ICAN 2022 Performance Management | Mixed

You are the Management Accountant of Dankoli Nigeria Limited which specialises in the production of 3 products: Product 1, Product 2 and Product 3. The following information is available for the first quarter of 2021: Particulars Product 1 Product 2 Product 3 Sales units (‘000) 225 376 190 N N N Selling Price per unit 15.0 13.00 10.00 Variable costs per unit 7.80 6.00 5.00 Attributable fixed costs 275,000.00 337,000.00 296,000.00 General fixed overhead is apportioned on the basis of sales value. The budgeted general fixed overhead is N1,668,000.

Mega Laboratories plc is a successful manufacturing company in the pharmaceutical industry. The company manufactures a number of household drugs. Since the advent of the Covid-2019 pandemic, its products have been in high demand. One of its newest products is known as vacineDcovid. In order to manufacture the product, a single raw material, Zithromax is used. Budgets are to be prepared for the quarter ending 30 June 2021 and the following information is available for this purpose: (i) At 31 March 2021 various balances were as follows: Receivables N500,700 Creditors (suppliers of Zithromix) N153,000 Inventory of vacineDcovid 20,300 units Inventory of Zithromix 200,000 kg (ii) Extracts from the ‘standard cost card’ – vacineDcovid are as follows: N/unit Direct material Zithromax, 10kg at N5.00 per kg N50.00 Direct labour, 2 hours at N6.00 per hour N12.00 (iii) Suppliers of Zithromax give two months credit to the company, whereas customers take one month’s credit. (iv) Sales expectations for the quarter ending 30 June 2021 are as follows: 25,000 units of vacineDcovid at a selling price of N95.00 per unit. (v) Assume that sales of vacineDcovid and purchases of Zithromix will be evenly spread over the three months to 30 June 2021. (vi) Depreciation relating to plant and machinery is N55,000 for the quarter ending 30 June 2021. (vii) ‘Other expenses’ are paid immediately in cash, and are estimated to be N200,000 for the quarter ending 30 June 2021. (viii) The anticipated inventory levels at 30 June 2021 are as follows: Inventory of vacineDcovid 15,000 units Inventory of Zithromix 150,500 kgs (ix) Assume there is no work-in-progress and that stocks of vacineDcovid and Zithromix are valued at standard direct cost – see (ii) above.

Uzochuks Nigeria Limited is a company established four years ago to produce medical equipment. The income statement and statement of financial position for 2019 and 2020 are as follows: Income Statement Particulars 2019 2020 NM NM Sales 250 280 Operating costs (180) (200) Operating Profit 70 80 Finance charges (10) (14) Profit before tax 60 66 Tax at 25% (15) (18) Profit after tax 45 48 Statement of Financial Position Particulars 2019 2020 NM NM Non- Current Asset 350 440 Current Asset 190 260 Total 540 700 Shareholders’ fund 400 445 Long-term and medium term debts 100 100 Current Liabilities 40 155 Total 540 700 Other information are given as follows: (3) Operating costs include the following: Particulars 2019 2020 N’M N’M Depreciation 25.0 28.0 Provision for doubtful debts 2.8 1.2 Research and development 5.0 - Other non-cash items 4.0 3.0 Economic depreciation is assessed to be N50.5million in 2020. Economic depreciation includes any appropriate amortisation adjustments. In previous years, it can be assumed that economic and accounting depreciation were the same. Tax is the cash paid in the current year (N16 million) and an adjustment of N2 million for deferred tax provisions. There was no deferred tax balance prior to 2020. The provision for doubtful debts was N2.5million on the 2020 statement of financial position. Research and development is not capitalised in the accounts. It relates to a new project that will be developed over five years and is expected to be of long-term benefit to the company. 2020 is the first year of this project. The company had a non-capitalised leased assets of N18million in January 2020. These assets are not subjected to depreciation. Cost of capital of Uzochuks: Equity 18% Debt (pre-tax) 6% Capital structure of Uzochuks: Equity 60% Debt 40% The company had the opportunity to invest in a solar project that will require the procurement of an equipment worth N3million in January 2020 and run for a period of 5 years with a salvage value of N0.50million, generating a stable net cash flow of N0.85 million. The applicable cost of capital is the associated weighted average cost of capital of the company.

Large service organisations, such as banks and hospitals, used to be noted for their lack of management accounting techniques and their relatively unsophisticated budgeting and control systems compared with large manufacturing organisations. But this is changing and many large service organisations are now revising their use of management accounting techniques, especially as it relates to activity-based approach.

Abayomi Plc produces and sells two major products, A and B. The budgeted income statement for the year to December 31, 2022 is given below: Products A B Total ₦’000 ₦’000 ₦’000 Sales 8,400 25,200 33,600 Production costs: Materials 2,240 5,040 7,280 Direct labour 1,120 3,360 4,480 Variable overheads 1,120 2,240 3,360 Fixed overheads 560 1,680 2,240 Total 5,040 12,320 17,360 Gross Profit 3,360 12,880 16,240 Fixed selling and Adm. (8,320) Net profit before tax 7,920 The budgeted selling prices of the products are: A ₦120 B ₦180

Production of 80,000 units and Production of 160,000 units Direct materials: 3,200,000 N, 6,400,000 N Indirect materials: 480,000 N, 800,000 N Direct labour: 2,000,000 N, 4,000,000 N Power: 720,000 N, 960,000 N Repairs: 800,000 N, 1,200,000 N Supervision: 800,000 N, 1,440,000 N Rent, insurance and rates: 360,000 N, 360,000 N Additional Information: Supervision is a “step function”. To this end, one supervisor is employed for all production levels up to and including 100,000 units. For higher levels of production, an assistant supervisor whose remuneration is N640,000 will be added.

Eko Limited is a small manufacturing company producing two high quality products called ‘Kay’ and ‘Lay’. Both products use a raw material Tee (costing ₦30 per kg) in their manufacture. The Directors are reviewing the company’s stock management policies for the forthcoming year as part of the annual budget preparation cycle. Due to the product specification, quality is an important factor and a quality control inspection takes place immediately after the production cycle has ended. At this point, any inferior products are rejected and only good production becomes available for sale. In addition to these losses, a certain quantity of waste is unavoidable from material Tee due to the cutting process for both products. The following forecast information has been extracted from departmental estimates for the year ending 31st December 2020 (the budget period). Sales (quality approved units) Product Kay: 23,000 Product Lay: 10,000 Finished goods stock increase by year-end Product Kay: 275 Product Lay: 185 Post-production rejection rate (%): Product Kay: 2 Product Lay: 3 Material Tee usage (per completed unit, net of wastage): Product Kay: 2kg Product Lay: 3kg Material Tee wastage (%): Product Kay: 5 Product Lay: 10