Question Tag: Profit Analysis

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CR – Nov 2016 – L3 – Q3 – Segment Reporting (IFRS 8)

Appraisal of contributions from each geographical location of Nationwide Plc through a vertical analysis based on segment information.

Question

Nationwide Plc is a conglomerate with subsidiaries in two geographical locations. Each subsidiary has established its presence in relevant subsectors and contributes to the group’s gross earnings. Segment information is prepared based on geographical areas as well as business lines.

Segment Information by Geographical Areas as at December 31, 2012

Required: You are required to appraise the contributions of each of the geographical locations to the group’s performance through a vertical analysis from the segment information.

Answer

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Tags: Consolidation, Geographical Segment, Profit Analysis, Segment Analysis, Vertical Analysis
Level: Level 3

Topic: Segment Reporting (IFRS 8)

FM – May 2015 – L2 – SB – Q2 – Introduction to Performance Management

Prepare profitability and cash flow statements, and compute liquidity and gearing ratios for Ozoigbondu Nigeria Limited.

Question

Ozoigbondu Nigeria Limited is a company that is into buying and selling of plastic containers. The company is financed by a capital of ₦15 million inclusive of reserves in a mix of 30% and 70% of debt and equity respectively.

The Company has been in trading business for the past six years and has consistently adhered to its corporate policy on sales, purchases, and inventory management.

The company’s policy on sales is to ensure that sales are collected as follows: (i) Cash sales is 40% of the monthly sales. (ii) The balance of the month’s sales is to be collected in the month following sales.

The policy on purchases is in agreement with the supplier’s policy which is to pay for all supplies in the month following. The company’s stock policy is to reserve 30% of the month’s purchases as closing inventory.

The following information is available for the five years 2010 to 2014:

	2010	2011	2012	2013	2014
Monthly Sales	3,400,000	3,600,000	4,200,000	4,800,000	7,200,000
Monthly Purchases	2,000,000	2,400,000	2,800,000	3,200,000	4,800,000
Monthly Salaries	350,000	350,000	430,000	430,000	480,000
Monthly Rent	100,000	100,000	100,000	100,000	100,000
Monthly Cash Expenses	200,000	220,000	240,000	280,000	360,000

Additional Information: (i) The company purchased a motor vehicle in July 2013 which was paid for in September 2013. The cost of the motor vehicle was ₦5,000,000.
(ii) Annual depreciation for the motor vehicle is 20%.
(iii) The Cash Balance as at 31st December 2011 was ₦4,000,000.
(iv) The company’s salaries, rent, and expenses were paid in the month they were due.

Required: a. Prepare a Profitability Statement for 2012, 2013, and 2014. (10 Marks)
b. Prepare a Cash Flow Statement for 2012, 2013, and 2014. (7 Marks)
c. Determine and comment on the liquidity ratio (current ratio) for 2014. (2 Marks)
d. Compute the gearing ratio. (1 Mark)

Answer

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Tags: Cash Flow, Financial Ratios, Financial Statement Analysis, Gearing, Liquidity, Profit Analysis
Level: Level 2

Topic: Introduction to Performance Management
Series: MAY 2015

PM – May 2017 – L2 – SA – Q2 – Costing Systems and Techniques

Calculate profit per motorcycle type using existing and ABC methods and evaluate costing methods for overhead absorption.

Question

Sadet Nigeria Limited assembles three types of motorcycles at the same factory: the 50cc Prelude, the 100cc Roadmaster, and the 150cc Roadstar. Sadet has invested in manufacturing technology to reduce labor costs in response to market demands.

Historically, Sadet used direct labor hours to allocate overhead costs. Now, they are considering activity-based costing (ABC).

