Question Tag: Decision Making

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  • 20 Marks

AAA – Nov 2022 – L3 – SB – Q3 – Audit Reporting

Examines joint auditors' roles, options for audit disputes, acquisition processes, and reporting requirements.

During the audit of Kofo Plc in 2018, it was observed that there was an omission of liability to the tune of N2 billion. Upon investigation, it was discovered that the error was as a result of unrecorded liability relating to unremitted statutory taxes to the government in prior years. A compensating error was noticed in unsubstantiated investment and receivables balances schedule provided by the management.

The explanation provided by management for this error was that having noted this disparity, the internal audit team was commissioned to reconcile the ledger balances to establish the actual payment to be made to the government. The result of that exercise led to an initial adjustment of N500 million. However, upon further review by the Internal Audit and Risk Management team, the total disparity noted was N5 billion as opposed to the N2 billion initially noted. The reason being that the report with which the Internal Audit Team carried out the reconciliation was understated. Some liability balances were excluded from the report as a result of the approach used to set up the Information System (I.T) System. Therefore, the general command entered into the system to spool the report did not capture the entire transactions. To gain comfort, the audit team:

(i) Reviewed the reconciliation memo to have an understanding of management’s thought process;
(ii) Requested the updated spool of ledger balances from the I.T system;
(iii) Asked the Information Technology team to perform a walkthrough test of the transaction spool;
(iv) Requested the breakdown of the excluded balances and traced them to the supporting documents to which they relate; and
(v) Checked to see that there were no unusual remittances from the bank statements.

You are a member of the audit team which reviewed Kofo Plc’s compliance with International Standards on Auditing (ISA 250) on Non-Compliance with Laws and Regulations (NOCLAR).

Required:

a. Outline the audit procedures to be performed to help identify instances of non-compliance with laws and regulations. (5 Marks)

b. State what the auditor should do when they become aware of an issue of non-compliance with laws and regulations. (5 Marks)

c. State the types of policies and procedures the entity may implement to assist in the prevention and detection of non-compliance with laws and regulations. (4 Marks)

d. Discuss what the auditor should do under the following situations:

  • i. Reporting non-compliance to those charged with governance (2 Marks)
  • ii. Reporting non-compliance in the audit report (2 Marks)
  • iii. Reporting non-compliance to the authorities (2 Marks)

(Total 20 Marks)

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  • 15 Marks

FM – Nov 2017 – L3 – Q6 – Ethical Issues in Financial Management

Explore ethical considerations in capital investment and apply the Black-Scholes model in company valuation.

You have recently taken up employment with Large Plc., a Nigerian company with manufacturing subsidiaries in many countries across Africa. As the Financial Analyst, you report directly to the Managing Director who currently requires briefings on the following areas:

(i) Ethical issues and capital investment decisions,
(ii) Options and company valuation

Required:

a. Explain, with examples, ethical issues that might affect capital investment decisions and discuss the importance of such issues for Strategic Financial Management. (8 Marks)

b. Explain the circumstances in which the Black-Scholes Option Pricing (BSOP) model could be used to assess the value of a company, including the data required for the variables used in the model. (7 Marks)

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  • 3 Marks

FR – Nov 2023 – L2 – Q6b – Ethical Issues in Financial Reporting

List three types of non-financial information useful to stakeholders for decision-making.

Businesses are increasingly accepting that they are not only accountable to investors and lenders, but also accountable to a much wider group of people or stakeholders to which non-financial information is useful in understanding and taking informed decisions on financial statements of the entities.

Required:
State THREE of such useful non-financial information. (3 Marks)

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  • 40 Marks

PM – May 2021 – L2 – Q1 – Costing Systems and Techniques

Analyze linear programming application in production and pricing strategy for maximizing scarce resources.

The Managing Director of NTAMS Manufacturing Company Limited, located in Lagos, attended a seminar titled “Optimizing scarce resource utility in a manufacturing setting with particular reference to linear programming.” Upon his return, he initiated a management meeting to discuss key insights, prompted by the board’s decision to prioritize two primary products.

The following are cost data for the anticipated products “Biggi” and “Smalli”:

Costs Biggi (₦) Smalli (₦)
Material Costs (5kg @ ₦50/kg) 250 (3kg @ ₦50/kg) 150
Labour Costs:
Machining Time (4 hours @ ₦15/hr) 60 (2 hours @ ₦15/hr) 30
Processing Time (4 hours @ ₦10/hr) 40 (5 hours @ ₦10/hr) 50

The company adheres to a pricing policy where total cost of production is marked up by 20%. Annual overhead is ₦10,000,000, allocated on a 3:2 basis between Biggi and Smalli, with a projected production of 200,000 Biggis and 100,000 Smallis.

