Subject: PERFORMANCE MANAGEMENT

Search 500 + past questions and counting.

PM – Nov 2024 – L2 – Q7b – Divisional Performance Measurement

Evaluating division performance using ROI and residual income methods with adjusted cost of capital.

Question

Ngerige and Sons Limited has four operating divisions spread across four cities in Nigeria: Lagos, Kano, Gombe, and Enugu. These divisions are treated as investment centres for performance reporting purposes. The following information is available:

Particulars	Lagos	Kano	Gombe	Enugu
Divisional Investment (N)	10,000,000	4,000,000	3,000,000	7,000,000
Divisional Sales (N)	53,000,000	23,000,000	24,600,000	29,400,000
Divisional Variable Costs (N)	50,000,000	22,000,000	23,400,000	27,400,000
Specific Fixed Costs (N)	1,500,000	750,000	600,000	800,000

The company’s annual general fixed cost is N1,300,000, apportioned to divisions based on sales. The cost of capital for Ngerige and Sons Limited is 7.5%. Ignore taxation.

Required:

i. Evaluate the performance of the divisions using the following methods:

ROI method. (3 Marks)
Residual Income Method. (3 Marks)

ii. Re-evaluate the residual income situation for the company given an adjusted cost of capital of 10%. (3 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cost of Capital, Division Performance, Investment Centres, Profitability Ratios, Residual Income, ROI
Level: Level 2

Topic: Divisional Performance Measurement

PM – Nov 2024 – L2 – Q7a – Divisional Performance Measurement

Definitions of Responsibility Accounting, Investment Centre, Return on Investment (ROI), and Residual Income.

Question

Define the following concepts:

i. Responsibility accounting
ii. An investment centre
iii. Return on Investment (ROI)
iv. Residual income

Answer

Find Related Questions by Tags, levels, etc.

Tags: Investment Centre, Performance Measurement, Residual Income, Responsibility Accounting, ROI
Level: Level 2

Topic: Divisional Performance Measurement

PM – Nov 2024 – L2 – Q6 – Divisional Performance Measurement

Comparative analysis of Owerri and Isiekenesi event centers based on financial performance metrics

Question

Omegboje and company is a medium-scale outfit that specializes in the rental business in Owerri and Isiekenesi towns. The company operates a large event center in each city, supplying chairs, tables, and canopies for both outdoor and some indoor events.

Each event center manager has some independence in operations and earns a performance bonus of 10% of sales if they achieve more than the standard return on capital employed (ROCE) of 50%.

The following financial data is available for the two centers for the years ending December 31, 2020, and 2019:

Additional Information:

Revenue is derived from rentals and ancillary services.
Both centers have a cost of capital of 15%.
Ignore taxation and inflation.

Required:

a. Discuss the relative performance of the two centers based on: i. Return on Capital Employed (ROCE) ii. Residual Income iii. Profit Margin iv. Current Ratio v. Quick Ratio vi. Gearing Ratio vii. Interest Cover
(7 Marks)

b. Compute the performance bonus for the centers (if any), showing your workings.
(4 Marks)

c. Briefly outline the role of a Management Accountant in project management.
(4 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Current Ratio, Gearing Ratio, Interest Cover, Liquidity Ratios, Profit margin, Quick Ratio, Residual Income, ROCE
Level: Level 2

Topic: Divisional Performance Measurement

PM – Nov 2024 – L2 – Q1 – Decision-Making Techniques

Optimization of Oshimiri Nigeria Limited's production plan to maximize profits under resource constraints using linear programming.

Question

Oshimiri Nigeria Limited, a company based in Aba, produces two grades of industrial vanish. The selling price and associated unit variable costs for vanish Grade A and Grade B are shown below:

Particulars	Grade A	Grade B
Selling Price	N2,100	N1,500
Material X (N240/kg)	N480	N240
Skilled Labour (N144/hr)	N720	N288
Unskilled Labour (N60/hr)	N120	N180
Variable Overhead (N84/machine hr)	N168	N336

The fixed overhead costs are N2,600,000 per month. The company plans to maximize profits.