Motorcycle Data:

Requirements:

a. Calculate the total profit for each of Sadet’s three motorcycle types, using:

i. The existing overhead allocation method based on labor hours.
ii. Activity-Based Costing (ABC).
(14 Marks)

b. Write a report for Sadet’s directors as a Management Accountant, evaluating the labor hours versus activity-based costing methods in Sadet’s circumstances.
(6 Marks)

Answer

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Tags: Activity-Based Costing, Cost Drivers, Overhead Allocation, Profit Analysis
Level: Level 2

Topic: Costing Systems and Techniques
Series: MAY 2017

MA – Nov 2017 – L2 – Q3 – Activity-based costing

Calculate the prime cost, profit per unit using both absorption and activity-based costing, and comment on the differences and limitations.

Question

Bonti Ltd produces three different products using two production departments. The company currently uses Absorption Costing to establish product costs and profitability. The Directors have recently attended a conference on Activity Based Costing (ABC) and are examining whether ABC might provide a better system for Bonti Ltd.

The following budgeted information for the period ended 31 December 2017 has been collated for each of the three products:

Product	Taya	Maya	Paya
Production and Sales (units)	8,750	4,000	6,000
Unit sales price (GH¢)	56	106	84
Direct materials	1.5kg	6kg	7kg
Direct labour:
– Machine Department (hours per unit)	1 hour	8 hours	6 hours
– Assembly Department (hours per unit)	4 hours	3 hours	1 hour
Direct expenses (GH¢ per unit)	2	6	3
Machine Department (machine hours per unit)	2 hours	5 hours	4 hours

Raw material costs GH¢4 per kilo, and the hourly rate for all labour is GH¢5. The direct expenses relate entirely to specialized packaging, which is uniquely designed for each of the products and is therefore directly attributable to that product alone.

The current costing system absorbs overheads to the Machine and Assembly Departments on the basis of a recovery rate of GH¢3.50 per machine hour and GH¢1 per labour hour respectively.

The following is an analysis of the overheads by department:

Department	Overheads (GH¢)
Purchasing Department	22,400
Production Set-up & Design Dept	34,500
Customer Service Department	32,600
Machine Department	123,000
Assembly Department	26,500

The Departmental Managers have provided the following additional information about operations in their departments:

Activity	Taya	Maya	Paya	Total
Number of set-ups	10	10	30	50
Number of customer orders	80	86	160	326
Number of purchase orders	30	32	50	112

The Machine Department is capital intensive, and the Assembly Department is labour intensive.

Required:

a) Calculate the prime cost for each product.
b) Calculate the profit per unit for each product if overheads are absorbed on the Current Costing basis.
c) Calculate the profit per unit for each product if overheads are absorbed using an Activity Based Costing approach. Clearly identify any cost drivers you assign.
d) Comment on why there is a difference between the profit/loss shown on an Absorption Costing basis and that shown using Activity Based Costing.
e) Identify THREE limitations of Activity Based Costing.

Answer

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Tags: ABC Limitations, Cost Drivers, Overhead Allocation, Prime Cost, Profit Analysis
Level: Level 2

Topic: Activity-based costing
Series: NOV 2017

MA – Nov 2020 – L2 – Q1 – Budgetary Control

Prepare a financial analysis statement showing the current annual forecast of costs, revenues, and profits for the years 2019-2021 for a motor car manufacturer.

Question

A motor car manufacturer has been specializing in the production and sale of Bedford model cars. The model is somewhat outmoded, and the current sales forecast indicates that the current (2018) sales level of 150,000 will be the same as in 2019 but will decline to 130,000 cars in 2020 and 110,000 cars in 2021. The company supplies according to orders received, and no stocks are held. Carbon monoxide emission regulations will prevent the model from being manufactured and sold after December 2021.

The company’s current estimates of the selling price and costs in 2019 are as follows:

Per car (GH¢)	Amount (GH¢)
Selling Price	11,200
Production costs:
– Material and Labour (vary with production volume)	3,600
– Assembly	4,000
– Delivery	2,500

75% and 40% of the assembly and delivery costs respectively are fixed, and the remainder vary with production volume.
In addition, the company estimates that it will incur the following non-production costs:
- Marketing costs of GH¢60 million would be amortized on a straight-line basis over three years.
- The Administration costs of GH¢10 million are fixed per annum.
- The selling price, variable costs per car, and total fixed costs are expected to remain constant throughout the period from 2019 to 2021.

