Ma. PATHFINDER

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PROFESSIONAL EXAMINATION I - MAY 2010
57
ICAN/101/Q2 EXAMINATION……………………….
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA
PROFESSIONAL EXAMINATION 1 – MAY 2010
MANAGEMENT ACCOUNTING
Time allowed – 3 hours
SECTION A:Attempt All Questions
PART 1 MULTIPLE-CHOICE QUESTIONS (20 Marks)
Use the information below to answer questions 1 and 2:
Economic Order Quantity - 12,000kg
Lead Time - 20 to 28 working days
Minimum Usage - 400kg per day
Maximum Usage - 800kg per day
1. What is the re-order level?
A. 23,800kg
B. 22,400kg
C. 24,000kg
D. 32,000kg
E. 40,200kg
2. What is the maximum stock level?
A. 32,400kg
B. 31,200kg
C. 18,500kg
D. 33,400kg
E. 26,400kg
3. How is production fixed overhead cost classified?
A. Variable cost
B. Fixed cost
C. Prime cost

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D. Conversion cost
E. Mixed cost
4. What does labour cost refer to?
A. Manufacturing cost incurred on employee to produce units of output
B. All costs associated with manufacturing other than the direct labour
cost and raw materials cost
C. Cash associated with marketing, shipping, warehousing and billing
activities
D. The sum of direct labour cost and all factory overheads
E. The sum of raw materials cost and direct labour cost.
5. Cost behaviour analysis focuses on how costs
A. react to changes in profit
B. change over time
C. react to changes in activity levels
D. react to revenue
E. react to turnover.
6. A written request to initiate purchases in a firm is
A. Purchase Order
B. Purchase Requisition
C. Receiving Report
D. Materials Requisition Form
E. Invoice.
7. Where is workers‟ overtime cost charged to?
A. Work-in-progress inventory
B. Direct labour
C. Administrative expense
D. Factory overhead
E. Cost of goods sold.

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8. In the determination of factory overhead application rates, what is the
numerator in the fraction?
A. Actual factory overhead for the next period
B. Estimated factory overhead for the next period
C. Actual labour hours for next period
D. Actual labour hours for current period
E. Estimated labour hours for the next period.
9. What are the units of discarded substances having no value called?
A. Spoilage
B. Defect
C. Scrap
D. Waste
E. Salvage.
Given that the following data relate to products X and Y:
X Y
Budgeted output 3,600 units 8,000 units
Standard minutes per unit 10 15
Actual clocked time (6,250 hours) 22,500 units 15,000 units
10. What is the Efficiency Ratio?
A. 80%
B. 120%
C. 64%
D. 70%
E. 49%
11. What is the Activity Ratio?
A. 120%
B. 125%
C. 288%
D. 375%
E. 576%

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12. Which of the following production operations would be most likely employed
in a process costing system?
A. Aircraft manufacturing
B. Chemical production
C. Furniture making
D. Home building
E. Ship building.
13. What are by products?
A. They are secondary products having negligible value
B. They are present throughout the production process of joint products
C. They are common costs
D. They are collections of the direct materials, direct labour, and factory
overhead costs that serve as the primary base for establishing a sales
value for joint products
E. They are costs which are generally and jointly incurred.
14. What is a budget which supports the objective of continuous improvement
called?
A. Activity based budget
B. Master budget
C. Programme, planning and budget system
D. Zero-based budget
E. Flexible budget.
15. What is a standard that is based on perfect operating condition?
A. Ideal Standard
B. Basic Standard
C. Attainable Standard
D. Projected Standard
E. Budgeted Standard.
Egbino Limited has a special component for its production process. Demand for the
component is 100 units monthly at a cost of N10 each. Cost per order is N400,

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while handling cost of stock is 10% of the cost of each of the components. Reorder
period is 20 to 30 days.
16. What is the Reorder level?
A. 1,500
B. 1,800
C. 2,500
D. 3,000
E. 3,500
17. What is the Reorder quantity?
A. 250
B. 650
C. 980
D. 1,200
E. 1,580
18. Which of the Direct Material Usage variances combines materials in standard
proportion?
A. Yield
B. Quantity
C. Direct labour efficiency
D. Direct labour rate
E. Mix.
19. What is the later situation during the year which were not foreseen during
the last budget preparation?
A. Ex-ante
B. Ex-post
C. Post-ante
D. Planning variances
E. Operational variances.

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20. Which cost arises from direct consequence of a decision?
A. Direct Labour Cost
B. Opportunity Cost
C. Differential Cost
D. Relevant Cost
E. Incremental Cost.

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PART II SHORT ANSWER QUESTION (20 MARKS)
1. The systematic varying of budget data input to determine the effects of each
change on the budget is called……………
2. The increase in the value of the objective function which will be achieved if
one more unit of resources is available is known as…………………..
3. The system used in ranking projects when there is insufficient funds to invest
in profitable investments is……………………..
Kokoro Enterprises wish to buy a new sewing machine which is expected to
increase productivity. The initial net cash outlay is N15,600. The cashflows
associated with the acquisition of the new sewing machine are as follows:
Year Cash Flow from Operation
N
1 6,610
2 5,650
3 4,690
4 4,630
5 3,670
Assuming the required rate of return is 10%
4. What is the Net Present Value for this project?
5. What is the Profitability Index?
6. The THREE objectives of transfer pricing are autonomy, performance
evaluation and………………..
7. The mathematical inequality or equality that must be satisfied by the
variables in a mathematical model is called……………..
8. Sale of technically similar products at prices which are not proportional to
their marginal cost is called……………

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The labour cost per unit of a product over the previous 100 days is as follows:
Labour Cost Per Unit Number of Days
N
5.00 20
5.50 25
6.00 35
6.50 20
9. What is the probability that the labour cost per unit is N6.00?
10. What is the probability that the labour cost per unit is less than N5.00?
11. An analysis where 20% of total quantity of stocks may account for about
80% of its value is called…………………..
12. Costs that may be saved by not adopting a new alternative is
called…………………..
13. The type of cost that will be changed by a decision is called…………….
14. The formula Y = a + bx represents…………………
15. The type of variance that discloses excess direct wages rate is
…………………..
You are given the following report:
Period Maintenance Cost Machine Hours
N
1 3,000 4,000
2 4,000 6,000
3 3,600 6,000
4 4,400 6,800

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16. What is the variable maintenance cost per hour?
17. What is the total cost function?
18. The expression “do it right in the first instance” stands for…………….
19. Direct labour cost plus manufacturing overhead cost is known as……………
20. Cost that varies with Level of Activity is known as………………..

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SECTION B - ANSWER THE QUESTION ON CASE STUDY AND ANY OTHER
THREE (60 Marks)
QUESTION 1 - CASE STUDY
Kokanmi Works Limited fabricates palm-kernel crushing machines. It plans to
produce and sell 2,000 units during the coming year with the following projected
figures:
N million
Sales 112.500
Direct materials 62.00
Direct labour 12.50
Direct expenses 17.50
Indirect expenses 11.25
Another company, which specializes in the fabrication of one of the components of
the crushing machine has forwarded a proposal to Kokanmi Works Limited that it
could supply each unit at a price of N12,500.
Available records reveal that the component in question consumes 20% of materials
input, 10% of labour and 35% of direct expenses presently.
If the company decides to accept the proposal and thereby reduce its material
purchases, it would lose the 20% discount it enjoys from its suppliers, an option
which the Managing Director would not even give a thought. On the other hand,
the surplus material can be utilized in producing additional 200 units of the
machine, which the Marketing Manager is confident of selling even with a 4%
increase in selling price, provided he is allowed to incur N500,000 on
advertisement.
You are required to:
(a) Present two separate operating statements based on:
(i) the current projection; and (6 Marks)
(ii) the revised projections, assuming the proposal is accepted. (6 Marks)

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(b) Advise the Managing Director of Kokanmi Works Limited on whether to
continue to manufacture the component or purchase it. (3 Marks)
(Total 15 Marks)
QUESTION 2
The following data relates to Owokotan Limited‟s actual Profit and Loss Account for
the year ended 31 December 2009 as prepared by the Cost Accountant.
N
Direct material price variance 3,240F
Direct material usage variance 4,800A
Other materials variances 900A
Sales price variance 10,800A
Sales volume variance 3,000A
Direct labour rate variance 8,400A
Direct labour idle time variance 12,000A
Direct labour efficiency variance 1,500F
Variable production overhead:
Expenditure variance 600A
Efficiency variance 300F
Fixed production overhead:
Expenditure variance 3,000A
Efficiency variance 2,100F
Capacity variance 4,200F
Budgeted expenditure variance 1,200A

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The company‟s budgeted profit before deducting sales and administration expenses
is N42,000 while the budgeted expenses for sales and administration cost is
N19,200.
You are also informed that the Financial Accountant has presented a statement,
based on his financial records, showing a loss of N3,360 for the year.
You are required as the Management Accountant, to prepare an operating
statement reconciling the budgeted profit with the actual result for the period
ended 31 December 2009. (15 Marks)
QUESTION 3
The following information relates to KOROGBE Industries Limited:
(a) Budgeted Profit and Loss Accounts for year 2009.
Jan Feb Mar Apr May June
N‟000 N‟000 N‟000 N‟000 N‟000 N‟000
Sales 90 92 88 95 90 94
Less: Purchases 54 56 50 60 52 55
Gross Profit 36 36 38 35 38 39
Less: Operating Expenses:
Selling Expenses 10 12 13 13 16 15
Distribution Expenses 6 4 5 7 4 5
Administration Expenses 3 4 4 2 5 3
Net Profit 17 16 16 13 13 16
==== === === === === ===
(b) Sales for November and December 2008 were N85,000 and N90,000
respectively.
(c) 40% of sales would be in cash, 30% each would be paid in 30 and 60 days.
(d) Purchases for November and December 2008 were N48,000 and N50,000
respectively.
(e) 75% of purchases would be paid for immediately and the balance after two
months.

