Question Tag: Responsibility Accounting
Search
500
+ past questions and counting.
- 3 Marks
MA – Dec 2023 – L2 – Q1c – Divisional performance
This question asks for a comparison between profit centers and investment centers in management accounting.
Find Related Questions by Tags, levels, etc.
- 2 Marks
: MA – Dec 2023 – L2 – Q1b – Divisional Performance
This question defines the concept of responsibility accounting in management accounting systems.
Find Related Questions by Tags, levels, etc.
- Tags: Accounting Systems, Responsibility Accounting
- Level: Level 2
- Topic: Divisional Performance
- Series: DEC 2023
- 20 Marks
MA – July 2023 – L2 – Q1 – Performance analysis
This question involves explaining the controllability principle, calculating controllable profit, ROI, and RI, and analyzing the performance of two divisions.
Question
Kenkah Ltd provides buffer storage for many companies throughout the country. The company has two divisions, namely Abura and Keta. Each division is autonomous and makes its own long-term investment decisions.
Kenkah Ltd measures the performance of its divisions using Return on Investment (ROI), calculated using controllable profit and average divisional net assets. The company has a cost of capital of 12% but a targeted ROI of 18%. The divisional managers’ annual bonus is determined by the extent to which the ROI earned by the division exceeds the target.
At the beginning of the year, the two divisions, Abura and Keta, bought assets worth GH¢12.5 million and GH¢18.2 million respectively. The assets have a five-year life span with no residual value. The company uses the straight-line depreciation method. The other assets are being controlled by the head office.
Over the years, Kenkah Ltd has used ROI in evaluating the performance of managers. However, to discourage dysfunctional behavior, Kenkah Ltd is considering introducing Residual Income (RI) as a performance measure. Like ROI, RI is calculated using controllable profit and average divisional assets.
The current year’s draft operating statement is shown below:
| Abura (GH¢000) | Keta (GH¢000) | |
|---|---|---|
| Sales | 15,350 | 17,020 |
| Less controllable Variable Cost | 7,505 | 8,950 |
| Contribution | 7,845 | 8,070 |
| Less Fixed Cost [i) & ii)] | 6,335 | 6,910 |
| Profit | 1,510 | 1,160 |
Additional Information:
i) Included in fixed costs are the current year depreciation charges of GH¢3,125,000 and GH¢4,550,000 for division Abura and Keta, respectively. Twenty percent (20%) of the depreciation cost in each division is from assets owned and controlled by the head office.
ii) Head office allocates some of its overhead costs to the two divisions using activity-based costing. These costs have been included in the fixed costs and amounted to GH¢210,000 and GH¢230,000 for Abura and Keta, respectively.
iii) The Management Accountant stated at a recent board meeting that “Responsibility accounting is based on the application of the controllability principle.” Hence, he would resist any attempt by management to deviate from this basic principle.
Required:
a) Explain the “controllability principle” and why its application is difficult in practice.
(4 marks)
b) Calculate the current year controllable profit for both divisions of Kenkah Ltd.
(4 marks)
c) Calculate the current year ROI for each of the two divisions of Kenkah Ltd.
(3 marks)
d) Calculate the current year RI for each of the two divisions of Kenkah Ltd.
(4 marks)
e) Discuss the performance of the two divisions for the year.
Find Related Questions by Tags, levels, etc.
- Tags: Controllability Principle, Performance Measurement, Responsibility Accounting, RI, ROI
- Level: Level 2
- Topic: Performance analysis
- Series: JULY 2023
- 5 Marks
MA – Nov 2016 – L2 – Q3c – Budgetary control, Performance analysis
Explain the controllability principle and budgetary slack in the context of responsibility accounting.
Find Related Questions by Tags, levels, etc.
- 20 Marks
IMAC – DEC 2022 – L1 – Q3 – Scope of Management Accounting | Standard Costing and Variance Analysis
Explanation of responsibility accounting classifications, reasons for full costing, and calculation of material, labour, and overhead variances.
Question
a) Responsibility Accounting is a system of accounting in which costs are identified with persons who are primarily responsible for making decisions about the costs in question. Responsibility Accounting classifies cost under two main headings.
Required:
Explain the TWO (2) classifications of cost under Responsibility Accounting. (2 marks)
b) Full costing is an accounting method used to determine the complete end-to-end cost of producing products or services. Accountants use the term full cost to mean more than a product’s manufacturing or production costs (including fixed manufacturing overhead).
Required:
Explain FOUR (4) reasons full cost of a product or service may be calculated. (8 marks)
c) Afram Ltd has just introduced a standard marginal costing system to assist in the planning and control of the production activities for its single product, Amino. The system became operational on 1 January 2022. The Functional Director responsible for cost and management accounting had a discussion with the Production Manager, and both have agreed on the following standard cost information to manufacture one unit of product, Amino.
Budgeted cost:
- Direct materials: 4kg @ GH¢1.75 per kg
- Direct labour: 2 hours @ GH¢10 per hour
- Variable overhead: 2 hours @ GH¢8.25 per hour.
Actual Results:
The actual results for January 2022 are as follows:
- Sales: 22,000 units yielding a total revenue of GH¢1,276,000
- Production: 23,000 units
- Direct Materials: 90,000 kgs at a cost of GH¢162,000
- Direct labour: 48,000 hours at a cost of GH¢576,000
- Variable overhead: GH¢350,000
The budgeted level of production and sales activity has been agreed with both production managers and sales staff at 24,000 units per month.
Required:
Calculate the following variances:
i) Direct Material Price
ii) Direct Material Usage
iii) Direct Labour Rate
iv) Direct Labour Efficiency
v) Variable Overhead Efficiency (10 marks)
Find Related Questions by Tags, levels, etc.