The company’s Managing Director is unhappy with the current annual profit forecasts for 2019–2021 based on the information above and believes that the company has the potential to increase the profit to a desired level of GH¢245 million in each of the years 2019 to 2021. The Managing Director has undertaken a strategic review and developed the following strategies to eliminate the gap:

Strategy 1: A marketing proposal will enable the company to enter a new overseas market with the result that the total (including the overseas market) sales level will be stabilized at 160,000 cars per annum from 2019 to 2021. The market entry costs will be GH¢30 million for each of the three years.

Strategy 2: A re-design of the car will enhance its sales appeal and will permit the company to increase its selling price to GH¢12,000. The re-design costs are GH¢30 million and are to be amortized over three years on a straight-line basis.

Strategy 3: A radical cost reduction program will improve efficiency and lower all variable costs by 20%. This will add GH¢70 million to the annual fixed overheads each year from 2019 to 2021.

Required:

a) Prepare a financial analysis statement showing the current annual forecast of costs, revenues, and profits for each of the years 2019 to 2021 and briefly comment on the figures. (Ignore the time value of money)

b) Calculate the profit gap for 2019, 2020, and 2021.

c) Estimate the profit in 2019 if:

i) Strategy 1 was implemented;
ii) Strategy 2 was implemented;
iii) Strategy 3 was implemented.

d) Evaluate which strategy to implement

Answer

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Tags: Budgetary Control, Financial Statement, Forecasting, Marginal Costing, Profit Analysis
Level: Level 2

Topic: Budgetary control
Series: NOV 2020

CR – Nov 2016 – L3 – Q3 – Segment Reporting (IFRS 8)

Appraisal of contributions from each geographical location of Nationwide Plc through a vertical analysis based on segment information.

Question

Segment Information by Geographical Areas as at December 31, 2012

Required: You are required to appraise the contributions of each of the geographical locations to the group’s performance through a vertical analysis from the segment information.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Consolidation, Geographical Segment, Profit Analysis, Segment Analysis, Vertical Analysis
Level: Level 3

Topic: Segment Reporting (IFRS 8)

FM – May 2015 – L2 – SB – Q2 – Introduction to Performance Management

Prepare profitability and cash flow statements, and compute liquidity and gearing ratios for Ozoigbondu Nigeria Limited.

Question

The Company has been in trading business for the past six years and has consistently adhered to its corporate policy on sales, purchases, and inventory management.

The following information is available for the five years 2010 to 2014:

	2010	2011	2012	2013	2014
Monthly Sales	3,400,000	3,600,000	4,200,000	4,800,000	7,200,000
Monthly Purchases	2,000,000	2,400,000	2,800,000	3,200,000	4,800,000
Monthly Salaries	350,000	350,000	430,000	430,000	480,000
Monthly Rent	100,000	100,000	100,000	100,000	100,000
Monthly Cash Expenses	200,000	220,000	240,000	280,000	360,000

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cash Flow, Financial Ratios, Financial Statement Analysis, Gearing, Liquidity, Profit Analysis
Level: Level 2

Topic: Introduction to Performance Management
Series: MAY 2015

PM – May 2017 – L2 – SA – Q2 – Costing Systems and Techniques

Calculate profit per motorcycle type using existing and ABC methods and evaluate costing methods for overhead absorption.

Question

Historically, Sadet used direct labor hours to allocate overhead costs. Now, they are considering activity-based costing (ABC).

Motorcycle Data:

Requirements:

a. Calculate the total profit for each of Sadet’s three motorcycle types, using:

i. The existing overhead allocation method based on labor hours.
ii. Activity-Based Costing (ABC).
(14 Marks)

b. Write a report for Sadet’s directors as a Management Accountant, evaluating the labor hours versus activity-based costing methods in Sadet’s circumstances.
(6 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Activity-Based Costing, Cost Drivers, Overhead Allocation, Profit Analysis
Level: Level 2

Topic: Costing Systems and Techniques
Series: MAY 2017

MA – Nov 2017 – L2 – Q3 – Activity-based costing

Calculate the prime cost, profit per unit using both absorption and activity-based costing, and comment on the differences and limitations.