The availability of resources for the following month is as follows:

Material X: 25,000 Kg
Skilled Labour: 48,000 hours
Unskilled Labour: 39,000 hours
Machine hours: 50,000 hours

Required:

a. Identify the objective function and the constraints of the model to be used in determining the optimum production plan for the following month. (5 Marks)

b. Determine the optimum production plan for the month and the associated profit. (5 Marks)

c. Explain the concept and significance of dual prices and slack variables in the context of the model used by the company in this scenario. (4 Marks)

d. Calculate the dual prices for constraints identified in this scenario. (10 Marks)

e. Suggest ways in which the management can overcome the capacity constraints identified above during the month and the cost implications. (6 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Capacity Constraints, Constraints, Dual Prices, Linear Programming, Objective Function, Production Plan, Slack Variables
Level: Level 2

Topic: Decision-making techniques

PM – May 2015 – L2 – SB – Q7 – Environmental and Social Performance Management

Discuss the concept of globalisation, its impact on management information systems, and arguments against its influence on management performance

Question

The use of internet has made the entire universe a global village. Managers can comfortably sit in their offices connected to the internet and the world wide web to obtain all necessary information for their business needs.

Required: a. Discuss the concept of globalisation and how management information systems have enhanced effective management performance. (10 Marks)
b. What arguments will you advance against globalisation as it relates to management performance? (5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Globalisation, Internet Usage, Management Performance, MIS
Level: Level 2

Topic: Environmental and Social Performance Management
Series: MAY 2015

PM – May 2015 – L2 – SB – Q6 – Costing Systems and Techniques-

Determine the most profitable product mix for Markus Limited, and prepare a profitability statement for the optimal product mix.

Question

Markus Limited manufactures three products and operates a marginal costing system.

The following information has been extracted from the company’s records:

Products	X	Y	Z
Units budgeted to be produced and sold	3,600	6,000	3,400
Selling Price (₦)	120	110	100
Requirement per Unit:
Direct Material (kg)	5	3	4
Direct Labour (Hours)	4	3	2
Direct Labour Hour rate (₦)	4	4	4
Direct Material Cost per Kg (₦)	8	8	8
Variable Overheads (₦)	14	26	16
Fixed Overheads (₦)	20	20	20
Maximum possible sales (units)	8,000	10,000	3,000

All the three products are produced from the same direct material using the same types of machine and labour. Direct labour, which is the key factor, is limited to 37,200 hours.

Required: a. Determine the most profitable product mix. (6 Marks)
b. Prepare a statement of profitability for the product mix. (9 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Contribution analysis, Marginal Costing, Product Mix, Profitability
Level: Level 2

Topic: Costing Systems and Techniques
Series: MAY 2015

PM – May 2015 – L2 – SB – Q5 – Balanced Scorecard

Evaluate the use of the Balanced Scorecard and analyze investment decisions for Carossi Limited using ROI and RI.

Question

CAROSSI Limited makes quality wooden products such as tables, chairs, benches, and doors. Historically, the company has used mainly financial performance measures to assess the performance of the company as a whole. The company’s Chief Executive Officer has just been informed of the ‘Balanced Scorecard Approach’ and is eager to learn more.

CAROSSI Limited has two Divisions X and Y, each with its own cost and revenue streams. Each Division is managed by a divisional manager who has the power to make all investment decisions within the Division. The cost of capital for both Divisions is 15 percent. Historically, investment decisions have been made by calculating the Return on Investment (ROI) of any opportunities, and presently, the return on investment of each Division is 18 percent.

A recently appointed manager for Division X strongly feels that using Residual Income (RI) to make investment decisions would result in better ‘goal congruence’ throughout the organisation.

