Zealow Ltd has just introduced a new standard marginal costing system to assist in the planning and control of the production activities for the single product which the company manufacturers. “The Stand”, the system became operational on 1 March 2017.

The Management Accountant has consulted with the Senior Engineer and they have agreed the following standard specifications to manufacture one unit of the product known as “The Stand”.

Direct materials        4kg @ GH¢1.75 per kg
Direct labour             2 hours @ GH¢10 per hour
Variable overhead   2 hours @ GH¢8.25 per hour

The Marketing Director has advised that in Zealow Ltd’s industry, the budgeted selling price is normally calculated to achieve a mark up to 30% on cost.

The budgeted level of production and sales activity has been agreed with both production managers and sales staff at 24,000 units per month.

The actual results for the month of March 2017 are as follows:
Sales                              22,000 units yielding a total revenue of GH¢1,276,000
Production                    23,000 units
Direct Materials           90,000 kgs at a cost of GH¢162,000
Direct labour                48,000 hours at a cost of GH¢576,000
Variable overhead        GH¢350,000
Required:

Zealow Ltd uses a standard marginal costing system and therefore fixed costs have been ignored in the calculations shown above. Assuming that the fixed costs for the company are estimated to be GH¢1,879,200 per annum, calculate the monthly sales in both units and value which will be required to break-even and estimate the margin of safety, based on the current budget levels.                                                                                                                                                                                   (3 marks)

Zealow Ltd has just introduced a new standard marginal costing system to assist in the planning and control of the production activities for the single product which the company manufacturers. “The Stand”, the system became operational on 1 March 2017.

The Management Accountant has consulted with the Senior Engineer and they have agreed the following standard specifications to manufacture one unit of the product known as “The Stand”.

Direct materials        4kg @ GH¢1.75 per kg
Direct labour             2 hours @ GH¢10 per hour
Variable overhead   2 hours @ GH¢8.25 per hour

The Marketing Director has advised that in Zealow Ltd’s industry, the budgeted selling price is normally calculated to achieve a mark up to 30% on cost.

The budgeted level of production and sales activity has been agreed with both production managers and sales staff at 24,000 units per month.

The actual results for the month of March 2017 are as follows:
Sales                              22,000 units yielding a total revenue of GH¢1,276,000
Production                    23,000 units
Direct Materials           90,000 kgs at a cost of GH¢162,000
Direct labour                48,000 hours at a cost of GH¢576,000
Variable overhead        GH¢350,000
Required:

Calculate the relevant variances for March 2017 under the headings of sales, materials, labour and overheads.           (10 marks)

Zealow Ltd has just introduced a new standard marginal costing system to assist in the planning and control of the production activities for the single product which the company manufacturers. “The Stand”, the system became operational on 1 March 2017.

The Management Accountant has consulted with the Senior Engineer and they have agreed the following standard specifications to manufacture one unit of the product known as “The Stand”.

Direct materials        4kg @ GH¢1.75 per kg
Direct labour             2 hours @ GH¢10 per hour
Variable overhead   2 hours @ GH¢8.25 per hour

The Marketing Director has advised that in Zealow Ltd’s industry, the budgeted selling price is normally calculated to achieve a mark up to 30% on cost.

The budgeted level of production and sales activity has been agreed with both production managers and sales staff at 24,000 units per month.

The actual results for the month of March 2017 are as follows:
Sales                              22,000 units yielding a total revenue of GH¢1,276,000
Production                    23,000 units
Direct Materials           90,000 kgs at a cost of GH¢162,000
Direct labour                48,000 hours at a cost of GH¢576,000
Variable overhead        GH¢350,000
Required:
Calculate the standard selling price of one unit of “The Stand” and prepare a summary budgeted profit statement for Zealow Ltd for the month of March 2017.                                                                                                                                       (2 marks)

Zumah Ltd manufactures and sells two complimentary products: Hyline and Glycerin in the ratio 3:2. The result for the just ended period showed the following:

Product                                                Hyline               Glycerin
Selling price (GH¢)                                 20                      15
Contribution/sales ratio                         60                     40
Profit/ (loss) (GH¢)                              97,200               (3,600)

Joint fixed cost of GH¢180,000 are apportioned in proportion to the number of units of each product sold.

The company is in the process of preparing the budget for the coming year, and is desirous of improving the performance of Glycerin. Therefore the following proposals are being considered for implementation:
i) Increase the price of Glycerin by 25% in expectation that the quantity demanded will reduce by 10%; or
ii) Retool the production process which will result in a reduction of joint fixed costs by 15% and an increase in variable costs of each product by 10%; or
iii) Introduce proposals 1 and 2.

Required:
a) Determine the units of each product sold, and hence, prepare the profit statement for the just ended period; and        (7 marks)

b) Advise the management of Zumah Ltd as to which proposal to implement with the view of optimizing profits.         (8 marks)

Bonti Ltd produces three different products using two production departments. The company currently uses Absorption Costing to establish product costs and profitability. The Directors have recently attended a conference on Activity Based Costing (ABC) and are examining whether ABC might provide a better system for Bonti Ltd.