Question

The following budgeted information for the period ended 31 December 2017 has been collated for each of the three products:

Product	Taya	Maya	Paya
Production and Sales (units)	8,750	4,000	6,000
Unit sales price (GH¢)	56	106	84
Direct materials	1.5kg	6kg	7kg
Direct labour:
– Machine Department (hours per unit)	1 hour	8 hours	6 hours
– Assembly Department (hours per unit)	4 hours	3 hours	1 hour
Direct expenses (GH¢ per unit)	2	6	3
Machine Department (machine hours per unit)	2 hours	5 hours	4 hours

The current costing system absorbs overheads to the Machine and Assembly Departments on the basis of a recovery rate of GH¢3.50 per machine hour and GH¢1 per labour hour respectively.

The following is an analysis of the overheads by department:

Department	Overheads (GH¢)
Purchasing Department	22,400
Production Set-up & Design Dept	34,500
Customer Service Department	32,600
Machine Department	123,000
Assembly Department	26,500

The Departmental Managers have provided the following additional information about operations in their departments:

Activity	Taya	Maya	Paya	Total
Number of set-ups	10	10	30	50
Number of customer orders	80	86	160	326
Number of purchase orders	30	32	50	112

The Machine Department is capital intensive, and the Assembly Department is labour intensive.

Required:

Answer

Find Related Questions by Tags, levels, etc.

Tags: ABC Limitations, Cost Drivers, Overhead Allocation, Prime Cost, Profit Analysis
Level: Level 2

Topic: Activity-based costing
Series: NOV 2017

MA – Nov 2020 – L2 – Q1 – Budgetary Control

Prepare a financial analysis statement showing the current annual forecast of costs, revenues, and profits for the years 2019-2021 for a motor car manufacturer.

Question

The company’s current estimates of the selling price and costs in 2019 are as follows:

Per car (GH¢)	Amount (GH¢)
Selling Price	11,200
Production costs:
– Material and Labour (vary with production volume)	3,600
– Assembly	4,000
– Delivery	2,500

75% and 40% of the assembly and delivery costs respectively are fixed, and the remainder vary with production volume.
In addition, the company estimates that it will incur the following non-production costs:
- Marketing costs of GH¢60 million would be amortized on a straight-line basis over three years.
- The Administration costs of GH¢10 million are fixed per annum.
- The selling price, variable costs per car, and total fixed costs are expected to remain constant throughout the period from 2019 to 2021.

Strategy 3: A radical cost reduction program will improve efficiency and lower all variable costs by 20%. This will add GH¢70 million to the annual fixed overheads each year from 2019 to 2021.

Required:

b) Calculate the profit gap for 2019, 2020, and 2021.

c) Estimate the profit in 2019 if:

i) Strategy 1 was implemented;
ii) Strategy 2 was implemented;
iii) Strategy 3 was implemented.

d) Evaluate which strategy to implement

Answer

Find Related Questions by Tags, levels, etc.

Tags: Budgetary Control, Financial Statement, Forecasting, Marginal Costing, Profit Analysis
Level: Level 2

Topic: Budgetary control
Series: NOV 2020

Question Tag: Profit Analysis

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CR – Nov 2016 – L3 – Q3 – Segment Reporting (IFRS 8)

Appraisal of contributions from each geographical location of Nationwide Plc through a vertical analysis based on segment information.

FM – May 2015 – L2 – SB – Q2 – Introduction to Performance Management

Prepare profitability and cash flow statements, and compute liquidity and gearing ratios for Ozoigbondu Nigeria Limited.

PM – May 2017 – L2 – SA – Q2 – Costing Systems and Techniques

Calculate profit per motorcycle type using existing and ABC methods and evaluate costing methods for overhead absorption.

MA – Nov 2017 – L2 – Q3 – Activity-based costing

Calculate the prime cost, profit per unit using both absorption and activity-based costing, and comment on the differences and limitations.

