Question $1$

a$.$ Compare and contrast the use of residual income and return on investment in divisional

performance measurement, stating TWO advantages and TWO disadvantages of each.

$(10$ marks$)$

b$.$ A division of AMPLE Ltd has capital employed of GHS$500,000$ and earns an annual

profit after depreciation of GHS$90,000.$ The divisional manager is considering an

investment of GHS$50,000$ in an asset that will have a ten$-$year life with no residual value

and will earn a constant annual profit after the depreciation of GHS$8,000.$ The cost of

capital is $15\%.$

You are required to:

Calculate the following and comment on the results.

i$.$

The return on divisional investment, before and after the new investment

ii$.$

The divisional residual income before and after the new investment $(10$ marks$)$

Question $2$

ADANSIE Ltd manufactures a single product, KAKRO. The following information relates to

the period that has just ended.

Standard cost per unit of KAKRO

Material

Kilos

Price per kilo $($GHS$)$

Total $($GHS$)$

F

$15$

$4$

$60$

G

$12$

$3$

$36$

H

$8$

$6$

$48$

$35$

$144$

Budgeted sales for the period are $4,500$ units at GHS$260$ per unit. There were no budgeted

opening or closing inventories of KAKRO.

The actual materials used were as follows.

Material

Kilos Price per kilo $($GHS$)$

Total $($GHS$)$

F

$59,800$

$4\mathrm{.}25$

$254,150$

G

$53,500$

$2\mathrm{.}80$

$149,800$

H

$33,300$

$6\mathrm{.}40$

$213,120$

$4,100$ units of KAKRO were produced and sold for GHS$1,115,800.$

You are required to:

a$.$ Calculate the following material variances.

i$.$

Price

ii$.$

Mix

iii.

Usage

iv$.$

Yield

$(12$ marks$)$

b$.$ Calculate the sales variances.

$(4$ marks$)$

c$.$ From the findings, comment on the causes of the mix and yield variances. $(4$ marks$)$