Subject: INTRODUCTION TO MANAGEMENT ACCOUNTING

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  • 5 Marks

ICMA – Nov 2024 – L1 – Q5b – Budgeting Models and Systems

Explain the benefits of GIFMIS to the government of Ghana.

Efforts to improve Public Financial Management (PFM) Systems in Ghana led to the Ghana Integrated Financial Management Information System (GIFMIS), which is an adaptation of the Integrated Financial Management Information System (IFMIS). The rationale of GIFMIS is to establish an integrated ICT-based PFM system in Ghana at national, regional, and district levels.

Required:

State FOUR benefits of GIFMIS to the government of Ghana.

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  • 15 Marks

ICMA – Nov 2024 – L1 – Q5a – Cost Segregation and Estimation

Determine fixed and variable cost components using regression analysis and estimate total cost for a given production level.

Ebo LTD is planning to determine its variable and fixed cost elements for its planned activity level for the next year. The company has recorded the following costs and production units in the past six months:

Month Units (X) Cost (Y)
January 5.8 40.3
February 7.7 47.1
March 8.2 48.7
April 6.1 40.6
May 6.5 44.5
June 7.5 47.1

Required:

i) Construct the least square regression model. 
ii) Determine the variable cost per unit of output using the model. 
iii) Determine the fixed cost for the month using the model. 
iv) Estimate the total cost if the company plans to produce 6,200 units.

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  • 6 Marks

ICMA – Nov 2024 – L1 – Q4b – Day-Rate Incentive Scheme Calculation

Calculates the cost per unit for both low and high day-rate incentive schemes.

Amanda LTD – Day-Rate Incentive Scheme
Amanda LTD is a manufacturing company and its management is considering the introduction of a high day-rate incentive scheme. During one of such production periods, record shows that, if an employee makes 100 units in a 40-hour week, the employee is paid GH¢2 per hour, but if 120 units are made, the employee is paid GH¢2.50 per hour. Production overhead is added to cost at the rate of GH¢2 per direct labour hour.

Required:
i) What is the cost per unit for the low day-rate scheme?
ii) What is the cost per unit for the high day-rate scheme?

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  • 14 Marks

ICMA – Nov 2024 – L1 – Q4a – Apportionment of Overheads

Apportion overhead costs across departments based on the most appropriate bases.

: Apportionment of Overheads
The following expenses were estimated for the month of June 2024:

Item GH¢
Electricity 80,000
Rent 18,000
Property rate 6,000
Insurance premium (office equipment) 15,000
Internet and communication 25,000
Indirect wages 60,000

There are three departments: A, B, and C. The following additional information has been provided:

Department Area occupied (sq. metres) Number of customers Number of employees Value of office equipment (GH¢)
A 300 700 120 50,000
B 450 600 150 40,000
C 250 500 130 60,000

Required:
Apportion the above overheads using the most appropriate base and determine the total overhead for each department.

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  • 4 Marks

ICMA – Nov 2024 – L1 – Q3d – Fixed Overhead Volume Variance

Explains the concept of fixed overhead volume variance and lists potential causes for such variances.

Fixed Overhead Volume Variance
Fixed overhead volume variance (FOVV) measures the difference between the actual fixed overheads incurred and the fixed overheads that should have been incurred at the actual level of activity.

Required:
Explain fixed overhead volume variance and TWO possible causes of such variances.

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  • 6 Marks

ICMA – Nov 2024 – L1 – Q3c – Material and Labour Variances

Calculates material and labour variances based on given actual and standard cost data.

Material and Labour Variances
The data below relates to Agbamame Enterprise for its flagship product, “Herb of Life”:

Standard Cost Card – Per Unit of Herb of Life

Description Cost (GH¢)
Direct materials 5 kg at GH¢4 per kg = GH¢20
Direct labour 4 hours at GH¢15 per DLH = GH¢60
Variable overhead 4 hours at GH¢20 per DLH = GH¢80
Fixed overhead GH¢50 per unit

Budgeted production: 600 units
Actual sales and production: 550 units

Actual cost of:

Actual Costs Cost (GH¢)
Labour (1650 hours) 16,500
Materials (1650 kg) 5,775
Fixed overhead 15,000
Variable overhead 13,275

Data shows that 5% of labour hours paid for was idle, and 10% of materials bought was in stock at the end of the period.

Required:
i) Calculate the material variances.
ii) Calculate the labour variances.