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(f) Selling expenses are to be settled in two equal instalments after 30 and 60
days. December 2008 expenses are N15,000.
(g) Distribution expenses for December 2008 are payable one month in arrears
while the administration expenses are payable immediately.
(h) Distribution expenses for December 2008 would be N5,000 while selling
expenses would be N8,000 for November 2008 and N9,000 for December
2008.
(i) Balance in the bank on 31 December 2008 is expected to be N36,000
overdrawn.
(j) The company intends to pay for the following:
(i) Company tax of N12,000 in February, 2009
(ii) A new generator costing N6,500 in March 2009
(iii) Dividends of N20,000 in April 2009
(k) Some unserviceable parts would be sold in January 2009 for N8,000.
You are required to prepare the Cash Budget for the first six months of 2009 for
Korogbe Industries Limited. (15 Marks)
QUESTION 4
The budget of Sunrem Hospital Limited for the year 2008 is as follows:
No of rooms available per day 200
No. of days per month 25
Rate per room per day N625
Rate charged for meals per day N375
Cost composition per month: Variable Fixed
N‟000 N‟000
Direct materials 750.00
Direct salaries 500.00
Guest service overhead 120.00 375.00
Administrative overhead 187.50 500.00

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Assuming that the company is operating at full capacity, you are required to
calculate:
(a) (i) The contribution per year in sales value. (3 Marks)
(ii) The contribution sales ratio. (3 Marks)
(b) The break-even point in sales value if:
(i) Direct materials cost increases by 20% per month. (3 Marks)
(ii) Fixed cost increases by 10% per day. (3 Marks)
(iii) Rate charged per room increases by N50 per day. (3 Marks)
(Total 15 Marks)
QUESTION 5
Using the following probability distribution for the times between arrivals of luxury
buses at a parking lot:
TIME (mins) PROBABILITY
5 0.30
10 0.23
15 0.20
20 0.10
25 0.09
30 0.05
35 0.03
(a) Construct the cumulative probability distribution and determine a random
number assignment suitable for simulation. (3½Marks)
(b) Simulate the arrival of 20 cars and calculate the estimated mean time
between arrivals and the standard deviation. (11½Marks)
(Total 15 Marks)
QUESTION 6
(a) Explain what is meant by “Gap Analysis”. (3 Marks)
(b) Caco, Orange and Kim operate in the same market. At present, the market
share of Caco is 50%; Orange 30% and Kim 20%. Past experience shows that
Caco has a retention capability of 70% of its customers while it gains 15%

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and 10% from Orange and Kim respectively. Also, Orange retains 65% of its
initial customers, and gains 20% and 22% from Caco and Kim respectively.
Kim retains 68% of its customers and gains 10% and 20% from Caco and
Orange respectively.
You are required to determine:
(i) The matrix for the initial market share. (3 Marks)
(ii) The matrix for the transitional probability. (3 Marks)
(iii) The market share for the companies for the next one year. (6 Marks)
(Total 15 Marks)

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PROFESSIONAL EXAMINATION I NOVEMBER 2010
64
ICAN/102/Q/2 EXAMINATION NO...................................
Time allowed 3 hours
SECTION A: Attempt All Questions
PART I: MULTIPLE-CHOICE QUESTIONS (20 Marks)
1. Which of the following represents a decision that rests upon the judgement
of managers because there is no formal mechanism for predicting likely
outcomes?
A. Symbolic Decision
B. Executive Decision
C. Managerial Decision
D. Non-Programmed Decision
E. Programmed Decision
2. Which of the following techniques represents the period usually expressed in
years, which makes the cash flows from a capital investments appraisal of
project to equal the initial outflow?
A. Internal Rate of Return
B. Accounting Rate of Return
C. Pay Back Period
D. Net Present Value
E. Profitability Index
3. Which costs and revenue, appropriate to a specific management decision,
that are represented by future cash flows whose magnitude will vary
depending upon the outcome of management decision?
A. Relevant Cost
B. Differential Cost
C. Marginal Cost
D. Incremental Cost
E. Opportunity Cost

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Use the information below to answer Questions 4 and 5
Bijabi Limited has determined its activity level and is now budgeting for its
costs for the quarter ended 31 May, 2010. It has made the following
predictions:
Variable Costs Probability Fixed Costs Probability
N240,000 0.35 N175,000 0.25
N305,000 0.25 N182,000 0.30
N501,000 0.40 N201,000 0.45
4. What is the Expected Value of the Total Variable Costs?
A. N351,500
B. N358,500
C. N359,600
D. N360,500
E. N360,650
5. What is the Expected Value of the Total Fixed Cost?
A. N187,500
B. N188,800
C. N201,500
D. N281,500
E. N361,500
6. A systematic interdisciplinary examination of factors affecting the cost of a
product or service, in order to devise means of achieving the specified
purpose most economically at the required standard of quality or reliability
is
A. value engineering.
B. value analysis.
C. cost reduction.
D. cost objective.
E. cost implication.

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7. Which of the following quick ratios is considered acceptable as a general
rule?
A. 4 to 1
B. 3 to 1
C. 2 to 1
D. 1 to 1
E. 1 to 3
8. What is capital budgeting?
A. A budget for long term expenditure
B. A budget for obtaining investments of capital in the firm.
C. A budget for investments of short-term funds in the capital markets
D. Budget for business capital
E. Budget for business formation
9. Which of the following methods uses income instead of cash flow in
investment appraisal?
A. Payback Period
C. Internal Rate of Return
D. Net Present Value
E. Profitability Index
Use the following data to answer Questions 10 and 11.
Unit selling price N500
Variable cost per unit N260
Fixed cost N52,000
Tax rate 40%
10. What is the break-even point in units?
A. 214 units
B. 215 units
C. 217 units
D. 218 units
E. 250 units

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11. How many units should be produced to achieve a target income of
N12,000 after tax?
A. 300 units
B. 320 units
C. 370 units
D. 410 units
E. 420 units
12. Costs incurred if products or services fail to meet requirements after delivery
to customer are called
A. appraisal costs.
B. internal failure costs.
C. running costs.
D. prevention costs.
E. external failure costs.
13. Adamu Limited sells a product which has N8 per unit as variable cost. Sales
demand at N14 current rate, is 6,000 units. It is estimated by marketers that
sales volume would fall by 200 units for each addition of 25k to the sales
price. What is the optimal price that maximizes contribution?
A. N14.25
B. N14.50
C. N14.75
D. N15.25
E. N15.50
14. Using the data in Question13, at what level of sales will contribution be
maximized?
A. 5,000 units
B. 5,200 units
C. 5,400 units
D. 5,600 units
E. 5,800 units

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15. Budgeted hours worked in a factory for a month was 220. Actual hours 200
and Standard hour produced 210. What is the efficiency ratio?
A. 91%
B. 95%
C. 97%
D. 100%
E. 105%
16. Using the data in Question 15, what is the production volume ratio?
A. 91%
B. 95%
C. 97%
D. 100%
E. 105%
17. Residue from manufacturing operations that has measurable but relatively
minor recovery value is
A. obsolete.
B. scrap.
C. defective.
D. spoilage.
E. expired.
18. A product has a standard direct material cost of N10 (5 kg of material M at
N2 per kg). During April 2009, 600kg of M were purchased at N1,140, 100
units of product A were manufactured using 520kg of material M. What is
direct material price variance?
A. N40 (F)
B. N40 (A)
C. N50 (F)
D. N50 (A)
E. N60 (F)
19. Using the details in Question 18, what is direct material usage variance?
A. 40 (F)
B. 40 (A)
C. 50 (F)
D. 50 (A)
E. 60 (F)

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20. A budget that perpetually adds a month in the future as the month just
ended is dropped is called
A. continuous budget.
B. static budget.
C. current budget.
D. fixed budget
E. incremental budget.
PART II: SHORT ANSWER QUESTIONS (20 MARKS)
1. A budget that adjusts for changes in sales volume and other cost drivers is
known as
2. The difference between the standard yield of the actual material input and
the actual yield, both valued at standard material cost is known
as ..
3. The difference between the fixed overhead recovered on the budgeted hours
and the fixed overhead recovered on the actual hours worked is called
..
4. If initial cash outflow is N100,000, yearly constant cash inflow is N20,000
while the working life is 7 years and cost of capital is 15%, determine the Net
Present Value.
5. The ratio of the present value of series of future cash benefits at the required
rate of return to the present value of the cash outflows is known as
.
6. The establishment, through data gathering, of targets and comparators,
through which use relative levels of performance, and particularly, areas of
underperformance can be identified, is called
7. An emerging discipline that combines elements of law and computer science
to collect and analyze data as evidence in a court of law is called
8. The sets of standards dealing with human conduct in relation to what is
morally good and bad is ..

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Use the following information to answer Questions 9 and 10
Carbon-Copy Company Ltd sells a product for N10. Budgeted sales for the
first quarter of year 2010 are given below:
Budgeted sales
N
January 400,000
February 600,000
March 700,000
The company collects 70% in the month of sales and 25% in the following
month. Five per cent (5%) of all sales are uncollectible and written off.
9. Calculate the budgeted cash receipts for February.
10. Determine the budgeted cash receipts in March.
11. A sub-unit in an organization whose manager is held accountable for
specified sub-unit activities is called ..
12. When preparing a production budget, the quantity to be produced
can be determined by the model
13. The result of dividing the total direct labour cost by the total number of units
produced is ..
14. A period when machines and accessory equipment are made ready before
the commencement of operation is called .
15. The discount rate that makes the net present value of a project equal to zero
is .
16. When an organization has idle capacity, it resorts to low pricing. This
method of pricing is called ..
17. Company X makes and sells 100 units of a product each month. The prime
cost per unit is N6.00 and unit selling price is N10. Production overhead cost
N200 per week and other overhead N150 per week. Determine the
production cost of sales using absorption costing method.
18. Use the data in Question 17 and variable costing method to determine the
production cost of sales.

