SKILLS LEVEL MOCK EXAMINATION – NOVEMBER 2024

PERFORMANCE MANAGEMENT

Time Allowed: 3 1/4 hours (including 15 minutes reading time)

Additional 15 minutes to scan the result in one pdf file and upload to our mock exam portal

INSTRUCTION:

YOU ARE REQUIRED TO ATTEMPT FIVE OUT OF THE SEVEN QUESTIONS IN THIS PAPER

NOTICE:

This Mock Examination is principally to assess our students’ readiness for the actual ICAN examination.
You are expected to review more questions in all topics in the ICAN syllabus to enable you excel in the
examination. Also, the answers provided for this publication do not exhaust all possible alternative
approaches to solving these questions.

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Mock Examination Performance Management

SECTION A: COMPULSORY QUESTION

QUESTION 1

a. You are the Management Accountant of Dankoli Nigeria Limited which specializes in the
production of 3 products: Product 1, Product 2 and Product 3.

The following information is available for the first quarter of 2021:

Particulars Product 1 Product 2 Product 3

Sales units (‘000) 225 376 190
N N N
Selling Price per unit 15 13 10
Variable costs per unit 7.8 6 5
Attributable fixed costs 275,000.00 337,000.00 296,000.00

General fixed overhead is apportioned on the basis of sales value. The budgeted general fixed
overhead is N1,668,000.

Required:

i. Calculate the budgeted contribution and profit of the Products and Company. (5 Marks)

ii. Calculate the budgeted profits on the assumption that Product 3 is discontinued with no effect on
sales of the other products. (5 Marks)

iii. Calculate the extra sales in units and value required to cover the additional cost of advertising of
N80,000 if such cost is treated as general fixed overhead. (5 Marks)

b. The company is considering the viability of investing in a one-off order outside its normal budgeted
routine operation. The Management Accountant is requested to appraise the procurement and
sale of some useful medical equipment. The following cost estimate has been prepared by a junior
accountant:

Particulars Quantity used Notes N

Direct material:
Steel 40 sq. meters at N50 per sq/MM 1 2,000
Brass fittings 2 800
Direct labour:
Skilled 100 hours at N80 per hour 3 8,000
Semi-skilled 40 hours at N50 per hour 4 2,000
Overhead 140 hours at N100 per hour 5 14,000
Estimating time 6 4,000
30,800
Administrative overhead This is 20% of production cost 7 6,160
39,960
Profit at 25% of total cost 8 9,240
Selling Price 46,200

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Mock Examination Performance Management

Explanation on the notes is:

1) The steel is regularly used and has a current stock value of N50 per square meter. There are
currently 400sq. meters in stock. The steel is readily available at a price of N55 per square
meter.
2) The brass fittings would have to be bought specifically for the job. A supplier has quoted N800
for the fittings required.
3) The skilled labour is currently employed by the company and paid at the rate N80 per hour. If
this job were undertaken, it will be necessary to either work 100 hours overtime which would
be paid at time plus one half or reduce production of another product which earns a
contribution of N130 per hour.
4) The semi-skilled labour to complete the job currently has sufficiently been paid idle time to be
able to complete this work.
5) The overhead absorption rate includes power cost which is directly related to machine usage.
If this job were undertaken, it is estimated that the machine time required would be 40 hours.
The machine incurs power costs of N7.50 per hour. There are no other overhead costs which
can be specifically identified with this job.
6) The cost of the estimation time is that attributable to the 4 hours taken by the engineers to
analyze the drawings and determine the cost estimate given above.
7) It is the company’s policy to add 20% to the production cost as an allowance against
administrative costs associated with the jobs accepted.
8) This is the standard profit added by the company as part of its pricing strategy

Required:

i. Prepare on a relevant cost basis, the lowest cost estimate that could be used as the basis for
a quotation. Explain briefly, your reasons for using each of the values in your estimates. (6
Marks)
ii. There may be a possibility of repeat orders from your company which would occupy part of
normal production capacity. What factors need to be considered before quoting for this order?
(4 Marks)
c. Explain the following concepts:
i. Incremental cost;
ii. Differential cost;
iii. Committed cost;
iv. Sunk cost; and
v. Opportunity cost. (5 Marks)
(Total 30 Marks)

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 Mock Examination Performance Management

SECTION B: YOU ARE REQUIRED TO ANSWER ANY TWO OUT OF THREE QUESTIONS INTHIS SECTION
(40 MARKS)
QUESTION 2

You have recently been appointed as the management accountant to Abax Limited, a small company
manufacturing two products. Dab and CAB both products use the same type of material and labour
but in different proportions In the past. The company has had poor control over its working capital.
To remedy this, you have recommended to the directors that a budgetary control system be
introduced. This proposal has been approved by the board.