Investment Details for Each Division:

	Division X	Division Y
Capital required for investment (₦m)	88.2	46.0
Revenue generated from investment (₦m)	46.4	28.1
Net profit margin (%)	30	35

The company is seeking to maximise shareholders’ wealth.

Required: a. Describe the Balanced Scorecard Approach to performance measurement. (8 Marks)
b. Determine both the return on investment and residual income of the new investment for each of the two divisions. Comment on these results and take into consideration the manager’s views about residual income. (7 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Balanced Scorecard, Goal Congruence, Investment Appraisal, Residual Income, ROI
Level: Level 2

Topic: Balanced Scorecard
Series: MAY 2015

PM – May 2015 – L2 – SB – Q4 – Costing Systems and Techniques

Analyze the pricing policy and budget position for Badegy Limited, considering competitor price changes and cost inflation.

Question

BADEGY Limited is a medium-sized company. The company is in the process of deciding its pricing policy for the next period.

The following information is available from its records:

Previous Period:

Revenue: ₦13,000,000
Units Sold: 100,000 at ₦130
Costs: ₦10,000,000
Profit: ₦3,000,000

Current Period:

Revenue: ₦13,780,000
Units Sold: 106,000 at ₦130
Costs: ₦10,774,000
Profit: ₦3,006,000

It was discovered that between the previous and current periods, there was a 4% general cost inflation, and it is forecast that costs will rise further by 6% in the next period. As a matter of policy, the company did not increase the selling price in the current period, although competitors raised their prices by 4% to allow for the increased costs.

A survey by a team of management consultants found that the demand for the product is elastic with an estimated price elasticity of demand of 1.5. This means that volume falls by 1.5 times the rate of real price increase. Various options are to be considered by the Board.

Required: a. Show the budgeted position of the company if it maintains the ₦130 selling price for the next period when it is expected that competitors will increase their prices by 6%. (15 Marks)
b. What would the budgeted position be if the company also raises its price by 6%? (5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Budget Position, Competitor Pricing, Cost Analysis, Demand Elasticity, Pricing Policy
Level: Level 2

Topic: Costing Systems and Techniques
Series: MAY 2015

FM – May 2015 – L2 – SB – Q3 – Cost-Volume-Profit (CVP) Analysis

Evaluate Pakex's investment proposal using Residual Income and ROCE, including alternative proposal analysis for decision-making.

Question

Pakex is a division of an automobile group that has five years remaining on a leased premises in which it sells self-assembled motorcycles. The management is proposing an investment of ₦48 million on immediate improvements to the interior of the premises in order to stimulate sales by creating a more effective selling environment. The following information is available:

(i) The expected increase in revenue following the improvements is ₦40 million per annum. The average contribution to sales ratio is expected to be 40%.

(ii) The cost of capital is 16% and the division has a target Return on Capital Employed of 20% based on the net book value of the investment at the beginning of the year.

(iii) At the end of the five-year period, the premises improvements will have a NIL residual value.

(iv) The management staff turnover at Pakex division is high. The division’s investment decisions and management performance measurement are currently based on the figures for the first year of the proposal.

In addition to the above information, there is an alternative proposal that suggests a forecast of the increase in revenue per annum from the premises improvements as follows:

Year	1	2	3	4	5
Increase in Revenue	56	40	40	24	16

All other factors are expected to remain the same.

Required: a. Prepare a summary of the statement of the management’s investment proposal for years 1 to 5 showing Residual Income and Return on Capital Employed for each year using the straight-line depreciation method. (10 Marks)
b. Comment on the use of the figures from the Statement in (a) above as a decision-making and management performance measure. (4 Marks)
c. Calculate the Residual Income and Return on Capital Employed for year 1 using the alternative proposal. (6 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Investment Appraisal, Management Performance, Residual Income, ROCE, Straight Line Depreciation
Level: Level 2

Topic: Cost-Volume-Profit (CVP) Analysis
Series: MAY 2015

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

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 – Nov 2021 – L2 – Q7 – Pricing Decisions

Calculate transfer prices to meet residual income targets and evaluate sub-optimal decisions for Garki plc.

