Contrast this approach to the current system used by TK. (5 Marks)
f. Explain the importance of identifying scarce resources when preparing budgets and the use of linear programming to determine the optimum use of resources. (6 Marks)

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  • 30 Marks

PM – Nov 2016 – L2 – Q1 – Decision Making Techniques

Evaluate profit maximization, machine bottlenecks, and inventory valuation using marginal and throughput accounting approaches.

Hicenta Limited makes three products Soyi, Milco and Yoghurt. All the three
products must be offered for sale each month in order to provide a complete
market service. The products are fragile and their quality deteriorates rapidly
shortly after production.
The products are produced on two types of machine and worked on by a single
grade of direct labour. Fifty direct employees are paid N80 per hour for a
guaranteed minimum of 160 hours per month.
All the products are first pasteurised on a machine type A and then finished
and sealed on a machine type B.
The machine hour requirements for each of the products are as follows:

Machine Information:

Machine Type Product Hours per Unit
Machine A Soyi 1.5
Machine A Milco 4.5
Machine A Yoghurt 3.0
Machine B Soyi 1.0
Machine B Milco 2.5
Machine B Yoghurt 2.0

The capacity of the available machines type A and B are 6,000 hours and 5,000
hours per month respectively. Details of the selling prices, unit costs and
monthly demand for the three products are as follows:

Product Costs and Demand:

Product Selling Price (N per unit) Concentrate Cost (N per unit) Other Direct Material Cost (N per unit) Direct Labour Cost (N per unit) Overheads (N per unit) Profit (N per unit) Maximum Monthly Demand (units)
Soyi 910 220 230 60 240 160 1,200
Milco 1,740 190 110 480 620 340 700
Yoghurt 1,400 160 140 360 520 220 600

Although, Hicenta Limited uses marginal costing and contribution analysis as
the basis for its decision making activities, profits are reported in the monthly
management accounts using the absorption costing basis. Finished goods
inventories are valued in the monthly management accounts at full absorption
cost.
You are required to:

a. Calculate the monthly machine utilisation rate for each product and
explain which of the machines is the bottleneck/limiting factor.
(6 Marks)
b. Use current system of marginal costing and contribution analysis to
calculate the profit maximising monthly output of the three products.
(6 Marks)
c. Explain why throughput accounting might provide more relevant
information in Hicenta‟s circumstances. (6 Marks)
d. Use a throughput approach to calculate the throughput-maximising
monthly output of the three products. (6 Marks)
e. Explain the throughput accounting approach to optimizing the level of
inventory and its valuation. Contrast this approach to the current system
employed by Hicenta. (6 Marks)

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  • 30 Marks

PM – Nov 2021 – L2 – Q1 – Budgeting and Budgetary Control

Explore material input constraints, determine optimal production, and evaluate outsourcing and penalties for non-fulfillment of orders.

Kikelomo Limited manufactures three products K, T, and F, using different quantities of the same resources. Budget information per unit is provided:

K T F
Market selling price 1,800 2,520 3,000
Direct labour (₦140/hour) 280 560 700
Material A (₦60/kg) 300 240 420
Material B (₦120/kg) 480 720 600
Variable overhead (₦80/hour) 160 320 400
Fixed overhead 240 140 240
Total cost 1,460 1,980 2,360
Profit 340 540 640
Total budgeted sales units 500 800 1,600

The budgeted sales are for the month of June but do not include an order from a major customer to supply 400 units per month of each of the three products at a discount of ₦200 per unit. During June, management anticipates a shortage of material B, with only 17,500 kgs available. Kikelomo Ltd cannot hold inventory of raw materials, work-in-progress, or finished products.

Required:
a. State THREE factors that may cause input materials to be a budget constraint and identify steps to overcome this constraint. (6 Marks)
b. Prepare calculations to show production that will maximise Kikelomo Ltd’s profit for June. (9 Marks)
c. Kikelomo Ltd has realised that the contract with the major customer does not have to be fully met, but a financial penalty may apply. Calculate the lowest value of the financial penalty to ensure the order is met in full. (6 Marks)
d. Assume the material B shortage will continue and management has decided to outsource some production. Advise management on the advantages and disadvantages of outsourcing. (9 Marks)

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  • 15 Marks

PM – May 2018 – L2 – Q5 – Strategic Management Accounting

Determine the optimal production plan for Classic Wears Plc. and calculate the total profit.

