Incentive Scheme – NBC Institute

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.

Question

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)

Answer

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Tags: Cost per Unit, Day Rate Scheme, Decision Making, Incentive Scheme
Level: Level 2

Topic: Relevant Cost and Revenue
Series: MAY 2016

AAA – Aug 2022 – L3 – Q2 – Audit evidence | Professional responsibility and liability

Evaluate audit risks for Pato Plc and discuss the impact of management's refusal to provide written representation.

Question

a) Pato Plc offers internet streaming services for films and TV programs and subscription services. You are the recently appointed Senior Manager of Tinka Partners responsible for the audit of Pato Plc. You are planning the audit as required by ISA 300: Planning an audit of financial statements and have come across these two issues following a discussion between the audit engagement partner and a representative of the client’s management:

Legal Case:
In January 2022, a legal case was initiated against Pato Plc by Filmco Plc, a film production company. Filmco Plc claims that Pato Plc has infringed on its copyright by streaming a film in specific countries for which a license has not been acquired. Pato Plc insists that the film is covered by a general license which was acquired several years ago. Pato Plc’s Finance Director is not willing to recognize the legal claim within the financial statements as he is confident that the claim against the company will not be successful, and he does not want to discuss it further with the audit team, emphasizing that there is no relevant documentation available for evaluation at this time.
(7 marks)

Annual Incentive Scheme:
For several years, Pato Plc has operated an annual incentive scheme for staff, under the terms of which employees are eligible to receive an annual incentive payment linked to the achievement of selected targets. The scheme operates for all employees, with some employees’ targets linked to profitability, while others are aligned to non-financial measures including customer satisfaction, customer loyalty, and customer complaints, among others. Participants in the scheme are entitled to earn a maximum annual incentive payment of 5% of their salary. Approximately 6,590 employees, including the senior executive directors, are entitled to participate in the annual incentive scheme. Last year the average bonus payment was GH¢1,250 per participant.
(7 marks)

Required:
Evaluate the principal audit risk(s) in planning the audit of Pato Plc.

b) The Management of Pato Plc has decided not to provide the audit firm with the written representation for the legal case as they feel that it is unnecessary. The potential provision for the legal case is 6% of profit before tax.
Required:
As the Auditors of Pato Plc, discuss the steps you should take and the impact on the audit report in relation to the refusal to provide the written representation.
(6 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit report, Audit Risk, Incentive Scheme, Legal Case, Written Representation
Level: Level 3

Topic: Audit evidence, Professional responsibility and liability
Series: AUG 2022

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.

Question

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)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cost per Unit, Day Rate Scheme, Decision Making, Incentive Scheme
Level: Level 2

Topic: Relevant Cost and Revenue
Series: MAY 2016

AAA – Aug 2022 – L3 – Q2 – Audit evidence | Professional responsibility and liability

Evaluate audit risks for Pato Plc and discuss the impact of management's refusal to provide written representation.

Question

Required:
Evaluate the principal audit risk(s) in planning the audit of Pato Plc.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit report, Audit Risk, Incentive Scheme, Legal Case, Written Representation
Level: Level 3

Topic: Audit evidence, Professional responsibility and liability
Series: AUG 2022

Question Tag: Incentive Scheme

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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.

AAA – Aug 2022 – L3 – Q2 – Audit evidence | Professional responsibility and liability

Evaluate audit risks for Pato Plc and discuss the impact of management's refusal to provide written representation.

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.

AAA – Aug 2022 – L3 – Q2 – Audit evidence | Professional responsibility and liability

Evaluate audit risks for Pato Plc and discuss the impact of management's refusal to provide written representation.

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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.

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AAA – Aug 2022 – L3 – Q2 – Audit evidence | Professional responsibility and liability

Evaluate audit risks for Pato Plc and discuss the impact of management's refusal to provide written representation.

You're reporting an error for "AAA – Aug 2022 – L3 – Q2 – Audit evidence | Professional responsibility and liability"

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.

You're reporting an error for "MA – May 2016 – L2 – Q4c – Relevant cost and revenue"

AAA – Aug 2022 – L3 – Q2 – Audit evidence | Professional responsibility and liability

Evaluate audit risks for Pato Plc and discuss the impact of management's refusal to provide written representation.

You're reporting an error for "AAA – Aug 2022 – L3 – Q2 – Audit evidence | Professional responsibility and liability"

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