Question

Garki plc is a holding company with four divisions, including Alba and Beta Divisions. Alba Division produces a component that it sells externally and can also transfer to other divisions within the group. Beta Division uses the components from Alba Division as raw material for its final product. The division can also obtain components from external suppliers. The components from Alba Division undergo further processing at a cost of N4.50 per unit before they are sold to the external market.

The Board of Directors has set up a performance scheme for the divisional managers, including setting performance targets for the next financial year. The following budgeted information is available:

	Alba Division	Beta Division
Maximum Production Capacity	900,000 units	–
Sales to External Customers	700,000 units	–
Selling Price (N)	N6.80	–
Variable Unit Cost (N)	N4.90	–
Divisional Fixed Costs	N160,000	N140,000
Capital Employed	N4 million	N3 million
Residual Income	N700,000	N500,000
Divisional Cost of Capital	12%	10%

Beta Division has asked Alba Division to quote a transfer price for the components.

Required:
a. Calculate the transfer price per unit which Alba Division should quote to Beta Division in order for its budgeted residual income target to be achieved. (3 Marks)
b. Calculate the selling price per unit which Beta Division should quote to the external market in order for its budgeted residual income target to be achieved, based on the transfer price quotation. (State clearly your assumptions.) (3 Marks)
c. Explain why the transfer price calculated in (a) may lead to sub-optimal decision-making from the point of view of Garki plc as a whole. (5 Marks)
d. In what circumstances would a negotiated transfer price be used instead of a market-based price? (4 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Market-based Pricing, Negotiated Pricing, Residual Income, Sub-Optimal Decisions, Transfer Pricing
Level: Level 2

Topic: Pricing Decisions
Series: NOV 2021

PM – Nov 2021 – L2 – Q6 – Decision-Making Techniques

Explain methods to help choose the optimal marketing package under uncertainty and risk for Mr. Alade’s business.

Question

Mr. Alade, the owner of a business, has been attending a course on scenario planning and decision-making. As a result of that advice, he has produced, using cost, volume, and profit analysis, 12 scenarios for a new product that the business will launch in the near future. There are four possible marketing packages (A, B, C, or D), and three possible market conditions (poor, average, or good) that could be encountered. The Net Present Value (NPV) of the cash flows resulting from each of the scenarios is shown in the table below:

Market Package	A	B	C	D
Market Conditions	N’000	N’000	N’000	N’000
Poor	180	230	220	190
Average	190	200	210	275
Good	550	260	210	500

Mr. Alade missed the session on how to deal with risk and uncertainty. He sent this table to the course tutor, who advised him to review the methods under the “Uncertainty” section. If he can estimate the probability of each market condition, he should use “Risk-based methods.” The decision will be influenced by Mr. Alade’s attitude towards risk.

Required:
Explain FOUR methods that could help Mr. Alade decide which marketing package to choose. Include THREE methods to deal with uncertainty and ONE method to deal with risk, explaining the attitude associated with the decision-maker for each method.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Decision Making, Risk, Scenario Planning, Uncertainty
Level: Level 2

Topic: Decision-making techniques
Series: NOV 2021

PM – Nov 2021 – L2 – Q5 – Decision-Making Techniques

Calculate and compare the expected net present value of two projects under uncertainty.

Question

Gaskiya Nigeria Limited is considering whether or not to invest in any of the two projects where the initial cash investment would be ₦13,000,000 for A and ₦14,000,000 for B. The projects would have a five-year life and the estimated annual cash flows are as follows:

Year	Project A (N)	Project A Outflows (N)	Project B (N)	Project B Outflows (N)
1	6,000,000	3,000,000	10,000,000	5,000,000
2	8,000,000	4,000,000	9,000,000	4,000,000
3	10,000,000	4,000,000	8,000,000	3,000,000
4	9,000,000	3,000,000	8,000,000	3,000,000
5	6,000,000	3,000,000	4,000,000	2,000,000

The company’s cost of capital is 10%. Several factors could impact the inflows:

Factor 1: 20% probability of government measures reducing inflows by 25%.
Factor 2: 30% probability of a competitor entering the market, reducing inflows by 10%.
Factor 3: 40% probability of stronger-than-expected demand, increasing inflows by 5%.

