APRIL 2022 PROFESSIONAL EXAMINATIONS

INTRODUCTION TO MANAGEMENT ACCOUNTING (PAPER 1.4)

CHIEF EXAMINER’S REPORT, QUESTIONS AND MARKING SCHEME

STANDARD OF THE PAPER

The paper covered all relevant topics of the syllabus and the questions were standard
and comparable to other accountancy examining bodies. Mark allocation to the
questions followed the weighting in the syllabus. In general, appropriate marks were
fairly allocated to the time and load required from the candidates to answer each
question.

PERFORMANCE OF CANDIDATES
The general performance of the candidates was average with a reasonable number of
passes. The following are the associated reasons:
 Most candidates answered Question 1 very well and a significant number of
candidates passed the paper due to this question.
 Question 4 was also very well answered by candidates and this contributed to the
significant number of candidates attaining passes.

High performers were very few and spread across all centres. Low performers were
also spread in all centres but certain centres registered more low performers than the
others. There were no signs of copying at any centre.

There was an indication that candidates did not prepare adequately for the paper
because most candidates could not attempt or answer Question 5 in addition to
question 2b on the company’s cash operating cycle, even though similar questions
continue to appear from one examination to another.

NOTABLE STRENGTHS AND WEAKNESSES OF CANDIDATES

The strong performance of few candidates depended on the volume of knowledge and
skill in approaching specific questions like apportionment of overhead costs of service
centres to production centres, budgeting, preparation of operating statements under
marginal and absorption costing methods, and forecasting. All of the strong
performers exhibited accuracy, precision and better understanding of these areas.

Observed reasons for the strengths

Strong performers adequately understood the costing methods and principles and
thus demonstrated skill in applying the costing principles.

Weaknesses demonstrated by candidates

Reasonable number of candidates did not adequately understand the costing
principles required to enable them successfully write the exams. Most candidates did
not take adequate time and effort to understand the requirements of the questions and
therefore did not do well in some questions, specifically, cash operating cycle and
calculation of number of batches, machine set ups per batch, total number of set ups
and Budgeted cost per set up.

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QUESTION ONE

The following information has been extracted from the records of a company for the half
year ended 31 March 2021. A product, Capital Q, goes through two processes, X and Y:

Details relating to Process X for the period:

Input units 5,000
Finished units transferred to Process Y 3,200
Closing WIP 840
Normal losses 10%

Normal losses have an estimated resale value of GH¢4 per unit.

Costs incurred during the period:

GH¢
Direct materials 31,250
Direct labour 21,200
Overheads 17,325

Abnormal Losses and Closing WIP had the following degrees of completion at the end of
the period:

Direct materials 100%

Direct labour 80%
Overheads 50%

Required:
Using the weighted average method:
a) Compute the cost per unit for each of the element of costs. (5 marks)
b) Compute the value of the complete units transferred to Process Y. (5 marks)
c) Compute the value of the closing WIP. (5 marks)
d) Prepare Process X Account for the period. (5 marks)

(Total: 20 marks)

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QUESTION TWO

a) Dampare Ltd manufactures three products namely A, B and C. The information given
below relates to the month of November, 2020.

Product Quantity (Units) Price/Unit

(GH¢)
Sales: A 1200 80
B 2400 96
C 1800 112
Materials used in company’s Products
Material MA MB MC
(Unit cost) GH¢3 GH¢5 GH¢8

Quantity used in: MA (Units) MB (Units) MC (Units)

Product A 5 3 1
Product B 4 4 3
Product C 3 2 2

Finished Stock Product A Product B Product C

(Unit) (Unit) (Unit)
Opening stock 1200 1800 600
Closing Stock 1320 1980 660

Material Stock MA (Units) MB (Units) MC (Units)

Opening stock 31,200 24,000 14,400
Closing stock 37,440 28,800 17,280

Required:
Prepare the following functional budget for the month of November 2020 for:
i) Sales in quantity and value, including total value
ii) Production quantities
iii) Material usage in quantities
iv) Material purchases in quantities and value, including total value. (15 marks)

b) Principal budget factor is such an important factor in the budgetary control process. It is
essential to identify the principal budget factor before the preparation of budgets.

