Subject: PERFORMANCE MANAGEMENT

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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Tags: Cash Flow, Financial Ratios, Financial Statement Analysis, Gearing, Liquidity, Profit Analysis
Level: Level 2

Topic: Introduction to Performance Management
Series: MAY 2015

PM – May 2022 – L2 – SA – Q3 – Performance Evaluation

Evaluate Uzochuks' financial performance using ARR and EVA, and assess the NPV of a solar project.

Question

Uzochuks Nigeria Limited is a company established four years ago to produce medical equipment. The income statement and statement of financial position for 2019 and 2020 are as follows:

(ii) Economic depreciation is assessed to be N50.5million in 2020. Economic depreciation includes any appropriate amortisation adjustments. In previous years, it can be assumed that economic and accounting depreciation were the same.
(iii) Tax is the cash paid in the current year (N16 million) and an adjustment of N2 million for deferred tax provisions. There was no deferred tax balance prior to 2020.
(iv) The provision for doubtful debts was N2.5million on the 2020 statement of financial position.
(v) Research and development 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. 2020 is the first year of this project.
(vi) The company had a non-capitalised leased assets of N18million in January 2020. These assets are not subjected to depreciation.
(vii) Cost of capital of Uzochuks:
Equity 18%
Debt (pre-tax) 6%
(viii) Capital structure of Uzochuks:
Equity 60%
Debt 40%
(ix) The company had the opportunity to invest in a solar project that will require the procurement of an equipment worth N3million in January 2020 and run for a period of 5 years with a salvage value of N0.50million, generating a stable net cash flow of N0.85 million. The applicable cost of capital is the associated weighted average cost of capital of the company.

Required:
a. i. Compute and evaluate the company’s performance using the average rate of return (ARR). (4 Marks)
ii. Compute and evaluate the company’s performance using the economic value added (EVA) parameter. (9 Marks)
b. Calculate the net present value (NPV) of a solar project that will require the procurement of equipment worth N3 million in January 2020, generating a stable net cash flow of N0.85 million annually for five years with a salvage value of N0.50 million. The applicable cost of capital is the associated weighted average cost of capital of the company. (7 Marks)

Answer

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Tags: Average Rate of Return, Capital Budgeting, Economic Value Added, Investment Appraisal
Level: Level 2

Topic: Performance Evaluation
Series: MAY 2022

PM – Nov 2019 – L2 – Q6b – Cost Management Strategies

Prepare a cost of quality report for Dynamic Plc for the year ended August 31, 2018.

Question

b. Benson Dinka is the management accountant of Dynamic Plc. Mr. Dinka
realises that the present performance reporting system does not highlight
quality costs. The reports contain the information below, but he wants this to
be reported in an appropriate format.
The following information is available in respect of the year ended August 31,
2018

1. Production data:

2. Cost data: Naira

3. Staff training costs amounted to N3,000,000 and product testing costs
were N980,000.
4. The marketing director has estimated that sales of 1,400 units were lost
as a result of bad publicity in trade journals. The average contribution
per heating system unit is estimated at N120,000.
Required:

Prepare a cost of quality report for Dynamic plc. that shows its costs of
quality (using appropriate headings) for the year ended August 31,
2018. (14 Marks)

Answer

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Tags: Cost of Quality, Quality Management, Quality Reporting
Level: Level 2

Topic: Cost Management Strategies
Series: NOV 2019

PM – May 2022 – L2 – SA – Q2 – Cash Budgeting and Working Capital

Preparation of a cash budget for Mega Laboratories PLC for the quarter ending June 30, 2021.

Question

Mega Laboratories plc is a successful manufacturing company in the pharmaceutical industry. The company manufactures a number of household drugs. Since the advent of the Covid-2019 pandemic, its products have been in high demand. One of its newest products is known as vacineDcovid. In order to manufacture the product, a single raw material, Zithromax, is used.