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19. The measure of the scatter of the actual observation about the regression
line is termed .
20. Salaw Limited budgets fixed cost at N40,000. The variable cost of its single
product is N4 and capital employed is N100,000. The company wants to
earn a return on capital employed of 20% and estimated sale of 10,000 units
in the year. What is the selling price per unit?
SECTION B: ATTEMPT QUESTION 1 AND ANY OTHER THREE (60 MARKS)
QUESTION 1
CASE STUDY
Fountain Limited, a car hire firm, is considering its future cash flows. The Directors of the
company are interested in the period from the end of January 2010 to the end of 2015.
In particular, they wish to decide on the optimal replacement cycle for the fleet of thirty
hire cars. On 31 January 2010, the company purchased its existing fleet at a cost of
N300,000,000. The vehicles are to be depreciated in the accounts over a three-year life,
on a straight line basis. The resale value of a one-year old car, of the type used in the
fleet, is at present N7,000,000.
Inflation is at the rate of 10% per annum, and it is thought that it will continue at this
rate in the foreseable future. New car prices will increase in line with inflation but
second hand values are expected to remain at the present level for a number of years.
The resale value of a two-year old fleet car is at present N4,000,000 and the scrap value
of a three-year old car is N500,000.
The revenue from operating the fleet is expected to be N250,000,000 in 2010.This
annual revenue is expected to increase at a rate of 10% per annum irrespective of the
age of vehicles. The operating and maintenance costs for 2010 are estimated to be:
N70,000,000 for cars in the first year of their life
N100,000,000 for cars in the second year of their life
N160, 000,000 for cars in the third year of their life
The operating and maintenance costs are expected to increase at the rate of 10% per
annum in line with inflation. The cars are not worth keeping for longer than three years.
The company s cost of capital is 15%

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Advise the company on the optimal replacement policy for its fleet of cars for the periods
1 February, 2010 to 31 December, 2015. Assume that the cash flows relating to revenue
and operating costs arise on the last day of the respective years.
(15 Marks)
QUESTION 2
POLYTECH Aluminum Manufacturing Company has three autonomous divisions:
Cutting, Filling and Finishing. Cutting division is responsible for manufacturing
aluminum flat sheet which becomes the raw materials for Filling division. The
Filling division makes aluminum windows and doors. Finishing division is
responsible for marketing the entire company s final products.
The company s management feels that the divisions should be evaluated as
separate profit centres and that each centre should be credited with an equitable
share of contribution. The company s transfer pricing stipulates that proportionate
efforts are to be measured by the ratio of the division s variable cost to the total
variable cost of the centres.
Budgeted sales for 2012 is N25,000,000 with total variable costs of N15,000,000
for the centres. The details of the variable and period costs by divisions are given
below:
Cutting Filling Finishing
N N N
Variable costs 4,500,000 3,000,000 7,500,000
Period costs 2,500,000 1,500,000 2,000,000
Total 7,000,000 4,500,000 9,500,000
Required:
a) Determine budgeted transfer values using the agreed transfer pricing
method (5marks)
b) Filling division is considering a cost saving device which will reduce its
variable cost by 20%. What effect will this have on other costs or budgeted
sales. (5marks)
c) Compare the divisional contributions and profits in (a) and (b) above and
comment briefly on the possible divisional managerial attitudes to the
changes in divisional performances. (5marks)
(Total 15 marks)

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QUESTION 3
The Directors of No Farmer, No Nation Agro-allied Company Limited are
considering undertaking the manufacturing of a new product. The company s
current cost of capital is 20% in money terms. Construction of the plant required to
produce the new product would take one year; that is, production would commence
on 1 January 2012. The plant would cost N500,000 of which N300,000 is payable
immediately and N200,000 on 31 December 2011. The construction cost is fixed by
contract.
100,000 units of the new product would be produced and sold each year from
1 January 2012 until 31 December 2015. Revenues and costs expected, expressed in
terms of 1 January 2010 price level, are as follow:
Per unit Probability
N
Selling price 5.00 -
Variable cost (excluding labour) 1.125 0.80
Labour 3.00 0.20
Additional overhead costs are N60,000 per annum. Selling price, variable costs
(excluding labour) and additional overhead costs are expected to increase in line
with the general price index. For a number of years, this index has increased at the
annual compound rate of 10% and it is generally expected to continue increasing at
the same rate in the future. Labour costs are expected to increase in line with the
wage rate index, which has been increasing at an annual compound rate of 20%.
The same rate increase is expected in the future. All revenues and costs would be
received or paid on the last day of the year in which they arise. Ignore taxation.
Advise the Directors of No Farmer, No Nation Agro-allied Company Limited
whether the manufacture of the new product is worthwhile.
(15marks)

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QUESTION 4
You have just resumed for duty in your office as the Management Accountant after
attending a training course for one week at the Elkana Hotel, Kano. The theme of
the training was New Contemporary Issues Bothering on Information and
Communication Technology and Benchmarking .
Write a report to your Managing Director who had been against your attending the
course, with focus on:
(a) The challenges computers provide to the practice of management accounting
(7marks)
(b) The steps involved in ensuring a successful implementation of benchmarking
in organization. (8 marks)
(Total 15 marks)
QUESTION 5
ALL WELL LIMITED is experiencing shortage of raw materials as a result of the
economic recession in the country. The directors are considering whether or not to
close down until the recession is over.
A flexible budget has been compiled, as follows:
Fixed Costs Production Capacity
40% 60% 80% 100%
Close
down
Normal T o t a l C o s t s
N N N N N N
Factory Overhead 6,000 8,000 10,000 11,000 12,000 3,000
Admin Overhead 4,000 6,000 6,500 7,000 7,500 8,000
Selling and Distribution 4,000 6,000 7,000 8,000 9,000 10,000
Miscellaneous 1,000 1,000 1,500 2,000 2,500 3,000
Direct Labour - 10,000 15,000 20,000 25,000
Direct Material - 12,000 18,000 24,000 32,000
15,000 21,000 47,000 61,000 75,000 91,000

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Additional Information:
(a) Present sales at 50% capacity are estimated at N30,000 per annum
(b) Estimated costs of closing down are N4,500. In addition, maintenance of plant
and machinery is expected to amount to N800 per annum.
(c) Cost of re-opening after closing down would be approximately N2,000 for
overhauling the machines and N1,400 for training of personnel.
(d) Investigation made by a market research unit has indicated that sales should
take an upward swing to around 70% capacity at prices which will produce
revenue of N100,000 approximately in twelve months time.
You are required to present the information in a manner which will show what decision to
be taken. (15marks)
QUESTION 6
Amina, Yomi & Co, a medium-sized firm of architects, is about to absorb Chika,
Tunde & Co, a similar sized firm. They have engaged you as Management
Accountant. Part of your duties will be to review the cost and management
accounting functions of the combined practice and to recruit an assistant. You have
an appointment with the Principal Partner to discuss these issues.
Required:
Write a memo to the Principal Partner on the following:
(a) The functions of cost and management accounting.
(6 marks)
(b) The personal attributes you would expect the Assistant Management
Accountant to possess. (9 marks)
(Total 15 Marks)

PROFESSIONAL EXAMINATION I – MAY 2011
PART I: MULTIPLE-CHOICE QUESTIONS (20
Marks)
1. Management Accounting is concerned with the provision and interpretation of
information which assists management in all BUT ONE of the following:
A. Planning
B. Controlling
C. Storekeeping
D. Decision making
E. Appraising performance
2. Where there are no opening and closing stocks, the net profit obtained under Marginal
Costing and net profit under Absorption Costing will be
A. marginal.
B. duplicated.
C. equal.
D. doubled.
E. halved.
Use the data below to answer questions 3 and 4.
Jejelaye Ltd sells its product at a unit price of N20 while the unit variable cost is N12.
Additional details:
Sales Profit Units
N N
Month 1 600,000 40,000 30,000
Month 2 800,000 120,000 40,000
Month 3 1,000,000 200,000 50,000
3. The P/V ratio is
A. 30%.
B. 40%.
C. 50%.
D. 60%.

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E. 80%.
4. The profit on sales of N1,400,000 is
A. (N360,000)
B. (N240,000)
C. N240,000
D. N340,000
E. N360,000
5. If Average usage = 200 units per day
Minimum usage = 120 units per day
Maximum usage = 260 units per day
Lead time = 20 – 26 days
EOQ = 8,000 units
The maximum stock level is
A. 8,260 units
B. 10,400 units
C. 10,660 units
D. 12,360 units
E. 14,760 units
6. Corporate Planning consists of the following stages EXCEPT the
A. assessment stage.
B. objective stage.
C. appraisal stage.
D. evaluation stage.
E. monitoring stage.

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7. If there is no external market for a product component, the best transfer price is
A. the open market price.
B. a negotiated price.
C. full cost.
D. full cost plus mark up.
E. variable cost.
8. A cost centre in which costs are clearly specified but outcomes are NOT directly
related to inputs is a/an
A. centralised cost centre.
B. discretionary cost centre.
C. investment centre.
D. standard cost centre.
E. profit centre.
Use the data below to answer questions 9 and 10.
MCD Ltd is planning to install a computer integrated manufacturing process.
Information on three acceptable models is presented below. The Company has
N400,000 available and the cost of capital is 20%. Cash flow is as given below:
Year O 1 – 3
Projects N N (PV of Cash Inflows)
A (400,000) 812,000
B (200,000) 503,800
C (200,000) 484,400
9. The best appraisal technique in this situation is the
A. Internal Rate of Return (IRR).
B. Pay Back Period (PBP.
C. Net Present Value (NPV).
D. Profitability Index (PI).
E. Accounting Rate of Return (ARR).
10. The project(s) to be accepted is/are
A. A and B.
B. B and C.

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C. A only.
D. B only.
E. C only.
11. Which of the following serves as cost unit in a computer hardware manufacturing
company?
A. Bed occupied
B. Key board
C. Magazine
D. Meal
E. Courses provided
12. The cost of VDU in a personal computer can be classified as a/an …………..in a
company that bottles soft drinks.
A. indirect material
B. indirect labour
C. indirect expenses
D. direct material
E. direct expenses
13. Assumptions underlying CVP relationship EXCLUDE
A. constant fixed costs over the range of activity.
B. single Product Analysis.
C. volume is the only independent variable.
D significant change in stock level.
E linearity of cost and revenue functions.
14. Direct labour efficiency variance is calculated as
A (Actual Hour minus Standard Rate) Standard Rate.
B (Standard Hour minus Actual Hour) Standard Rate.
C (Standard Rate minus Actual Rate) Standard Hour.
D (Standard Rate minus Actual Rate) Actual Hour.
E (Standard Hour minus Actual Hour) Actual Rate.
Use the following information about the costs and activity levels of Alegongo Plastic
Limited to answer questions 15 and 16.
Activity Total Cost
5,000 N36,500
8,210 N52,000

