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- 15 Marks
MA – May 2017 – L2 – Q4a – Relevant cost and revenue, Decision making techniques
Advise on the selection of a camp meeting venue using relevant costing.
Question
Straight-to-Heaven Church is planning its annual camp meeting in December 2017. The church has four branches, and the annual camp meeting is the first major program after all the head pastors attended a leadership conference on the theme “Blending faith and Science in Church Decision Making.”
The General Overseer of the church wishes to apply the scientific principles learned at the conference in deciding between two major venues for the 2017 annual camp meeting. Hitherto, the General Overseer or his wife would veto where annual camp meetings are held. The following information is relevant for the decision:
- Seven pastors will facilitate the camp meeting. ‘Food 4 All’ restaurant will be assigned the responsibility of providing food for the pastors. They have indicated that a meal for a pastor would cost GH¢5. This cost is expected to increase by one-half if a pastor attends the camp with his wife. All pastors will be fed three times daily, but only three pastors plan to attend the conference with their wives. Church members will take care of their own feeding, but all camp expenses of pastors will be borne by church members.
- Water to be served at the camp meeting: 100 bags of sachet water at GH¢2 each and 25 boxes of 750ml bottled water at GH¢13 per box.
- The church plans to either have the conference at Ahayede (A) or Bonebon (B) camp sites. Accommodation cost per head per day at Ahayede is GH¢2 for the first 400 participants and GH¢1.5 for any additional participant. Bonebon will not charge any fee, but the church will have to show appreciation, which will be in the neighborhood of GH¢2,000 after the camp.
- Ahayede Campsite will require the payment of electricity and water bills of GH¢300 and GH¢500, respectively.
- It is expected that 96 liters of fuel at GH¢3.12 per liter will be needed at Bonebon campsite.
- Transportation cost for chairs and canopies will be GH¢400 if the camp is undertaken at Ahayede and GH¢300 if the camp is sited at Bonebon. Each church member’s transportation cost will be GH¢3 if Ahayede is chosen as the venue, but this figure is expected to double if the camp is taken to Bonebon.
- Pastors’ appreciation: Apart from the General Pastor, who will receive GH¢500, each pastor will receive GH¢300 as appreciation support.
- The church plans that 700 church members and pastors will take part in the annual camp meeting if it is undertaken at Bonebon, while 500 members will attend the camp if it is held at Ahayede, even though the two camp sites can each take 1,000 people. The camp will last for 5 days.
Required:
i) Using relevant costing, advise management of the church on the site they should hold the annual camp meeting.
(8 marks)
ii) Suggest TWO qualitative factors that should be considered in deciding on the venue. (4 marks)
iii) Explain the term “sunk costs” and identify THREE examples of sunk costs. (3 marks)
Find Related Questions by Tags, levels, etc.
- Tags: Cost Analysis, Cost comparison, Decision Making, Event planning, Relevant Costing
- Level: Level 2
- Topic: Decision making techniques, Relevant Cost and Revenue
- Series: MAY 2017
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- 14 Marks
FM – Nov 2020 – L2 – Q5a – Management of receivables and payables
Compare the costs of factoring vs. bank financing for receivables management and advise on the best option.
Question
Pee Ltd has been factoring its debtors for the past 5 years. The factor charges a fee of 2% and will lend up to 80% of the volume of debtors purchases for an additional ¾% per month. The firm typically has sales of GH¢500,000 per month, 70% of which are on credit. By using the factor, two savings are effected:
- GH¢2,000 per month that would be required to support a credit department, and
- A bad-debt expense of 1% on credit sales.
Pee Ltd’s bank has recently offered to lend it up to 80% of the face value of the debtors shown on the schedule of accounts. The bank would charge 8% per annum interest plus a 2% processing charge per GH¢1 of debtors lending. The firm extends terms of net 30, and all customers who pay their bills do so by the thirtieth of the month.
Required:
If the firm borrows on the average GH¢100,000 per month on its debtors, advise whether the firm should discontinue its factoring arrangement in favor of the bank’s offer.
Find Related Questions by Tags, levels, etc.
- Tags: Bank financing, Cost comparison, Factoring, Receivables Management
- Level: Level 2
- Topic: Management of receivables and payables
- Series: NOV 2020
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- 15 Marks
MA – May 2017 – L2 – Q4a – Relevant cost and revenue, Decision making techniques
Advise on the selection of a camp meeting venue using relevant costing.