Because Abax Limited’s production and sales are spread evenly over the years, it was agreed that the
annual budget should be broken down into four periods, each of 13 weeks, commencing with the 13
weeks ending April 4. To help you in this task, the sales and production directors have provided you
with the following information:

i. Marketing and production data:

DAB CAB
Budgeted sales for 13 weeks (units) 845 1,235
Material content per unit (kilograms) 7 8
Labour per unit (standard hour) 8 5

ii. Production Labour:

Each of the 24 production employees work a 37-hour, five-day week at N80 per hour. Any hours
in excess of these will require Abax Limited to pay an overtime premium of 25%. Because of
technical problems, which will continue over the next 13 weeks, employees are only able to work
at 95% efficiency compared to standard.

iii. Purchasing and Opening Inventory:

The production director estimates that raw material will cost N120 per kilogram over the budget
period. He also plans to revise the quantity of raw materials inventory held in stock. He estimates
that the raw materials inventory levels at commencement of the budget period will be as follows:

Raw material DAB CAB

2,328 kilograms 163 units 361 units

iv. Closing Inventory:

At the end of the 13- week period, closing inventories are planned to change on the assumption
that production and sales volumes for the second budget period will be similar to those in the
first period:
• raw material inventory should be sufficient 13 days production:
• finished inventory of DAB should be equivalent to 6 days sales volume:
• finished inventory of CAB should be equivalent to 14 days sales volume:

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Mock Examination Performance Management

Required

a. Prepare in the form of a statement the following information for the 13- week period ended
April 4:
i. The production budget in units for DAB and CAB; (3 Marks)
ii. The purchasing budget for Abax Limited in units: (4 Marks)
iii. The production labour budget for Abax Limited in hours: (5 Marks)
iv. The cost of production labour for the period. (2 Marks)
b. Discuss briefly TWO different circumstances where participation in setting budgets is likely to
contribute to poor performance by managers. (6 Marks)
(Total 20 Marks)

QUESTION 3

Uzochuks Nigeria Limited is a company established four years ago to produce medical equipment. The
income statement and statement of financial position for 2019 and 2020 are as follows:
Income Statement

Particulars 2019 2020

N'm N'm
Sales 250 280
Operating costs (180) (200)
Operating Profit 70 80
Finance charges (10) (14)
Profit before
tax 60 66
Tax at 25% (15) (18)
Profit after tax 45 48

Statement of Financial Position

Particulars 2019 2020

N'm N'm
Non- Current Asset 350 440
Current Asset 190 260
Total 540 700

Shareholders’ fund 400 445

Long-term and medium-term
debts 100 100
Current Liabilities 40 155
Total 540 700

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Mock Examination Performance Management

Others information are given as follows:

I. Operating costs include the following:

Particulars 2019 2020

N'm N'm
Depreciation 25.0 28.0
Provision for doubtful
debts 2.8 1.2
Research and development 5.0 -
Other non-cash items 4.0 3.0

II. Economic depreciation is assessed to be N50.5million in 2020. Economic depreciation includes

any appropriate amortization adjustments. In previous years, it can be assumed that economic
and accounting depreciation were the same.
III. Tax is the cash paid in the current year (N16 million) and an adjustment of N2 million for
deferred tax provisions. There was no deferred tax balance prior to 2020.
IV. The provision for doubtful debts was N2.5million on the 2020 statement of financial position.
V. Research and development is not capitalised in the accounts. It relates to a new project that
will be developed over five years and is expected to be of long-term benefit to the company.
2020 is the first year of this project.
VI. The company had a non-capitalised leased asset of N18million in January 2020. These assets
are not subjected to depreciation.
VII. Cost of capital of Uzochuks:

Equity 18%
Debt (pre-tax) 6%

VIII. Capital structure of Uzochuks:

Equity 60%
Debt (pre-tax) 40%

IX. The company had the opportunity to invest in a solar project that will require the procurement
of an equipment worth N3million in January 2020 and run for a period of 5 years with a salvage
value of N0.50million, generating a stable net cash flow of N0.85 million. The applicable cost
of capital is the associated weighted average cost of capital of the company.

