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 2020 – L1 – Q2 – Cash Budgeting and Working Capital

Prepare cash budget for FG Ltd; explain the usefulness of cash budgets and calculate the cash operating cycle.

a) FG Ltd is preparing its cash budget for January, February, and March 2020. Budgeted data are as follows:

November December January February March
Sales (Units) 750 800 800 850 900
Production (Units) 800 800 850 900 950
Direct labour & variable overhead incurred GH¢48,000 GH¢48,000 GH¢51,000 GH¢54,000 GH¢57,000
Fixed overhead incurred (excluding depreciation) GH¢20,000 GH¢20,000 GH¢20,000 GH¢20,000 GH¢20,000
  • The selling price per unit is GH¢200. The purchase price per kg of raw material is GH¢25. Each unit of finished product requires 2kg of raw materials which are purchased on credit in the month before they are used in production. Suppliers of raw materials are paid one month after purchase.
  • All sales are on credit. 80% of customers pay one month after sale and the remainder pays two months after sale.
  • The direct labour cost, variable overheads, and fixed overheads are paid in the month in which they are incurred.
  • Machinery costing GH¢100,000 will be delivered in February and paid for in March.
  • Depreciation, including that on the new machinery, is as follows:
    • Machinery and equipment GH¢3,500 per month
    • Motor vehicle GH¢800 per month

The opening cash balance on 1 January is estimated to be GH¢15,000.

Required:
i) Prepare a cash budget for each of the three months January, February, and March. (12 marks)
ii) State and explain FOUR (4) usefulnesses of cash budgets. (4 marks)

b) A company’s sales revenue for the year just ended was GH¢28 million. The company earned a gross margin of 40% on sales. All sales and purchases were on credit.

The following balances have been extracted from the year-end accounts:

  • Inventory: GH¢4 million
  • Accounts receivable: GH¢6 million
  • Accounts payable: GH¢3 million

Required:
Calculate, to the nearest whole number, the company’s cash operating cycle based on the year-end figures. (4 marks)

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  • 20 Marks

IMAC – NOV 2020 – L1 – Q1 – Cost-Volume-Profit (CVP) Analysis

Explain break-even point and margin of safety; calculate CVP metrics for Kack Ltd.

a) Explain the terms break-even point and margin of safety as used in cost-volume-profit (CVP) analysis in short term decision making. (4 marks)

b) Kack Ltd is a company which uses cost-volume-profit analysis for planning and control decisions. You have been given the following information for the just ended operational period:

Description Amount (GH¢)
Total revenue 3,600,000
Total cost 3,510,000
Variable cost 2,700,000

Required:
i) Variable cost/sales ratio. (1 mark)
ii) Contribution/sales (C/S) ratio. (2 marks)
iii) Break-even sales (in value). (2 marks)
iv) Margin of safety (in value). (1 mark)
v) Margin of safety (in percentage). (1 mark)
vi) The sales value which would yield a profit of GH¢270,000 assuming the C/S ratio and fixed costs remain unchanged. (3 marks)
vii) The sales value which would yield a profit of 15% of that sales value assuming the C/S ratio and the fixed costs remain unchanged. (3 marks)
viii) The break-even sales value if total fixed costs are reduced by GH¢180,000 while the selling price is reduced by 10%, assuming no changes in variable costs ratio. (3 marks)

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  • 20 Marks

IMAC – MAY 2020 – L1 – Q5 – Forecasting | Standard Costing and Variance Analysis

Calculate sales trend using moving average and line of best fit; identify sources of information for standard prices.

a) The monthly sales of Danamo Company Limited have been given as follows:

Monthly Sales (GH¢’000) Moving Total (GH¢’000)
April 150
May 140
June 160
July 180
August 200
September 190
October 220
November 230
December 250

Required:
i) Using the three-month moving average, calculate the trend. (3 marks)

ii) Using the line of best fit, estimate the sales of January, February, and March of the following year. (12 marks)

b) State and explain FIVE (5) sources of information that may be considered in setting standard prices for materials in Management Accounting. (5 marks)

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  • 20 Marks

IMAC – MAY 2020 – L1 – Q4 – Accounting for Inventory and Labour | Standard Costing and Variance Analysis

Compare FIFO and weighted average inventory valuation, compute profit, and explain standard costing concepts.

a) Grains Dealers Ltd is in the business of buying farm produce in bulk from out-growers for onward sale to manufacturers. In view of the huge volumes of receipt and sale transactions, the company is unable to use the specific pricing method for valuing inventories. The company needs advice on the impact on profit of using the FIFO or Weighted Average methods of inventory valuation. The following data has been extracted for the month of October 2019 for use:

Inventory balance as at 01/10/19 was 800 units at GH¢4 per unit.

Date Purchases Sales
Quantity Price (GH¢)
05/10/2019 1,200 5.00
10/10/2019
12/10/2019 1,500 6.00
15/10/2019 1,800 7.25
18/10/2019
25/10/2019 2,400 8.00
28/10/2019

Additional information:
A physical inventory count on 31 October 2019 revealed a shortage of 200 units.

Required:
i) Prepare the inventory ledger showing the value of costs of inventory sold, and the closing inventory on the basis of the perpetual inventory valuation system under:

  • FIFO Method (6 marks)
  • Weighted Average Method (6 marks)

ii) Compute the profit for the month for each method in columnar form. (3 marks)

b) Explain the following as used in standard costing and variance analysis:
i) Ideal standard;
ii) Attainable standard; (5 marks)

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  • 20 Marks

IMAC – MAY 2020 – L1 – Q3 – Cost-Volume-Profit (CVP) Analysis | Decision-making techniques

Identify public sector decision areas for management accounting, suggest improvement techniques, and state CVP analysis assumptions.