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  • 4 Marks

ICMA – Nov 2024 – L1 – Q3b – Relevant Cost Concepts

Explains two key concepts of relevant cost used in decision-making.

Relevant Cost
Relevant cost should be used for assessing the economic and financial consequences of any decision made by management. Only relevant cost and benefits should be taken into consideration when evaluating the financial consequences of a decision.

Required:
Explain TWO key concepts of relevant cost.

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  • 6 Marks

ICMA – Nov 2024 – L1 – Q3a – Value for Money (VFM)

Explains the components of Value for Money (VFM) in the public sector.

Value for Money (VFM)
Value for Money (VFM) is an objective that can be applied to any organization whose main objective is non-financial but has restrictions on the amount of finance available for spending, which the public sector is no exception.

Required:
Explain the components of VFM.

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  • 5 Marks

ICMA – Nov 2024 – L1 – Q2c – Government Budgeting Challenges

Identifies and explains the challenges or limitations in government budgeting.

Challenges in Government Budgeting
Budgeting in the public sector relates to a process of translating government plans and policies into financial terms by systemically relating cost to attaining the objectives of government plans and policies. As important as this process is, there are some challenges and limitations associated with government budgeting.

Required:
State FOUR challenges (limitations) of government budgeting.

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  • 8 Marks

ICMA – Nov 2024 – L1 – Q2b – Working Capital

Calculates total amount held in working capital excluding cash and equivalents.

Working Capital Calculation
A company has annual sales revenues of GH¢45 million and the following working capital periods:

Working Capital Item Period (months)
Inventory conversion period 2.5
Accounts receivable collection period 2.0
Accounts payable payment period 1.5

Production costs are 70% of sales revenue.

Required:
Calculate the total amount held in working capital excluding cash and cash equivalents.

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  • 20 Marks

IMAC – NOV 2021 – L1 – Q2 – Budgeting

Preparation of a flexed budget for Nam & Co. and identification of rules in a budget manual.

Notes:
i) The fixed cost in the semi-variable cost is GH¢10,000.
ii) The budgeted units were 10,000, but actual units for the quarter were 17,000.

Required:
Prepare a Flexed Budget for the first quarter. (15 marks)

b) In the budget preparation process, the Budget Manual is an important element. This is because it guides everyone in the budget preparation value chain.

Required:
Identify FIVE (5) rules and instructions that a Budget Manual will set out. (5 marks)

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  • 20 Marks

IMAC – NOV 2021 – L1 – Q1 – Budgeting

CVP analysis with calculation of contribution/sales ratio, total fixed costs, and breakeven sales value. Preparation of a flexed budget and identification of budget manual rules.

a) Cost-Volume-Profit (CVP) analysis is a way to find out how changes in variable and fixed costs affect a firm’s profit. Companies can use CVP to assess the impact on profit taking into consideration some assumptions.

Required:
State FIVE (5) assumptions underlying Cost-Volume-Profit Analysis. (5 marks)

b) The following data has been extracted from the operating records of Sharp Production Ltd:

Year Costs (GH¢) Profit (GH¢)
2019 402,000 54,000
2020 510,000 90,000

Required: i) Calculate the contribution/sales ratio for the company. (5 marks) ii) Compute the total fixed costs per annum. (5 marks) iii) Compute the sales value required to breakeven. (5 marks)

 

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  • 20 Marks

IMAC – MAY 2021 – L1 – Q5 – Cost Segregation and Estimation | Forecasting | Standard Costing and Variance Analysis

Apportionment of service center costs to production departments and calculation of direct materials price variance.

a) A company is preparing its annual budget and it is estimating the number of units of Product W that would be sold in each quarter of year 2. Past experience has shown that the trend for sales of the product is represented by the following relationship:

y = a + bx where: y = quantity of sales units in the quarter a = 15,000 b = 3,000 x = the quarter number where 1 = quarter 1 of year 1

Actual sales of Product W in year 1 were affected by seasonal variations and were as follows:

Quarter Actual Sales Units
1 20,250
2 19,425
3 25,200
4 24,300

Required: Calculate the expected unit sales of Product W for each quarter of year 2, after adjusting for seasonal variations using the multiplicative model. (6 marks)

b) The records of direct labour hours and total factory overhead cost of Cooper Limited over the first six months of its operations are given below:

Month Direct Labour Hours Total Factory Overheads (GH¢000)
September 50,000 14,800
October 80,000 17,000
November 120,000 23,800
December 40,000 11,900
January 100,000 22,100
February 60,000 16,150

Management is interested in distinguishing between the fixed and variable portions of the overheads.

