Find Related Questions by Tags, levels, etc.
Adelab Nigeria Limited is a manufacturer of industrial gear. Over the years, the company has collected, allocated and absorbed overhead cost based on the traditional absorption costing technique.
The current economic recession in the country and stiff competition in the market are seriously affecting the company’s performance and market share as its competitors have in recent times, introduced discounts to their customers. The customers of Adelab have therefore been putting pressure on the company to follow suit and few of these customers have started patronising the company’s competitors who offer discounts on every purchase.
To address these problems and other strategic and operational issues affecting the company, the Board of Directors of Adelab decided recently to appoint a seasoned management expert as Business Process Executive (BPE). The BPE recently advised the Board to organise a management retreat. The focus of the retreat is strategic management, cost control and performance management. During the course of the retreat, new costing techniques such as activity based management, life cycle costing, target costing, Kaizen costing, throughput accounting, backflush accounting, just in time approach to inventory management, etc., were discussed by the BPE. The need to also consider both financial and non-financial performance measurements was also discussed. The BPE further highlighted the need for the company to link its Key Performance Indicators (KPIs) to its strategic and operational Critical Success Factors (CSF), to achieve a better focus and improve its financial performance.
In a board meeting after the retreat, the following discussions took place:
Technical Director: “To improve our financial performance I think I will have to agree
with the BPE‟s submission at the retreat that we replace absorption costing approach
with an Activity Based Costing (ABC) system. I believe this will help us to put a tap on
cost and thus improve cost control and increase profit margins. We can then pass
some of these costs reduction to our customers in form of discounts”.
Managing Director: “Yes, I agree with your opinion but I also think we need to
monitor our performance in both financial and non-financial terms. For example, loss
of sales could be due to charging a higher price than our competitors and as well as
producing bad quality product. I therefore think that, while we should consider
introducing activity based costing, we should also consider ways in which the
company could monitor and assess performance on a wider basis”.
You are required to:
a. Describe FIVE key features of Activity Based Costing (ABC) and provide SIX advantages and FOUR disadvantages of adopting Activity Based Costing (ABC) approach to cost accumulation. (10 Marks)
b. Explain the need for the measurement of organisational and managerial performance giving examples of the range of financial and non-financial performance measures that might be used. (10 Marks)
Find Related Questions by Tags, levels, etc.
Which of the following is NOT part of the main purposes of cost codes?
A. Reduces clerical work
B. Facilitates electronic data processing
C. Facilitates a good costing system
D. Facilitates logical and systematic arrangement of costing records
E. Facilitates control
Find Related Questions by Tags, levels, etc.
Find Related Questions by Tags, levels, etc.
Find Related Questions by Tags, levels, etc.
Tsekpo produces strong and affordable doors for the Ghanaian market. The company has been operating for the past five years from its manufacturing base at Tafo.
During the year under consideration, Tsekpo invested in a new information technology system in order to improve its management accounting information. Unfortunately, there have been problems with the software since its acquisition. The standard cost card, which provides details of the standard production cost to make one door, has been lost and the company is unable to prepare its budget for the year ahead.
The Management Accountant has retrieved some information relating to actual costs and variances for the year. The budgeted production for the year was 21,000 doors. Other relevant information is shown below:
Actual Costs:
Cost Element Actual Quantity Amount (GH¢)
Direct material costs (16,200 sq. m) 16,200 sq. m 81,000
Direct labour costs (8,640 hours) 8,640 hours 108,864
Variable production overhead costs N/A 54,000
Fixed production overhead costs N/A 85,200
Variances:
Direct material price variance: GH¢4,050 (Favorable)
Direct material usage variance: GH¢5,670 (Favorable)
Direct labour rate variance: GH¢864 (Favorable)
Direct labour efficiency variance: GH¢27,432 (Favorable)
Variable production overhead expenditure variance: GH¢432 (Adverse)
Variable production overhead efficiency variance: GH¢13,392 (Favorable)
Fixed production overhead expenditure variance: GH¢3,775 (Adverse)
Additional Information:
Actual production was 600 doors above the budgeted level.
Tsekpo operates a standard variable costing system.