Budgets are to be prepared for the quarter ending 30 June 2021, and the following information is available for this purpose:

(i) At 31 March 2021 various balances were as follows:

Receivables: N500,700
Creditors (suppliers of Zithromax): N153,000
Inventory of vacineDcovid: 20,300 units
Inventory of Zithromax: 200,000 kg

(ii) Extracts from the ‘standard cost card’ – vacineDcovid are as follows:

Direct material Zithromax, 10kg at N5.00 per kg: N50.00
Direct labour, 2 hours at N6.00 per hour: N12.00

(iii) Suppliers of Zithromax give two months credit to the company, whereas customers take one month’s credit.
(iv) Sales expectations for the quarter ending 30 June 2021 are as follows:

25,000 units of vacineDcovid at a selling price of N95.00 per unit.
(v) Assume that sales of vacineDcovid and purchases of Zithromax will be evenly spread over the three months to 30 June 2021.
(vi) Depreciation relating to plant and machinery is N55,000 for the quarter ending 30 June 2021.
(vii) Other expenses are paid immediately in cash and are estimated to be N200,000 for the quarter ending 30 June 2021.
(viii) The anticipated inventory levels at 30 June 2021 are as follows:
Inventory of vacineDcovid: 15,000 units
Inventory of Zithromax: 150,500 kgs

(ix) Assume there is no work-in-progress and that stocks of vacineDcovid and Zithromax are valued at standard direct cost – see (ii) above.

Required:
For the quarter ending 30 June 2021 prepare:
a. A cash budget (amounts for each separate month are not required). (8 Marks)
b. Income Statement budget (clearly state any assumptions you have made). (5 Marks)
c. Briefly state the benefits of a Cash Budget to Mega Laboratories plc. (3 Marks)
d. Sales are often considered to be a principal budget factor of an organisation. Explain the meaning of a ‘principal budget factor’ and assuming that it is sales, explain how sales may be forecast, making appropriate reference to the use of statistical techniques and the use of computers. (4 Marks)

Answer

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Tags: Cash Budget, Inventory Management, Payables, Receivables
Level: Level 2

Topic: Cash Budgeting and Working Capital
Series: MAY 2022

PM – Nov 2019 – L2 – Q6a – Cost Management Strategies

Discuss the four classifications of cost of quality with examples.

Question

a. Explain the FOUR classifications of cost of quality with examples of each. (6 Marks)

Answer

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Tags: Appraisal, External Failure, Internal Failure, Prevention, Quality Costs
Level: Level 2

Topic: Cost Management Strategies
Series: NOV 2019

PM – Nov 2019 – L2 – Q5 – Pricing Decisions

Evaluate profitability and ROI under different transfer pricing schemes between Division A and B of Ezeabunafo Nigeria Ltd.

Question

Ezeabunafo Nigeria Limited, an aluminium company, has two divisions, A and B.
Division A manufactures a single uniform product, which is partly sold in the
external market and partly transferred to division B where it forms the major sub –
assembly for that division‟s product.
The unit cost for each division‟s product is as shown here under:

Past data shows that average of 10,000 units of its products are sold on the
external market each year by Division A at the standard price of N60.
In addition to the external sales, 5,000 units are transferred annually to Division B
at a transfer price of N58 per unit (as above). The transfer price is derived by
deducting variable selling and packaging expenses from the external price since
these expenses are not incurred for internal transfers.
Division B‟s manager disagrees with the basis used to set the transfer price. He
contends that the transfer price should be made at variable cost plus an agreed
(minimal) mark up. It is his view that under the present set-up, his division is
taking output that Division A would be unable to sell at the price of N60.
A study commissioned by the Marketing Director consequent on this disagreement
shows the following:

Division B‟s manager maintains that the study has buttressed his case and calls for
a transfer price of N24 which he points out, would give Division B a reasonable
contribution to its fixed overheads as well as enable B to earn a reasonable profit
which also leads to an enhanced company-wide output and profit performance.

