ICAN 2025 Performance Management | Mixed

A company has been asked to provide a quotation for an engineering project that will take one year to complete. An analysis of the project has already been completed and the following resource requirements have been identified: (i) A specialised machine will be required for a total of 10 weeks. Two of these weeks are at the start of the project and three of them are at the end. The machine could be hired from a reputable supplier, who would guarantee its availability when it is required, for ₦40,000 per week. Alternatively it could be purchased at a cost of ₦2,500,000. If it was purchased, it could be sold in one year’s time for ₦1,500,000. If the machine was purchased, it could be hired out to other companies for ₦25,000 per week and it is believed that it would be hired out for a total of 30 weeks. (ii) The machine has a running cost of ₦7,200 per week. This cost is incurred by the user of the machine. (iii) It is the company’s policy to depreciate non-current assets by 25% per year on a reducing balance basis. (iv) Skilled labour would be required for a total of 9,000 hours during the year. The labour required could be recruited at an hourly rate of ₦120. Alternatively some of the employees currently working on other projects within the company could be transferred to this project. The hourly rate is ₦100 per hour. If these existing employees were to be transferred to this project, replacement will be needed on the existing project work. Replacements on the existing project work would cost ₦110 per hour. (v) Unskilled labour would be required for a total of 12,000 hours during the year. These employees would need to be recruited on a one year contract at a cost of ₦80 per hour. (vi) The project would need to be supervised and it is estimated that there would be a total of 500 hours of supervision required during the year. One of the existing supervisors could undertake this work, but will require a total of 300 hours overtime during the year to carry out the supervision on this project as well as his existing duties. The supervisor earns a salary of ₦500,000 per year for working 2,000 hours and is not paid for overtime work. If this project goes ahead, the supervisor will be paid a bonus of ₦5,000, which would not be paid if the project is not undertaken. (vii) The direct materials required for the project are as follows: Material A The total amount required for the project would have to be purchased at a cost of ₦150,000. Material B The total quantity required would be 10,000 square metres. The company purchased 25,000 square metres of this material for a project two years ago at a total cost of ₦1,000,000. The earlier project used 20,000 square metres of the material and the remainder is currently held in inventory. The company does not foresee any other use for this material in the future and could sell it for ₦20 per square metre. The current purchase price of the material is ₦50 per square metre. (viii) The company has already incurred expenditure of ₦250,000 in analysing the resource requirements of the project. (ix) It is the company’s policy to attribute overhead costs to projects using an absorption rate of 40% of prime costs. (x) It is the company’s policy to add a 25% profit mark-up to total costs when setting its prices.

Adebat Cleaning Services is a company that operates a car wash service in Ikeja, Lagos State. The economic condition in Nigeria in recent times has affected all households and businesses. Due to deregulation, petroleum products prices have gone up astronomically and food inflation has also reached an all-time high of over 200%. Costs of vehicles have gone up beyond the reach of an average citizen, having increased by over 300% due to the depreciation on the naira exchange rate to other international currencies. The economic situation has further reduced the disposable income of citizens by over 50%. As a result of this harsh economic environment, car owners find it difficult to replace their cars and now result to constant maintenance, including regular car wash. Adebat Cleaning Services operates two types of car wash, Complete-wash and Mini-wash. The Complete wash entails cleaning of both the inside and outside of the cars, while Mini wash is the washing of the outside of the cars only. Adebat charges ₦1,000 and ₦500 for the Complete and Mini wash respectively. The company’s budget and actual figures for 2024 were as follows: Budget Actual Number of cars: Complete – wash 6,000 6,800 Mini – wash 4,000 7,000 ₦ ₦ Revenue 8,000,000 10,640,000 Variable costs: Staff wages (3,840,000) (4,018,800) Cleaning materials (200,000) (400,000) Energy costs (240,000) (340,800) (4,280,000) (4,759,600) Contribution 3,720,000 5,880,400 Fixed costs: Rent, rates and depreciation (1,200,000) (1,200,000) Operating profit 2,520,000 4,680,400 The budgeted contribution to sales ratios for the two types of car wash are 45% for complete-wash and 56% for mini-wash.

