Series: NOV 2016

Search 500 + past questions and counting.

  • Filter by Professional Bodies

  • Filter by Subject

  • Filter by Series

  • Filter by Topics

  • Filter by Levels

  • 15 Marks

FM – Nov 2016 – L3 – SC – Q7 – Mergers and Acquisitions

Advise on the benefits, drawbacks, alternatives, and target selection criteria for expansion through mergers or acquisitions.

One of the means by which companies expand is through mergers and acquisitions. However, there are other means of expansion aside from these methods.

Inkline Plc. is one of your client companies intending to expand its business by means of merger or acquisition. Your firm of management consultants has been asked to advise the management of the company on what steps to take while considering the merger and acquisition methods, and whether it should go ahead with the expansion programme or otherwise.

Required:

a. (i) FOUR benefits derivable from its proposed means of expansion. (4 Marks)
(ii) THREE probable demerits of employing its proposed method of expansion. (3 Marks)

b. TWO alternatives to merger and acquisition in your report. (2 Marks)

c. Where the company decides to go ahead with either of these methods, indicate THREE criteria the company may consider in choosing its target company. (6 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FM – Nov 2016 – L3 – SC – Q7 – Mergers and Acquisitions"

  • 15 Marks

FM – Nov 2016 – L3 – SC – Q6 – Strategic Performance Measurement

Evaluate Osamco Limited’s financial performance compared to industry benchmarks and discuss reasons for considering stock exchange listing.

Osamco Limited, manufacturer of wire and cables, was bought from its conglomerate parent company in a management buyout deal in August 2010. Six years later, the managers are considering the possibility of listing the company’s shares on the Nigerian Stock Exchange.

The following information is made available:

OSAMCO LIMITED
INCOME STATEMENT FOR THE YEAR ENDED JUNE 30, 2016

N’million Amount
Turnover 91.25
Cost of sales (79.00)
Profit before interest and taxation 12.25
Interest (3.25)
Profit before taxation 9.00
Taxation (1.25)
Profit attributable to ordinary shareholders 7.75
Dividend (0.75)
Retained profit 7.00

STATEMENT OF FINANCIAL POSITION AS AT JUNE 30, 2016

N’million Amount
Non-current assets (at cost less accumulated depreciation)
Land and buildings 9.00
Plant and machinery 24.75
Total non-current assets 33.75
Current assets
Inventories 11.00
Accounts receivable 11.75
Cash at bank 2.50
Total current assets 25.25
Total assets 59.00
Equity
Ordinary shares of N1 each 6.75
Reserves 24.25
Total equity 31.00
Non-current liabilities
Accounts payable due after more than one year: 12% Debenture 2018 5.50
Current liabilities
Trade accounts payable 17.50
Bank overdraft 5.00
Total current liabilities 22.50
Total equity and liabilities 59.00

Industry sector ratios:

Metric Industry Average
Return before interest and tax on long-term capital employed 24%
Return after tax on equity 16%
Operating profit as percentage of sales 11%
Current ratio 1.6:1
Quick (acid test) ratio 1.0:1
Total debt: equity (gearing) 24%
Dividend cover 4.0
Interest cover 4.5

Required:
a. Evaluate the financial state and performance of Osamco Limited by comparing it with that of its industry sector. (10 Marks)

b. Discuss FOUR probable reasons why the management of Osamco Limited is considering Stock Exchange listing. (5 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FM – Nov 2016 – L3 – SC – Q6 – Strategic Performance Measurement"

  • 15 Marks

FM – Nov 2016 – L3 – SC – Q5 – Portfolio Management

Assess CAPM's basic assumptions and determine overvalued securities among four companies using CAPM metrics.

a. Capital Asset Pricing Model (CAPM) is an equilibrium model of the trade-off between expected portfolio return and unavoidable risk.
What are the basic assumptions on which this model is based? (6 Marks)

b. Currently, the rate of return on the Federal Government Bond redeemable at par in the year 2018 is 5%. The securities of four companies, Akira Plc., Bombadia Plc., Courage Plc., and Divine Plc., have expected returns of 12%, 9.5%, 10.5%, and 13%, respectively. The average expected return on the market portfolio is 10%, subject to a 6% risk (standard deviation). Other relevant information relating to the four securities of the companies is as stated below:

Company Standard Deviation Correlation Coefficient
Akira Plc 0.080 0.975
Bombadia Plc 0.075 0.640
Courage Plc 0.090 0.740
Divine Plc 0.150 0.680

You are required to show which of the companies is/are overvalued. (9 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FM – Nov 2016 – L3 – SC – Q5 – Portfolio Management"

  • 20 Marks

FM – Nov 2016 – L3 – SB – Q4 – Investment Appraisal Techniques

Evaluate Gugi Plc.'s proposed investment in a foreign factory, considering costs, revenues, tax, and exchange rate impacts.

Gugi Plc. is a highly successful manufacturing company operating in Nigeria. In addition to sales within Nigeria, the company also exports to a foreign country (with currency F$) along the ECOWAS sub-region. The export sales generate annual net cash inflow of ₦50,000,000. Gugi Plc. is now considering whether to establish a factory in the foreign country and stop exporting from Nigeria to the country. The project is expected to cost F$1 billion, including F$200million for working capital.

A suitable existing factory has been located, and production could commence immediately. A payment of F$950million would be required immediately, with the remainder payable at the end of year one. The following additional information is available:

  • Annual production and sales in units: 110,000
  • Unit selling price: F$5,000
  • Unit variable cost: F$2,000
  • Unit royalty payable to Gugi Plc: ₦300
  • Incremental annual cash fixed costs: F$50million

Assume that the above cash items will remain constant throughout the expected life of the project of 4 years. At the end of year 4, it is estimated that the net realisable value of the non-current assets will be F$1.40billion.

It is the policy of the company to remit the maximum funds possible to the parent (i.e., Gugi Plc.) at the end of each year. Assume that there are no legal complications to prevent this.

If the new factory is set up and export to the foreign country is stopped, it is expected that new export markets of a similar worth in North Africa could replace the existing exports.

Production in Nigeria is at full capacity, and there are no plans for further capacity expansion.

Tax on the company’s profits is at a rate of 40% in both countries, payable one year in arrears. A double taxation agreement exists between Nigeria and the foreign country, and no double taxation is expected to arise. No withholding tax is levied on royalties payable from the foreign country to Nigeria.

Tax allowable “depreciation” is at a rate of 25% on a straight-line basis on all non-current assets.

The Directors of Gugi Plc. believe that the appropriate risk-adjusted cost of capital for the project is 13%.

Annual inflation rates in Nigeria and the foreign country are currently 5.6% and 10%, respectively. These rates are expected to remain constant in the foreseeable future. The current spot exchange rate is F$1.60 = N1. You may assume that the exchange rate reflects the purchasing power parity theorem.

Required:
a. Evaluate the proposed investment from the viewpoint of Gugi Plc.
Notes:
i. Show all workings and calculations to the nearest million.
ii. State all reasonable assumptions. (18 Marks)

b. State TWO further information and analysis that might be useful in the evaluation of this project?

(2 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FM – Nov 2016 – L3 – SB – Q4 – Investment Appraisal Techniques"

  • 20 Marks

FM – Nov 2016 – L3 -SB – Q3 – Capital Gains Tax

Calculate EVA for Jack Limited and determine its market value added (MVA) based on provided assumptions.

Jack Limited is a family-owned business that has grown strongly in the last 50 years. The key objective of the company is to maximise the family’s wealth through their shareholdings. Recently, the directors introduced value-based management, using Economic Value Added (EVA) as the index for measuring performance.