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15. By using the high-low method, what is the total cost if 7200 units are to be produced?
16. What is the fixed cost?
17. The coefficient of determination r2
depicting the extent of variation in the dependant
variable Y is 0.46. This means that
A. 54% of the variation is explained by the linear relationship.
B. 46% of the variation is explained by the linear relationship.
C. 46% of the variation is unexplained by the linear relationship.
D. 56% of the variation is explained by the linear relationship.
E. 70% of the variation is explained by the linear relationship.
18. Which of the following is NOT a merit of payback period as a technique of project
evaluation?
A. Very simple to use.
B. Emphasizes speedy project returns.
C. Considers true value of money.
D. Very easy to understand.
E. Commonly found in practice.
19. Which of the following enables one to reach the extreme ends of an excel sheet?
A. Ctrl + Side arrow
B. Alt + Side arrow
C. Shift + Side arrow
D. Ctrl + Tab
E. Tab + Side arrow
20. A company uses an overhead absorption rate of N2.50 per machine hour based on
27,500 budgeted machine hours in the period. During the same period, actual total
overhead expenditure amounted to N120,000 and 50,000 machine hours.
A. N41,620
B. N45,603
C. N47,126
D. N52,560
E. N59,933
A. N7,750
B. N8,000
C. N10,000
D. N11,325
E. N12,350

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By how much was total overhead under or over-absorbed for the period?
A. Under absorbed N3,250
B. Over absorbed N3,250
C. Under absorbed N5,000
D. Over absorbed N5,000
E. Under absorbed N7,000
PART II: SHORT ANSWER QUESTIONS (20
Marks)
Use the following data to answer questions 1 and 2
Kores Ltd has N100,000 to invest in two projects A and B, each requiring N100,000. The
table below shows the status of each project.
Market state I II III
Probability of market state 0.3 0.4 0.3
Rate of return: Project A 20% 20% −1 2
/3%
Rate of return: Project B -2% 15% 27%
Standard deviation: Project A 22%
Standard deviation: project B 15%
1. What is the expected return of Project A?………………………………..
2. Which project is to be preferred? ………………………………………
3. Cost of capital is also referred to as……………………………….
4. Linear programming consists of TWO important elements which are: objective
function and…………………….
5. The variable missing from this economic order quantity formula is………………
EOQ =
6. A measure of an investment centre performance after deducting a notional interest
cost based on the value of the investment in the division is known
as………………………..
7. Throughput time consists of value added time and………………….
8. A recharge card firm has the following details: selling price per unit N475; variable
production cost per unit N375, fixed overhead per unit is N50 while total fixed cost is

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N2.9 million. Determine the number of units that must be produced to realize a profit
of N600,000.
9. The following data relates to ABM Ltd, a computer parts manufacturing company.
Budget Budget
Under Outside
Control Control
Probability 0.7 0.3
Cost of investigation N4,800
Benefit of investigating N20,000
The expected value of the decision to investigate is………………..
10. The sensitivity of a project to the life of the project is computed using the
formular………………
11. Accountants, work study engineers and other specialists provide technical advice and
information, but do not set the standards. It is the responsibility of
……………..managers and their superiors.
12. The process of compelling events to conform to plan is called…………….
13. The method of costing, associated with JIT production systems, which applies cost to
the output of a process is known as…………..accounting.
14. A system that uses computer aided manufacturing together with robots and computer
controlled machines is called…………….
15. The accounting and other reports used by management in controlling an organization
are called……………………
16. Costs that cannot be identified specifically and exclusively are…………...
17. A situation where two or more independent variables are highly correlated with each
other is called…………………
18. The sensitivity of constituent factors of the profit to poor operational conditions is
……………………….
19. The sequence of functions that add value to the company’s product or service is
called…………………………
20. A decision model that calculates the optimum quantity of inventory to order, under a
restrictive set of assumptions, is known as…………………

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SECTION B: ATTEMPT QUESTION 1 AND ANY OTHER THREE (60
MARKS)
QUESTION 1
CASE STUDY
Kadeleto Nigeria Limited manufactures and sells three products A, B and C. 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 cost methods of 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 Total
A B C
Production and Sales (Units) 40,000 25,000 10,000
Direct Material Cost N25 N20 N18 N1,680,000
Direct Labour Hours 3 4 2 240,000
Machine Hours 2 4 3 210,000
Number of Production Runs 5 10 25 40
Number of Component receipts 15 25 120 160

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Number of production orders 15 10 25 50
Direct labour is paid at N8 per hour.
Overhead Costs in the period are expected to be as follows:
N Cost Driver
Set up 140,000 Production Runs
Machine 900,000 Machine Hours
Goods Inwards 280,000 Company Receipt
Packaging 200,000 Production Order
Engineering 180,000 Production Order
N1,700,000
Required:
(a) Calculate the unit costs of each product using:
(i) Prior product costing approach (Traditional Cost)
(ii) The ABC method (8 Marks)
(b) The company considered the pricing of the three products where sales prices have
remained uncertain as shown in the table below:
Product A Product B Product C
Prob. N Prob. N Prob. N
0.6 110 0.5 110 0.7 80
0.3 120 0.3 120 0.2 90
0.1 130 0.2 125 0.1 100
Compute the expected sales prices for the three products and the profit or loss that will arise
from the implementation of the ABC Costing Approach and the traditional costing method.
(5 Marks)
(c) State reasons why Activity -based Costing approach may be preferred to traditional
absorption costing approach in modern manufacturing environment.
(2 Marks)
(Total 15 Marks)
QUESTION 2
Hadonish Nigeria Ltd is a computer manufacturing company. It manufactures three parts L,
M, and N. These are made from silicon materials A, B, C and D in four departments 1,2,3,4.
The following information is supplied:
Materials Used in Dept. Cost of Materials Units per Product
Per Unit L M N
A 1 N4 - 3 2
B 2 N2 2 2 2
C 3 N3 3 2 -

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D 4 N1 2 2 1
Normal rejection at the time of final inspection 10% 10% 10%
Budgeted Details:
i) Sales in N000’s 3,000 600 2,700
Sales per Unit 20 25 15
ii) Finished Goods (Units at Start)
Finished Goods (Units at end)
8000
2000
400
520
2000
3800
iii) Raw materials inventory in units A B C D
Opening 4000 8000 3000 5000
Closing 7000 12000 9000 12000
You are required to prepare for the year:
a) The production budget (5 Marks)
b) The production cost budget for direct materials (5 Marks)
c) The purchase budget (5 Marks)
(Total 15 Marks)
QUESTION 3
The Production Manager of your organisation has approached you for some expert advice on
project X, a one-off order from overseas for which he intends to tender. The costs associated
with the project are as follow:
N
Material A 40,000
Material B 80,000
Direct labour 60,000
Supervision 20,000
Overhead 120,000
320,000
You ascertained the following:
(i) Material A is in stock and the above was the cost. There is now no other use for
material A, other than the above project, within the factory and it would cost N17,500
to dispose of. Material B would have to be ordered at the cost shown above.
(ii) Direct labour costs of N60, 000 relate to workers that will be transferred to this
project from another project. Extra labour will need to be recruited to the other
project at a cost of N70,000.
(iii) Supervision cost has been charged to the project on the basis of 33 1/3% of labour
costs and will be carried out by existing staff with their normal duties.

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(iv) Overheads have been charged to the project at the rate of 200% on direct labour.
(v) The company is currently operating at the point above break-even point.
(vi) The project will need the utilization of machinery that will have no other use to the
company after the project has finished. The machinery will have to be purchased at a
cost of N100,000 and then disposed of for N52,500 at the end of the project.
The Production Manager tells you that the overseas customer is prepared to pay up to a
maximum of N300,000 for the project and a competitor is prepared to accept the order at that
price. He also informs you the minimum that he can charge is N400,000 as the above costs
shows N320,000, and this does not take into consideration the cost of the machine and profit
to be taken on the project.
Required:
(a) Cost the project for the Production Manager, clearly stating how you have arrived at
your figures and giving reasons for the exclusion of other figures.
(10 Marks)
(b) Write a report to the Production Manager stating whether the organisation should
tender for the project, stating the reasons why and the price and bearing in mind that
the competitor is prepared to undertake the project for N300,000.
(Total 15 Marks)
QUESTION 4
You are the Financial Controller of Adelande Limited, a medium-sized engineering company.
This company was family-owned and managed for many years but has recently been acquired
by a large group, Fortune Plc, to become its Engineering Division.
The first meeting of the management board with the newly appointed Divisional Managing
Director has not gone well.
He commented on the results of the division:
 Sales and profits were well below budget for the month and cumulatively for
the year, and the forecast for the rest of the year suggested no improvement.
 Working capital was well over budget.
 Even if budget were achieved the return on capital employed was well below
group standards
He proposed a Total Quality Management (TQM) programme to change attitudes and
improve results.

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Required:
(a) Explain the critical success factors for the implementation of a programme of
Total Quality Management.
(b) Emphasize the factors that are crucial in changing attitudes from those quoted.
(15 Marks)
QUESTION 5
Quakupricy 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 Production of
40,000 units 80,000 units
N N
Direct Materials 800,000 1,600,000
Indirect Materials 120,000 200,000
Direct Labour 500,000 1,000,000
Power 180,000 240,000
Repairs 200,000 300,000
Supervision 200,000 360,000
Rent, Insurance and Rates 90,000 90,000
Additional Information:
(i) Supervision is a “step function”. To this end, one supervisor is employed for all
production levels up to and including 50,000 units. For higher levels of production, an
assistant supervisor whose remunerations is N160,000 will be added.
(ii) On power, a minimum charge is payable on all production up to and including 60,000
units. For production above this level, there is an additional variable charge based on
the power consumed.
Required:
(a) Prepare a set of flexible budgets for presentation to the Production Director to cover the
following levels of production over a period of three months:
i) 40,000 Units
ii) 50,000 Units

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iii) 60,000 Units
iv) 70,000 Units
v) 80,000 Units (9 Marks)
(b) During the three months July to September 2010, 50,000 units were produced. Actual
costs incurred during this period were as follows:
N
Direct Materials 1,100,000
Indirect Materials 140,000
Direct Labour 700,000
Power 180,000
Repairs 300,000
Supervision 200,000
Rent, insurance and Rates 80,000
Required:
(i) Prepare a budget report for presentation to the Production Director displaying all
relevant variances.
(ii) For each variance, suggest any further investigations which might be required and
necessary actions needed to be taken by the Director.
(6 Marks)
(Total 15 Marks)
QUESTION 6
(a) Explain each of the following concepts:
i. Back Flush Costing
ii. Computer Integrated Manufacturing (CIM)
iii. Just- in- time Purchasing
iv. Material Requirement Planning
v. Time Driver (10 Marks)
(b) Adelagun International produces and sells products A and B which require:
Material LabourMachine Time Contribution
KG HRS HRS N
A 6 2 5 25
B 3 5 3 23
Total Available 5000kg 2500Hrs 3200Hrs
i. Formulate the linear programming problem
ii. Formulate the dual problem to (i) above (5 Marks)
(Total 15 Marks)