Question
Straight-to-Heaven Church is planning its annual camp meeting in December 2017. The church has four branches, and the annual camp meeting is the first major program after all the head pastors attended a leadership conference on the theme “Blending faith and Science in Church Decision Making.”
The General Overseer of the church wishes to apply the scientific principles learned at the conference in deciding between two major venues for the 2017 annual camp meeting. Hitherto, the General Overseer or his wife would veto where annual camp meetings are held. The following information is relevant for the decision:
- Seven pastors will facilitate the camp meeting. ‘Food 4 All’ restaurant will be assigned the responsibility of providing food for the pastors. They have indicated that a meal for a pastor would cost GH¢5. This cost is expected to increase by one-half if a pastor attends the camp with his wife. All pastors will be fed three times daily, but only three pastors plan to attend the conference with their wives. Church members will take care of their own feeding, but all camp expenses of pastors will be borne by church members.
- Water to be served at the camp meeting: 100 bags of sachet water at GH¢2 each and 25 boxes of 750ml bottled water at GH¢13 per box.
- The church plans to either have the conference at Ahayede (A) or Bonebon (B) camp sites. Accommodation cost per head per day at Ahayede is GH¢2 for the first 400 participants and GH¢1.5 for any additional participant. Bonebon will not charge any fee, but the church will have to show appreciation, which will be in the neighborhood of GH¢2,000 after the camp.
- Ahayede Campsite will require the payment of electricity and water bills of GH¢300 and GH¢500, respectively.
- It is expected that 96 liters of fuel at GH¢3.12 per liter will be needed at Bonebon campsite.
- Transportation cost for chairs and canopies will be GH¢400 if the camp is undertaken at Ahayede and GH¢300 if the camp is sited at Bonebon. Each church member’s transportation cost will be GH¢3 if Ahayede is chosen as the venue, but this figure is expected to double if the camp is taken to Bonebon.
- Pastors’ appreciation: Apart from the General Pastor, who will receive GH¢500, each pastor will receive GH¢300 as appreciation support.
- The church plans that 700 church members and pastors will take part in the annual camp meeting if it is undertaken at Bonebon, while 500 members will attend the camp if it is held at Ahayede, even though the two camp sites can each take 1,000 people. The camp will last for 5 days.
Required:
i) Using relevant costing, advise management of the church on the site they should hold the annual camp meeting.
(8 marks)
ii) Suggest TWO qualitative factors that should be considered in deciding on the venue. (4 marks)
iii) Explain the term “sunk costs” and identify THREE examples of sunk costs. (3 marks)
Find Related Questions by Tags, levels, etc.
- Tags: Cost Analysis, Cost comparison, Decision Making, Event planning, Relevant Costing
- Level: Level 2
- Topic: Decision making techniques, Relevant Cost and Revenue
- Series: MAY 2017
Report an error
- 14 Marks
FM – Nov 2020 – L2 – Q5a – Management of receivables and payables
Compare the costs of factoring vs. bank financing for receivables management and advise on the best option.
Question
Pee Ltd has been factoring its debtors for the past 5 years. The factor charges a fee of 2% and will lend up to 80% of the volume of debtors purchases for an additional ¾% per month. The firm typically has sales of GH¢500,000 per month, 70% of which are on credit. By using the factor, two savings are effected:
- GH¢2,000 per month that would be required to support a credit department, and
- A bad-debt expense of 1% on credit sales.
Pee Ltd’s bank has recently offered to lend it up to 80% of the face value of the debtors shown on the schedule of accounts. The bank would charge 8% per annum interest plus a 2% processing charge per GH¢1 of debtors lending. The firm extends terms of net 30, and all customers who pay their bills do so by the thirtieth of the month.
Required:
If the firm borrows on the average GH¢100,000 per month on its debtors, advise whether the firm should discontinue its factoring arrangement in favor of the bank’s offer.
Find Related Questions by Tags, levels, etc.
- Tags: Bank financing, Cost comparison, Factoring, Receivables Management
- Level: Level 2
- Topic: Management of receivables and payables
- Series: NOV 2020
Report an error