• Relevance: information must fit the purpose for which it was gathered and a manager wanted to use it.
• Completeness: an information user should have all the information he/she needs to do their job properly. This would help avoid sub-optimal decisions.
• Accuracy: Information must be correct because using incorrect information could lead to misleading decisions. However, it should not contain unnecessary detail for pointless accuracy.
• Clarity: users must properly understand the information, it cannot be put to good use. Use appropriate presentation medium and channel of communication to enhance clarity.
• Confidence: information must be trusted by the managers who are expected to use it. Use relevant assumptions to enhance confidence.
• Communication: within an organization, individuals are given the authority to do certain tasks and they must be given the information they need to do them.
• Volume: they are the physical and mental limitations to what a person can read, absorb and understand properly before taking an action. An enormous mountain of information, even if it is all relevant, cannot be handled. Reports to management must therefore be clear and concise.
• Timing: information should be available when needed. Information which is not available until after a decision is made will be useful only for comparisons and longer term control, and may serve no purpose even then.
• Cost: information should have some value otherwise it would not be worth the cost of collecting and filing it. The benefits obtained from the information must also exceed the cost of acquiring it.                                                       (Any 5 points)

Pay Back Period is defined as the period, usually expressed in years, which it takes the cash flows from a capital investment project to equal the cash flows generated.

Decision:
Semi-automated plant is considered more suitable because of PBP of 4 years as against 5 years for an automated plant.

Decision:
It is advisable to select automated plant that gives a higher NPV though the capital requirement of the plants differs.

• It uses the time value of money.
• It uses the cost of capital.
• Uses cash flow instead of accounting profit.
• Considers the entire life of the project.                                                                 (Any 2 points)

An ideal standard is one which can be attained under perfect operating conditions: no wastage, no inefficiencies, no idle time, and no breakdowns.
A basic standard is a standard which remains unchanged over the years and is used to show trends.

Effect on employee motivation:

• Ideal standards can be seen as long-term targets but are not very useful for day-to-day control purposes as they cannot be achieved. It is claimed that they provide employees with an incentive to be more efficient.However, they may have an unfavourable effect on employee motivation as variances will always be adverse.
• Basic standards may have an unfavourable effect on motivation as employees discover over time that they are easily able to achieve the standards.

Working:
W1: calculation of overhead absorption rate
Budget machine hours = (10,000*1.95) + (13,000*3.90) + (9,000*5.20) =117,000 hours
As company follows absorption costing method, fixed overheads are allocated on machine hours’ basis.
Overhead adsorption rate = GH¢526,500/117,000 hours = GH¢4.50 per machine hour.

Alternative approach to actual sales quantity in standard mix at standard profit
= Actual quantity * average standard profit per unit
=31,500 units* GH¢25.1875 per units
= GH¢793,403

ALTERNATIVE SOLUTION:

Alternative approach to actual sales quantity in standard mix at standard profit
= Actual quantity * average standard profit per unit
=31,500 units* GH¢25.1875 per units
= GH¢793,403

Alternative approach to actual sales quantity in standard mix at standard profit
= Actual quantity * average standard profit per unit
=31,500 units* GH¢25.1875 per units
= GH¢793,403

Alternative approach to actual sales quantity in standard mix at standard profit
= Actual quantity * average standard profit per unit
=31,500 units* GH¢25.1875 per units
= GH¢793,403

Flexible Budget

Shareholder wealth maximization is pursuing the corporate objective of satisfying the shareholder of the firm by pursuing decisions that would add to the value of the shareholder and ensure his or her maximum satisfaction.

• The achievement of this objective is reflected in payment of regular dividend and ensuring share price appreciation. These indicators are themselves influenced by maximizing the profits of the firm.
• Profit conditions the size of dividend payment for firms and the market price of a share is influenced greatly by the earnings per share of that firm.
• Thus, pursing profit maximization that ensures adequate generation of operational cash flows would lead to shareholder wealth maximization.

A constraint can be a resource, a company policy or management mindset. The concept is applied to the allocation of scarce resources to reduce a company’s costs and improve profitability.

Satisficing: Bounded rationality may lead to satisficing. It is the condition where the search for an optimal solution is abandoned upon finding a satisfactory solution. Normally in satisficing, the course of action chosen only leads to the achievement of the minimum basic requirement but does not necessarily give you the best of options. A management accountant that is always interested in meeting the basic requirement will not assist his/her firm to be competitive in this changing world.