Required:
a. Calculate the expected net present value of the two projects. (13 Marks)
b. Which of the projects will be more profitable? (2 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Expected Value, Net Present Value, Project Appraisal, Risk analysis
Level: Level 2

Topic: Decision-making techniques
Series: NOV 2021

PM – Nov 2021 – L2 – Q4 – Performance Measurement Systems

Adjust sales for seasonal variations and discuss deseasonalised data, along with the challenges of participative budgeting.

Question

You work as the assistant to the management accountant for Henry Limited, a medium-sized manufacturing company. One of its products, Product P, has been very successful in recent years, showing a steadily increasing trend in sales volumes. Sales volumes for the four quarters of last year were as follows:

Quarter	1	2	3	4
Actual sales volume (units)	420,000	450,000	475,000	475,000

A new assistant has recently joined the marketing department and she has asked you for help in understanding the terminology used in preparing sales forecasts and analysing sales trends. She said: “My main problem is that I do not see why my boss is so enthusiastic about the growth in Product P’s sales volume. It looks to me as though the rate of growth is really slowing down and has actually stopped in quarter 4. I am told that I should be looking at the deseasonalised or seasonally adjusted sales data, but I do not understand what is meant by this.”

You have found that Product P’s sales are subject to the following seasonal variations:

Quarter	1	2	3	4
Seasonal variation (units)	+25,000	+15,000	0	-40,000

Required:
a.
i. Adjust for the seasonal variations to calculate deseasonalised or seasonally adjusted sales volume (i.e., the trend figures) for each quarter of last year. (5 Marks)
ii. Assuming that the trend and seasonal variations will continue, forecast the sales volumes for each of the four quarters of next year. (4 Marks)

b. Explain what is meant by seasonal variations and deseasonalised or seasonally adjusted data. Indicate how they can be useful in analysing a time series and preparing forecasts. (5 Marks)

c. State the arguments for and challenges arising from managers participating in setting their budget targets. (6 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Deseasonalisation, Participative Budgeting, Sales Forecasting, Seasonal Variations, Trend Analysis
Level: Level 2

Topic: Performance Measurement Systems
Series: NOV 2021

PM – Nov 2021 – L2 – Q3 – Costing Systems and Techniques

Calculate profit-maximizing output using both marginal and throughput accounting principles and compare the approaches for Kahkiri Limited.

Question

The following cost and profitability estimates have been prepared:

Product	X	Y
Sales price	44	54
Direct materials	20	18
Direct Labour	6	11
Variable overhead	6	11
Contribution per unit	12	14
Attributable fixed cost	N10,000	N10,000
Machine hours per unit	1.5 hours	2 hours

Fixed costs in each period are N100,000.

Required:
a. Using marginal costing approach, calculate the profit-maximising output for the period, and the associated profit for each product and the company. (4 Marks)
b. What are the advantages of throughput accounting over marginal costing method in profit-maximising decisions? (4 Marks)
c. Calculate the throughput accounting ratio for Product X and for Product Y. (8 Marks)
d. Using throughput accounting principles, calculate the profit-maximising output in each period, and calculate the amount of the profit. (4 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Contribution per Unit, Fixed Costs, Machine Hours, Marginal Costing, Profit Maximization, Throughput Accounting
Level: Level 2

Topic: Costing Systems and Techniques
Series: NOV 2021

PM – Nov 2021 – L2 – Q2 – Decision-Making Techniques

Determine whether to outsource production, calculate indifference price, and evaluate non-financial factors for internal production.