Required:
a. Calculate the contribution at alternative selling prices shown in the study for Division A and identify the price that maximizes Division A’s profit. (6 Marks)
b. Calculate the contribution at alternative prices for Division B and determine if the current selling price of N180 maximizes the firm’s overall profit. (5 Marks)
c. Assuming a transfer price equal to Division A’s variable costs, calculate the contribution for Division B at alternative prices. (3 Marks)
d. Calculate the contribution per unit and comment on how the whole firm is affected under this situation. (3 Marks)
e. Evaluate the effect on company profits if Division B’s manager’s suggestion of a N24 transfer price is adopted. (3 Marks)

Answer

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Tags: Divisional Management, Profit Contribution, ROI, Transfer Pricing
Level: Level 2

Topic: Pricing Decisions
Series: NOV 2019

PM – May 2022 – L2 – SA – Q1C – Costing Systems and Techniques

Explain the concepts

Question

Explain the following concepts:
i. Incremental cost;
ii. Differential cost;
iii. Committed cost;
iv. Sunk cost;
v. Opportunity cost.

Answer

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Tags: Committed cost, Differential Cost, Incremental cost;, Opportunity Cost, Sunk Cost
Level: Level 2

Topic: Costing Systems and Techniques
Series: MAY 2022

PM – May 2022 – L2 – SA – Q1B – Costing Systems and Techniques

Appraisal of a one-off order outside normal operations with relevant cost considerations.

Question

The company is considering the viability of investing in a one-off order outside its normal budgeted routine operation. The Management Accountant is requested to appraise the procurement and sale of some useful medical equipment. The following cost estimate has been prepared by a junior accountant:

The steel is regularly used and has a current stock value of N50 per square meter. There are currently 400 square meters in stock. The steel is readily available at a price of N55 per square meter.
The brass fittings would have to be bought specifically for the job. A supplier has quoted N800 for the fittings required.
The skilled labor is currently employed by the company and paid at the rate of N80 per hour. If this job were undertaken, it will be necessary to either work 100 hours overtime which would be paid at time plus one half (N120 per hour), or hire additional labor at N100 per hour.
The company has sufficient unused capacity in terms of general fixed overheads. The junior accountant has made no allocation for fixed overheads.
The company’s policy is to add 20% to the production cost as an allowance against administrative costs associated with the jobs accepted.
The standard profit added by the company as part of its pricing strategy is N150.

Required:

Prepare, on a relevant cost basis, the lowest cost estimate that could be used as the basis for a quotation. Explain briefly your reasons for using each of the values in your estimates. (6 Marks)
There may be a possibility of repeat orders from your company which would occupy part of the normal production capacity. What factors need to be considered before quoting for this order? (4 Marks)

Answer

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Tags: Incremental Costing, Investment Appraisal, One-Off Order, Relevant Costs
Level: Level 2

Topic: Costing Systems and Techniques
Series: MAY 2022

PM – May 2022 – L2 – SA – Q1A – Costing Systems and Techniques

Budgeted contribution, effect of product discontinuation, and sales to cover extra costs.

Question

You are the Management Accountant of Dankoli Nigeria Limited, which specializes in the production of three products: Product 1, Product 2, and Product 3.

The following information is available for the first quarter of 2021:

Particulars	Product 1	Product 2	Product 3
Sales units (’000)	225	376	190
Selling Price per unit	N15.00	N13.00	N10.00
Variable costs per unit	N7.80	N6.00	N5.00
Attributable fixed costs	N275,000	N337,000	N296,000

General fixed overhead is apportioned on the basis of sales value. The budgeted general fixed overhead is N1,668,000.

Required:

Calculate the budgeted contribution and profit of the Products and Company. (5 Marks)
Calculate the budgeted profits assuming that Product 3 is discontinued with no effect on sales of the other products. (5 Marks)
Calculate the extra sales in units and value required to cover the additional cost of advertising of N80,000 if such cost is treated as general fixed overhead. (5 Marks)

Answer

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Tags: Break-even Analysis, Contribution margin, Discontinuation of Product, Fixed Overhead
Level: Level 2

Topic: Costing Systems and Techniques
Series: MAY 2022

PM – Nov 2019 – L2 – Q4 – Cost Management Strategies

Calculate the learning curve rate, forecast shut-down costs for year 2 and 3, and discuss potential errors in the forecast.