Required:
Using the information provided, prepare the standard cost card for the production of one door.
Find Related Questions by Tags, levels, etc.
Presented below are the common-sized financial statements of Towobo Ltd over the last five years:
Vertical Common-Sized Statements of Profit or Loss for the Years Ended 31 December
| % | 2022 | 2021 | 2020 | 2019 | 2018 |
|---|---|---|---|---|---|
| Revenue | 100.00 | 100.00 | 100.00 | 100.00 | 100.00 |
| Cost of sales | (88.58) | (85.45) | (84.92) | (87.36) | (92.70) |
| Gross profit | 11.42 | 14.55 | 15.08 | 12.64 | 7.30 |
| Distribution & marketing costs | (1.00) | (0.86) | (0.83) | (1.15) | (0.87) |
| Administrative expenses | (0.74) | (0.79) | (0.88) | (0.85) | (0.73) |
| Other operating income | 2.06 | 1.78 | 0.77 | 0.58 | 0.69 |
| Other operating expenses | (1.36) | (0.86) | (1.21) | (1.20) | (0.94) |
| Profit from operations | 10.38 | 13.82 | 12.93 | 10.02 | 5.45 |
| Finance cost | (0.02) | (0.04) | (0.02) | (0.05) | (0.10) |
| Profit before tax | 10.36 | 13.78 | 12.92 | 9.97 | 5.35 |
| Tax | (3.25) | (3.98) | (4.05) | (3.25) | (2.61) |
| Profit after tax | 7.11 | 9.80 | 8.86 | 6.72 | 2.74 |
Vertical Common-Sized Statements of Financial Position as at 31 December
| % | 2022 | 2021 | 2020 | 2019 | 2018 |
|---|---|---|---|---|---|
| Non-current assets | |||||
| Property, plant & equipment | 8.49 | 8.55 | 15.50 | 20.27 | 23.33 |
| Intangible assets | 0.52 | 0.72 | 0.44 | 0.51 | 0.70 |
| Capital work-in-progress | 0.13 | 0.39 | 7.39 | 0.28 | 0.66 |
| Long-term loans & advances | 0.33 | 0.22 | 0.52 | 3.20 | 3.65 |
| Total non-current assets | 9.47 | 9.88 | 23.85 | 24.26 | 28.31 |
| Current assets | |||||
| Inventories | 14.20 | 13.19 | 25.51 | 40.61 | 32.25 |
| Receivables | 0.16 | 0.09 | 0.53 | 0.32 | – |
| Prepayments, advances, & other receivables | 22.33 | 17.65 | 6.21 | 10.69 | 20.33 |
| Short-term investments | 35.15 | 40.67 | 7.10 | – | – |
| Cash and bank balances | 18.69 | 18.52 | 36.80 | 24.12 | 19.11 |
| Total current assets | 90.53 | 90.12 | 76.15 | 75.74 | 71.69 |
| Total assets | 100.00 | 100.00 | 100.00 | 100.00 | 100.00 |
| Equity | |||||
| Issued, subscribed & paid-up capital | 2.43 | 2.77 | 8.81 | 10.25 | 11.59 |
| Retained earnings | 16.50 | 10.69 | 18.24 | 3.78 | 0.62 |
| Other reserves | 10.10 | 11.91 | 21.95 | 22.74 | 7.20 |
| Total equity | 29.03 | 25.37 | 49.00 | 36.77 | 19.41 |
| Non-current liabilities | |||||
| Pensions liabilities | 0.16 | 0.12 | 0.51 | 0.38 | 0.36 |
| Deferred tax | 0.74 | 0.71 | 0.83 | – | – |
| Deferred revenue | 0.02 | 0.02 | 0.06 | 0.08 | 0.10 |
| Total non-current liabilities | 0.92 | 0.85 | 1.40 | 0.46 | 0.46 |
| Current liabilities | |||||
| Trade, dividend & other payables | 70.04 | 73.15 | 49.60 | 62.73 | 80.02 |
| Current portion of deferred revenue | 0.01 | 0.01 | 0.04 | 0.03 | – |
| Income tax | – | 0.62 | – | 0.01 | 0.11 |
| Total current liabilities | 70.05 | 73.78 | 49.60 | 62.77 | 80.13 |
| Total equity & liabilities | 100.00 | 100.00 | 100.00 | 100.00 | 100.00 |
Required:
As the Financial Advisor to ABC Mutual Funds, report on the financial health or otherwise of Towobo Ltd based on the vertically analysed financial statements and advise ABC Mutual Funds on whether to invest in Towobo Ltd. Your report should focus on the profitability and cost control analysis, asset structure, capital structure, and working capital structure.