Question

Divine Grace (DG) Limited currently produces “Part-2011” internally but has received an offer from KK Plc to outsource the production. The offer is for 1,000 units at N100 per unit for the next five years. The cost accountant provides the following cost breakdown for internal production of 1,000 units:

Cost Components	Amount (₦)
Direct materials	44,000
Direct production labour	22,000
Variable production overhead	14,000
Depreciation on machine	20,000
Product and process engineering	8,000
Rent	4,000
General overheads	10,000
Total	122,000

Additional information:

The machine used exclusively for “Part 2011” was acquired last year for ₦120,000 and has a useful life of six years with no residual value.
The machine could be sold today for ₦30,000.
Product and process engineering costs will cease after one year if outsourced.
Rent savings from storage use if “Part-2011” production stops is ₦2,000.
General overheads are fixed and not allocated to “Part-2011” if outsourced.
Assume a required rate of return of 12%.

Required:
a. Should DG Limited outsource “Part 2011”? (10 Marks)
b. What maximum price should KK Plc quote for 1,000 units to make DG indifferent between outsourcing and internal production? (5 Marks)
c. What non-financial factors would favor internal production over outsourcing? (5 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Fixed Costs, Make or buy decision, Non-Financial Factors, Outsourcing, Penalty, Pricing, Variable Costs
Level: Level 2

Topic: Decision-making techniques
Series: NOV 2021

PM – Nov 2021 – L2 – Q1 – Budgeting and Budgetary Control

Explore material input constraints, determine optimal production, and evaluate outsourcing and penalties for non-fulfillment of orders.

Question

Kikelomo Limited manufactures three products K, T, and F, using different quantities of the same resources. Budget information per unit is provided:

	K	T	F
Market selling price	1,800	2,520	3,000
Direct labour (₦140/hour)	280	560	700
Material A (₦60/kg)	300	240	420
Material B (₦120/kg)	480	720	600
Variable overhead (₦80/hour)	160	320	400
Fixed overhead	240	140	240
Total cost	1,460	1,980	2,360
Profit	340	540	640
Total budgeted sales units	500	800	1,600

The budgeted sales are for the month of June but do not include an order from a major customer to supply 400 units per month of each of the three products at a discount of ₦200 per unit. During June, management anticipates a shortage of material B, with only 17,500 kgs available. Kikelomo Ltd cannot hold inventory of raw materials, work-in-progress, or finished products.

Required:
a. State THREE factors that may cause input materials to be a budget constraint and identify steps to overcome this constraint. (6 Marks)
b. Prepare calculations to show production that will maximise Kikelomo Ltd’s profit for June. (9 Marks)
c. Kikelomo Ltd has realised that the contract with the major customer does not have to be fully met, but a financial penalty may apply. Calculate the lowest value of the financial penalty to ensure the order is met in full. (6 Marks)
d. Assume the material B shortage will continue and management has decided to outsource some production. Advise management on the advantages and disadvantages of outsourcing. (9 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Budgeting, Contribution analysis, Financial Penalty, Material Constraints, Outsourcing, Production planning, Profit Maximization
Level: Level 2

Topic: Budgeting and Budgetary Control
Series: NOV 2021

PM – May 2018 – L2 – Q7 – Strategic Management Accounting

This question asks for the classification of five products using the BCG matrix and an analysis on how this helps the company in strategic decision-making regarding products and markets.

Question

Adrak Nigeria Limited produces five different products, and sells each product in a
different market.
The management accountant has obtained the following information about
market size and market share for each product which consists of actual data for
each of the last three years and forecasts for the next two years:

In the current year, the market share of the market leader or the nearest competitor
to the company has been estimated as follows:

Market share of market leader or the company‟s nearest competitor
Market for: %
Product 1: 37
Product 2: 26
Product 3: 12
Product 4: 29
Product 5: 20

Required:
a. Using the Boston Consulting Group model, how should each of these
products be classified? (7 1/2 )
b. How will this analysis help the management of the company to make
strategic decisions about its future products and markets („product-market
strategy‟)? (7 1/2 )
/2 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: BCG Matrix, Market Share, Product Classification, Strategic Planning
Level: Level 2

Topic: Strategic Management Accounting
Series: MAY 2018

PM – May 2019 – L2 – Q7 – Pricing Decisions

Evaluates various pricing methods for a new product and calculates prices based on different strategies.