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PROFESSIONAL EXAMINATION I – NOVEMBER 2011
22
Write only the alphabet (A, B, C, D or E) that corresponds to the correct
option in each of the following questions.
1. The process of determining the price at which goods are transferred from one
profit centre to another within the same company is
A. Mark-up pricing
B. Market pricing
C. Transfer pricing
D. Arms length pricing
E. Pro-rata pricing
2. A manufacturing company‟s cost driver excludes
A. Number of orders placed
B. Number of set ups
C. Number of inspections
D. Number of hospital beds occupied
E. Weight of materials
3. Which of the following costs can be classified as appraisal cost?
A. Scrap
B. Rework
C. Material inspection
D. Product warranty
E. Quality training

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4. A radical redesign to achieve dramatic improvements in contemporary
measures of performance such as cost, quality service and speed in an
organisation is called
A. Process re-engineering
B. Business re-engineering
C. Activity based management
D. Business process re-engineering
E. Process redesign
5. An examination of every operation required in producing certain products
with the existing production facilities to increase productivity is called
A. Method study
B. Work study
C. Work measurement
D. Method measurement
E. Operation study
6. Costs that may be shifted to the future with little or no effect on the efficiency
of current operation is called
A. Avoidable cost
B. Joint cost
C. Out of pocket cost
D. Postponable cost
E. Sunk cost.
7. The best estimates that represent several possible outcomes for a particular
event is
A. Perfect result
B. Predictive preposition
C. Certainty equivalent
D. Normal estimation
E. Perfect estimation
8. Violation of the assumption of constant variance is
A. Hamoscedasticity
B. Hateroscedasticity
C. Hemoscedasticity
D. Homoscedasticity
E. Heteroscedasticity

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9. ONE of the following is NOT a correct method of appraising investment
A. Modified internal Rate of Return
B. Profitability Index
C. Net Present Value
D. Internal Rate of Return
E. Sensitivity Analysis
10. A company‟s fixed overhead per annum is N100,000, variable expenses is
N10 per unit and the selling price is N15 per unit. What is its Break-Even
Point?
A. 15,000 units
B. 17,500 units
C. 20,000 units
D. 22,500 units
E. 25,000 units
11. An investment centre‟s operating profit after tax minus the products of
investment centre‟s total assets less investment centre‟s current liabilities
and weighted average cost of capital after tax is
A. Net Profit
B. Investment Income
C. Residual Income
D. Economic Value Added
E. Value Added
12. From the following information relating to Chika Ltd, you are required to
determine the Residual Income
Profit before
depreciation
N600,000
Depreciation N100,000
Minimum rate of
return
20%
Investment cost N2,000,000
A. N100,000
B. N120,000
C. N125,000
D. N130,000
E. N140,000

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13. A firm has two major production departments, Tableting and Packaging. It
adopts full Standard Cost pricing method for the intermediate products. Unit
variable cost is N70, while fixed cost is N40 and mark-up is 25%. If Tableting
is the transfer unit while Packaging is the buyer of the intermediate product,
determine the unit transfer price.
A. N 136.50
B. N 137.50
C. N 140.50
D N 141.50
E N 146.66
14. A situation where managers take decisions that work for the benefit of the
organisation and the objectives of the individual managers are consistent with
those of the organization as a whole, is known as
A. Slack
B. Dysfunction
C. Sub-option
D. Goal congruence
E. Systematic Congruence
15. A means of increasing customer satisfaction and managing costs more
effectively, is known as
A. Value Analysis
B. Value Added Activity
C. Total Quality Management (TQM)
D. Re-engineering
E. Value Chain Analysis
16. A situation where masses of identical units are produced and it is unnecessary
to assign costs to individual units of output is
A. Contract costing
B. Job costing
C. Joint costing
D. Process costing
E. Step costing

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17. An entity or a group of independent components or parts that interact together
within an environment for the purpose of accomplishing common
organisational objectives is
A. Goal congruence
B. Optimisation
C. A system
D. Cybernetic control
E. Management control
18. Which of the following industries does NOT use job costing?
A. Ship building
B. Advertising
C. Interior decoration
D. Oil industry
E. Road building
19. The application of information and communication technologies (ICT) in
aiding internet, internal and external business operations is called
A. e-business
B. e-trading
C. Extranet
D. Internet
E. e-payment
20. In which costing technique are variable cost charged to cost units and fixed
costs written off against contribution?
A. Absorption costing
B. Marginal costing
C. Activity based costing
D. Process costing
E. Contract costing

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PART II: SHORT- ANSWER QUESTIONS (20 Marks)
Write the answer that best completes each of the following
questions/statements.
1. The Restaurant Division of Kingsway Apapa Plc has assets worth N24
million, Net Income of N2.1 million and imputed interest of 12%. What is its
Residual Income (RI)?
2. A method of budget setting that employs cost driver data and variance
feedback process is ………………………………………
3. Decisions that are clearly defined and tailored through computer-based
management information system are……………………………….
4. A system wherein feedback is directed to a higher level is described
as…………………….
5. For a project with an initial outlay of N250,000 and a profitability index of
1.20, the total cash inflow will be …………………………..
6. A technique whereby decisions are tested by their vulnerability to changes in
any variable is………………………..
7. The technique used to determine the sensitivity of NPV to cost of capital
is………………….
8. A price to be charged to cover both the incremental cost of production and
opportunity cost is……………………………….
Use the following information to answer questions 9 and 10.
Month Standard Hours Cost Incurred
1 1,750 N36,250
2 1,800 N36,600
3 2,100 N38,700
4 2,450 N41,150
Cost estimation method in operation is the High-Low method.
9. Variable cost per standard hour is……………………………….
10. Fixed cost incurred per month is…………………………
11. A section of an organization for which a budget is prepared is called…….

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12. A unit of a product is expected to take 6 hours to make. Labour is paid
N5/hour. During 2008, actual output were 3,000 units and labour cost
N80,000, (16,000 hours at N5/hour). What is the labour productivity ratio for
2008?
13. Using the details in question 12, what is actual labour cost per unit?
14. The setting of an initial low price to achieve a desired level of market
acceptance is known as……………………
15. When a cost varies with the cost driver, but in discrete steps, it is called
…………………
16. The predicted sales value of a fixed asset at the end of its useful life is
called………………………….
17. Break-even point in Naira for multiproduct is calculated as fixed cost divided
by ………………………..
18. For a cost to be relevant to a particular decision, it must………………….
19. What is the Net Present Value of N3,791,000 investment in a plant with five
years useful life, zero terminal disposal value, N1,350,000 annual cash
savings and 8% rate of return?
20. Residual income is calculated as divisional income less…………………
SECTION B: ATTEMPT QUESTION 1 AND ANY OTHER THREE (60 MARKS)
QUESTION 1
CASE STUDY
Concord Hotels Limited is considering expanding its activities through acquisition
of small hotels. As a Management Consultant, you have been engaged to use the
following key accounting ratios of Concord Hotels Limited to monitor and appraise
the performance of the group of hotels and individual hotels in the chain for year
2010.
Concord Hotels Limited Target Ratios (2010 Extract).
(i) Return on Capital Employed 20%
(ii) Operational profit percentage 15%
(iii) Asset Turnover =2.5 times
(iv) Working Capital period = x 365 = 25 days
(v) Percentage room occupancy =
(vi) Turnover per employee (fulltime Equivalent) N35,000

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The extract of profit and loss account for the year ended 31 December 2010 for
Omega Hotels Limited which is being appraised for outright purchase is as follows:
N
Turnover 820,000
Operating costs (754,000)
Operating profit 66,000
Interest payable (4,000)
Profit before tax 62,000
Taxation (18,000)
Profit after tax 44,000
Dividends (22,000)
Retained profits 22,000
The Balance Sheet of Omega Hotels Limited as at 31 December 2010 (Extract).
N
Fixed Assets (Net) 230,000
Net Current Assets 70,000
Net Total Assets 300,000
Long term loans (50,000)
Shareholders‟ funds 250,000
Other Relevant information for Omega Hotels Limited.
(i) Number of Employees (fulltime equivalent) = 20
(ii) Number of Rooms each available for 365 nights = 18
(iii) Number of Room nights let in 2010 = 5,900
(a) Calculate all the above target ratios for Omega Hotels Limited (6 Marks)
(b) Write a letter to the Management of Concord Hotels Limited giving your
assessment of Omega Hotels Limited. Your report should provide comments
on the performance of Omega Hotels Limited based on the six ratios
calculated above and suggest management actions which need to be taken
to correct apparent adverse performance.
(6 Marks)
(c) Explain the limitations, if any, in the use of the target ratios specified above
in performance appraisal. (3 Marks)
(Total 15 Marks)

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QUESTION 2
The following data relate to actual output, costs and variance for the four-weekly
accounting period of Tope Ltd that makes only one product. Opening and closing
work in progress figures were the same.
Actual production of product XY 18,000
units
Actual costs incurred: (N‟000)
Direct materials purchased and used (150,000kg) 210
Direct wages for 32,000 hours 136
Variable production overhead 38
(N‟000)
Variances:
Direct materials price 15F
Direct material usage 9A
Direct labour rate 8A
Direct labour efficiency 16F
Variable production overhead expenditure 6A
Variable production overhead efficiency 4F
Variable production overhead varies with labour
hours worked
A standard marginal costing system is operated.
You are required to calculate the standard product cost for one unit of product XY
Show all workings (15 Marks)
QUESTION 3
Bola Bolington, a shoe manufacturer, prepared the following budget data for the
period ended December 2009:
Average available assets:
N
Bills receivable 250,000
Inventories 300,000
Plant & Equipment (NBV) 500,000
1,050,000
Fixed overhead 450,000
Variable cost per pair 15

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Desired rate of return on average assets 20%
Selling price per pair N35
Required:
(a) How many pairs of shoes must be sold to obtain the desired rate of return on
average assets? (3 Marks)
(b) What would be the expected capital turnover?
(3Marks)
(c) What would be the operating income percentage of Naira sales?
(3 Marks)
(d) If Bola Bolington has 12% cost of capital what will be the Residual Income
for the Company? (3 Marks)
(e) What rate of return will be earned on available assets if sales volume is
15,000 pairs of shoes? (3 Marks)
(Total 15 Marks)
QUESTION 4
You are the Management Accountant of Fedicon Aluminium Systems Ltd. You have
been asked to provide budgetary information and advice to the Board of Directors
at a meeting where they will decide the pricing of an important product for the
next period.
The following information is available from the records:
Sales Previous
Period
Sales Current
period
N‟000 N‟000
200,000 units at N26
each
5,200.00 212,000 units
at N26
each
5,512.00
Costs 4,000.00 4,309.76
Profit 1,200.00 1,202.24
You confirmed that between the previous and current periods there was a 4%
general cost inflation and it is forecast that costs will rise a further 6% in the next
period. As a matter of policy, the firm did not increase the selling price in the
current period, although competitors raised their prices by 4% to allow for the
increased costs. A survey undertaken by economic consultants has found that the
demand for the product is elastic with an estimated price elasticity of demand of
1.5. This means that volume would fall by 11
/2 times the rate of real price increase.
Various options are to be considered by the Board.