Available resources for the upcoming year:

  • Materials: 1,800,000 kg
  • Machine Time: 800,000 hours
  • Other Processing Time: 1,400,000 hours

Required:

As the management accountant:

  1. Explain briefly the concept of linear programming and its usefulness.
    (5 Marks)
  2. Compute the Prices for Biggi and Smalli using the company’s pricing policy.
    (5 Marks)
  3. Advise the company on the output levels needed to maximize total profit, with full financial analysis support.
    (10 Marks)
  4. Explain the meaning and limitations of “shadow prices” and calculate them for constraints.
    (12 Marks)
  5. Assuming consistent conditions for three years with an investment cost of ₦45,000,000 and a 15% cost of capital:
    • Determine if this venture is justified.
      (4 Marks)
    • Find the breakeven discount factor for this project.
      (4 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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  • 20 Marks

CSME – May 2024 – L2 – SA – Q4 – Ethical Issues in Corporate Governance

Assess ethical considerations in addressing a workplace theft scenario

You work at a company that produces table water and you know that a colleague, in connivance with one of the company’s drivers, steals packs of water from the store and sells them to customers. You are unsure whether to ignore the ongoing theft or report it to your boss.

Required:

a. Identify the technical term for your current situation in the scenario and briefly explain the term. (3 Marks)

b. Explain the consequential and non-consequential theories of ethics and specify how these can be applied in decision-making within the context of the presented scenario. (6 Marks)

c. What is the technical term for the decision to inform your boss about the theft, and what considerations should you take before making this decision based on the underlying theory? (11 Marks)

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  • 20 Marks

PM – NOV 2016 – L2 – Q4 – Decision-Making Techniques

Question requires analysis of airline operations to determine profitability of different pricing and charter decisions through contribution analysis.

Aghobe Air owns a single aircraft which operates between Lagos and Kano. The normal flight schedule is that flights leave Lagos on Mondays and Thursdays and depart from Kano on Wednesdays and Saturdays. Aghobe Air cannot offer any more flights between Lagos and Kano. The only seat available on the aircraft is economy class.

The following information is available: Seating capacity of the aircraft is 360 passengers. Weekly average number of passengers per flight is as follows:

Additional information:

(i) Food and beverages service cost N1,000 per passenger but at no charge to the passengers;

(ii) Commission to travel agents paid by Aghobe Air (All tickets are booked by travel agents) is 8% of fare;

(iii) Fixed annual leased costs allocated to each flight is N2,650,000 per flight;

(iv) Fixed ground services (maintenance, check in baggage handling, etc.) cost allocated to each flight N350,000 per flight;

(v) Fixed flight crew salaries allocated to each flight is N200,000 per flight; and

(vi) Fuel cost is unaffected by the actual number of passengers on the flight.

Required:

a. Determine the net operating income made by Aghobe Air on each one way flight between Lagos and Kano. (5 Marks)

b. The market research unit of Aghobe Air indicates that lowering the average one way fare to N24,000 will increase the average number of passengers per flight to 212. Should Aghobe Air lower its fare? (5 Marks)

c. A tourist group known as Sea Bird Tour Operator approaches Aghobe Air on the possibility of chartering the aircraft twice each month from Lagos to Kano and back from Kano to Lagos. If Aghobe Air accepts the offer, it will only offer 184 flights in each year. Other terms of the offer include:

  • For each one way flight, Sea Bird Tour Operator will pay Aghobe Air N3,750,000 which covers cost of charter for one way, use of flight crew and ground service staff. Sea Bird Tour operator will pay for fuel costs, food and beverages.

Should Aghobe Air accept the offer from Sea Bird Tour Operator? (5 Marks)

d. What factors should be taken into consideration in taking the decision in (c) above? (5 Marks)

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  • 15 Marks

PM – Nov 2021 – L2 – Q6 – Decision-Making Techniques

Explain methods to help choose the optimal marketing package under uncertainty and risk for Mr. Alade’s business.

Mr. Alade, the owner of a business, has been attending a course on scenario planning and decision-making. As a result of that advice, he has produced, using cost, volume, and profit analysis, 12 scenarios for a new product that the business will launch in the near future. There are four possible marketing packages (A, B, C, or D), and three possible market conditions (poor, average, or good) that could be encountered. The Net Present Value (NPV) of the cash flows resulting from each of the scenarios is shown in the table below:

Market Package A B C D
Market Conditions N’000 N’000 N’000 N’000
Poor 180 230 220 190
Average 190 200 210 275
Good 550 260 210 500

Mr. Alade missed the session on how to deal with risk and uncertainty. He sent this table to the course tutor, who advised him to review the methods under the “Uncertainty” section. If he can estimate the probability of each market condition, he should use “Risk-based methods.” The decision will be influenced by Mr. Alade’s attitude towards risk.