Question

Tetpack Nigerian Limited (TNL) produces various types of packaging products for the food industry. TNL has just introduced a new type of pack, and its marketing manager is considering how to penetrate the market with the pack. The following pricing strategies have been suggested:

i. Market skimming price
ii. Market penetration price
iii. Full cost plus price
iv. Return on investment price
v. Marginal cost plus price

The management accountant has provided the following data about the pack:

Non-current assets needed for the production of the pack: N2,000,000
Working capital requirements: N400,000
Expected annual sales volume: 40,000 units
Variable production costs: N60 per unit
Fixed production costs: N300,000 each year
Annual non-production costs: N100,000
Markup:
- Full cost plus price: 25%
- Marginal cost plus price: 40%
- Target return on investment: 10% per year

Required:
a. Discuss the above pricing methods and advise when each could be used. (10 Marks)

b. Calculate what the price of the pack should be if its price is based on:
i. Full cost plus pricing (1½ Marks)
ii. Marginal cost plus pricing (1½ Marks)
iii. Return on investment pricing (2 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cost Plus, Marginal Cost, Market Penetration, Market Skimming, Pricing Strategies, ROI
Level: Level 2

Topic: Pricing Decisions
Series: MAY 2019

PM – May 2018 – L2 – Q6 – Ethical Considerations in Performance Management

Discuss the changes in unit selling price and production costs through the four stages of the product life cycle.

Question

Ben John (BJ) Limited produces light fittings, known for their constant design innovation and short product market life cycle. The company launched the new product using a market skimming pricing policy. Explain, with reasons, the likely changes that will occur in the unit selling price and unit production costs of the product as it moves through each of the four stages of its product life cycle:
a. Introduction;
b. Growth;
c. Maturity;
d. Decline.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cost Changes, Market Skimming, Pricing Strategy, Product Life Cycle
Level: Level 2

Topic: Pricing Strategy
Series: MAY 2018

Subject: PERFORMANCE MANAGEMENT

Filter by Professional Bodies

Filter by Subject

Filter by Series

Filter by Topics

Filter by Levels

PM – Nov 2024 – L2 – Q7b – Divisional Performance Measurement

Evaluating division performance using ROI and residual income methods with adjusted cost of capital.

You're reporting an error for "PM – Nov 2024 – L2 – Q7b – Divisional Performance Measurement"

PM – Nov 2024 – L2 – Q7a – Divisional Performance Measurement

Definitions of Responsibility Accounting, Investment Centre, Return on Investment (ROI), and Residual Income.

You're reporting an error for "PM – Nov 2024 – L2 – Q7a – Divisional Performance Measurement"

PM – Nov 2024 – L2 – Q6 – Divisional Performance Measurement

Comparative analysis of Owerri and Isiekenesi event centers based on financial performance metrics

You're reporting an error for "PM – Nov 2024 – L2 – Q6 – Divisional Performance Measurement"

PM – Nov 2024 – L2 – Q1 – Decision-Making Techniques

Optimization of Oshimiri Nigeria Limited's production plan to maximize profits under resource constraints using linear programming.

You're reporting an error for "PM – Nov 2024 – L2 – Q1 – Decision-Making Techniques"

PM – May 2015 – L2 – SB – Q7 – Environmental and Social Performance Management

Discuss the concept of globalisation, its impact on management information systems, and arguments against its influence on management performance

You're reporting an error for "PM – May 2015 – L2 – SB – Q7 – Environmental and Social Performance Management"

PM – May 2015 – L2 – SB – Q6 – Costing Systems and Techniques-

Determine the most profitable product mix for Markus Limited, and prepare a profitability statement for the optimal product mix.