Classic Wears Plc. manufactures three unique jeans wears for which the maximum
revenue for the coming year is estimated as follows:

 

summarised unit cost data are as follows:

 

 

The products are processed on sewing machines housed in a building of three blocks.
Block A contains type I machine which has an estimated maximum of 19,600 machine
hours available in the forthcoming year with fixed overhead cost of N980,000 per
annum.
Block B contains type II machine of which 10,000 machine hours are estimated in the
forthcoming year with a fixed overhead cost of N750,000 per annum.
Block C also contains type II machine which also has an estimate of 8,000 machine
hours available in the forthcoming year. The fixed overhead cost of N370,000 is
estimated per annum for Block C.
The required machine hours for one unit of output for each Jeans on each type of
machine are as follows:

 

 

You are required to:
a. Determine the optimal production plan which Classic Wears Limited should
adopt. (12 Marks)
b. Calculate the total profit that would be made, if the production plan in (a)
above is adopted. (3 Marks)

 

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  • 1 Marks

MI – May 2016 – L1 – SA – Q4 – Cost-Volume-Profit (CVP) Analysis

Identify the conditions under which total contributions equal units sold multiplied by contribution per unit.

The formula which states that total contributions equal units of sales multiplied by contribution per unit is correct if the selling price:

A. And fixed cost are constant
B. And variable cost are constant
C. Varies and variable cost is constant
D. Varies and fixed cost is constant
E. And variable cost vary

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  • 15 Marks

PM – May 2015 – L2 – SB – Q6 – Costing Systems and Techniques-

Determine the most profitable product mix for Markus Limited, and prepare a profitability statement for the optimal product mix.

Markus Limited manufactures three products and operates a marginal costing system.

The following information has been extracted from the company’s records:

Products X Y Z
Units budgeted to be produced and sold 3,600 6,000 3,400
Selling Price (₦) 120 110 100
Requirement per Unit:
Direct Material (kg) 5 3 4
Direct Labour (Hours) 4 3 2
Direct Labour Hour rate (₦) 4 4 4
Direct Material Cost per Kg (₦) 8 8 8
Variable Overheads (₦) 14 26 16
Fixed Overheads (₦) 20 20 20
Maximum possible sales (units) 8,000 10,000 3,000

All the three products are produced from the same direct material using the same types of machine and labour. Direct labour, which is the key factor, is limited to 37,200 hours.

Required: a. Determine the most profitable product mix. (6 Marks)
b. Prepare a statement of profitability for the product mix. (9 Marks)

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  • 20 Marks

PM – May 2021 – L2 – Q2 – Budgeting and Budgetary Control

Recommend the appropriate forecast for PQR Plc, analyze the limiting factor, and explain the budgeting process.

PQR Plc is preparing its budgets for the upcoming year and has forecasted two demand scenarios for its product range:

You are to assume only one forecast (either Forecast 1 or Forecast 2) will be selected. The expected variable unit costs for each product are:

The general fixed costs are budgeted at ₦20,000 for the year, with no specific fixed costs expected per product. Additionally, all three products use the same direct material, with a limited supply of 22,020 kgs available for the budget year.

Required:
a. Recommend, with supporting calculations, whether forecast 1 or forecast 2 should be adopted for the budget period. (11 Marks)
b. Prepare a report, addressed to the managing director, to explain the budget preparation process, with particular reference to: i. The principal budget factor (3 Marks)
ii. The budget manual (3 Marks)
iii. The role of the budget committee (3 Marks)

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  • 15 Marks

PM – Nov 2014 – L2 – Q7 – Decision-Making Techniques

Analyze profit for Omola Industries under various price and demand forecasts for a new product based on market research.