Required:

a. i. Compute and evaluate the company’s performance using average rate of return(ARR).
(4 Marks)
ii. Compute and evaluate the Company’s performance using economic value added (EVA)
parameter. (9 Marks)
b. Calculate the net present value of the solar project for the life of the investment. (7 Marks)
(Total 20 Marks)

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Mock Examination Performance Management

QUESTION 4

BADEGY Limited is a medium-sized company. The company is in the process of deciding its pricing
policy for the next period.

The following information is available from its records:

Previous period Current period

Revenue: Revenue:
N’000 N’000

100,000 units at N130 13,000 106,000 units at N130 13,780

Costs 10,000 Costs 10,774
Profit 3,000 Profit 3,006

It was discovered that between the previous and current periods, there was a 4% general cost inflation
and it is forecast that costs will rise further by 6% in the next period. As a matter of policy, the company
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 by a team of management consultants was commissioned
and has found that the demand for the product is elastic with an estimated price elasticity of demand
of 1.5. This means that volume falls by 1.5 times the rate of real price increase. Various options are to
be considered by the Board.

You are required to:

a. Show the budgeted position of the company if it maintains the N130 selling price for the next
period when it is expected that competitors will increase their prices by 6%. (15 Marks)
b. What would the budgeted position be if the company also raises its price by 6%? (5 Marks)

(Total 20 Marks)

SECTION C: YOU ARE REQUIRED TO ANSWER ANY TWO OUT OF THREE QUESTIONS INTHIS SECTION
(30 MARKS)
QUESTION 5

Ubachuks Ltd. manufactures and sells a single product. The following data has been extracted from
the current year’s budget:

Item Amount
Contribution per unit N8
Total weekly fixed costs N10,000
Weekly Profit N22,000
Contribution to Sales Ratio 40%
The company’s production capacity is not fully utilized in the current year and three possible strategies
are under consideration. Each strategy involves reducing the unit selling price on all units sold with a
consequential effect on the volume of sales.

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Mock Examination Performance Management

The detailed effect of each strategy is as follows:

Expected increase
in weekly sales
Reduction in unit volume over
Strategy selling price Budget
% %
A 2 10
B 5 18
C 7 25
The company does not hold inventory of finished goods.

Required:

Calculate:

a. The selling price per unit of the product for the current year. (2 Marks)
b. The weekly sales in units and value for the current year. (3 Marks)
c. The current year’s break-even point in units and value. (4 Marks)
d. Determine, with a statement, which one of the three strategies should be adopted by the
company in order to maximize its weekly profits. (6 Marks)

(Total 15 Marks)

QUESTION 6

Ezenwa Nigeria Limited is a company which produces a single product on an assembly line. The budget
personnel have 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
80,000 units 160,000 units
N N
Direct materials 3,200,000 6,400,000
Indirect Materials 480,000 800,000
Direct Labour 2,000,000 4,000,000
Power 720,000 960,000
Repairs 800,000 1,200,000
Supervision 800,000 1,440,000
Rent, insurance and rates 360,000 360,000
Additional Information:

Supervision is a “step function”. To this end, one supervisor is employed for all production levels up
to and including 100,000 units. For higher levels of production, an assistant supervisor whose
remuneration is N640,000 will be added.

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Mock Examination Performance Management

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. 80,000 Units
ii. 100,000 Units
iii. 120,000 Units
iv. 140,000 Units
v. 160,000 Units (9 Marks)
b. During the three months July to September 2021, 100,000 units were produced. Actual costs
incurred during this period were as follows:

N
Direct materials 4,150,000
Indirect Materials 580,000
Direct Labour 2,700,000
Power 760,000
Repairs 885,000
Supervision 850,000
Rent, insurance and rates 320,000
Required:
i. Prepare a budget report for presentation to the Production Director displaying all
relevant variances. (3 Marks)
ii. For each variance, suggest any further investigations which might be required and the
necessary actions required to be taken by the Director. (3 Marks)
Total 15 Marks)

QUESTION 7

Many firms still focus on profitability as their main measure of performance, despite increasing
evidence that non-financial measures are often more important.

Required:

a. Explain the arguments for using the profit measure as the all-encompassing measure of the
performance of a business. (5 Marks)
b. An insurance company is considering introducing a balanced scorecard.
State the FOUR perspectives of the balanced scorecard and recommend, with explanations,
two performance measures for each perspective. (10 Marks)

(Total 15 Marks)

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