Required:
Explain FOUR methods that could help Mr. Alade decide which marketing package to choose. Include THREE methods to deal with uncertainty and ONE method to deal with risk, explaining the attitude associated with the decision-maker for each method.

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  • 1 Marks

MI – Nov 2020 – L1 – SA – Q1 – Forecasting Techniques

The question asks to calculate the Economic Order Quantity (EOQ) based on holding costs, ordering costs, and annual demand.

A company uses 40,000 units of an item per annum. It is recorded that the holding costs are N4 per annum and the ordering cost is N50 per order. The Economic order Quantity is:

A. 2,500
B. 1,500
C. 1,000
D. 800
E. 500

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  • 10 Marks

QTB – May 2016 – L1 – SB – Q4a – Statistics

This question involves calculating expected returns from a gambler’s game of chance based on different scenarios.

A gambler plays a game of chance in which he has a 60% chance of winning. If he wins, he collects N1,800, but if he loses, he pays N2,300.

Required:
i. Obtain the sample spaces respectively for 12 games and 14 games.
(2 marks)

ii. Calculate his expected returns for 12 games and 14 games.
(6 marks)

iii. Advise the gambler if he initially staked N1,000.

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  • 5 Marks

MA – May 2016 – L2 – Q4c – Relevant cost and revenue

Determine the cost per unit under different day rate schemes and assess the advisability of introducing a high day rate scheme.

HK Manufacturing Company is considering introducing a high day rate incentive scheme. An experiment with one of its average workers showed that an employee is likely to produce 1,500 units in a 40-hour week if she was paid GH¢25 per hour, but 1,800 units if she was paid GH¢31.25 per hour.

Assume that production overhead is added to cost at the rate of GH¢25 per direct labour hour.

Required:

i) Determine the cost per unit of output under both the low day rate scheme and high day rate scheme.
(3 marks)

ii) Is it advisable to introduce the high day rate scheme?
(2 marks)

 

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  • 13 Marks

MA – May 2016 – L2 – Q2b – Cost-Volume-Profit (CVP) Analysis, Relevant Cost and Revenue

Calculate break-even points, operating leverage, and expected income for two rent options for a bakery.

Anima Ventures wants to start a new bakery at Bodwease in Ashanti Region. She plans to rent a storeroom for her operations under the following terms and conditions:

Option 1 Option 2
Fixed Rent Charge GH¢5,000 GH¢3,000
Variable Rent – 10% of selling price of each loaf

The following data are also relevant for her business:

  • Selling Price: GH¢5.00
  • Material Cost (Flour): GH¢0.80
  • Material Cost (Margarine): GH¢0.70
  • Labour Cost: GH¢0.50

Required:

i) Determine the break-even point in units under each option.
(2 marks)

ii) Calculate the degree of operating leverage (DOL) for the two options if 10,000 loaves of bread are to be sold in the current year.
(4 marks)

iii) What would be the expected operating income if sales increase by 25% next year?
(4 marks)

iv) Which of the two options would you recommend to Anima Ventures and why?
(3 marks)

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  • 4 Marks

MA – Nov 2015 – L2 – Q1b – Standard costing and variance analysis

Evaluate four purposes of standard costing.

Evaluate FOUR (4) purposes of standard costing. (4 marks)

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  • 3 Marks

MA – Nov 2016 – L2 – Q3b – Relevant cost and revenue

Explain the concept of relevant costs and their importance in decision-making processes.

The use of relevant information is key to managerial success. Describe relevant costs to your newly appointed Managing Director who will be negotiating a new contract. (3 marks)

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  • 14 Marks

MA – Nov 2016 – L2 – Q1a – Introduction to management accounting

Discuss the importance of Management Accounting in a modern business environment and compare it with Financial Accounting.

The Management Accountant plays an important role in the modern business environment, and his/her activities may be categorized as providing information under the key headings of planning, control, and decision making.