Find Related Questions by Tags, levels, etc.
Find Related Questions by Tags, levels, etc.
The following information relates to product Jupiter, produced by Bfield Ltd during January. This represents the information that remains after a fire in the premises destroyed most of the accounting records.
| Variances | GH¢ |
|---|---|
| Selling price | 50,000 A |
| Materials price | 28,500 F |
| Materials usage | 7,500 A |
| Labour rate | 18,700 F |
| Labour efficiency | 20,400 A |
Actual data
There was no opening or closing inventories.
Required:
Calculate the following:
i) Standard selling price per unit; (3 marks)
ii) Standard cost of material per kilogram; (3 marks)
iii) Standard kilograms of materials required per unit; (2 marks)
iv) Standard labour rate per hour; (2 marks)
v) Standard hours of labour required per unit. (2 marks)
Find Related Questions by Tags, levels, etc.
Dunning Limited has recently introduced an Activity Based Costing System and has
provided the following details for the month of January:
During the month, 500 units of Product Y were produced. This production run required
100 parts and 150 maintenance hours; 5 material requisitions were made and 10
employees worked on the units.
Required:
i) Using Activity Based Costing, calculate the total amount of overhead absorbed by each
unit of Product Y. (7 marks)
ii) Identify THREE different types of controls and explain how activity based costing assists
in the control of costs?
Find Related Questions by Tags, levels, etc.
Find Related Questions by Tags, levels, etc.
Adelab Nigeria Limited is a manufacturer of industrial gear. Over the years, the company has collected, allocated and absorbed overhead cost based on the traditional absorption costing technique.
The current economic recession in the country and stiff competition in the market are seriously affecting the company’s performance and market share as its competitors have in recent times, introduced discounts to their customers. The customers of Adelab have therefore been putting pressure on the company to follow suit and few of these customers have started patronising the company’s competitors who offer discounts on every purchase.
To address these problems and other strategic and operational issues affecting the company, the Board of Directors of Adelab decided recently to appoint a seasoned management expert as Business Process Executive (BPE). The BPE recently advised the Board to organise a management retreat. The focus of the retreat is strategic management, cost control and performance management. During the course of the retreat, new costing techniques such as activity based management, life cycle costing, target costing, Kaizen costing, throughput accounting, backflush accounting, just in time approach to inventory management, etc., were discussed by the BPE. The need to also consider both financial and non-financial performance measurements was also discussed. The BPE further highlighted the need for the company to link its Key Performance Indicators (KPIs) to its strategic and operational Critical Success Factors (CSF), to achieve a better focus and improve its financial performance.
In a board meeting after the retreat, the following discussions took place:
Technical Director: “To improve our financial performance I think I will have to agree
with the BPE‟s submission at the retreat that we replace absorption costing approach
with an Activity Based Costing (ABC) system. I believe this will help us to put a tap on
cost and thus improve cost control and increase profit margins. We can then pass
some of these costs reduction to our customers in form of discounts”.
Managing Director: “Yes, I agree with your opinion but I also think we need to
monitor our performance in both financial and non-financial terms. For example, loss
of sales could be due to charging a higher price than our competitors and as well as
producing bad quality product. I therefore think that, while we should consider
introducing activity based costing, we should also consider ways in which the
company could monitor and assess performance on a wider basis”.
You are required to:
a. Describe FIVE key features of Activity Based Costing (ABC) and provide SIX advantages and FOUR disadvantages of adopting Activity Based Costing (ABC) approach to cost accumulation. (10 Marks)
b. Explain the need for the measurement of organisational and managerial performance giving examples of the range of financial and non-financial performance measures that might be used. (10 Marks)
Find Related Questions by Tags, levels, etc.