Required:
i) Explain the term “Principal budget factor” as used in budgetary control. (2 marks)
ii) Identify THREE (3) examples of Principal budget factor from financial institution.
(3 marks)

(Total: 20 marks)

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QUESTION THREE

a) Frankadua Furniture Works located at Bomaa in the Ahafo Region has a rough estimate of
the materials and labour cost of a set of living room furniture. It is expected that 8 cubic
metres of timber, 6 cubic metres of foam and 12 square metres of fabric can be used. Glue,
screws and other accessories will also cost GH¢80.

The Carpenters who will do the cutting, joining and finishing will use 35 hours. Since the
company is fairly new, it will engage a tailor to sow the fabric to fit the sizes of the units
of the chairs. For each set the tailor will charge GH¢150. Labour is paid at GH¢12 per hour
plus a premium of GH¢5 per hour when the job requires more than 20 hours.

Timber is priced at GH¢25 per cubic metre, foam is GH¢20 per cubic metre while the fabric
is GH¢15 per square metre. The Accountant has estimated overhead absorption rate of 20%
on direct material cost.

Required:
i) Determine the prime cost of a set of living room furniture. (10 marks)
ii) Determine the full cost of a set of living room furniture. (5 marks)

b) Kempion Breweries Ltd has just commenced business in the alcoholic beverage sector of
Ghana producing a local gin called Pitoo and is desirous of having a good grasp of its costs
for product costing, valuation and pricing purposes.

Required:
State FOUR (4) features of a process costing system to be used by Kempion Breweries to
arrive at the total cost of Pitoo. (5 marks)

(Total: 20 marks)

QUESTION FOUR

a) Most organisations use time as a basis to reward their employees, hence they pay their staff
on time basis using clock-in devices. Employers are therefore likely to pay for attendance
instead of tasks performed. Accountants believe that employees should be rewarded based
on task, however, not all tasks can easily be rewarded on time basis.

Required:
i) State THREE (3) factors that should be considered when deciding to use time based reward
system. (6 marks)
ii) State THREE (3) measures that can be put in place to ensure that employees do not only
report for work but execute their tasks as required. (6 marks)

b) State THREE (3) challenges management may face in implementing group bonus
schemes. (3 marks)

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c) Standard costing among other advantages is used for performance measurement and
control reporting.

Required:
Explain how the above uses of standard costing are measured. (5 marks)

(Total: 20 marks)

QUESTION FIVE

a) Magawa Ltd operates a standard variables costing system and manufactures a single
product called “Magic Touch”.

The following quantities, costs and prices data have been extracted for the period just ended
March 31, 2021 in respect of Magic Touch:

Standard cost card: GH¢

Direct materials 15g at GH¢10/g 150
Direct labour 8 hours at GH¢6/hour 48
Variable overheads 8 hours at GH¢4/hour 32
Standard contribution 25
Standard selling price per unit 255

Budgeted production units 1,500

Actual results for the period ended March 31, 2021 were as follows:
Production and sales units 1,650
Selling price per unit GH¢278

Direct materials used 23,760g

Direct materials costs GH¢308,880
Direct labour hours worked 10,725
Direct labour costs GH¢85,800
Variable overheads GH¢68,000

Required:
Compute the following variances for Magawa Ltd for the period ended March 31, 2021:
i) Direct materials price variance. (1 mark)
ii) Direct materials usage variance. (1 mark)
iii) Direct labour rate variance. (1 mark)
iv) State ONE (1) possible reason for the material price variance calculated. (1 mark)
v) State ONE (1) possible reason for the labour rate variance calculated. (1 mark)

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b) The Valuation Department of a large firm of surveyors wishes to develop a method of
predicting its total costs in a period. The following past costs and activity levels have been
recorded.
Number of Valuations (V) Total Cost (TC)
GH¢
Period 1 420 82,200
Period 2 515 90,275
Period 3 425 82,900
Period 4 500 90,000

Required:
i) Derive a formula for the total cost model for a period. (4 marks)
ii) Evaluate the usefulness of the high low method. (4 marks)

c) The trend line on its own is not sufficient to make forecasts for the future. Estimates of the
size of the ‘seasonal’ variation for each of the different seasons is needed. The seasonal
variation is then used to adjust a forecast trend.