Omola Industries Limited is introducing a new product. The original information, available to the company from its archive, suggests that the product will sell for N190 per unit. Other information from the initial source is as follows:

  • Variable cost per unit: N100
  • Fixed cost: N20,000,000
  • Annual production and sales estimate: 700,000 units

To source credible information, the board inaugurated a market research team to assess sales volume, sales price, and variable cost. The research results are as follows:

  1. Selling Price Regimes: N180, N190, and N200
  2. Sales Demand Forecasts: Provided with pessimistic, most likely, and optimistic forecasts, along with subjective probabilities.

The company also committed to an annual contract cost of N5,000,000.

Required:

(a) Compute the initial profit achievable by the company. (2 Marks)

(b) Calculate the profit achievable under the three price scenarios based on the credible information. (7 Marks)

(c) Determine the value of the new information obtained from market research. (3 Marks)

(d) Identify three other sources of information available to an organization. (3 Marks)

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  • 15 Marks

PM – Nov 2015 – L2 – Q6 – Decision-Making Techniques

Evaluate whether Tee Company should replace Green with Brace and the best timing for changeover.

Tee Company makes and sells a product, the Green, which is nearing the end of its life. A replacement product, Brace, has been designed and test marketed, and the company is trying to decide when to replace Green with Brace. Tee Company only has the capability to produce one of the two products at a time.

Sales of Green are expected to be 100,000 units in the first quarter of Year 7 and are forecast to fall after that so that each quarter’s sales will be 10% less than those of the previous quarter. Green has a selling price of ₦14 per unit, and its Contribution to Sales ratio (C/S ratio) is 40%. The fixed costs of making Green in Year 7 will be ₦200,000 per quarter.

Test market results for Brace were very good, and demand for similar products is growing rapidly. Tee Company believes that sales of Brace can be predicted by the following equation:

Y = 80,000 + 6,000 T

Where:

  • Y = Sales of Brace in units per quarter
  • T = Time, measured in quarters. For the first quarter of Year 7 (January to March Year 7), T = 1; for the second quarter of Year 7, T = 2; etc.

The selling price of Brace will be ₦16, and its contribution per unit will be ₦6. Fixed costs will increase to ₦240,000 per quarter if Green is replaced by Brace.

To avoid disruption of the production of Tee’s other products, the changeover between Green and Brace must take place on either 1 January Year 7 or 1 July Year 7. The costs of changeover will differ depending upon which date is chosen, and the following information is available:

  1. Some of the machinery used to make the Green will no longer be required for the Brace. The written-down value of this machinery will be ₦250,000 on 1 January Year 7, and ₦220,000 by 1 July Year 7. Its net realizable value at 1 January Year 7 will be ₦140,000, but by 1 July Year 7, it will be ₦30,000.
  2. Some redundancies will result from the change of products. Redundancy payments of ₦40,000 will be made if the changeover occurs on 1 January, but these will rise to ₦50,000 by 1 July. The five administration workers concerned are each paid ₦20,000 per annum and will not be replaced. Their wages are not included in the costs given above.

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  • 15 Marks

PM – May 2024 – L2 – SC – Q7 – Cost-Volume-Profit (CVP) Analysis

Analysis of production constraints to determine optimal production levels and profit maximization using contribution analysis.

Jumbo Tailors Nigeria Limited manufactures three unique wears for which the maximum revenue for the coming year is estimated as follows:

Product Estimated Revenue (₦)
Trousers 8,250,000
Jackets 9,880,000
Skirts 12,390,000

Summarized unit cost data are as follows:

Product Direct Material (₦) Direct Labour (₦) Variable Costs (₦) Fixed Costs (₦)
Trousers 1,000 500 800 250
Jackets 900 450 1,600 500
Skirts 700 350 1,000 400

The allocation of fixed costs was derived from last year’s production level and may be reviewed if current output plans differ.

Estimated Selling Prices:

  • Trousers: ₦3,300
  • Jackets: ₦3,800
  • Skirts: ₦2,950

The products are processed on sewing machines housed in three blocks. Block A contains type I machines, with an estimated maximum machine hour capacity of 39,200 hours and a fixed overhead cost of ₦1,960,000 per annum. Block B contains type II machines, with 20,000 machine hours available and a fixed overhead cost of ₦1,500,000 per annum. Block C also contains type II machines, with 16,000 machine hours available and a fixed overhead cost of ₦740,000 per annum.