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(a) Show the budgeted position if the firm maintains the N26 selling price for
the next period (when it is expected that competitors will increase their
prices by 6%). (5 Marks)
(b) Show the budgeted position if the firm also raises its price by 6%. (5 Marks)
(c) Write a short report to the Board, with appropriate figures, recommending
whether the firm should maintain the N26 selling price or raise it by 6%.
(2 Marks)
(d) State what assumptions you have used in your solution. (3 Marks)
(Total 15 Marks)
QUESTION 5
(a) Briefly explain the term Activity-Based Costing (ABC). (3 Marks)
(b) Plant 2 produces about one hundred products. Its largest selling product is
Product X and the least Product Y. Relevant data is given thus:
Product X Product Y Total Product
Unit produced per annum 20,000 4,000 200,000
Material cost per unit N3.00 N3.00
Direct labour per unit 10 min 10
Machine Time per unit 2 hours 2 hours
Number of set-ups p.a 36 4 200
Number of purchase orders 40 8 3,600
Number of time material
handled
300 20 15,000
Direct labour cost/hour N7.50
Overhead costs: N
Set-up 300,000
Purchasing 200,000
Material handling 155,000
Machines 720,000
N1,375,000
Total machine hours are 750,000.

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You are required to calculate the unit cost using:
(i) Traditional method (6 Marks)
(ii) ABC Method 6 Marks)
(Total 15 Marks)
QUESTION 6
CARBON-COPY LIMITED is drawing up production plans for the coming year. Four
products are available with the following financial characteristics:
Product Paster Baster Caster Daster
Amount per unit: N N N N
Selling price 55 53 97 86
Cost of materials 17 25 19 11
Labour hours:
Grade A 10 6 - -
Grade B - - 10 20
Grade C - - 12 6
Variable overheads 6 7 5 6
Fixed overheads of the firm amount to N35,500 per annum. Each grade of labour is
paid N1.50 per hour but skills are specific to grade so that an employee in one
grade cannot be used to undertake the work of another grade. The annual labour
hours is limited to the following maximum:
Grade A 9,000 hours
Grade B 14,500 hours
Grade C 12,000 hours
There is no effective limitation on the volume of sales of any product.
(a) Calculate the products‟ contributions. (3 Marks)
(b) Formulate the objective functions of the problem and identify the
constraints. (2 marks)
(c) Calculate the contributions per key factors. (3 Marks)

(d) Calculate the product mix which maximises profit for the year and state the amount of profit.
(5 Marks)
(e) Calculate the minimum price at which the sale of product Paster would be worthwhile.
(2 Marks) (Total 15 Marks)

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Candidates are advised to read questions carefully and understand the requirements
before answering them.
Time Allowed – 3 hours
1. Which of the following is the management skill adopted to investigate the
discrepancy/deviation from standard upon which the managers find causes of
the problem and ways to eliminate it?
A. Management by exception
B. Strategic management
C. Management by objective
D. Management control
E. Total Quality Management
2. During a period, an operative worked for 17,500 hours at a standard cost of
N650 per hour. The labour efficiency variance was N7,800 favourable. How
many standard hours were produced?
A. 1,200 hours
B. 16,300 hours

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C. 17,500 hours
D. 17,512 hours
E. 18,400 hours
3. The objective of transfer pricing method which states that the method chosen
should be such that any optimal decision taken by the division will also be
optimal from the corporate perspective is
A. Performance evaluation
B. Motivation
C. Goal congruence
D. Autonomy
E. Decentralisation
4. In setting an international transfer price, a company will usually concentrate on
satisfying the objective of
A. Maximisation of profit before tax
B. Increasing market share
C. Diversification of its products
D. Reduction in the cost of production
E. Minimising income taxation
5. Management Accounting and Financial Accounting differ in that Management
Accounting information is prepared
A. Following prescribed rules
B. Using current data to influence the future
C. For stockbrokers
D. For the Internal Revenue Service
E. For determining share price
6. Tender Limited mixes four raw materials to produce plastic. Material K costs N40
per kg, Material Y costs N112 per kg, Material S costs N90 per kg, and Material
Z costs N260 per kg. Each of the materials contributes some essential quality to
the plastic and it is required to use the least cost mix.
The objective function, therefore, is

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A. N40x1 + 112x2 +80x3 + 260x4
B. N40x1 +80x2 + 112x3 + 260x4
C. N40x1 + 260x2 + 112x3 + 50x4
D. N40x1 + 112x2 + 90x3 + 260x4
E. N40x1 + 100x2 + 90x3 + 260x4
7. Which ONE of the following is NOT a key element of a Material Requirement
Planning (MRP)?
A. Lead time of all items
B. Bill of material
C. Stock out schedule
D. Master production schedule
E. Inventory report
8. Life cycle costing tracks and accumulates the actual costs from the beginning to
the end of a
A. Process
B. Contract
C. Cost centre
D. Company
E. Product
Use the following information to answer Questions 9 and 10
Budgeted sales of product ‘cocomix’ for a period are 43,000 units. Each unit of
cocomix requires 4 kg of material cassava. Budgeted stocks are as follows:
9. The budgeted production required for the next period is
A. 44,875 units
B. 43,675 units
C. 43,475 units
Product cocomix Material
cassava
Units Kg
Opening stock 4,375 31,500
Closing stock 4,600 30,900

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D. 43,375 units
E. 43,225 units
10. The budgeted purchases of material “cassava” in the next period are
A. 172,300 kg
B. 174,100 kg
C. 174,500 kg
D. 174,600 kg
E. 174,700 kg
11. Which of the following is the benefit of using a computerised budget system as
opposed to a manual one?
A. Budget target will be more acceptable to the managers responsible for
their achievement
B. Changes in variables can be incorporated into the budget more quickly
C. The principal budget factor can be identified before budget
preparation begins
D. Continuous budgeting is only possible using a computerised system
E. Budget slack will not be unaffected in a computerised environment
12. The assumption which states that the worst possible outcome will always occur
and decision makers should therefore select the largest pay off is
A. Regret criterion
B. Expected criterion
C. Maximax criterion
D. Maximin criterion
E. Maximum criterion

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13. A situation where a firm internally imposes a budget ceiling on the amount of capital
expenditure is known as
A. Hard capital rationing
B. Internal capital rationing
C. Normal capital rationing
D. Self capital rationing
E. Soft capital rationing
14. The standard time for the production of a product is 40 minutes while the actual
production of 40,000 units took 24,000 hours. What is the efficiency ratio?
A. 45%
B. 60%
C. 100%
D. 111%
E. 120%
15. During a production period, actual materials purchased were 8,000 units at
Cost of N20 per unit. The material price variance is N32,000 adverse. What is
the standard price of material per unit?
A. N12
B. N16
C. N18
D. N20
E. N24
16. Which ONE of the following is an advantage of simulation?
A. Disruption of present situation
B. Leads to false assumption about fundamental factor
C. Unrestricted length of observation
D. Collection of detailed data over a long period can be costly
E. Collection of detailed data can be time consuming
17. Which ONE of the following assumptions does not hold if Specification Analysis is
the testing of the assumption of regression analysis?
A. Linearity is within the relevant range

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B. There is constant variance of residuals
C. There is independence of residuals
D. Normality of residuals exist
E. There exists heteroscedasticity
18. A mark or state where the probability of not returning to the original state is 1, is
called
A. Absorbing state
B. Transient state
C. Recurrent state
D. Egordic state
E. Regular state
Use the following information about the costs and activity levels of Benlulo
Chemicals Limited to answer questions 19 and 20.
Activity Total Cost
Unit N
10,000 73,000
16,420 104,000
19. By using the high-low method, what is the total cost of 8,000 units that are to be
produced?
A. N73,000
B. N63,340
C. N38,560
D. N24,700
E. N16,240
20. What is the fixed cost?
A. N16,420
B. N24,700
C. N38,560
D. N63,260
E. N73,000

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PART II: SHORT-ANSWER QUESTIONS (20 MARKS)
questions/statements:
1. A review to determine whether the policies and procedures specified by top
management have been implemented is...................................
2. A standard which represents the level of performance that is attainable under
efficient operating condition is known as..............................................
3. A term used to describe a technique where decision options are tested for their
vulnerability to changes in any variable such as expected sales volume is
called.............................
4. Tank Ltd has an average labour cost of producing the 1st
batch of 2,000 units of
its new product at N20, with a reducing percentage of cost of 25%. What is the
average labour cost of producing 8,000 units?
5. The establishment of targets and comparators through data gathering whose use
relative levels of performance can be identified is known as..............
6. What is the present value of N4,000 that is due 8 years from now, if opportunity
cost is 10%?
7. Taiwo wishes to determine the present value of a N1,000 perpetuity discounted
at 15%. What is the value?
8. A system developed in Japan, whose objective is to produce or procure
products/components as they are needed or required than for inventory is
referred to as........................
9. Deleon Plc. manufactures ‘Exton’ soft drink. The following data relate to
component ‘X’
Cost of raw material N20 per unit
Usage of raw material 200 units
Maximum re-order period 30 days
Minimum re-order period 20 days