You are provided with the following financial information:

Statement of Profit or Loss and Other Comprehensive Income for the year ended December 31, 2015:

₦’million 2015
Operating profit 340.0
Finance charges (115.0)
Profit before tax 225.0
Tax at 25% (56.3)
Profit after tax 168.7

Notes

Notes 2015 (₦’m) 2014 (₦’m)
(i) Capital employed – from the Statement of Financial Position 6,285 6,185
(ii) Operating costs:
Depreciation 295 285
Provision for doubtful debts 10 2.5
Research and development 60 –
Other non-cash expenses 35 30
Marketing expenses 50 45
(iii) Economic depreciation is assessed to be ₦415 in 2015. Economic depreciation includes any appropriate amortisation adjustments. In previous years, it can be assumed that economic and accounting depreciation were the same.
(iv) Tax is the cash paid in the current year (₦45million) and an adjustment of ₦2.5million for deferred tax provisions. There was no deferred tax balance prior to 2015.
(v) The provision for doubtful debts was ₦22.5million on the 2015 Statement of Financial Position.
(vi) Research and development cost is not capitalised in the accounts. It relates to a new project that will be developed over five years and is expected to be of long-term benefit to the company. The first year of this project is 2015.
(vii) The company has been spending heavily on marketing each year to build its brand long term.
(viii) Estimated cost of capital of the company:
Equity 16%
Debt (pre-tax) 5%
(ix) Gearing (Debt/Equity) Ratio 1.5: 1

Required:
a. Calculate, showing all relevant workings, the Economic Value Added (EVA) for the year ended December 31, 2015. Make use of the adjusted opening capital employed. Comment on your result and make appropriate recommendations. (15 Marks)

b. Irrespective of your answer in (a) above, assume the company’s current EVA is ₦120million and that this will decline annually by 2% for the next ten years and then increase by 4% per annum in perpetuity. Assume the following for this part only:

  • Cost of equity 14%
  • WACC 10%

Calculate the market value added (MVA) by the company. Show all workings. (5 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FM – Nov 2016 – L3 -SB – Q3 – Capital Gains Tax"

  • 20 Marks

FM – Nov 2016 – L3 – SB – Q2 – Investment Appraisal Techniques

Calculate the value of the convertible loan stock, expected growth rate in equity price, and provide recommendations on whether to hold or sell the security.

Honey Comb Plc has issued 10% convertible loan stock, which is due for redemption in 10 years’ time (i.e., December 31, 2025). The option to convert is open only for another two years. If conversion does not take place by December 31, 2017, the option will lapse. The issue was sold to the public at a price of N920 for N1000 of convertible loan stock. The conversion rate at January 1, 2016 was 250 equity shares for N1000 of stock. Non-convertible loan stock in a similar risk class is presently yielding 12%. The market price of Honey Comb Plc equity shares has been increasing steadily over time, reflecting the performance of the company. The shares currently pay a dividend of N0.30 per share. The current price of the convertible security is N960, and each share is currently valued at N3.00. A holder of the convertible loan stock is considering whether to sell his holdings or continue to hold the stock. Ignore taxation while answering the questions.

Required:
a. What is the value of the security as simple unconvertible loan stock? (5 Marks)

b. What is the expected minimum annual rate of growth in the equity share price that is required to justify the holder of convertible loan stock holding on to the security before the option expires? (12 Marks)

c. What recommendation would you make to the holder of the security and why? (3 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FM – Nov 2016 – L3 – SB – Q2 – Investment Appraisal Techniques"

  • 30 Marks

FM – Nov 2016 – L3 – SA – Q1 – Cost of Capital

Analyze a potential investment project, including the valuation of the firm’s equity and bonds, calculation of the risk-adjusted cost of capital, and project valuation with and without a buyout offer.

Tinko Plc (TP) repairs and maintains heavy-duty trucks with workshops across Nigeria and parts of Africa. Below are extracts from its financial position:

Item ₦’million
Share capital (50k/share) 200
Reserves 320
Non-current liabilities 760
Current liabilities 60

The company’s Free Cash Flow to Equity (FCFE) is estimated at ₦153 million, with a perpetual growth rate of 2.5% annually. The equity shareholders require an 11% return.