Which of the following is NOT part of the main purposes of cost codes?
A. Reduces clerical work
B. Facilitates electronic data processing
C. Facilitates a good costing system
D. Facilitates logical and systematic arrangement of costing records
E. Facilitates control
Find Related Questions by Tags, levels, etc.
Find Related Questions by Tags, levels, etc.
Find Related Questions by Tags, levels, etc.
Tsekpo produces strong and affordable doors for the Ghanaian market. The company has been operating for the past five years from its manufacturing base at Tafo.
During the year under consideration, Tsekpo invested in a new information technology system in order to improve its management accounting information. Unfortunately, there have been problems with the software since its acquisition. The standard cost card, which provides details of the standard production cost to make one door, has been lost and the company is unable to prepare its budget for the year ahead.
The Management Accountant has retrieved some information relating to actual costs and variances for the year. The budgeted production for the year was 21,000 doors. Other relevant information is shown below:
Actual Costs:
Cost Element Actual Quantity Amount (GH¢)
Direct material costs (16,200 sq. m) 16,200 sq. m 81,000
Direct labour costs (8,640 hours) 8,640 hours 108,864
Variable production overhead costs N/A 54,000
Fixed production overhead costs N/A 85,200
Variances:
Direct material price variance: GH¢4,050 (Favorable)
Direct material usage variance: GH¢5,670 (Favorable)
Direct labour rate variance: GH¢864 (Favorable)
Direct labour efficiency variance: GH¢27,432 (Favorable)
Variable production overhead expenditure variance: GH¢432 (Adverse)
Variable production overhead efficiency variance: GH¢13,392 (Favorable)
Fixed production overhead expenditure variance: GH¢3,775 (Adverse)
Additional Information:
Actual production was 600 doors above the budgeted level.
Tsekpo operates a standard variable costing system.
Required:
Using the information provided, prepare the standard cost card for the production of one door.
Find Related Questions by Tags, levels, etc.
Presented below are the common-sized financial statements of Towobo Ltd over the last five years:
Vertical Common-Sized Statements of Profit or Loss for the Years Ended 31 December
| % | 2022 | 2021 | 2020 | 2019 | 2018 |
|---|---|---|---|---|---|
| Revenue | 100.00 | 100.00 | 100.00 | 100.00 | 100.00 |
| Cost of sales | (88.58) | (85.45) | (84.92) | (87.36) | (92.70) |
| Gross profit | 11.42 | 14.55 | 15.08 | 12.64 | 7.30 |
| Distribution & marketing costs | (1.00) | (0.86) | (0.83) | (1.15) | (0.87) |
| Administrative expenses | (0.74) | (0.79) | (0.88) | (0.85) | (0.73) |
| Other operating income | 2.06 | 1.78 | 0.77 | 0.58 | 0.69 |
| Other operating expenses | (1.36) | (0.86) | (1.21) | (1.20) | (0.94) |
| Profit from operations | 10.38 | 13.82 | 12.93 | 10.02 | 5.45 |
| Finance cost | (0.02) | (0.04) | (0.02) | (0.05) | (0.10) |
| Profit before tax | 10.36 | 13.78 | 12.92 | 9.97 | 5.35 |
| Tax | (3.25) | (3.98) | (4.05) | (3.25) | (2.61) |
| Profit after tax | 7.11 | 9.80 | 8.86 | 6.72 | 2.74 |
Vertical Common-Sized Statements of Financial Position as at 31 December
| % | 2022 | 2021 | 2020 | 2019 | 2018 |
|---|---|---|---|---|---|
| Non-current assets | |||||
| Property, plant & equipment | 8.49 | 8.55 | 15.50 | 20.27 | 23.33 |
| Intangible assets | 0.52 | 0.72 | 0.44 | 0.51 | 0.70 |
| Capital work-in-progress | 0.13 | 0.39 | 7.39 | 0.28 | 0.66 |
| Long-term loans & advances | 0.33 | 0.22 | 0.52 | 3.20 | 3.65 |
| Total non-current assets | 9.47 | 9.88 | 23.85 | 24.26 | 28.31 |