- 3 Marks
MA – Dec 2023 – L2 – Q1c – Divisional performance
This question asks for a comparison between profit centers and investment centers in management accounting.
Find Related Questions by Tags, levels, etc.
- 2 Marks
: MA – Dec 2023 – L2 – Q1b – Divisional Performance
This question defines the concept of responsibility accounting in management accounting systems.
Find Related Questions by Tags, levels, etc.
- Tags: Accounting Systems, Responsibility Accounting
- Level: Level 2
- Topic: Divisional Performance
- Series: DEC 2023
- 20 Marks
MA – July 2023 – L2 – Q1 – Performance analysis
This question involves explaining the controllability principle, calculating controllable profit, ROI, and RI, and analyzing the performance of two divisions.
Question
Kenkah Ltd provides buffer storage for many companies throughout the country. The company has two divisions, namely Abura and Keta. Each division is autonomous and makes its own long-term investment decisions.
Kenkah Ltd measures the performance of its divisions using Return on Investment (ROI), calculated using controllable profit and average divisional net assets. The company has a cost of capital of 12% but a targeted ROI of 18%. The divisional managers’ annual bonus is determined by the extent to which the ROI earned by the division exceeds the target.
At the beginning of the year, the two divisions, Abura and Keta, bought assets worth GH¢12.5 million and GH¢18.2 million respectively. The assets have a five-year life span with no residual value. The company uses the straight-line depreciation method. The other assets are being controlled by the head office.
Over the years, Kenkah Ltd has used ROI in evaluating the performance of managers. However, to discourage dysfunctional behavior, Kenkah Ltd is considering introducing Residual Income (RI) as a performance measure. Like ROI, RI is calculated using controllable profit and average divisional assets.
The current year’s draft operating statement is shown below:
| Abura (GH¢000) | Keta (GH¢000) | |
|---|---|---|
| Sales | 15,350 | 17,020 |
| Less controllable Variable Cost | 7,505 | 8,950 |
| Contribution | 7,845 | 8,070 |
| Less Fixed Cost [i) & ii)] | 6,335 | 6,910 |
| Profit | 1,510 | 1,160 |
Additional Information:
i) Included in fixed costs are the current year depreciation charges of GH¢3,125,000 and GH¢4,550,000 for division Abura and Keta, respectively. Twenty percent (20%) of the depreciation cost in each division is from assets owned and controlled by the head office.
ii) Head office allocates some of its overhead costs to the two divisions using activity-based costing. These costs have been included in the fixed costs and amounted to GH¢210,000 and GH¢230,000 for Abura and Keta, respectively.
iii) The Management Accountant stated at a recent board meeting that “Responsibility accounting is based on the application of the controllability principle.” Hence, he would resist any attempt by management to deviate from this basic principle.
Required:
a) Explain the “controllability principle” and why its application is difficult in practice.
(4 marks)
b) Calculate the current year controllable profit for both divisions of Kenkah Ltd.
(4 marks)
c) Calculate the current year ROI for each of the two divisions of Kenkah Ltd.
(3 marks)
d) Calculate the current year RI for each of the two divisions of Kenkah Ltd.
(4 marks)
e) Discuss the performance of the two divisions for the year.
Find Related Questions by Tags, levels, etc.
- Tags: Controllability Principle, Performance Measurement, Responsibility Accounting, RI, ROI
- Level: Level 2
- Topic: Performance analysis
- Series: JULY 2023
- 5 Marks
MA – Nov 2016 – L2 – Q3c – Budgetary control, Performance analysis
Explain the controllability principle and budgetary slack in the context of responsibility accounting.
Find Related Questions by Tags, levels, etc.
- 20 Marks
IMAC – DEC 2022 – L1 – Q3 – Scope of Management Accounting | Standard Costing and Variance Analysis
Explanation of responsibility accounting classifications, reasons for full costing, and calculation of material, labour, and overhead variances.
Question
a) Responsibility Accounting is a system of accounting in which costs are identified with persons who are primarily responsible for making decisions about the costs in question. Responsibility Accounting classifies cost under two main headings.
Required:
Explain the TWO (2) classifications of cost under Responsibility Accounting. (2 marks)
b) Full costing is an accounting method used to determine the complete end-to-end cost of producing products or services. Accountants use the term full cost to mean more than a product’s manufacturing or production costs (including fixed manufacturing overhead).
Required:
Explain FOUR (4) reasons full cost of a product or service may be calculated. (8 marks)
c) Afram Ltd has just introduced a standard marginal costing system to assist in the planning and control of the production activities for its single product, Amino. The system became operational on 1 January 2022. The Functional Director responsible for cost and management accounting had a discussion with the Production Manager, and both have agreed on the following standard cost information to manufacture one unit of product, Amino.
Budgeted cost:
- Direct materials: 4kg @ GH¢1.75 per kg
- Direct labour: 2 hours @ GH¢10 per hour
- Variable overhead: 2 hours @ GH¢8.25 per hour.
Actual Results:
The actual results for January 2022 are as follows:
- Sales: 22,000 units yielding a total revenue of GH¢1,276,000
- Production: 23,000 units
- Direct Materials: 90,000 kgs at a cost of GH¢162,000
- Direct labour: 48,000 hours at a cost of GH¢576,000
- Variable overhead: GH¢350,000
The budgeted level of production and sales activity has been agreed with both production managers and sales staff at 24,000 units per month.
Required:
Calculate the following variances:
i) Direct Material Price
ii) Direct Material Usage
iii) Direct Labour Rate
iv) Direct Labour Efficiency
v) Variable Overhead Efficiency (10 marks)
Find Related Questions by Tags, levels, etc.