The non-current liabilities consist of ₦1,000 nominal value bonds redeemable in 4 years at par with a 5.4% coupon. The credit spread is 80 basis points above the risk-free rate.

A project related to the “Graduates Back To Land (GBTL)” program is under consideration. The initial investment is ₦84 million, with estimated cash flows for four years. Details about the project include alternative scenarios for the program’s growth and a potential buyout offer of ₦100 million at the end of year one.

Required:
a. Calculate the current total market value of TP’s:
i. Equity (3 Marks)
ii. Bonds (4 Marks)

b. Calculate the risk-adjusted cost of capital required for the new project. (10 Marks)

c. Estimate the value of the project with and without the offer from FL (10 Marks)

d. State the assumptions made in your calculations. (3 Marks)

 

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "FM – Nov 2016 – L3 – SA – Q1 – Cost of Capital"

  • 15 Marks

AT – Nov 2016 – L3 – SC – Q7 – Tax Planning and Management

Explain tax planning and anti-avoidance legislation, summarize tax evasion and double taxation provisions, and highlight non-tax investment factors.

You were invited as the Chairman of a Tax Summit at Ikeja, Lagos State. The topics for discussion were as follows:

i. Tax Planning, an Effective Method of Tax Avoidance
ii. Tax Evasion in a Growing Economy
iii. Double Taxation – The Provisions and the Impact
iv. Jurisdiction for Investment – Non-Tax Factors

As the Chairman, you had the opportunity to summarize the papers presented by the four paper presenters in just ten minutes.

You are required to:

a. Explain briefly, Tax Planning and Anti-Avoidance Legislations put in place by the Government (3 Marks).

b. Summarize situations that may involve Tax Evasion (4 Marks).

c. Explain Double Taxation Agreement – Provisions and the Main Objectives (4 Marks).

d. Summarize Non-tax factors that attract investors in choosing a business jurisdiction (4 Marks).

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AT – Nov 2016 – L3 – SC – Q7 – Tax Planning and Management"

  • 15 Marks

AT – Nov 2016 – L3 – SC – Q6 – Petroleum Profits Tax (PPT)

Explain associated gas and downstream activities and compute petroleum profits tax for Bivenette Petroleum Company Ltd.

a. The administration of the Petroleum Profits Tax Act is under the charge and management of the Federal Inland Revenue Service with respect to Petroleum Profits Tax Act Cap P13 LFN 2004.

You are required to explain:
i. Associated Gas (2 Marks)
ii. Downstream Activities (2 Marks)

b. Bivenette Petroleum Company Limited has been in the oil prospecting business for some years. Extracts from the financial statements for the year ended December 31, 2013, show the following information:

Details Amount (₦’000)
Value of oil exported 1,030,000
Domestic sales 842,000
Chargeable gas sales 603,000
Other income 425,000
Operating costs 1,385,000
Intangible costs 142,800
Royalty on export sales 125,000
Royalty on local sales 96,500
Non-productive rent 102,000
Exploration incentives 313,500
Rental 101,200
Interest paid 98,000
Administrative expenses 265,000

Additional Information:
(i) The Petroleum Profits Tax rate is 85%.
(ii) Interest paid included ₦12,000,000 paid to an affiliated company.
(iii) Capital allowances were agreed at ₦253,750,000.
(iv) Included in the operating cost is ₦302,000,000 paid to a company for information on oil prospect in Adamawa State.
(v) The company is entitled to Investment Allowance of ₦173,000,000.

Required:
Determine the Assessable Profit, Chargeable Profit, Assessable Tax, and Chargeable Tax of the company for the relevant Year of Assessment. (11 Marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AT – Nov 2016 – L3 – SC – Q6 – Petroleum Profits Tax (PPT)"

  • 15 Marks

AT – Nov 2016 – L3 – SC – Q5 – Tax Incentives and Reliefs

Identify industries qualifying as Pioneer Industries and compute tax liabilities and withholding tax for Ajanaku Nigeria Limited.

a. **One of the incentives available to industries in Nigeria is contained in the Industrial Development (Income Tax Relief) Act 1971, which grants tax holidays to companies in the industries that meet the conditions for being designated “Pioneer Industries.”