Required:
Explain TWO (2) models used to estimate seasonal variations.
(7 marks)

(Total: 20 marks)

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SOLUTION TO QUESTIONS

QUESTION ONE

a) Computation of the cost per unit for each of the element of cost
Item Complete Unit +Closing WIP+Ab. Loss= TEU TC Cost/unit
GH¢ GH¢
Materials 3,200 840 460 4,500 29,250 6.50
Labour 3,200 672 368 4,240 21,200 5.00
Overheads 3,200 420 230 3,850 17,325 4.50
16.00
*GH¢29,250 = [31,250-(GH¢4x500)]
(5 marks)
b) Valuation of Complete Units
GH¢16 x 3,200 units = GH¢51,200
(5 marks)
c) Valuation of Closing WIP
GH¢
Materials (840 x GH¢6.50) 5,460
Labour (672 x GH¢5.00) 3,360
Overheads (420 x GH¢4.50) 1,890
10,710
(5 marks)

d) PROCESS X ACCOUNT

Units Price Amount Units Price Amount

GH¢ GH¢ GH¢ GH¢
Materials 5,000 31,250 Nor. Loss 500 2,000
Labour 21,200 Transfer to Y 3,200 51,200
Overheads 17,325 Abnor. Loss 460 5,865
WIP c/d 840 10,710
5,000 69,775 5,000 69,775

(5 marks)

Valuation of Abnormal Loss

GH¢
Materials (460 x GH¢6.50) 2,990
Labour (368 x GH¢5.00) 1,840
Overheads (230 x GH¢4.50) 1,035
5,865

(Total: 20 marks)

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EXAMINER’S COMMENTS
The question was on Process costing analysis with four (4) parts which for a very long
time hasn’t been examined and it looks like a surprise question to almost all the
candidates.
Candidates struggled to compute the abnormal loss which was needed to calculate
the cost per unit of each element of cost. However, many were able to calculate the
normal loss. Since the answer for the cost per unit was not accurately determined,
candidates failed to correctly calculate the value of complete units transferred to
process Y, the value of the closing WIP and prepare the process X account for the
period. This question was the most poorly answered question in this paper. The
average mark scored was not good.
Emphatically, the question was difficult to many candidates, about 95% of the
candidates scored below 5 marks. Even though few candidates (2%) were able to score
above 15 marks, the question was standard. The Computation of the cost per unit for
each of the element of costs (Finished Goods, Work-in-Progress, Normal Loss, and
Abnormal Loss and their various closing values) proved problematic.

QUESTION TWO
a)
i) Sales quantity and value budget
Product: B C Total
A
Sales quantities 1200 2400 1800
Selling prices Ȼ80 Ȼ96 Ȼ112

Sales value Ȼ96,000 Ȼ230,400 Ȼ201,600 Ȼ528,000

ii) Production quantity budget

Product: A B C
Sales quantities 1200 2400 1800
Add closing stock 1320 1980 660
2520 4380 2460
Less opening stock 1200 1800 600
Units to be produced 1320 2580 1860

iii) Material Usage Budget (quantities)

Production quantities Materials

Unit per MA Unit per MB Unit per MC
product Total product Total product Total
A 1320 5 6,600 3 3,960 1 1,320
B 2580 4 10,320 4 10,320 3 7,740
C 1860 3 5,580 2 3,720 2 3,720

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 Usage in 22,500 18,000 12,780
quantities

iv) Material Purchases Budget (quantities and value)

MA MB MC Total
Material usage 22,500 18,000 12,780 Ȼ
Add Closing stock 37,440 28,800 17,280
59,940 46,800 30,060
Less: opening 31,200 24,000 14,400
stock
Purchase in 28,740 22,800 15,660
quantities
Price per unit ¢3 ¢5 ¢8
¢86,220 ¢114,000 125,280 325,500
(Marks are evenly spread = 15 marks)

b)
i) The principal budget factor is also known as the limiting factor or key factor. It is
defined as the factor which at a particular time, or over a period, will limit the
activities of an undertaking. The limiting factor is usually the level of demand for
the products or services of the undertaking but it could be a shortage of one of the
productive resources.
(2 marks)
ii) Examples of Principal budget factor from financial institution include:
 Skilled labour
 Level of ICT
 High interest rate
 Reserve ratios.
(3 marks)

(Total: 20 marks)