Optimizing: optimizing means looking for the best of options to pursue given the constraint faced by the decision maker. Optimal solution seeking takes time and effort but its rewards are enormous. It leads the organization to satisfy its shareholders and achieve competitive advantage. Decision tools like limiting factor analyses and linear programming are useful in making optimal decisions.

Short-termism is when there is a bias towards short-term rather than long-term performance.
Steps that could be taken to encourage managers to take a long-term view, so that the ‘ideal’ decisions are taken, include the following:

• Making short-term targets realistic. If budget targets are unrealistically tough, a manager will be forced to make trade-offs between the short and long term.
• Providing sufficient management information to allow managers to see what trade-offs they are making. Managers must be kept aware of long-term aims as well as shorter-term (budget) targets.
• Evaluating managers’ performance in terms of contribution to long-term as well as short-term objectives.
• Link managers’ rewards to share price. This may encourage goal congruence.
• Set quality based targets as well as financial targets. Multiple targets can be used.                                              (Any 2 points)

.                                                                                                       2017                     2018

.                                                                                                       2017                     2018

.                                                                                                       2017                     2018

Profitability
Return on capital employed has fallen from 2017 to 2018 caused by a decrease in operating profit and an increase in capital employed. The fall in operating profit may have been caused by an increase in costs, whilst the new investment programme will have caused an increase in capital employed.

Asset turnover has fallen. Sales have only increased by 2.8% between 2017 and 2018 so the new investment programme may not yet have had a significant effect upon sales.
In the short term, the investment programme has increased assets and costs but has not yet influenced sales.

Liquidity
The current ratio has deteriorated so the firm’s ability to meet its short-term obligations from its short-term resources has been reduced. The expenditure on the investment programme may have decreased the cash balance between 2017 and 2018, causing the deterioration in liquidity.

Material Usage variance = Mixed Variance + Yield Variance

Planning Variance: (revision variance) – compares an original standard with revised standard that would have been used if the planner had known what was to happen. The update to the original standard to reflect the change in conditions and environment. They are often deemed to be uncontrollable hence management cannot be held responsible. Planning variance is very useful for providing feedback on just how skilled management are interested in future prices and cost.
Operational Variance: (Operating variance) – compares an actual result with revised standard. They are often deemed to be controllable hence management be held responsible for operational variances. The operational variance is more meaningful in that it measures the efficiency of management given the market conditions that prevailed at the time. It therefore ignores factors that cannot be controlled, which in turn stop management from becoming demotivated.

• The use of planning and operational variances will enable management to draw a distinction between variances caused by factors outside the control of the business and planning errors (planning variances) and variances caused by factors that are within the control of management (operational variances).
• The managers’ performance can be compared with the adjusted standards that reflect the conditions the manager actually operated under during the reporting period. If planning and operational variances are not distinguished, there is potential for dysfunctional behaviour especially where the manager has been operating efficiently and effectively and performance is being judged by factors outside the manager’s control.
• The use of planning variances will also allow management to assess how effective the company’s planning process has been. Where a revision of the budget is required due to changes that were not foreseeable at the time the budget was prepared, the planning variances are uncontrollable. However, budgets that failed to anticipate foreseeable market trends when they were set will reflect faulty planning. It could be argued that some of the planning variances are in fact controllable at the planning stage.
• The information used in setting the ex-post standards can be used in future budget periods. The planning variances may also indicate problems in the standard setting process and the reasons for this can be identified and improvement made to the process.

Breakeven points in packet of Biscuits, Margin of safety in % and revenue required to earn a profit of GH¢1,440,000

Recommendation:
The company should consider option 2 as this gives a higher profit.

Life cycle costing is a concept which traces all costs to a product over its complete lifecycle, from design through to cessation. It recognises that for many products there are significant costs to be incurred in the early stages of its lifecycle. This is probably very true for Oria Software Inc. The design and development of software is a long and complicated process and it is likely that the costs involved would be very significant.
Benefits of lifecycle costing

• The profitability of a product can then be assessed taking all costs into consideration.
• It is also likely that adopting lifecycle costing would improve decision-making regarding product introduction, product mix and for discontinuation of the product.
• It is also considered a way to enhance cost control of manufacturing costs.
• It helps in pricing decision therefore preventing underpricing at the launch point.

Conclusion:
Clearly, proposed selling price per software of GH¢250 is not advisable as it is lower than cost of production. Oria Software Inc. may either increase the selling price or undertake cost reduction techniques like value engineering, quality cycle or alternative source of cheaper material to be able to reduce the cost to be lower than GH¢ 250 per unit.