The following budgeted information for period ended 31 December 2017 has been collated for each of the three products:

Raw material costs GH¢4 per kilo and the hourly rate for all labour is GH¢5. The direct expenses relate entirely to specialized packaging which is uniquely designed for each of the products and is therefore directly attributable to that product alone.

The current costing system absorbs overheads to the Machine and Assembly Departments on the basis of a recovery rate of GH¢3.50 per machine hour and GH¢1 per labour hour respectively.

The following is an analysis of the overheads by department:
Department                                                               Overheads
Purchasing Department                                               22,400
Production set-up & Design Department                 34,500
Customer Service Department                                  32,600
Machine                                                                        123,000
Assembly Department                                                26,500

The Departmental Managers have provided the following additional information about operations in their departments:

The Machine Department is capital intensive and the Assembly Department is labour intensive.
Required:

c) Calculate the profit per unit for each product if overheads are absorbed using an Activity Based Costing approach. Clearly identify any cost drivers you assign.                                                                                                                                 (11 marks)

d) Comment on why there is a difference between the profit/loss shown on an Absorption Costing basis and that shown using Activity Based Costing.                                                                                                                                                      (3 marks)

e) Identify THREE limitations of Activity Based Costing.                                                                                                (3 marks)

Bonti Ltd produces three different products using two production departments. The company currently uses Absorption Costing to establish product costs and profitability. The Directors have recently attended a conference on Activity Based Costing (ABC) and are examining whether ABC might provide a better system for Bonti Ltd.

The following budgeted information for period ended 31 December 2017 has been collated for each of the three products:

Raw material costs GH¢4 per kilo and the hourly rate for all labour is GH¢5. The direct expenses relate entirely to specialized packaging which is uniquely designed for each of the products and is therefore directly attributable to that product alone.

The current costing system absorbs overheads to the Machine and Assembly Departments on the basis of a recovery rate of GH¢3.50 per machine hour and GH¢1 per labour hour respectively.

The following is an analysis of the overheads by department:
Department                                                               Overheads
Purchasing Department                                               22,400
Production set-up & Design Department                 34,500
Customer Service Department                                  32,600
Machine                                                                        123,000
Assembly Department                                                26,500

The Departmental Managers have provided the following additional information about operations in their departments:

The Machine Department is capital intensive and the Assembly Department is labour intensive.
Required:
a) Calculate the prime cost for each product.                                                                                                                      (3 marks)

b) Calculate the profit per unit for each product if overheads are absorbed on the Current Costing basis.                      (5 marks)

Abigail Acheampong is in the process of preparing budgets for the period October to December 2017. The following information has been provided to assist in the budgeting process:

• Budgeted monthly sales revenue is as follows:
  .                                                                     GH¢
  October                                                      40,000
  November                                                  70,000
  December                                                   50,000
  January 2018                                              45,000
• Sales are 20% cash and 80% credit. Credit sales are collected over a three month period, 15% in the month of sale, 70% in the month following sale and 15% in the second month following sale. Bad debts of 5% are anticipated on all credit sales.
• Total sales revenue in August amounts to GH¢30,000 and September’s total sales revenue amounts to GH¢36,000.
• Cost of sales is expected to amount to 60% of sales revenue each month.
• The business maintains its closing inventory levels at 75% of the following month’s cost of sales. Inventory at the beginning of October is expected to amount to GH¢18,000.
• 50% of inventory purchased is paid in the month of purchase. The remaining 50% is paid for in the month following purchase. As at 30 September 2017, amount owed for purchases are GH¢11,700.
• A grant of GH¢20,000 is expected to be received in mid-October.
• A second hand van which cost GH¢8,000 three years ago is expected to be sold in December 2017 for GH¢3,000. At this time the expected net book value of the van is GH¢1,800.
• Equipment costing GH¢4,500 will be purchased and paid for in November 2017. The equipment will be depreciated on a straight line basis over three years.
• Operating expenses are paid as incurred. These have been estimated as follows:
  .                                                                     GH¢
  October                                                       12,800
  November                                                   18,900
  December                                                    14,600

The above figures include depreciation on existing assets of GH¢2,000 per month.

• The cash balance on 1 October is expected to amount to GH¢8,000

Required:
i) Calculate the purchases figure for each month from October 2017 to December 2017.                                                 (3 marks)

ii) Prepare a cash budget on a monthly basis and in total for the period October 2017 to December 2017.                    (12 marks)

An efficient and effective coding system, whether manual or computerized should incorporate certain features.
Required:
Identify and explain FIVE features of a good coding system.                                                                                            (5 marks)

Explain the importance of the following terms under Performance Management Information System.                            (5 marks)
i) Transaction Processing System.

ii) Enterprise Resource Planning System.

The traditional methods of measuring performance of sub-units to achieve goal congruence include divisional profit, Return on Investment, Residual Income and Transfer pricing. These profit based measures do not reveal all about the long term survival of corporate institutions.
Required:
Identify and explain FIVE areas of relevance that should engage the attention of management to ensure both short and long term profitability and survival.                                                                                                                                         (10 marks)