Required: Using the least square regression method, estimate the variable cost per direct labour hour and the total fixed cost per month. (9 marks)

c) State and explain the methods used in setting: i) Direct Material Cost Standard. (2.5 marks) ii) Direct Labour Cost Standard. (2.5 marks)

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  • 20 Marks

IMAC – MAY 2021 – L1 – Q4 – Accounting for Overheads

Apportionment of service center costs to production departments and calculation of direct materials price variance.

a) The summary of overheads for the three production departments and two service departments of a company have been provided below.

Department A B C S1 S2
Overheads (GH¢) 20,000 15,000 25,000 18,000 12,000

The service departmental costs are apportioned as follows:

A B C S1 S2
S1 25% 30% 35% – 10%
S2 30% 30% 25% 15% –

Required: Apportion the service center costs and determine the total production departments’ overheads after the apportionment. (15 marks)

b) Concrete Masters Ltd uses two main materials, Q and R, in the manufacture of its concrete blocks for sale. The materials are combined in the ratio 3:2 respectively. The following information has been extracted from the operating records of the company for the half-year ended 31 December, 2020:

Standard prices:

Material Price (GH¢)
Q 50
R 30

Actual Results:

Material Quantity (kg) Total Cost (GH¢)
Q 9,000 405,000
R 8,000 256,000

Required: Compute the Direct Materials Price Variance for each material and the total for the company. (5 marks)

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  • 20 Marks

IMAC – MAY 2021 – L1 – Q3 – Relevant Cost and Revenue

Identifying relevant and irrelevant costs for a construction contract, and qualities and uses of management accounting information.

a) Kwame Adjei has been invited to bid for a contract to construct a place of convenience for a school at Gorlu in the Upper East Region. He has estimated the following expenses to be incurred to execute the contract.

  • Cost of concrete mixer bought at GH¢70,000 three years ago, has a written down value of GH¢52,000.
  • Stones bought six months ago at GH¢1,800 per trip currently sells at GH¢2,200 per trip. The contractor constantly uses the stones.
  • 200 bags of cement bought three months ago at GH¢40 per bag, currently sells at GH¢45 per bag.
  • Sand to be bought at GH¢900 per trip.
  • Each mason is to be paid GH¢80 per day.
  • 600 pieces of 5” blocks sells at GH¢3 per piece.

Required: i) Identify and explain TWO (2) costs that cannot be used in bidding for the contract. (4 marks)

ii) Identify and explain THREE (3) costs that can be used to bid for the contract. (6 marks)

b) Outline FIVE (5) qualities of good management accounting information system. (5 marks)

c) State and explain FIVE (5) uses of costs and management accounting information to a profit-making organisation. (5 marks)

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  • 20 Marks

IMAC – MAY 2021 – L1 – Q2 – Budgeting | Cost and Cost Behaviour | Relevant Cost and Revenue

QR activity-based budgeting system for products Q and R, and working capital calculation for a company.

a) QR uses an activity based budgeting (ABB) system to budget product cost. It manufactures two products, product Q and product R. The budget details for these two products for the forthcoming period are as follows:

Product Q Product R
Budgeted production (units) 80,000 120,000
Number of machine setups per batch 4 3
Batch size (Units) 5,000 4,000

The total budget cost of setting up the machine is GH¢74,400.

Required: i) State and explain THREE (3) objectives of budgeting. (6 marks)

ii) Calculate the budgeted machine setup cost per unit of product Q and R. (5 marks)

iii) State THREE (3) benefits and TWO (2) limitations of using an activity-based budgeting system. (5 marks)

b) A company has annual sales revenues of GH¢30 million and the following working capital periods:

Period Months
Inventory conversion period 2.5
Accounts receivable collection period 2.0
Accounts payable payment period 1.5

Production costs represent 70% of sales revenue.

Required: Calculate the total amount held in working capital excluding cash and cash equivalents. (4 marks)

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  • 20 Marks

IMAC – MAY 2021 – L1 – Q1 – Marginal Costing and Absorption Costing

Prepare profit and loss statements for QQQ Ltd using marginal and absorption costing techniques.