Under the Industrial Development (Income Tax Relief) Act 1971, state any FOUR industries that qualify to be regarded as Pioneer Industries.** (4 Marks)

b. Ajanaku Nigeria Limited was incorporated as a pioneer company on March 15, 2011, with a focus on the manufacture of aluminum roofing sheets. It was granted a Pioneer Certificate with Production Day given as July 1, 2011. Extracts of Audited Financial Statements are as shown below:

Period 6 Months to 31/12/11 Year to 31/12/12 Year to 31/12/13 Six Months to 30/6/14
(Loss) / Profit (3,750) (4,800) 2,250 4,500
After Charging: Depreciation 2,800 2,500 1,700 1,000
Withholding Tax on Rent Included 500 250 – –
Donations to:
Epe Traditional Dance Troupe 10 – – –
Nigerian Red Cross – 100 – –
Borno State General Hospital – – 120 –

Additional Information:

  • Ajanaku Nigeria Limited declared gross dividends of ₦600,000 and ₦1,500,000 for 2013 and 2014, respectively.
  • Withholding tax rates on dividends for the relevant years are 10%.
  • Ignore minimum tax provisions.
  • The company’s initial tax relief period was not extended.

Required:
Compute the tax liabilities for the relevant years of assessment relating to Pioneer Status only, and state the amount of Withholding Tax due from the shareholders. (11 Marks)

a. Four Industries Qualifying as Pioneer Industries:

  1. Agricultural production, including food processing and packaging.
  2. Manufacturing, such as aluminum products and roofing sheets.
  3. Mining and processing of minerals, including petroleum refining.
  4. Telecommunication and information technology.

b. Computation of Tax Liabilities and Withholding Tax for Ajanaku Nigeria Limited:

Step 1: Pioneer Period

  • Pioneer period runs from July 1, 2011, to June 30, 2014.

Step 2: Loss/Profit Exemption During Pioneer Period

  • Losses incurred during the pioneer period are disregarded for tax purposes.
  • Profits during the pioneer period are exempt from tax.

Step 3: Dividend Withholding Tax (WHT):

Year Gross Dividend (₦’000) Withholding Tax Rate (%) WHT Amount (₦’000)
2013 600 10 60
2014 1,500 10 150

Total Withholding Tax Due = ₦60,000 + ₦150,000 = ₦210,000.

Final Tax Liabilities:

  • Since Ajanaku Nigeria Limited’s profits during the pioneer period are exempt from tax, Tax Liability = ₦0.

Withholding Tax Due from Shareholders:

  • Total Withholding Tax on dividends for 2013 and 2014 is ₦210,000.

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AT – Nov 2016 – L3 – SC – Q5 – Tax Incentives and Reliefs"

  • 6 Marks

AT – Nov 2016 – L3 – Q2a – Tax administration in Ghana

Evaluate the effects of government borrowing on Ghana's economy and discuss how taxation serves as a fiscal tool in fiscal policy.

a) The current level of government borrowing has become a topical issue for discussion, causing observers to wonder whether borrowing is good or bad. In the light of this, you are required to:

i) Evaluate the effect of government borrowing on the economy of Ghana. (4 marks)
ii) Discuss how taxation can be used as a fiscal tool in fiscal policy. (6 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AT – Nov 2016 – L3 – Q2a – Tax administration in Ghana"

  • 10 Marks

AT – Nov 2016 – L3 – Q1c – Tax administration in Ghana

Advise a client on VAT/NHIL issues related to credit sales, instalment payments, sale-or-return, and tax relief.

c) You have been appointed as a Tax consultant in a firm in Tabora, Accra. A client approached you one month after your appointment, and asked for your advice with their business records and Value Added Tax and National Health Insurance Levy (VAT/NHIL) returns.