Twins Nig. Ltd, a company based in Aba, produces industrial vanish. The selling prices and associated unit variable costs for vanish Grade A and Grade B are shown below: Grade A Grade B N N Selling price 2,100 1,500 Material X (N240 per kg) 480 240 Skilled labour (N144 per hour) 720 288 Unskilled labour (N60 per hour) 120 180 Variable overhead (N84 per machine hour) 168 338 The fixed overhead cost is N600,000 per month and the company plans to maximise profits. Available resources for the following month is as follows: Material X 2,500 kg Skilled labour 4,800 hours Unskilled labour 3,900 hours Machine hours 5,000 hours

Chukwumah Nigeria Limited manufactures and sells three products X, Y and Z. The company is recently considering the introduction of an activity-based costing approach to facilitate efficient cost allocation, as well as achieve improvement in cost accuracy and reduction. The new approach will use two direct costs categories (direct materials and direct labour) as well as five indirect cost pools which represent the five activity areas. The prior product costing system uses the two direct cost categories and a single indirect cost pool where overheads are allocated using direct labour hours. The following information is provided for the next period: Product Product Product X Y Z Production and sales (units) 120,000 75,000 30,000 Direct material cost N190 N180 N160 Direct Labour Hours 6 8 7 Machine hours 4 8 9 Number of production runs 15 30 75 Number of component receipts 45 75 360 Number of production orders 45 30 75 Direct labour is paid at N8 per hour. Variable overhead is paid at N34 per unit for Product X, N44 per unit for Product Y and N38 per unit for Product Z. Fixed Overhead Costs in the period are expected to be as follows: N Cost Driver Set up 1,260,000 Production Runs Machine 8,100,000 Machine Hours Goods inwards 2,520,000 Company Receipt Packaging 1,800,000 Production Order Engineering 1,620,000 Production Order N15,300,000

ABC Nigeria Plc has three separate divisions – North, East and West divisions, each operating as an investment centre within the group. East Division makes and sells three products, A, B and C. All three products are sold under a brand name Alpha label, but Product A and Product B are also sold through a sales outfit as beta branded products. Budgeted data for the year to December 31, 2024 is as follows: Product sales Product A Product B Product C Units Units Units Alpha brand 160,000 120,000 50,000 Beta brand 450,000 600,000 - Selling prices Product A Product B Product C ₦ per unit ₦ per unit ₦ per unit Alpha brand 5.00 6.40 10.00 Beta brand 3.00 4.00 - Variable costs Production Packaging Nper unit Nper unit Product A: Alpha brand 2.40 0.60 Beta brand 2.40 0.20 Product B: Alpha brand 3.20 0.80 Beta brand 3.20 0.40 Product C: Alpha brand 5.00 1.00 Budgeted marketing expenditure is ₦300,000 for the year, and other budgeted expenditure for other fixed costs is ₦700,000. The average capital employed in East Division in Year 2024 is expected to be ₦1,000,000 and each division‟s cost of capital is 12%.

Egoyibo Nigeria Limited is a company which produces a single product on an assembly line. The budget personnel has been availed with the following information which represents the extremes of high and low volumes of production which the company will achieve over a three month period. Production of 80,000 units | Production of 160,000 units Direct materials | 6,400,000 | 12,800,000 Indirect materials | 960,000 | 1,600,000 Direct labour | 4,000,000 | 8,000,000 Power | 1,440,000 | 1,920,000 Repairs | 1,600,000 | 2,400,000 Supervision | 1,600,000 | 2,880,000 Rent, insurance and rates | 720,000 | 720,000 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 remunerations is N1,280,000 will be added.

Yaro Ltd makes two types of solar panels at its manufacturing plant: Red panels for commercial customers and Black panels for domestic customers. All panels are produced using the same materials, machinery and a skilled labour force. Production takes place for five days per week, from 7am until 8pm (13 hours), 50 weeks of the year. Each panel has to be cut, moulded and then assembled using a cutting machine (Machine C), a moulding machine (Machine M) and an assembly machine (Machine A). As part of a government scheme to increase renewable energy sources, Yaro Ltd has guaranteed not to increase the price of Black or Red panels for the next three years. It has also agreed to supply a minimum of 1,000 black panels each year to domestic customers for this three-year period. Due to poor productivity levels, late orders and declining profits over recent years, the Finance Director has suggested the introduction of throughput accounting within the organisation, together with a ‘Just in Time’ system of production. Material costs and selling prices for each type of panel are shown below. Selling price per unit: Red panels ₦12,600, Black panels ₦3,800. Material costs per unit: Red panels ₦4,300, Black panels ₦1,160. Total factory costs, which include the cost of labour and all factory overheads, are ₦12million each year at the plant. Out of the 13 hours available for production each day, workers take a one hour lunch break. For the remaining 12 hours, Machine C is utilised 85% of the time and Machines M and A are utilised 90% of the time. The unproductive time arises either as a result of routine maintenance or because of staff absenteeism, as each machine needs to be manned by skilled workers in order for the machine to run. The skilled workers are currently only trained to work on one type of machine each. Maintenance work is carried out by external contractors who provide a round the clock service (that is, they are available 24 hour a day, seven days a week), should it be required. The following information is available for Machine M, which has been identified as the bottleneck resource: Red panels Hours per unit 1.4, Black panels Hours per unit 0.6. There is currently plenty of spare capacity on Machines C and A. Maximum annual demand for Red panels and Black panels is 1,800 units and 1,700 units respectively.