QUESTION 1 The following information provides details of the cost, volume and cost drivers for the particular period in respect of ABC & Co. Products X Y Z Total Production and sales (units) 30,000 20,000 8,000 Raw material usage (units) 5 5 11 Direct material cost GHS 25 GHS 20 GHS 11 GHS 1,238,000 Direct labour hours 1 2 1 88,000 Machine hours 1 1 2 76,000 Direct labour cost 8 12 6 Number of production run 3 7 20 30 Number of deliveries 9 3 20 32 Number of receipts 15 35 220 270 Number of production orders 15 10 25 50 Overhead Cost: GHS Set-up 30,000 Machines 760,000 Receiving 435,000 Packing 250,000 Engineering 373,000 1,848,000 In the past the company has allocated overhead to products on the basis of direct labour hours. However, the majority of overheads are more closely related to machine hours than direct labour hours. The company has recently redesigned its cost system by recovering overheads using two volume-related bases: machine hours and material handling overhead rate for recovering overheads of the receiving department. Both the current and previous cost system reported low profit margin for product X, which is the companys highest selling product. The management accountant has recently attended a conference on activity-based costing and the overhead cost for the last period have been analysed by major activities in order to compute activity-based costs. Required: (a) Compute the product cost using a traditional volume-related costing system based on the assumptions that: i. All overheads are recovered on the basis of direct labour hours ii. The overheads of the receiving department are recovered by a material handling overhead rate and the remaining overheads are recovered using a machine hour rate. (b) Compute product costs using an activity-based costing system

QUESTION 2 ALG Co. is launching a new, innovative product onto the market and is trying to decide on the right launch price for the product. The products expected life is three years. Given the high level of cost which have been incurred in developing the product, ALG Co. wants to ensure that it sets its price at the right and has therefore consulted a market research company to help it do this. The research, which relates to similar but not identical product launch by other companies, has reveal that at a price of Ghc 60, annual demand would be expected to be 250,000 units. However, for every Ghc 2 increase in selling price, demand would be expected to fall by 2,000 units and for every Ghc 2 decrease in selling price, demand would be expected to increase by 2,000 units. A forecast of the annual production cost which would be incurred by ALG Co in relation to the new product are as follows: Annual production (units) 200,000 250,000 300,000 350,000 Ghc Ghc Ghc Ghc Direct material 2,400,000 3,000,000 3,600,000 4,200,000 Direct labour 1,200,000 1,500,000 1,800,000 2,100,000 Overheads 1,400,000 1,550,000 1,700,000 1,850,000 Required: a. Calculate the total variable cost per unit and total fixed overheads. (5 marks) b. Calculate the optimum (profit maximizing) selling price for the new product and calculate the resulting profit for the period. (5 marks) Note: P = a bx then MR = a 2bx B The sales director is unconvinced that the sales price calculated in (b) above is the right one to charge on the initial launch of the product. He believes that a price should be charged at the launch so that those customers prepared to pay a higher price for the product can be skimmed off first. Required: Discuss the conditions which would make market skimming a more suitable pricing strategy for ALG Co. and recommend whether ALG Co. should adopt this approach. (5 marks) C UPSA Ltd is a company that produces fruit juice which is bottled and sold in crates. The normal annual level of production on which the fixed production overhead absorption is based on 120,000 crates.

Data for the just ended financial year of 31st December, 2018 is as follows: QUESTION 3 UPSA Ltd is a company that produces fruit juice which is bottled and sold in crates. The normal annual level of production on which the fixed production overhead absorption is based is 120,000 crates. Production 145,000 crates Sales 112,000 crates Selling price GHS2,000 per crate Costs: Direct material GHS600 per unit Direct labour GHS520 per unit Variable overhead GHS250 per unit Fixed production overhead GHS1,820,000 Variable selling and distribution cost 10% of sales revenue Fixed selling and distribution cost GHS234,000 Note: Show workings and leave all monetary computations in 2 decimal places Required: Prepare Profit Statements for the year ended 31st December, 2018 based on: (a) Marginal Costing (4 marks) (b) Absorption Costing (6 marks) (c) Reconcile the profit figures in (a) and (b) above (5 marks)

(Total 15 marks) QUESTION 4 A Budget is a quantitative plan prepared for a specific time period. It is normally expressed in financial terms and prepared for one year. The Chartered Institute of Management Accountants (CIMA) also defined a budget as a plan quantified in monetary terms, prepared prior to a defined period of time to attain a given objective. Several objectives exist for the preparation of a budget. Notable among them include assisting in Planning, Control, Communication, Co-ordination, Evaluation, Motivation, Authorization and Delegation. Individuals react to demands of budgets and budgetary controls in different ways. Their behavior can damage the budgeting process. Behavioral problems are often linked to management styles. Required: Based on your knowledge of Budgeting; (a) Discuss the following behavioral problems of budgeting which are linked to management styles: i. Dysfunctional behaviour (2 marks) ii. Budget slack (2 marks) (b) State and discuss four (4) approaches to budgeting (5 marks) (c) State and discuss the following types of budgets: i. Fixed Budget (2 marks) 5 ii. Flexed Budget (2 marks) iii. Flexible Budget (2 marks) (Total 15 marks)