i) One of their customers to whom they sold goods on credit worth GH¢12,500 inclusive of VAT has gone officially bankrupt. The company had paid the VAT on the transaction three months ago.
ii) In March 2015, the client in order to boost sales started selling to customers on 12 months equal instalments payment with some small interest. He is confused as to how to determine the amount of the VAT/NHIL and when he should pay the VAT/NHIL.
iii) The company sold goods worth GH¢17,000 in March 2015, on a sale-or-return basis, but the company is not clear as to when to account for the VAT/NHIL on the sale and what happens to the VAT/NHIL paid if the customer returns the goods.
iv) The company sold stationery and office equipment worth GH¢30,000 to a Jude Power Manufacturing Company in Accra. The accountant of Jude Power informed them that their company is relieved from paying VAT/NHIL, so they will not pay.

Required:
Advise your client on issues raised in “i-iv” concerning VAT/NHIL returns. (10 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AT – Nov 2016 – L3 – Q1c – Tax administration in Ghana"

  • 10 Marks

AT – Nov 2016 – L3 – Q1a&b – Business income – Corporate income tax

Calculate the tax due to GRA for the year 2014 based on the income statement of Samada Insurance Company.

You have been appointed as the Tax Manager of Samada Insurance Company. The Executive Director has expressed his persistent worry with the Chief Accountant to accurately calculate the company’s tax obligations to agree with what is assessed by the Ghana Revenue Authority each year. He has thus, provided you with the Income Statement below for your consideration and advice.

SAMANDA INSURANCE COMPANY LIMITED
Income Statement for the years ended 2013 and 2014

  1. Additional Information:
    i) Capital allowance agreed for the year 2014 was GH¢2,450,000
    ii) Reserve is calculated at 40% of Net premium.

Required:
a) Compute the tax due to the GRA for 2014 year of Assessment. (8 marks)

b) Support your computations with relevant explanations. (2)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "AT – Nov 2016 – L3 – Q1a&b – Business income – Corporate income tax"

  • 8 Marks

MA – Nov 2016 – L2 – Q5b – Budgetary control

Identify and explain reasons for the unsuccessful implementation of budgetary control systems in organizations.

Budgetary control is one of the important tools used by management, yet most organizations are unable to derive its full benefits.

Required:
Identify and explain FOUR reasons that may account for the unsuccessful implementation of a budgetary control system.

(8 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MA – Nov 2016 – L2 – Q5b – Budgetary control"

  • 12 Marks

MA – Nov 2016 – L2 – Q5a – Discounted cash flow

Calculate the NPV break-even point under different cost of capital scenarios and determine the project's duration based on given cash inflows.

DDB Limited has decided to set up a factory to process groundnuts into oil. The feasibility studies cost them GH¢35,000. The consultants have advised that the initial outlay will be GH¢250,000; however, they were unable to estimate the cash inflow due to the uncertain economic environment.

Required:
Using NPV as an appraisal technique, you are required to calculate:

i) The constant cash inflow needed to break even if the cost of capital is 15% and the project is to last for 10 years.

(4 marks)

ii) By how much should the cash inflow increase to break even if the cost of capital is increased to 20%. (4 marks)

iii) If the cash inflow is GH¢45,000, for how long should the project run to break even if the cost of capital is 15%.

(4 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MA – Nov 2016 – L2 – Q5a – Discounted cash flow"

  • 5 Marks

MA – Nov 2016 – L2 – Q4b – Performance analysis

Describe the balanced scorecard approach to performance measurement, highlighting its components and importance.

Describe the balanced scorecard approach to performance measurement. (5 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MA – Nov 2016 – L2 – Q4b – Performance analysis"

  • 15 Marks

MA – Nov 2016 – L2 – Q4a – Standard costing and variance analysis

Calculate various sales, material, labour, and overhead variances for Jungle Twist Ltd based on the provided data.