The required machine hours per unit of output for each product on each machine type are as follows:

Product Type I Machine (hours) Type II Machine (hours)
Trousers 2 3
Jackets 4 6
Skirts 6 2

Required:
a. Determine the optimal production plan which Jumbo Tailors Nigeria Limited should adopt. (12 Marks)
b. Calculate the total profit that would be made if the production plan in (a) above is adopted. (3 Marks)

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  • 30 Marks

PM – May 2024 – L2 – SA – Q1 – Costing Systems and Techniques

Calculation of machine utilization rates, identification of bottlenecks, and application of throughput accounting.

Tani Kamac (TK) makes three products A, B, and C. All three products must be offered for sale each month to provide a complete market service. The products are fragile, and their quality deteriorates rapidly once they are manufactured. The products are produced on two types of machines and worked on by a single grade of direct labor. Five direct employees are paid ₦80 per hour for a guaranteed minimum of 160 hours each per month. All products are first molded on machine type 1 and then finished and sealed on machine type 2. The machine hours required for each product are as follows:

Product A (hrs/unit) Product B (hrs/unit) Product C (hrs/unit)
Machine 1 1.5 4.5 3.0
Machine 2 1.0 2.5 2.0

The capacity of machine type 1 is 600 hours per month, and machine type 2 is 500 hours per month.

Additional details:

Product A Product B Product C
Selling Price (₦) 910 1,740 1,400
Component Cost (₦) 220 190 160
Other Direct Material Cost (₦) 230 110 140
Direct Labor Cost at ₦80/hr 60 480 360
Overheads (₦) 240 620 520
Profit (₦) 160 340 220
Maximum Monthly Demand (units) 120 70 60

TK uses marginal costing and contribution analysis for decision-making, while profits are reported using absorption costing.

Required:
a. Calculate the machine utilization rate per month for each machine and explain which of the machines is the bottleneck/limiting factor. (4 Marks)
b. Using the current system of marginal and contribution analysis, calculate the profit-maximizing monthly output of the three products. (4 Marks)
c. Explain why throughput accounting might provide more relevant information in TK’s circumstances. (6 Marks)
d. Using a throughput approach, calculate the throughput-maximizing monthly output of the three products. (5 Marks)
e. Explain the throughput accounting approach to optimizing inventory and its valuation. Contrast this approach to the current system used by TK. (5 Marks)
f. Explain the importance of identifying scarce resources when preparing budgets and the use of linear programming to determine the optimum use of resources. (6 Marks)

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  • 30 Marks

PM – Nov 2016 – L2 – Q1 – Decision Making Techniques

Evaluate profit maximization, machine bottlenecks, and inventory valuation using marginal and throughput accounting approaches.

Hicenta Limited makes three products Soyi, Milco and Yoghurt. All the three
products must be offered for sale each month in order to provide a complete
market service. The products are fragile and their quality deteriorates rapidly
shortly after production.
The products are produced on two types of machine and worked on by a single
grade of direct labour. Fifty direct employees are paid N80 per hour for a
guaranteed minimum of 160 hours per month.
All the products are first pasteurised on a machine type A and then finished
and sealed on a machine type B.
The machine hour requirements for each of the products are as follows:

Machine Information:

Machine Type Product Hours per Unit
Machine A Soyi 1.5
Machine A Milco 4.5
Machine A Yoghurt 3.0
Machine B Soyi 1.0
Machine B Milco 2.5
Machine B Yoghurt 2.0

The capacity of the available machines type A and B are 6,000 hours and 5,000
hours per month respectively. Details of the selling prices, unit costs and
monthly demand for the three products are as follows:

Product Costs and Demand:

Product Selling Price (N per unit) Concentrate Cost (N per unit) Other Direct Material Cost (N per unit) Direct Labour Cost (N per unit) Overheads (N per unit) Profit (N per unit) Maximum Monthly Demand (units)
Soyi 910 220 230 60 240 160 1,200
Milco 1,740 190 110 480 620 340 700
Yoghurt 1,400 160 140 360 520 220 600