EXAMINER’S COMMENTS
The question 2 was on budgeting with two parts. Both parts were well handled by
most of the candidates. The candidates were expected to prepare functional budgets
for a manufacturing firm in part a) of the question. The candidates showed very good
understanding of the principles bothering on budgeting. This question was the most
well answered question in this paper. The average mark scored was very good. Few
candidates however had some difficulties computing the production quantities and
material usage in quantities. The question was a standard one and the performance
was very good. The b) part was tackled by almost every candidate. About 90% of the
candidates were able to offer some of the ‘principal budget factor’ as used in
budgetary control. In the specific context of financial institutions, the examples
solicited by the question yielded answers that are not specific to the financial
institutions. Also few candidates did not attempt the question at all.

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QUESTION THREE
a)
i) Prime cost of the set of furniture
GH¢
Timber 8 cubic m. at GH¢ 25 per m3 (CUBE) = 200
Foam 6 cubic m. at GH¢ 20 per m3 = 120
Fabric 12 sq. m at GH¢ 15 per m2 = 180
Total direct material cost = 500
Direct labour cost 35 hours at GH¢12 = 420
Direct expenses = 150
Prime cost = 1070
(10 marks)

ii) full cost:

Prime cost 1,070
Overhead (20% of GH¢ 500) 100
1,170
(5 marks)
a) Some features of process costing
 Products are produced in mass
 Production is usually done in sequential manner such that the output of one
process becomes the input for a subsequent process
 Product costs per unit is obtained through averaging
 There are usually losses associated with process costing in the form of normal
and sometimes abnormal losses.
 There is usually WIP in process coasting that require valuation
 Valuing Equivalent units of partly finished units may arise
 Valuing Joint and by-products may also arise in process costing.
(Any 5 points @ 1 marks each = 5 marks)

(Total: 20 marks)

EXAMINER’S COMMENTS
The performance of candidates in respect of this question was average. The part a) of
the question required candidates to determine prime cost of a set of living room
furniture and subsequently determine the full cost of a set of living room furniture.
Some candidates incorrectly included the cost of glue, screws and other accessories to
the prime cost instead of considering them as part of overheads absorption.
Candidates also struggled with computing the cost of direct labour because of the
overtime premium of GH¢ 5 paid to labour for working for more than 20 hours, a
reasonable number of the candidates wrongly included it in the direct labour cost.
Other candidates failed to absorb overheads using the overhead absorbed rate giving
by the question.

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On the b) which was on features of process costing, the candidates were quite evasive
with their answers and thereby failed to demonstrate clear understanding of process
costing. Specifically, about 60% of the candidates were able to answer it well

QUESTION FOUR
a)
i) Factors to consider in deciding to use time based reward.
 Where output is difficult to quantify
 Where the job requires a lot of mental skills
 Where the tasks are performed by several individuals
 Where quality is more important than quantity.
 Accuracy is more important than speed.
(Any 3 points @ 2 mark each = 6 marks)

ii) Measures to put in place to ensure people work

 Need for supervision
 Staff should be given additional tasks when one has been completed
 Provide incentive to high performers
 Ensure tasks performed are related so that anyone who delays will be exposed.
(Any 3 points @ 2 marks each = 6 marks)

b) Challenges of implementing group bonus scheme

 Distribution amongst the group members can create problems.
 Difficult to identify high performers in the group
 Tasks may not be easily separable
 Lazy workers may unduly qualify
 May not motivate hard working employees.
(Any 3 points @ 1 mark each = 3 marks)

c)
i) In relation to performance measurement, the difference between standard costs
(expected costs) and actual costs can be measured as variances. Variances can be
reported regularly to management, in order to identify areas of good performance
or poor performance. (2.5 marks)

ii) In relation to control reporting, when differences between actual results and
expected results (the budget and standard costs) are large, this could indicate that
operational performance is not as it should be, and that the causes both the
variance should be investigated. Management can therefore use variance reports
to identify whether control measures might be needed, to improve poor
performance or continue with good performance. (2.5 marks)

(Total: 20 marks)

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EXAMINER’S COMMENTS
The question 4 was in two parts- part a) was time based reward system and group
bonus schemes and part b) was on challenges of implementing group bonus scheme.
Being a theory question the performance was average since most candidates were not
adequately prepared for the question. Answers given were not appropriate whilst
some candidates barely answered it.
Part c) was on standard costing among other advantages is used for performance
measurement and control reporting. This section was also poorly answered as candidate
could not explain how standard costing helps in performance measurement and
control reporting.