You have just been appointed to a new role as Management Accountant in Akwaba Ltd, a large engineering company producing a wide range of parts for the automobile industry. This new role has been created following a majority decision of the Board of Directors based on the advice of the company’s auditors. However, the Managing Director comes from a marketing background and does not understand why the company needs another accountant as there is already a Financial Accountant employed on a full-time basis. She voted against the creation of the new position and considers the cost of your remuneration to be an unwelcome burden which will only serve to reduce the company’s reported profits. According to her, the equation Y = a – bx which management accountants always use is not relevant in the modern-day business environment.

You are aware of the strong opinion of the Managing Director, and as your first task, you decide to attempt to convince her of the importance of Management Accounting in the modern business environment and also suggest some ways that you can ensure your future role in Akwaba Ltd is financially viable.

Required:

Prepare a Memorandum to the Managing Director in which you address her concerns using the following guidelines:

i) Distinguish clearly between Financial Accounting and Management Accounting under any FOUR different headings. (6 marks)

ii) For each of the THREE key headings of planning, control, and decision making, outline one Management Accounting technique and how it would lead to stronger commercial success for the company. (6 marks)

iii) Identify any THREE qualitative (non-financial) issues that you should consider as a Management Accountant when providing information for decision making in Akwaba Ltd. (2 marks)

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  • 8 Marks

BMIS – May 2020 – L1 – Q1b – Management and leadership

Identify decision-makers for various management tasks in a hospital.

Within the same business organisation, some decision-making might be centralized, with decisions made by senior management. Other decisions might be decentralized and taken by managers or employees involved in operations.

A company owns and operates five private hospitals. It has a head office, a management team, and staff in each hospital (including medical staff such as doctors and nurses). Decisions now need to be made on the following:

i) Decisions about the medical treatment or surgical treatment for individual patients.
ii) Establishing policy on hygiene standards in the hospitals.
iii) Scheduling operations in the operating theatres of each hospital.
iv) Discharging patients from the hospital.
v) Deciding the visiting times for patients in each hospital.
vi) Prescribing drugs for the treatment of patients.
vii) Hiring new staff, such as hospital porters and nurses.
viii) Dealing with payments from insurance companies for the treatment of insured patients.

Required:
For each of the decisions above, identify from the list below whom you would expect to make the decision and briefly explain why.

  • Head Office Management
  • The Management of each hospital
  • Staff in each hospital

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  • 10 Marks

BMIS – May 2019 – L1 – Q3a – Teams

State the potential drawbacks of working as a team.

Working as a team is always encouraged. Teams combine the skills of different individuals and avoid complex communication between different business functions. Every member of the team can be a powerful motivator and team loyalty can be used to control the performance and behaviour of individuals. In fact, teams make fewer, but better-evaluated, decisions than individuals.

Required:
Despite all the advantages that are associated with working as a team, state SEVEN (7) potential drawbacks in working as a team. (10 marks)

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  • 20 Marks

BMIS – May 2019 – L1 – Q2 – Introduction to business strategy

Explain the need for planning before embarking on a business venture and the advantages of a formal system of strategic planning.

TestCo Company Ltd (TCL) introduced a product, YZ Sap, into the North East Region market and the patronage was very encouraging. In a conversation with a friend, the Managing Director of TCL, Asembibeba, made a strong case for taking risks without necessarily planning for the outcome. In his opinion, introducing YZ Sap into the North East Region without a formal planning process and its positive outcome suggests that planning is not necessary when entering a new untapped market.

Required:

a) Write a note to Asembibeba explaining clearly FIVE (5) reasons why there is the need for planning before embarking on a business venture. (10 marks)

b) Write a second note to Asembibeba explaining FIVE (5) advantages of a formal system of strategic planning when embarking on a business venture. (10 marks)

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  • 20 Marks

BMIS – Nov 2018 – L1 – Q7 – Management and leadership

Explain key features of supervision and identify managerial skills important to a good leader.

A Supervisor’s role as the lowest level of management is to interface between managerial and non-managerial staff. Management can be exercised over resources, activities, projects, and other essential non-personal things, while Leadership can only be exercised over people.

Required:

a) Explain FOUR (4) key features of supervision. (10 marks)

b) State FIVE (5) range of business and managerial skills important to a good leader. (10 marks)

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  • 10 Marks

BMIS – March 2024 – L1 – Q1b – Business and Organisational Structure

Explain five reasons why Asanko Ltd, a multinational dry dock company, might have adopted a decentralization policy for its operations.

Asanko Ltd is a dry dock company which repairs fishing trawlers. The company has its headquarters in Ghana with subsidiaries in Sierra Leone, Gambia and Liberia. The company has adopted decentralisation policy for its operations.

Required: Explain FIVE (5) reasons which might have accounted for the company’s decision to adopt this policy for its operations.

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