) Management Accounting provides information for planning, control, and decision-making. It has been argued that Public Sector entities can even benefit more from Management Accounting than profit-making entities.

Required:
i) Identify FOUR (4) decision areas of the Public Sector where Management Accounting can be applied. (6 marks)
ii) Suggest an appropriate technique that can be used to improve decision-making in such areas. (9 marks)

b) State FIVE (5) assumptions underlying cost-volume-profit analysis in managerial accounting. (5 marks)

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  • 20 Marks

IMAC – MAY 2020 – L1 – Q2 – Budgeting

Explain objectives of budgeting, prepare production and material budgets, and describe principal budget factor.

a) Budgeting has several objectives:
i) Planning;
ii) Control;
iii) Performance evaluation;
iv) Motivation.

Required:
Explain TWO (2) of the above objectives of budgeting and how the TWO (2) objectives explained could conflict with each other. (4 marks)

b) A company produces two products, A1 and A2, that are sold to retailers. The budgeted sales volumes for the products are as follows:

Product Units
A1 32,000
A2 56,000

The inventory of finished goods is budgeted to increase by 1,000 units of A1 and decrease by 2,000 units of A2 by the end of the quarter.

Materials B3 and B4 are used in the production of both products.
The quantities required of each material to produce one unit of the finished product and the purchase prices are shown in the table below:

Material B3 B4
A1 8kg 4kg
A2 4kg 3kg
Purchase price per kg GH¢1.25 GH¢1.80
Budgeted opening inventory 30,000kg 20,000kg

The company plans to hold inventory of raw materials, at the end of the quarter, of 5% of the quarter’s material usage budget.

Required:
Prepare the following budgets for the quarter:
i) The production budget (in units) (2 marks)
ii) The material usage budget (in kg) (4 marks)
iii) The material purchases budget (in kg and GH¢) (6 marks)

c) Explain the term “Principal Budget Factor” as used in budgeting control and give TWO (2) examples from a financial institution. (4 marks)

 

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  • 20 Marks

IMAC – MAY 2020 – L1 – Q1 – Marginal Costing and Absorption Costing

Prepare profit or loss statements using marginal and absorption costing for Smooth Sailing Ltd.

Additional information:
Fixed production overheads are budgeted to be GH¢40,000 per month for a budgeted monthly
production of 20,000 units. Production overheads are absorbed on a unit of production basis.
Required:
a) Using marginal costing principles, prepare a statement of profit or loss for the THREE (3)
months to September 2019. (10 marks)
b) Using absorption costing principles, prepare a statement of profit or loss for the THREE (3)
months to September 2019. (10 marks)

 

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  • 20 Marks

IMAC – NOV 2019 – L1 – Q5 – Standard Costing and Variance Analysis

Calculate seasonal variation using moving averages and explain uses of standard costing.

Question:
FB Logistics has been clearing containers from the port of Tema over the past seven years. Management is aware that the business has been facing seasonal fluctuations but there is no scientific basis for the determination of such variations that can be used to predict future revenue.

As a newly engaged Cost Accountant, you have been provided with some past quarterly performance over a three-year period. Details of the performance are shown below:

Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1 120 140 160 180
2 180 160 185 210
3 150 200 230 220

Required:
Using quarterly moving average, calculate the seasonal variation for the company. (15 marks)

b) Standards as used in performance measurement are norms or benchmarks set for comparison purposes in performance evaluation.

Required:
Explain FIVE (5) uses of standard costing. (5 marks)

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  • 20 Marks

IMAC – NOV 2019 – L1 – Q4 – Accounting for Inventory and Labour

Calculate material variances, explain time and piece rate, and compute direct and indirect labour costs

Walata Ltd manufactures and sells a unique anti-cold formula called the Magic Ball. The product is produced from a combination of two ingredients; R and Q with the following details:

Standard quantity per unit:

  • Q: 3kg
  • R: 2kg

Standard prices:

  • Q: GH¢2.50
  • R: GH¢4.00

For the quarter just ended, the following results were recorded:

  • Actual production: 2,000 units
Material Quantity purchased and used Price per Kilogramme
Q 4,800 kg GH¢4.25
R 5,400 kg GH¢2.20

Required:
i) Calculate the price variance for each material. (3 marks)
ii) Calculate the usage variance for each material. (3 marks)

b) Apagya Ltd has two product lines AB and CD. Time rate and piece rate labour rewarding systems are used for AB and CD products respectively.
Required:
Explain the terms time rate and piece rate, clearly outlining their differences and giving examples of business settings where each could be applied. (4 marks)

c) AB Ltd operates a 40-hour weekly work regime and rewards labour for all overtime worked at time and one-half.
The wage rate is GH¢80 per hour.
The following details are recorded for the month of October 2019 for an employee (Adamu):

Week Hours Worked
1 36
2 48
3 45
4 46

Required:
i) Compute the total direct labour costs for Adamu for the month of October 2019. (4 marks)
ii) Calculate the total indirect labour costs for Adamu for the month of October 2019. (4 marks)

d) Explain the treatment of overtime premium in accounting for labour costs. (2 marks)

 

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  • 20 Marks

IMAC – NOV 2019 – L1 – Q3 – Scope of Management Accounting

Identify features of operational information, features of a control system, and features of specific order costing.

The role of Management Accounting is to assist managers at all levels of management (Strategic, Tactical, and Operational) of an organization in decision-making.

Required:
i) With examples from a manufacturing company, identify FIVE (5) features of information that is provided at the operational level of management. (10 marks)

ii) State TWO (2) features of a control system that is used at the tactical level of management in a commercial entity. (5 marks)

b) State and explain FIVE (5) features of specific order costing methods used in cost ascertainment. (5 marks)

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