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What is the Re-order level?
10. The formulation, evaluation and selection of strategies for the purpose of
preparing a long-term plan of action to attain desired objectives are known
as..........................
11. A product or service sold at lower than normal margins in order to attract
customers who might then buy other items from the same stable at normal prices
is known as.................................
12. The term used to describe a technique whereby decisions are tested by their
vulnerability to changes to any variable is...............................
13. Computer-based technology allowing interactive design and testing of a
manufacturing component on a visual display terminal is known
as.......................................
14. An integrated approach to configuring processes, products and people in order
to match costs to the activities that need to be performed for operating
effectively and efficiently is called................................
15. The act of Managers working on their own perceived best interest and making
decisions that harmonise with the overall objectives of top management is known
as..........................
16. The fusion and balancing of all factors of production or service and of all the
departments and business functions so that the company can meet its objective
are known as...............................
17. A major potential problem with decentralisation particularly where the divisions
are highly interdependent, is that of................................
18. The actions employed by local management to ensure its operations and
decisions conform in ways that fulfil overall company objectives is
called..........................
19. Abbey Limited manufactures three products in which sales and contribution sales
ratio are:-

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Product Sales C/S ratio
A N500,000 0.30
B N1,200,000 0.375
C N1,500,000 0.40
Determine the break-even point if the fixed cost is N750,000.
20. The TWO classes of planning variances are ...................... and...................
SECTION B: ATTEMPT QUESTION ONE AND ANY OTHER THREE
QUESTIONS (60 Marks)
QUESTION 1 – CASE STUDY
Ngozi Obokun Limited is a manufacturer of foams. The accountant, Mr. Yakubu, is an
OND graduate from one of the Nigerian Polytechnics. Mr. Yakubu is used to evaluating
projects using Payback Period and Accounting Rate of Return.
In 2010, Ngozi Obokun Limited merged with Akin Ayodele Enterprises and a new
company Dami Kolade Plc was incorporated. The merger increased the capital base
and the net worth of the combined company.
The merger led to the rationalisation of the work force and the acquisition of computers
and other vital equipment. Mr. Yakubu was affected and was subsequently relieved of
his duties.
A new Accountant, Mr. Anthony, was employed. Mr. Anthony is a seasoned
Chartered Accountant, who on assuming duties, changed the criteria of evaluating
projects, introduced new accounting procedures and established sound internal control
system.
Mr. Anthony introduced Net Present Value method of evaluating projects. The
Managing Director, Mr. Kolade, travelled to the United States and attended a seminar
on Investment Decisions and Capital Budgeting. When he arrived, he called a
management meeting and shared his experience. At the end of the meeting, he insisted
that Internal Rate of Return should henceforth be used to evaluate subsequent
investments in the company. Mr. Anthony argued extensively that Net Present Value
approach is the best and that this method is superior to the Internal Rate of Return.

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The Board of Directors intervened and asked Mr. Anthony to evaluate the two pending
alternative projects on both the Net Present Value approach and Internal Rate of Return
approach and then advise the Board on which of the projects to undertake, and the
fundamental reasons why Mr. Anthony’s Net Present Value approach is superior to the
Internal Rate of Return. The pending projects possess the following information:
Initial
Outlay
Net cash
Inflow
Net Cash
Inflow
YEAR 0 1 2
Project A: -
6,000,000
723,000 8,790,000
Project B: -
6,000,000
3,930,000 5,160,000
The cash flow estimates of Project A exclude a residual value of N200,000, while that
of project B exclude a residual value of N130,000. Dami Kolade Plc’s cost of capital is
20%.
As the new accountant, you are required to
(a) (i) Calculate the Net Present Value (NPV) of each of the two projects.
(31
/3 Marks)
(ii) Calculate the Internal Rate of Return (IRR) of each of the two projects
(32
/3 Marks)
(iii) On the basis of (i) and (ii) above, advise the Board which of the projects
to undertake. (2 Marks)
(b) (i) State THREE factors that could cause conflict between NPV and IRR.
(11
/2 Marks)
(ii) List THREE measures of resolving these conflicts. (11
/2 Marks)
(iii) Highlight THREE reasons why NPV method is superior to IRR.
(3 Marks)
(Total 15 Marks)
QUESTION 2
Ketu Software Designers Limited is to develop a new accounting package “Pension
Accounting”. The newly employed management accountant has decided to introduce

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‘Life Cycle Costing & Budgeting’ which is a technique new to the computer engineers
working in the company. The budgeted costs right from the point of embarking on
Research and Development (R&D) up to the time the customers’ service will be
withdrawn are provided below:
Budgeted
costs
Year N’000
1 Research and Development cost
30,000
2 Design costs 14,000
2 Initial production for the ‘test market’ (10,000 units)
20,000
2 Distribution cost 4,000
2 Customer services’ cost 3,000
3 - 7 Yearly production (fixed costs + variable costs) 150,000
units 10,000
3 - 7 Yearly distribution costs 30,000
3 - 7 Yearly customer services’ costs 36,000
The proposed unit-selling price for the test market is fixed at N4,800. The company’s
cost of capital is 15%.
Required:
(a) Explain the technique of life cycle costing for the information of the computer
engineers in the company. (3 Marks)
(b) Determine the unit-selling price that the company can fix for the years 3 to 7 in
order to break even. (12 Marks)
(Total 15 Marks)
QUESTION 3
Jadesola Supermarket that specialises in grocery products is preparing its activity
based budget for January, 2012 for its operating costs (that is, its non-cost of goods
purchased for resale costs). The company’s current concern is with its four activity
areas (which are also indirect category in its product profitability reporting system).
(i) Ordering - covers purchasing activities. The cost driver is the number of
purchase orders

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(ii) Delivery - covers the physical delivery and receipt of merchandise – The cost
driver is the number of deliveries.
(iii) Self – stocking - covers the stacking of merchandise in store shelves and the on-
going restocking before sale.
(iv) Customer support – covers assistance provided to customer including check-out.
Assume Jadesola Supermarket has only three types of juice – mango juice,
guava juice and pineapple juice
The budgeted usage of each cost driver in these areas of the store and January,
2012 budgeted cost drivers are as follows:
Required:
(a) Determine the total budgeted cost for each activity area in January 2012.
(6 Marks)
(b) State any six advantages which might accrue to Jadesola Supermarket for using
an activity based budgeting over an approach for budgeting operating costs
based on a budgeted percentage of cost of goods sold multiplied by the
budgeted cost of goods sold. (9 Marks)
(Total 15 Marks)
QUESTION 4
Activity area and driver 2011 January Mango Guava Pineapple
Actual
Rate
Budgeted
rate
Juice Juice Juice
N N
Ordering (per purchase order) 100 90 21 36 21
Delivery (per delivery) 80 82 18 93 28.5
Self standing (per hour) 20 21 24 258 141
Customer support (per item sold) 20 0.18 6,900 51,300 16,125

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The business staff of the Law Firm of Frank, Dan and Smith has submitted the following
report which breaks down the firm’s overall results for last month into two main business
segments - Family Law and Commercial Law:
Segment Reporting and Decentralization
Howeve
r, this report is not quite correct. The common fixed expenses such as the Managing
Partner’s salary, general administrative expenses, and general firm advertising
expenses have been allocated to the two segments.
Required:
(a)(i) Prepare the segment report, eliminating the allocation of common fixed
expenses.
(ii) Would the firm be better off financially if the family law segment is dropped?
(Note: many of the firm’s Commercial Law clients also use the firm for their
Family Law requirements such as drawing up wills). (9 Marks)
(b) The firm’s advertising agency has proposed an advertising campaign targeted
at boosting the revenues of the Family Law segment. The advertising campaign
would cost N40,000 and the advertising agency claims that it would increase
Family Law revenue by N200,000. The Managing Partner of Frank, Dan &
Smith believes that this increase in business could be accommodated without
any increase in fixed expenses.
Family Law Commercial
Law
Total
N N N
Revenue from clients 800,000 1,200,000 2,000,00
0
Variable expenses 200,000 240,000 440,000
Contribution 600,000 960,000 1,560,000
Traceable fixed expenses 560,000 780,000 1,340,000
Segment margin 40,000 180,000 220,000
Common fixed expense 48,000 72,000 120,000
Net-operating income (8,000) 108,000 100,000

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What effect would this advertising campaign have on the family law segment
margin and on the firm’s overall net operating income?
(6 Marks)
(Total 15 Marks)
QUESTION 5
Zoebase Nigeria Limited. is a refining company located in Bayelsa State. The Refinery
produces three petroleum products – Petrol (PMS), Kerosene (DPK) and Diesel (AGO).
The standard time for the production of the products are
PMS - 40 minutes per metric tonne
DPK - 30 minutes per metric tonne
AGO – 45 minutes per metric tonne
The budget for the month of February is as follows:
PMS – 45,000 metric tonnes
DPK – 25,000 metric tonnes
AGO – 30,000 metric tonnes
The actual data for the month were as follows:
Labour hours 70,000 hours
Production:
PMS – 48,000 metric tonnes
DPK – 27,000 metric tonnes
AGO – 25,000 metric tonnes
Required:
(a) Compute and interprete the following:
(i) The activity ratio
(ii) The efficiency ratio
(iii) The capacity ratio (8 Marks)
(b) “Cost reduction activities are planned efforts to reduce expenditure, while cost
control actions involve all methods of controlling costs within a pre-determined
target.”