You're reporting an error for "PM – May 2015 – L2 – SB – Q6 – Costing Systems and Techniques-"

PM – May 2015 – L2 – SB – Q5 – Balanced Scorecard

Evaluate the use of the Balanced Scorecard and analyze investment decisions for Carossi Limited using ROI and RI.

You're reporting an error for "PM – May 2015 – L2 – SB – Q5 – Balanced Scorecard"

PM – May 2015 – L2 – SB – Q4 – Costing Systems and Techniques

Analyze the pricing policy and budget position for Badegy Limited, considering competitor price changes and cost inflation.

You're reporting an error for "PM – May 2015 – L2 – SB – Q4 – Costing Systems and Techniques"

FM – May 2015 – L2 – SB – Q3 – Cost-Volume-Profit (CVP) Analysis

Evaluate Pakex's investment proposal using Residual Income and ROCE, including alternative proposal analysis for decision-making.

You're reporting an error for "FM – May 2015 – L2 – SB – Q3 – Cost-Volume-Profit (CVP) Analysis"

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 – Nov 2021 – L2 – Q7 – Pricing Decisions

Calculate transfer prices to meet residual income targets and evaluate sub-optimal decisions for Garki plc.

You're reporting an error for "PM – Nov 2021 – L2 – Q7 – Pricing Decisions"

PM – Nov 2021 – L2 – Q6 – Decision-Making Techniques

Explain methods to help choose the optimal marketing package under uncertainty and risk for Mr. Alade’s business.

You're reporting an error for "PM – Nov 2021 – L2 – Q6 – Decision-Making Techniques"

PM – Nov 2021 – L2 – Q5 – Decision-Making Techniques

Calculate and compare the expected net present value of two projects under uncertainty.

You're reporting an error for "PM – Nov 2021 – L2 – Q5 – Decision-Making Techniques"

PM – Nov 2021 – L2 – Q4 – Performance Measurement Systems

Adjust sales for seasonal variations and discuss deseasonalised data, along with the challenges of participative budgeting.

You're reporting an error for "PM – Nov 2021 – L2 – Q4 – Performance Measurement Systems"

PM – Nov 2021 – L2 – Q3 – Costing Systems and Techniques

Calculate profit-maximizing output using both marginal and throughput accounting principles and compare the approaches for Kahkiri Limited.

You're reporting an error for "PM – Nov 2021 – L2 – Q3 – Costing Systems and Techniques"

PM – Nov 2021 – L2 – Q2 – Decision-Making Techniques

Determine whether to outsource production, calculate indifference price, and evaluate non-financial factors for internal production.

You're reporting an error for "PM – Nov 2021 – L2 – Q2 – Decision-Making Techniques"

PM – Nov 2021 – L2 – Q1 – Budgeting and Budgetary Control

Explore material input constraints, determine optimal production, and evaluate outsourcing and penalties for non-fulfillment of orders.

You're reporting an error for "PM – Nov 2021 – L2 – Q1 – Budgeting and Budgetary Control"

PM – May 2018 – L2 – Q7 – Strategic Management Accounting

This question asks for the classification of five products using the BCG matrix and an analysis on how this helps the company in strategic decision-making regarding products and markets.

You're reporting an error for "PM – May 2018 – L2 – Q7 – Strategic Management Accounting"

PM – May 2019 – L2 – Q7 – Pricing Decisions

Evaluates various pricing methods for a new product and calculates prices based on different strategies.

You're reporting an error for "PM – May 2019 – L2 – Q7 – Pricing Decisions"

PM – May 2018 – L2 – Q6 – Ethical Considerations in Performance Management

Discuss the changes in unit selling price and production costs through the four stages of the product life cycle.

You're reporting an error for "PM – May 2018 – L2 – Q6 – Ethical Considerations in Performance Management"

Our offerings

Contact Info

Customer

Get In Touch

admin