The following data has been extracted from the operating records of QQQ Ltd for the last two quarters of the year to 31 December 2020:

Quarter 3 4
Production units 7,000 8,500
Sales units 5,500 9,500
Description Amount (GH¢)
Selling price per unit 100
Direct material cost per unit 20
Direct labour cost per unit 15
Variable overheads per unit 10
  • Fixed production overheads are budgeted at GH¢120,000 for a budgeted production of 8,000 units per quarter. These overheads are absorbed on a per unit of production basis.
  • Non-production overheads comprised:
    • Fixed administration expenses GH¢40,000 per quarter
    • Selling and distribution expenses 10% of sales

Required:
a) Prepare a statement of profit or loss for each quarter using the Marginal Costing technique. (10 marks)

b) Prepare a statement of profit or loss for each quarter using the Absorption Costing technique. (10 marks)

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  • 20 Marks

IMAC – NOV 2020 – L1 – Q5 – Forecasting

Explain features of time series; prepare a histogram and analyze sales trends; explain overhead accounting terminologies.

a) Explain in brief the following features of time series:
i) Trend.
ii) Seasonal variation.
iii) Random variation.
(6 marks)

b) The following table relates to sales of Emefa Ltd for a three-year period:

Year 1st Quarter (GH¢’000) 2nd Quarter (GH¢’000) 3rd Quarter (GH¢’000) 4th Quarter (GH¢’000)
Year 1 200 150 180 260
Year 2 220 190 210 280
Year 3 240 200 220 300

Required:
i) Prepare a histogram using the above sales figures. (7 marks)
ii) Describe the trend of performance of the company. (2 marks)

c) Explain the following terminologies as used in accounting for overheads in management accounting:
i) Apportionment
ii) Allocation
iii) Allotment
iv) Absorption
v) Over/(under) absorption
(5 marks)

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  • 20 Marks

IMAC – NOV 2020 – L1 – Q4 – Accounting for Overheads | Standard Costing and Variance Analysis

Prepare overhead analysis sheet and calculate standard costing variances for Kack Ltd.

a) The following information relates to the first quarter of operations for Kack Ltd:

Machining Assembling Finishing Stores
Area occupied (sq. meters) 12,000 18,000 8,000 2,000
Plant at cost (GH¢000) 600 100 200 100
Number of employees 200 400 100 100
Direct labour hours 16,000 30,000 4,000 –
Direct wages (GH¢) 32,000 60,000 8,000 –
Machine hours 32,000 4,000 4,000 –
Number of requisitions on stores 3,000 1,000 1,000

Allocated costs:

Costs Machining (GH¢) Assembling (GH¢) Finishing (GH¢) Stores (GH¢) Total (GH¢)
Indirect wages 16,000 15,000 14,000 10,000 55,000
Indirect materials 3,000 2,400 6,000 10,000 21,400
Maintenance 3,000 6,000 1,000 – 10,000
Power 4,000 4,000 2,000 – 10,000
Rent 6,000 9,000 4,000 1,000 20,000
Business rates 6,000 9,000 4,000 1,000 20,000
Insurance on building 6,600 9,900 4,400 1,100 22,000
Lighting and heating 7,200 10,800 4,800 1,200 24,000
Depreciation on plant 12,000 2,000 4,000 2,000 20,000
Wage-related costs 8,960 16,800 2,240 – 28,000
Factory administration 3,500 7,000 1,750 1,750 14,000
Insurance on plant 10,800 1,800 3,600 1,800 18,000
Cleaning of factory premises 3,600 5,400 2,400 600 12,000
Total 90,660 99,100 54,190 30,450 274,400

(10 marks evenly spread)

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  • 20 Marks

IMAC – NOV 2020 – L1 – Q3 – Cost and Cost Behaviour

Explain various cost terms in management accounting; identify characteristics of services.

a) Cost is a generic term used by accountants to mean the expenses that are incurred in the production of goods and the delivery of services. The nature of cost is, however, well understood by a preceding adjective.

Required:
Explain the difference between the following cost terms as used in Management Accounting:
i) Direct and Indirect cost. (3 marks)
ii) Fixed and Variable cost. (3 marks)
iii) Controllable and Uncontrollable cost. (3 marks)
iv) Full and Marginal cost. (3 marks)
v) Production and Non-Production cost. (3 marks)

b) Costs can be established for services and operations in the same way as for physical goods even though services are different from physical goods.

Required:
Identify and explain TWO (2) characteristics of services. (5 marks)

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