MA – Nov 2020 – L2 – Q1 – Budgetary Control

Prepare a financial analysis statement showing the current annual forecast of costs, revenues, and profits for the years 2019-2021 for a motor car manufacturer.

CR – Nov 2016 – L3 – Q3 – Segment Reporting (IFRS 8)

Appraisal of contributions from each geographical location of Nationwide Plc through a vertical analysis based on segment information.

FM – May 2015 – L2 – SB – Q2 – Introduction to Performance Management

Prepare profitability and cash flow statements, and compute liquidity and gearing ratios for Ozoigbondu Nigeria Limited.

PM – May 2017 – L2 – SA – Q2 – Costing Systems and Techniques

Calculate profit per motorcycle type using existing and ABC methods and evaluate costing methods for overhead absorption.

MA – Nov 2017 – L2 – Q3 – Activity-based costing

Calculate the prime cost, profit per unit using both absorption and activity-based costing, and comment on the differences and limitations.

MA – Nov 2020 – L2 – Q1 – Budgetary Control

Prepare a financial analysis statement showing the current annual forecast of costs, revenues, and profits for the years 2019-2021 for a motor car manufacturer.

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CR – Nov 2016 – L3 – Q3 – Segment Reporting (IFRS 8)

Appraisal of contributions from each geographical location of Nationwide Plc through a vertical analysis based on segment information.

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FM – May 2015 – L2 – SB – Q2 – Introduction to Performance Management

Prepare profitability and cash flow statements, and compute liquidity and gearing ratios for Ozoigbondu Nigeria Limited.

You're reporting an error for "FM – May 2015 – L2 – SB – Q2 – Introduction to Performance Management"

PM – May 2017 – L2 – SA – Q2 – Costing Systems and Techniques

Calculate profit per motorcycle type using existing and ABC methods and evaluate costing methods for overhead absorption.

You're reporting an error for "PM – May 2017 – L2 – SA – Q2 – Costing Systems and Techniques"

MA – Nov 2017 – L2 – Q3 – Activity-based costing

Calculate the prime cost, profit per unit using both absorption and activity-based costing, and comment on the differences and limitations.

You're reporting an error for "MA – Nov 2017 – L2 – Q3 – Activity-based costing"

MA – Nov 2020 – L2 – Q1 – Budgetary Control

Prepare a financial analysis statement showing the current annual forecast of costs, revenues, and profits for the years 2019-2021 for a motor car manufacturer.

You're reporting an error for "MA – Nov 2020 – L2 – Q1 – Budgetary Control"

CR – Nov 2016 – L3 – Q3 – Segment Reporting (IFRS 8)

Appraisal of contributions from each geographical location of Nationwide Plc through a vertical analysis based on segment information.

You're reporting an error for "CR – Nov 2016 – L3 – Q3 – Segment Reporting (IFRS 8)"

FM – May 2015 – L2 – SB – Q2 – Introduction to Performance Management

Prepare profitability and cash flow statements, and compute liquidity and gearing ratios for Ozoigbondu Nigeria Limited.

You're reporting an error for "FM – May 2015 – L2 – SB – Q2 – Introduction to Performance Management"

PM – May 2017 – L2 – SA – Q2 – Costing Systems and Techniques

Calculate profit per motorcycle type using existing and ABC methods and evaluate costing methods for overhead absorption.

You're reporting an error for "PM – May 2017 – L2 – SA – Q2 – Costing Systems and Techniques"

MA – Nov 2017 – L2 – Q3 – Activity-based costing

Calculate the prime cost, profit per unit using both absorption and activity-based costing, and comment on the differences and limitations.

You're reporting an error for "MA – Nov 2017 – L2 – Q3 – Activity-based costing"

MA – Nov 2020 – L2 – Q1 – Budgetary Control

Prepare a financial analysis statement showing the current annual forecast of costs, revenues, and profits for the years 2019-2021 for a motor car manufacturer.

You're reporting an error for "MA – Nov 2020 – L2 – Q1 – Budgetary Control"

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