QUESTION FIVE
a)
i) Material Price Variance: (SP – AP) AQ
(10-13) 23,760 = GH¢71,280A (1 mark)

ii) Material Usage Variance: (SQ – AQ) SP

(24,750 – 23,760) 10 = GH¢9,900F (1 mark)

iii) Direct Labour Rate Variance: (SR – AR) AH

(6 – 8) 10,725 = GH¢21,450A (1 mark)

iv) Reasons for material price variance

 Inflation
 Shortage of materials
 Increase in demand for a product etc
(Any 1 point @ 1 mark each = 1 mark)
v) Reasons for labour rate variance
 Increase in cost of living
 Idle time
(Any 1 point @ 1 mark each = 1 mark)

b)
i)
Valuations (V) Total Cost (TC)
GH¢
Period 2 515 90,275
Period 1 420 82,200
Change due to variable cost 95 8,075

:. Variable cost per valuation= GH¢8,075/95 = GH¢85.

Period 2: Fixed cost = GH¢ 90,275 – (515* GH¢85)

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 = GH¢ 46,500
The total cost model can therefore be represented as TC = GH¢ 46,500 + GH¢85V.
(4 marks)

ii) The high-low method is a simple and easy to use method of estimating fixed and
variable costs. However there are a number of problems with it:
The method ignores all cost information apart from at the highest and lowest
volumes of activities and these may not be representative of costs at all levels of
activity.
Inaccurate cost estimates may be produced as a result of the assumption of a
constant relationship between costs and volume of activity
Estimates are based on historical information and conditions may have changed.
(4 marks)

b) There are two models used to estimate seasonal variation

1. The additive model
2. The proportional model

The additive model: this model assumes that seasonal variations above and below
the trend line in each cycle adds up to zero. Seasonal variations below the trend
line have a negative value and variations above the trend line have a positive
value.
The seasonal variation for each season (or daily variation for each day) is estimated
as follows, when the additive assumption is used:
 Calculate the difference between the moving average value and the actual
historical figure for each time period.
 Group these seasonal variations into the different seasons of the year (days of the
week, months or quarters of the year)
 Calculate the average of these seasonal variations for each season ( or day; month;
quarter)
 If the total seasonal variations for the cycle do not add up to zero the difference is
spread evenly across each season (or day; month; quarter)
 This adjusted figure is the seasonal variation.

The proportional model: this model expresses the actual vale in each season as a
proportion of the trend line value.
When a proportional model is used to calculate seasonal variations, rather than
additive model, the seasonal variations for each time period are calculated by
dividing the actual data by corresponding moving average or trend line value.
The sum of the proportions for each time period must add up to 1. This means that
the total of the proportions quarterly data must sum to 4. If this not the case, the
difference is spread evenly over each quarter.
(2 models @ 3.5 marks each = 7 marks)

(Total: 20 marks)

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 EXAMINER’S COMMENTS
The a) part of the question was also in five parts i)-v). Except for the i) on direct
material price variance which most candidates attempted and scored full marks, the
rest were poorly answered by most candidates. Some candidates who were able to
compute the variances could not indicate the causes of the material price and labour
rate variances. This confirmed the fact that most candidates did not understand basic
standard costing principles. Candidates should pay attention to basic standard costing
principles.
The b) part of the question required the candidates to derive a formula for the total
cost model for a period. Most candidates were able to use the high-low method to
derive the total cost model. But on the usefulness of the high-low method some of the
candidates scored low marks as candidates could not exhibit great understanding of
high-low method and its uses.
The c) part of the question required candidates to explain two (2) models used to
estimate seasonal variations. The question was answered by almost every candidate,
and many were able to provide the required answers.

RECOMMENDATION
1. Candidates should adequately prepare for the paper by ensuring that costing
principles and methods are well understood.
2. Candidates should ensure that they proficiently and capably know how costing
principles and methods are applied.
3. Candidates should take their time to understand the requirements of the questions
before they start to answer them.
4. Candidates should attempt first the questions that are relatively easier and straight-
forward to them.

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