| Current assets | |||||
| Inventories | 14.20 | 13.19 | 25.51 | 40.61 | 32.25 |
| Receivables | 0.16 | 0.09 | 0.53 | 0.32 | – |
| Prepayments, advances, & other receivables | 22.33 | 17.65 | 6.21 | 10.69 | 20.33 |
| Short-term investments | 35.15 | 40.67 | 7.10 | – | – |
| Cash and bank balances | 18.69 | 18.52 | 36.80 | 24.12 | 19.11 |
| Total current assets | 90.53 | 90.12 | 76.15 | 75.74 | 71.69 |
| Total assets | 100.00 | 100.00 | 100.00 | 100.00 | 100.00 |
| Equity | |||||
| Issued, subscribed & paid-up capital | 2.43 | 2.77 | 8.81 | 10.25 | 11.59 |
| Retained earnings | 16.50 | 10.69 | 18.24 | 3.78 | 0.62 |
| Other reserves | 10.10 | 11.91 | 21.95 | 22.74 | 7.20 |
| Total equity | 29.03 | 25.37 | 49.00 | 36.77 | 19.41 |
| Non-current liabilities | |||||
| Pensions liabilities | 0.16 | 0.12 | 0.51 | 0.38 | 0.36 |
| Deferred tax | 0.74 | 0.71 | 0.83 | – | – |
| Deferred revenue | 0.02 | 0.02 | 0.06 | 0.08 | 0.10 |
| Total non-current liabilities | 0.92 | 0.85 | 1.40 | 0.46 | 0.46 |
| Current liabilities | |||||
| Trade, dividend & other payables | 70.04 | 73.15 | 49.60 | 62.73 | 80.02 |
| Current portion of deferred revenue | 0.01 | 0.01 | 0.04 | 0.03 | – |
| Income tax | – | 0.62 | – | 0.01 | 0.11 |
| Total current liabilities | 70.05 | 73.78 | 49.60 | 62.77 | 80.13 |
| Total equity & liabilities | 100.00 | 100.00 | 100.00 | 100.00 | 100.00 |
Required:
As the Financial Advisor to ABC Mutual Funds, report on the financial health or otherwise of Towobo Ltd based on the vertically analysed financial statements and advise ABC Mutual Funds on whether to invest in Towobo Ltd. Your report should focus on the profitability and cost control analysis, asset structure, capital structure, and working capital structure.
Find Related Questions by Tags, levels, etc.
Find Related Questions by Tags, levels, etc.
The following information relates to product Jupiter, produced by Bfield Ltd during January. This represents the information that remains after a fire in the premises destroyed most of the accounting records.
| Variances | GH¢ |
|---|---|
| Selling price | 50,000 A |
| Materials price | 28,500 F |
| Materials usage | 7,500 A |
| Labour rate | 18,700 F |
| Labour efficiency | 20,400 A |
Actual data
There was no opening or closing inventories.
Required:
Calculate the following:
i) Standard selling price per unit; (3 marks)
ii) Standard cost of material per kilogram; (3 marks)
iii) Standard kilograms of materials required per unit; (2 marks)
iv) Standard labour rate per hour; (2 marks)
v) Standard hours of labour required per unit. (2 marks)
Find Related Questions by Tags, levels, etc.
Dunning Limited has recently introduced an Activity Based Costing System and has
provided the following details for the month of January:
During the month, 500 units of Product Y were produced. This production run required
100 parts and 150 maintenance hours; 5 material requisitions were made and 10
employees worked on the units.
Required:
i) Using Activity Based Costing, calculate the total amount of overhead absorbed by each
unit of Product Y. (7 marks)
ii) Identify THREE different types of controls and explain how activity based costing assists
in the control of costs?
Find Related Questions by Tags, levels, etc.
Elevate your professional expertise across key business domains with our comprehensive training programs
Follow us on our social media and get daily updates.
This feature is only available in selected plans.
Click on the login button below to login if you’re already subscribed to a plan or click on the upgrade button below to upgrade your current plan.
If you’re not subscribed to a plan, click on the button below to choose a plan