Question

Akoko plc. has recently developed a new product called “EKO” which has been in production for the past year. The plant producing “EKO” shuts down for routine inspection and maintenance every three months, and during the first year’s operation, the costs of shut-down have been as follows:

Quarter	Shut-Down Cost (₦)
I	36,000
2	28,800
3	27,000
4	25,200

The management accountant attempts to forecast maintenance costs for the coming year. On examining the data, it appears that these costs have steadily decreased, which may be due to maintenance engineers becoming more efficient or the plant settling down after initial operational issues. The learning curve might explain this trend.

Required:
a. Explain the concept of a learning curve. (4 Marks)
b. Estimate the rate of learning inherent in the data and explain its meaning. (4 Marks)
c. Using the learning rate determined, forecast the total cost of shut-down for routine maintenance during the coming year. (5 Marks)
d. Assume learning ceases at the end of the second year; forecast the total cost of shut-down for routine maintenance during the third year. (4 Marks)
e. State TWO specific reasons why this forecast may be inaccurate. (3 Marks)

Answer

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Tags: Cost reduction, Forecasting, Learning Curve, Maintenance
Level: Level 2

Topic: Cost Management Strategies
Series: NOV 2019

PM – Nov 2019 – L2 – Q3 – Pricing Decisions

Evaluate divisional and company profit, ROI, and RI for Rinc Nigeria Ltd.

Question

Rinc Nigeria Limited has two divisions, A and B. Division A specializes in the manufacture of a special part of a product while Division B completes the production and sells the final product. Division A also sells its components to third parties, and Division B can buy parts from external suppliers. Both divisions are profit centers.

The following are for the month of November:

Required:
a. Calculate the profit made by each division and the company as a whole for November. (10 Marks)
b. Calculate the ROI and RI of the divisions and the company. (5 Marks)
c. Discuss the advantages and disadvantages of ROI and RI as parameters for appraising divisional performance. (5 Marks)

Answer

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Tags: Divisional Performance, Profit, Residual Income, ROI, Transfer Pricing
Level: Level 2

Topic: Pricing Decisions
Series: NOV 2019

Subject: PERFORMANCE MANAGEMENT

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

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

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

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

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

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

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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.

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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

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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.

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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.

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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.

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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.

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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.

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PM – May 2022 – L2 – SA – Q3 – Performance Evaluation

Evaluate Uzochuks' financial performance using ARR and EVA, and assess the NPV of a solar project.

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PM – Nov 2019 – L2 – Q6b – Cost Management Strategies

Prepare a cost of quality report for Dynamic Plc for the year ended August 31, 2018.

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PM – May 2022 – L2 – SA – Q2 – Cash Budgeting and Working Capital

Preparation of a cash budget for Mega Laboratories PLC for the quarter ending June 30, 2021.

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PM – Nov 2019 – L2 – Q6a – Cost Management Strategies

Discuss the four classifications of cost of quality with examples.

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PM – Nov 2019 – L2 – Q5 – Pricing Decisions

Evaluate profitability and ROI under different transfer pricing schemes between Division A and B of Ezeabunafo Nigeria Ltd.

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PM – May 2022 – L2 – SA – Q1C – Costing Systems and Techniques

Explain the concepts

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PM – May 2022 – L2 – SA – Q1B – Costing Systems and Techniques

Appraisal of a one-off order outside normal operations with relevant cost considerations.

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PM – May 2022 – L2 – SA – Q1A – Costing Systems and Techniques

Budgeted contribution, effect of product discontinuation, and sales to cover extra costs.

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PM – Nov 2019 – L2 – Q4 – Cost Management Strategies

Calculate the learning curve rate, forecast shut-down costs for year 2 and 3, and discuss potential errors in the forecast.

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PM – Nov 2019 – L2 – Q3 – Pricing Decisions

Evaluate divisional and company profit, ROI, and RI for Rinc Nigeria Ltd.

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