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NB: please use separate booklet(s) for each part

Do not ANSWER PARTS A & B in the same answer booklets

Attempt ALL Questions in this Section
NB: Use a separate Answer Booklet(s) for Part A


Uncle Pee has been approached by a customer who would like a special job to be done for him and
is willing to pay GH¢20,000.

The job would require the following materials.

Material Total Units Units already Book value of Realizable value Replacement
required in stock units in stock GH¢ per unit cost per unit
GH¢ per unit
A 1000 0 - - 6
B 1000 600 2 2.5 5
C 1000 700 3 2.5 4
D 200 200 4 6 9

The following information is provided:

i) Material B is used regularly by Uncle Pee and if stocks are required for the job, they would
need to be replaced to meet other production demands.
ii) Materials C and D are in stock as a result of previous over buying and they have a restricted
use. No other use could be found for material C, but the units of material D could be used in
another job as substitute for 300 units of material E, which currently costs GH¢5 per unit
(the company has no units in stock at the moment).

The work requires 2 grades of labour; X and Y

i) Grade X labour is currently idle, and has no work to do; however they are kept in full
employment and paid their normal wage of GH¢3 per hour. The contract would require 500
hours of Grade X labour.
ii) Grade Y labour is currently extremely busy, and if the contract is undertaken, labour would
be diverted from other work which currently earns a contribution to fixed overheads of
Gh¢4 per hour. The contract would require 200 hours of Grade Y labour, which is paid
GH¢3.5 per hour.
i) Variable Overheads are incurred and absorbed at the rate of GH¢1 per active working hour.

ii) Fixed Overheads (which exclude the cost of machinery) are absorbed as 250% of direct
labour cost. The contract would require the help of an outside consultant, whose fee would
be GH¢300.

Machinery Cost

i) A special machine will have to be hired for three months for production (the length of the
contract). Hiring charges for this machine are GH¢75 per month, with a minimum hiring
charge of GH¢300.
ii) All other machinery required for production under the contract has already been purchased
by the company on hire purchase terms. The monthly hire purchase payments for this
machinery are GH¢500. This consists of GH¢450 for capital repayment and GH¢50 as an
interest charge. The last hire purchase payment is to be made in two months time. The cash
price of this machinery was GH¢9,000 two years ago. It is being depreciated on a straight
line basis at the rate of GH¢300 per month.
It is further estimated that the machinery would lose GH¢200 on its eventual value if it is
used for the contract work.


(a) Summarize the relevant costs of material, labour, overheads and machinery and advise the
directors whether or not the contract should be undertaken.

(b) Prepare the statement in a conventional form and advise management.
(20 marks)


The following data were extracted from the books of Kay Limited as at 1st March.

i) Budgeted Sales:
March 180,000
April 240,000
May 250,000
June 230,000

The selling price is GH¢2 per unit.

Sales are invoiced twice per month, in the middle of the month and on the last day of the
month. Terms are 2% for 10 days and net 30 days. Sales are made evenly through the

month and 50% of sales are paid within the discount period. The remaining amounts are
paid within the 30-day period except for bad debts which average ½% of gross sales.

ii) Stocks of finished goods were 36,000 units on 1st March. The company’s rule is that stocks
of finished goods at the end of each month should represent 20% of their budgeted sales for
the following month. No work-in-progress is held.
iii) Stocks of raw materials were 45,600 kilogrammes on 1st March. The company’s rule is that,
at the end of each month, a minimum of 40% of the following month’s production
requirements of raw materials should be in stock. Payments for raw materials are to be
made in the month following purchase, and materials can only be bought in lots of 40,000
kilogrammes or multiples thereof.
iv) The standard production cost of the product, based on normal monthly production of
230,000 units is:
Cost per unit
Direct Materials (1/2 kilogramme per unit) 0.50
Direct Wages 0.40
Variable Overheads 0.20
Fixed Overheads 0.10
Total 1.20

Fixed overhead includes GH¢8,000 per month depreciation on production plant and
machinery. Any volume variance is included in cost of sales.
v) Production salaries and wages are paid during the month in which they are incurred.
vi) Selling expenses are estimated at 10% of gross sales. Administrative expenses are
GH¢60,000 per month of which GH¢800 per month relates to depreciation of office
equipment. Selling and administrative expenses and all production overheads are paid in the
month following that in which they are incurred.
vii) The cash balance is expected to be GH¢12,000 on 1st April.