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Explain the above statement highlighting TWO similarities and TWO differences
between cost reduction and cost control. (7 Marks)
(Total 15 Marks)
QUESTION 6
Hadex Limited has a new wonder product of which it expects great things. At the
moment, the company has two courses of action open to it to test-market the product or
abandon it.
If the company test-markets it, the cost will be N100,000 and the market response
would be positive or negative with probabilities of 0.60 and 0.40 respectively.
If the response is positive, the company could either abandon the product or market it
full scale.
If it markets the product full scale, the outcome might be low, medium or high demand
and the respective net gains/(losses) would be (200), 200 or 1,000 in units of N1,000
(the result could range from a net loss of N200,000 to a gain of N1,000,000). These
outcomes have probabilities of 0.20, 0.50 and 0.30 respectively.
If the result of the test marketing is negative and the company goes ahead and
markets the product, estimated losses would be N600,000.
If at any point, the company abandons the product, there would be a net gain of
N50,000 from the sale of the scrap. All the financial values have been discounted to
the present value.
You are required to
(a) Draw a decision tree to illustrate the above scenario. (4 Marks)
(b) Advise the company on the option to be selected. (11 Marks)
(Total 15 Marks)

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PROFESSIONAL EXAMINATION I - NOVEMBER 2012
92
1. Bad debt expenses would appear in the ................. budget.
A. Cash
B. Material purchases
C. Selling and administrative expenses
D. Overhead
E. Product
2. Which of the following methods is a measure of liquidity and NOT of
profitability?
A. Pay Back Period
C. Internal Rate of Return
D. Profitability Index
E. Net Present Value
3. Quality training programmes are
A. Prevention costs
B. Appraisal costs
C. Internal failure costs
D. External failure costs
E. Sunk costs

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4. Re-order level for inventory depends on
A. Economic Order Quantity
B. The lead time
C. The rate of usage during lead time
D. Market forces
E. The activity level
5. The qualitative factors that should be considered when evaluating a make-
or- buy decision EXCLUDE
A. The nature of other business engaged in by the suppliers of the
product
B. Ability of the outside supplier to provide the needed quantities
C. Ability of the outside supplier to provide the product when it is
needed
D. The possibility of getting the product on time
E. The ability of the outside supplier‟s product to meet the taste of the
company
6. Basic guidelines that should be followed when allocating service department
cost include
A. Actual costs should always be used for allocations
B. Budgeted costs should be allocated
C. Service department costs should always be allocated at the beginning
of the period
D. Budgeted costs and actual costs should be allocated
E. Re-distribution of costs to all departments
7. Which of the following is NOT a type of responsibility centre?
A. Cost centre
B. Revenue centre
C. Profit centre
D. Investment centre
E. Budget centre
8. The structure of information flow within an organisation may be
A. Direct or Indirect
B. Controllable or Uncontrollable

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C. Vertical or Horizontal
D. Historical of Futuristic
E. Variable or Fixed
9. Which of the following techniques can be adopted in a cost reduction
exercise?
A. Budgetary control
B. Variety reduction
C. Standard costing
D. Value reduction
E. Marginal costing
10. An aspect where management accounting and financial accounting differ is
that management accounting information is prepared
A. Following prescribed rules
B. Using whatever methods the company find beneficial
C. For stockbroker
D. For the Internal Revenue Services
E. For Government use only
11. If the total cost of an activity level is N18,000 and the independent variable
is 800 units with the fixed cost element in the mixed cost being N6,000, what
is the slope coefficient?
A. N10
B. N12.5
C. N15
D. N22.5
E. N30
12. If Y is the number of outputs expected of a product and X is the number of
outputs expected of another product from the same production process,
which of the following inequalities expresses the constraint that the number
of outputs of X must not be more than 20% of the total number of units
produced.
A. 5x≤y
B. x<5y
C. 4x≤y
D. ≤x+y
E. ≤y

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13. A company has a severe shortage of labour hours. The normal hourly rate is
N150. If the shadow price is N20, what maximum hourly rate should the
company be willing to pay for every additional hour worked?
A. N130
B. N150
C. N160
D. N170
E. N190
14. The standard time for the manufacture of a product is 30 minutes while the
actual production of 50,000 units took 20,000 hours. What is the efficiency
ratio?
A. 20%
B. 25%
C. 75%
D. 80%
E. 125%
15. In a Markov Chain Analysis, the process in which it is possible to go from one
state to any other state where x is non-zero and less than one is called
A. Regular chain
B. Absorbing chain
C. Egordic chain
D. Normadic chain
E. Down-stream chain
16. A pictorial method of showing a sequence of inter-related decisions and
outcomes is
A. Simulation
B. Decision tree
C. Network analysis
D. Probability theory
E. Portfolio theory

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17. Which of the following is NOT a method of adjusting for risks and
uncertainties?
A. Finite Horizon
B. Sensitivity analysis
C. Simulation analysis
D. Accounting rate of return
E. Expected value
18. Which of the following is NOT a top management decision area?
A. Divisional planning and control
B. Appointment of senior management staff
C. Approval of all major capital expenditure proposals
D. Product line closure and departmental closure decisions
E. Determination of the corporate objectives of the organisation
19. Feedback is essential in management accounting system for the following
reasons EXCEPT
A. Motivation
B. Coordination
C. Cost commitment
D. Control
E. Monitoring
20. A dual transfer pricing system is capable of promoting all of the following
EXCEPT
A. Autonomy
B. Motivation
C. Performance evaluation
D. Centralisation
E. Goal congruence

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PART II: SHORT-ANSWER QUESTIONS (20 Marks)
questions/statements.
1. The technology of having an intelligent machine to perform a complete task
without the use of human assistance is called .................
2. A long-term decision-making process that includes setting goals and
selecting the means for attaining them is referred to as ...................
3. The Management Accountant‟s responsibility to disclose fully all relevant
information that could reasonably be expected to influence an intended
user‟s understanding of the reports, comments and recommendations
presented is called ........................
4. Any job providing ancillary support services to line managers is referred to
as ...........................
5. The five basic duties of Managers are planning, organizing, controlling,
leading and ...............
6. The equation y = a + bx which represents the equation for a linear function
with one independent variable; b in the equation is ..............
7. Maintenance costs of Hardrick IT Company are to be analyzed for the
purposes of constructing a budget. Examination of past records disclosed
the following costs and volume measures:
Highest Lowest
Cost per month N78,400 N64,000
Machine – (hours) 48,000 30,000
Use the high-low technique to estimate the annual fixed cost for
maintenance expenditure.
8. The over-riding feature of information for decision-making is that it should
be ......................

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98
Use the following data to answer questions 9 and 10:
CAT Company Limited carried out a market survey at a cost of N50,000 to
determine which of the prices N5 and N8 should be adopted for its only
product. At these prices, the following numbers of packets are forecast:
Expected packets per year (000)
Probability of
Demand
Price
N5
Price
N8
0.10 350 320
0.20 500 380
0.40 700 420
0.20 750 460
0.10 800 520
9. The expected revenue at price of N5 is ................................
10. The price that would maximise profit is ..............................
11. The discount rate which is raised above cost of capital in an attempt to allow
for the variability of projects is known as..............
12. Aboki Company Limited has two projects with estimated results as follows:
Project A B
Standard Deviation N25,000 N35,000
Mean N160,000 N260,000
The less risky project has co-efficient of variation of ...............
13. An investigation into whether proper arrangements have been made for
securing economy, efficiency and effectiveness in the use of resources is
known as ...................................
14. Costs that are taken directly to the income statement as expenses in the
period in which they are incurred or accrued are called ..................
15. Bayasell Limited, makers of product G, has fixed overhead of N60 million per
annum and selling price of N20 per unit. Its contribution to sales ratio is
40%.
What would be the break-even point in units?

PATHFINDER
99
Use the following information to answer questions 16 and 17:
Project Required
Investment
N
NPV
N
W 2,000,000 500,000
X 2,400,000 900,000
Y 800,000 360,000
Z 1,000,000 420,000
16. The Net Present Value Index for project X would be .....................
17. Which of the four projects has the highest net present value index?
18. A company is considering the costs for a special order. The order would
require 1,250kg of material X. This material is readily available and
regularly used by the company. The current market price is N32.4 per kg.
Calculate the cost of material required to execute the order.
19. A system of costing that is applied to relatively large cost units, which
normally takes a considerable length of time to complete is called
.....................
20. The use of cost data based on strategic and marketing information to
develop and identify superior strategies that will sustain a competitive
advantage is called ....................
SECTION B: ATTEMPT QUESTION 1 AND ANY OTHER THREE QUESTIONS (60 Marks)
QUESTION 1
CASE STUDY
Wellness Company Limited is the manufacturer and distributor of a new wonder
drug designed to relieve tension and reduce inhibitions. The company‟s market
consists principally of people connected with the entertainment industry on the
west coast of Africa. The company prices the drug at full cost plus 100%. The current
variable costs of production are as follows:
Ingredient „X‟: 8 mgs @ N10 per mg
Labour: 5 minutes @ N80 per hour
Ampoules: 1 @ N1.50 per ampoule

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100
The company‟s fixed costs (which include the cost of distribution) are currently
N320,000 per annum and are absorbed on the basis of budgeted production for the
year.
The company is currently setting the price of the drug for the coming year and
wishes to take into account expected price increases attached to the various
elements of cost.
These are as follows:
Element of cost Expected price
increase
Ingredients “X” 10%
Labour rate 50%
Ampoules 331
/3 %
Fixed costs 12 ½ %
The budgeted figure of the company‟s production and sales for the coming year is
9,000 units of wonder drug. Having received the projected profit figure for the
coming year, the Chairman has asked the market protection unit to help in
producing a more sophisticated approach to pricing. The unit has investigated the
market and believes that, with some influence being exercised on clients, the
following demand pattern will emerge:
Selling price Demand
N Units
200 17,000
220 16,000
240 15,000
260 11,000
280 9,000
300 7,000
You are required to calculate
a. The selling price of the drug for the coming year on the company‟s usual
basis (3 Marks)
b. The company‟s profit at the budgeted level of activity (2 Marks)
c. The break-even point in units and sales value (2 Marks)
d. The profit/volume ratio (2 Marks)

PATHFINDER
101
e. The maximum amount that the company should be prepared to spend on
advertising to increase sales to 10,000 units (2 Marks)
f. The optimal selling price and production level (with supporting calculations)
assuming that the demand pattern shown above is accurate (2 Marks)
g. The additional profit (if any) compared to the selling price calculated in (a)
above. (2 Marks)
(Total 15 Marks)
QUESTION 2
Recab Limited was incorporated in 1999 and has since engaged in the
manufacturing of household equipment. The company is located in South-Western
Nigeria. Most of the raw materials used by the company are locally sourced while
manpower needed is available within the country.
Since the emergence of the global economic melt-down, Management has been
planning to either eliminate or embark on product mix decision that can enhance
the profitability of the company and re-position to face the challenges ahead.
The company is currently producing four major products: AXEON, BAXON, CAXON
and DAXON with a turnover of N30million in 2011. The company earned a profit of
10% before interest and depreciation which are fixed. The details of product mix
and other information are as follows:
Product Mix % to
total
sales
PV
ratio
Raw
material % of
sales
AXEON 30 20 35
BAXON 10 30 40
CAXON 20 40 50
DAXON 40 10 60
Interests and depreciation amounted to N2,250,000 and N1,155,000 respectively.
Due to increase in prices in the international market, the company anticipates that
the cost of raw materials which are imported will increase by 10% during 2012.
The company has been able to secure a licence for the importation of raw materials
valued at N15,350,000 at year 2012 prices. In order to compensate for the increase
in costs of raw materials, the company is contemplating a revision of its product
mix. A market survey report indicates that the sales potential of each of the

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