Although, Hicenta Limited uses marginal costing and contribution analysis as
the basis for its decision making activities, profits are reported in the monthly
management accounts using the absorption costing basis. Finished goods
inventories are valued in the monthly management accounts at full absorption
cost.
You are required to:

a. Calculate the monthly machine utilisation rate for each product and
explain which of the machines is the bottleneck/limiting factor.
(6 Marks)
b. Use current system of marginal costing and contribution analysis to
calculate the profit maximising monthly output of the three products.
(6 Marks)
c. Explain why throughput accounting might provide more relevant
information in Hicenta‟s circumstances. (6 Marks)
d. Use a throughput approach to calculate the throughput-maximising
monthly output of the three products. (6 Marks)
e. Explain the throughput accounting approach to optimizing the level of
inventory and its valuation. Contrast this approach to the current system
employed by Hicenta. (6 Marks)

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  • 30 Marks

PM – Nov 2021 – L2 – Q1 – Budgeting and Budgetary Control

Explore material input constraints, determine optimal production, and evaluate outsourcing and penalties for non-fulfillment of orders.

Kikelomo Limited manufactures three products K, T, and F, using different quantities of the same resources. Budget information per unit is provided:

K T F
Market selling price 1,800 2,520 3,000
Direct labour (₦140/hour) 280 560 700
Material A (₦60/kg) 300 240 420
Material B (₦120/kg) 480 720 600
Variable overhead (₦80/hour) 160 320 400
Fixed overhead 240 140 240
Total cost 1,460 1,980 2,360
Profit 340 540 640
Total budgeted sales units 500 800 1,600

The budgeted sales are for the month of June but do not include an order from a major customer to supply 400 units per month of each of the three products at a discount of ₦200 per unit. During June, management anticipates a shortage of material B, with only 17,500 kgs available. Kikelomo Ltd cannot hold inventory of raw materials, work-in-progress, or finished products.

Required:
a. State THREE factors that may cause input materials to be a budget constraint and identify steps to overcome this constraint. (6 Marks)
b. Prepare calculations to show production that will maximise Kikelomo Ltd’s profit for June. (9 Marks)
c. Kikelomo Ltd has realised that the contract with the major customer does not have to be fully met, but a financial penalty may apply. Calculate the lowest value of the financial penalty to ensure the order is met in full. (6 Marks)
d. Assume the material B shortage will continue and management has decided to outsource some production. Advise management on the advantages and disadvantages of outsourcing. (9 Marks)

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  • 15 Marks

PM – May 2018 – L2 – Q5 – Strategic Management Accounting

Determine the optimal production plan for Classic Wears Plc. and calculate the total profit.

Classic Wears Plc. manufactures three unique jeans wears for which the maximum
revenue for the coming year is estimated as follows:

 

summarised unit cost data are as follows:

 

 

The products are processed on sewing machines housed in a building of three blocks.
Block A contains type I machine which has an estimated maximum of 19,600 machine
hours available in the forthcoming year with fixed overhead cost of N980,000 per
annum.
Block B contains type II machine of which 10,000 machine hours are estimated in the
forthcoming year with a fixed overhead cost of N750,000 per annum.
Block C also contains type II machine which also has an estimate of 8,000 machine
hours available in the forthcoming year. The fixed overhead cost of N370,000 is
estimated per annum for Block C.
The required machine hours for one unit of output for each Jeans on each type of
machine are as follows:

 

 

You are required to:
a. Determine the optimal production plan which Classic Wears Limited should
adopt. (12 Marks)
b. Calculate the total profit that would be made, if the production plan in (a)
above is adopted. (3 Marks)

 

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  • 1 Marks

MI – May 2016 – L1 – SA – Q4 – Cost-Volume-Profit (CVP) Analysis

Identify the conditions under which total contributions equal units sold multiplied by contribution per unit.

The formula which states that total contributions equal units of sales multiplied by contribution per unit is correct if the selling price:

A. And fixed cost are constant
B. And variable cost are constant
C. Varies and variable cost is constant
D. Varies and fixed cost is constant
E. And variable cost vary

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