Jungle Twist Ltd manufactures quality blocks for the housing industry in Ghana. It operates a standard marginal costing system. The following standard costs, volume, and revenue data for the quarter ending 31 October 2015 are provided:

Standard cost card:

  • Selling price: GH¢18 per block
  • Costs:
    • Direct material P: 3 kg at GH¢2.60 per kg
    • Direct material Q: 2 kg at GH¢2.50 per kg
    • Direct labour: 2 hours at GH¢0.60 per hour
    • Variable overheads: GH¢0.50 per direct labour hour
  • Budgeted sales for the quarter: 62,500 blocks
  • Variable overheads are absorbed at the rate of GH¢0.50 per direct labour hour.
  • Fixed production overhead for the quarter is estimated to be GH¢78,500.

The following actual results were recorded for the quarter just ended 31 October 2015:

  • Production: 60,000 blocks
  • Sales: 58,000 blocks
  • Selling price: GH¢17.00 per block
  • Direct material P: 150,000 kg were bought and used at GH¢360,000
  • Direct material Q: 109,000 kg were bought and used at GH¢327,000
  • Direct labour: 108,000 hours were worked for at a cost of GH¢90,400
  • Variable overheads: GH¢82,000
  • Fixed production overheads: GH¢80,000

Required:
Calculate the following variances for the quarter just ended 30 September 2015:

i) Sales volume and sales price variances; (3 marks)

ii) Price and usage variances for each material; (3 marks)

iii) Mix and yield variance for each material; (3 marks)

iv) Labour rate, labour efficiency, and idle time variances; (3 marks)

v) Variable overheads expenditure and variable overheads efficiency variances. (3 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MA – Nov 2016 – L2 – Q4a – Standard costing and variance analysis"

  • 5 Marks

MA – Nov 2016 – L2 – Q3c – Budgetary control, Performance analysis

Explain the controllability principle and budgetary slack in the context of responsibility accounting.

Explain the following concepts and describe their application in responsibility accounting:

i) The controllability principle (2.5 marks)

ii) Budgetary slacks (2.5 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MA – Nov 2016 – L2 – Q3c – Budgetary control, Performance analysis"

  • 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)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MA – Nov 2016 – L2 – Q3b – Relevant cost and revenue"

  • 12 Marks

MA – Nov 2016 – L2 – Q3a – Decision making techniques

Advise on whether to further process joint products or sell at split-off based on cost and revenue analysis.

Pinto Company Limited processes materials into finished products. After process one, two main products PEF and CEF are turned out. The production processes allow for 10% normal loss at process one and 5% for each product if it is to be processed further. The scrap at process one can be sold for GH¢6.60 per unit. The standard prices of the products are as follows: PEF to be sold at split-off point for GH¢17 per unit but can be sold for GH¢28 per unit after further processing. A unit of CEF can also be sold for GH¢16 at split-off point or GH¢25 after further processing. Further processing costs are: PEF; direct materials GH¢4 per unit and conversion GH¢3.50 per unit. The materials and conversion costs per unit for CEF are GH¢5 and GH¢4 respectively.

In the month of August 2016, 6,000 units were processed through process one at the following costs: direct materials GH¢40,000, conversion GH¢32,000. The output at the end of process one was 3,000 units for PEF and 2,000 units for CEF.

Required:

Advise management on which of the products should be processed further and which should be sold at split-off point if volume is used to share common cost. (12 marks)

Login or create a free account to see answers

Login
Register

Find Related Questions by Tags, levels, etc.

Report an error
Report an error

You're reporting an error for "MA – Nov 2016 – L2 – Q3a – Decision making techniques"

Elevate your professional expertise across key business domains with our comprehensive training programs

Our offerings

Contact Info

  • +233203701923
    +233543919232
  • info@nbcinstitute.com

Customer

Get In Touch

Follow us on our social media and get daily updates.

Facebook-f Twitter Linkedin-in Envelope
Oops!

This feature is only available in selected plans.

Click here to view all 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.

Login
Upgrade Plan

If you’re not subscribed to a plan, click on the button below to choose a plan

Subscribe to a plan