You are required to prepare:

(a) the budgeted production requirements (in units) for each of the months of March, April and
(b) the budgeted purchase requirement of raw materials (in units) for each of the months of
March and April.
(c) the Cash Forecast for April.
(20 marks)


(a) RASCUS Ltd is a manufacturing company in the Volta Region that has specialized in the
manufacturing of various types of footwear ranging from bathroom slippers to executive
shoes. The company for which you are a management accountant is considering reviewing
its current budgeting and budgetary control models.

You are required to write a report to the Head of Finance and Administration enumerating and
evaluating the strengths and weakness of Zero Based and Incremental budgeting approaches.

(10 marks)

(b) Traditional budgeting systems are incremental in nature and tend to focus on cost centres.
Activity-based budgeting links strategic planning to overall performance measurement
aiming at continuous improvement.


(i) What benefits can be derived from the use of an activity-based system?
(4 marks)

(ii) What are the conditions necessary for successful and effective budgeting?
(6 marks)
(Total: 20 marks)


Attempt ANY Two (2) Questions

NB: Use SEPARATE answer booklet(s) for this Section


(a) Explain the term decision tree as applied in problem solving under risk and uncertainty.
(3 marks)
(b) The Eastern Rice Mill Company, ERMC, in a given year decides to produce and sell 4
different brands of rice:
Grade A, 100% refined rice,
Grade B, 75% refined rice,
Grade C, 50% refined rice,
and Grade D, 25% refined rice, with production proportion of A: B: C: D = 2: 3: 3:
2. Three retailers of ERMC products purchased the brands A, B, C and D in the following
order in GH¢’000:
Retailer 1: 15, 25, 17, 43
Retailer 2: 17, 43, 15, 25
and Retailer 3: 20, 20, 30, 30. The overhead cost for each retailer is GH¢15,000.


(i) Draw the tree diagram for the three retailers (5 marks)
(ii) Draw the table of expected values of the retailers. (8 marks)
(iii) Rank the retailers in the order of highest turnover with ERMC at the end of
the given year. (4 marks)
(Total: 20 marks)


a) Show diagrammatically:

(i) A perfect positive correlation
(ii) A perfect negative correction
(iii) No correlation between two variables, x and y.
(6 marks)

b) The table below shows the marks obtained by 12 candidates in two (2) subjects, x and y, in a
class test.

Candidate A B C D E F G H I J K L
Marks in x 8 7 15 12.6 16 7 4 17 13 11 6.6 13
Marks in y 11 13.6 5.6 15.2 5 16 17 4 7 9 13 10


(i) Draw a scatter diagram of the marks scored. (4 marks)

(ii) Calculate Karl Pearson’s coefficient of correlation between the two subjects x and y.
(8 marks)

(iii) Comment on your answer in b (ii). (2
(Total: 20 marks)


(a) Explain the following terms
(i) lead time
(ii) stock-out (4 marks)

(b) Using the basic stock model, the total cost (TC) per year of stocking an item is given by

TC = Co D + Ch q GH¢/year
q 2

where D = the annual demand for the stock item
Co = the variable cost of placing one order, GH¢/order
Ch = the variable cost of holding one item in stock for one year, GH¢/item/year
q = order quantity, items/order

(i) Derive the optimum order quantity qo (6 marks)
(ii) Determine the total cost per year at optimum order quantity (2 marks)

(c) A Confectionery Shopping Centre demands a special brand of confectionery at 12,000
sachets per year. The demand for the commodity is evenly spread over the year. Each
sachet sells at GH¢4.50. It costs a retailer GH¢20 to place an order. The holding cost is
10% per annum of the average stock.


(i) Find the order quantity if the retailer wishes to minimize his stocking costs.
(4 marks)
(ii) Find the minimal total cost per year of stocking the confectionery. (4

(Total: 20 marks)


a) Sketch graphs to show the following:

(i) a minimum turning point
(ii) a maximum turning point
(iii) a point of inflexion between two variables x and y. (6 marks)

b) The total cost (TC) of producing a product is given as TC = 75 + 4Q and the total revenue
(TR) is given as TR = 12Q – 0.06Q2, where TC and TR are in thousand Ghana Cedis and Q
the quantity of the product produced and sold.


(i) Determine the Marginal Cost (MC) and the Marginal Revenue (MR) functions of the
company (4 marks)

(ii) Plot on one graph paper, the graphs of MC and MR. (4

(iii) Indicate on your graph paper the profit maximizing quantity. (2 marks)

(iv) Hence, determine the maximum profit. (4 marks)
(Total: 20 marks)