Management Accounting · November 2025

a) Differences between Marginal and Absorption Costing Techniques under the following criteria: S/N CRITERIA ABSORPTION COSTING MARGINAL COSTING

i. Product cost Product cost is made up of both variable and fixed production costs Product cost is made up of only variable production costs

ii. Period cost Fixed production costs are treated as part of cost of production All fixed costs (including fixed production costs) are treated as part of period cost

iii. Stock valuation Uses product costs i.e. both variable and fixed production costs in the valuation of inventory Uses only variable costs of production in the valuation of inventory

iv. Over/under absorption of overhead recovery Treatment of fixed production cost gives rise to over/under absorption of overhead Over/under absorption of overhead does not arise

v. Basis of management decisions It is not used for management decision making It is used for management decision making 47

b) Folly Kemaj Manufacturing Nigeria Limited

i. Income Statement Using Absorption Costing Technique N N Sales (200,000 units @ N25) 5,000,000 Less: Manufacturing cost of goods sold: Opening Inventory (40,000 units @ N14) 560,000 Direct Material Cost (170,000 units @ N4) 680,000 Direct Labour Cost (170,000 units @ N4) 680,000 Variable Production Overhead (170,000 units @ N2) 340,000 Fixed Production Overhead (170,000 units @ N4) 680,000 Under Absorbed Overhead (N800,000 – N 680,000) 120,000 3,060,000 Less closing inventory (10,000 units @ N14) (140,000) Total cost of production (2,920,000) Gross Profit 2,080,000 Less: Expenses: Variable Administration Overheads (200,000 @ N0:50) 100,000 Fixed Administration Overheads 100,000 Variable Selling & Distr. Overheads (200,000 @ N1:50) 300,000 Fixed Selling & Distr. Overheads 200,000 700,000 Net Profit 1,380,000

ii. Income Statement using Marginal Costing Technique N N Sales (200,000 units @ N25) 5,000,000 Less: manufacturing cost of goods sold: Opening inventory (40,000 units @ N10) 400,000 Direct material cost (170,000 units @ N4) 680,000 Direct labour cost (170,000 units @ N4) 680,000 Variable production overhead (170,000 units @ N2) 340,000 2,100,000 Less closing inventory (10,000 units @ N100) (100,000) Variable cost of production (2,000,000) Less other variable costs: Variable administration overheads (200,000 @ N0:50) 100,000 Variable selling & distr. overheads (200,000 @ N1:50) 300,000 400,000 Contribution 2,600,000 Less: Fixed Costs: Fixed production overheads 800,000 Fixed administration overheads 100,000 48 Fixed selling & distr. Overheads 200,000 (1,100,000) Net Profit 1,500,000

NOTE: Any candidate that adds all variable cost (N680,000 + N680,000 + N340,000) = N1,700,000 should be given 1½ Marks.

iii. Reconciliation statement Inventories Difference in Opening Inventory: Absorption Costing Technique 560,000 Marginal Costing Technique (400,000) 160,000 Difference in Closing Inventory: Absorption Costing Technique 140,000 Marginal Costing Technique (100,000) (40,000) Difference in Inventory 120,000 Net Profit Absorption costing technique 1,380,000 Marginal costing technique 1,500,000 Difference in Net Profit 120,000

Workings: Closing Inventory = opening inventory + units produced – unit sold = 40,000 + 170,000 – 200,000 =10,000 units

Examiner’s report The question tests candidates’ understanding of marginal and absorption costing. Over 60% of the candidates attempted the question. The performance was average as about 40% of them scored above 50% of the marks allotted. The major pitfall was the incorrect application of principles. Candidates are advised to study the ICAN Study Text and other recommended textbooks in detail, paying attention to all topics covered.

Marking guide Marks a. Differences between Marginal and Absorption Costing Techniques under the following criteria: (½ mark per correct distinction between Marginal and Absorption Costing Techniques) 5

b. Folly Kemaj Manufacturing Nigeria Limited Income statement using absorption costing technique 13 ticks for 6½ Marks 6I/2 ½ mark per tick 49

ii. Income statement using marginal costing technique 12 ticks for 6 Marks 6 ½ Mark per tick NOTE: Any candidate that adds all variable cost (N680,000 + N680,000 + N340,000) = N1,700,000 should be given 1½ Marks. 2½ iii. Reconciliation 20

a. Qualities of good Information

i) Accuracy: Information should be free from errors and bias. ii) Relevance: Information should be relevant to the decision or purpose. iii) Completeness: Information should be comprehensive and include all necessary details. iv) Timeliness: Information should be available when needed. v) Reliability: Information should be trustworthy and dependable. vi) Verifiability: Information should be supported by evidence or source documents. vii) Understandability: Information should be clear and easy to understand. viii) Conciseness: Information should be concise and to the point. ix) Objectivity: Information should be unbiased and impartial. x) Comparability: Information should be presented in a way that allows for comparison. xi) Consistency: Information should be presented consistently over time. xii) Materiality: Information should be significant and relevant to the decision. xiii) Accessibility: Information should be easily accessible to authorised parties. xiv) Cost Benefit Analysis: the cost of obtaining the information must not outweigh the benefit to be derived

b. The Levels of Planning

i. Strategic Planning: High-level planning that sets the overall direction and goals of the organisation. ii. Tactical Planning: Middle-level planning that outlines specific actions to achieve strategic goals. iii. Operational Planning: Low-level planning that focuses on day-to-day activities and resource allocation.

c. The Roles of Management Accountant and Financial Accountant Management Accountant:

• Provides internal decision-making information

• Analyzes performance and identifies areas for improvement

• Supports strategic planning and budgeting

• Helps with risk management and control 50 Financial Accountant:

• Prepares financial statements for external stakeholders

• Ensures compliance with accounting standards and regulations

• Provides historical financial data

• Facilitates financial analysis and reporting.

d. Advantages and Disadvantages of Management Accounting. Advantages:

i. Informed decision-making: Management accounting provides relevant data for decision-making. ii. Improved performance: Helps identify areas for improvement and optimise resources. iii. Better budgeting: Facilitates budgeting and forecasting. iv. Risk management: Identifies and mitigates business risks. v. Competitive advantage: Supports strategic planning and competitive positioning. vi. Enhanced accountability: Promotes accountability and transparency vii. Improved resource allocation: Helps allocate resources efficiently. viii. Supports innovation: Provides data to support innovation and growth initiatives. Limitations/Disadvantages:

i. Costly: Implementing and maintaining management accounting systems can be expensive. ii. Time-consuming: Requires significant time and resources. iii. Complexity: Can be complex and require specialized skills. iv. Data quality: Relies on accurate and reliable data. v. Resistance to change: May face resistance from employees or management. vi. Information overload: Can lead to information overload if not managed properly. vii. Dependence on data: Over-reliance on data can lead to poor decision-making. viii. Limited scope: May focus too much on financial metrics, neglecting non- financial aspects.

Examiner’s report The question tests candidates’ understanding of the qualities of good information and levels of planning. About 70% of the candidates attempted the question and performance was average as about 30% of the candidates who attempted the question scored above 50%. The major pitfall was the incorrect application of principles. Candidates are enjoined to study the ICAN Study Text and other recommended textbooks for a deeper understanding of this topic. 51

Marking guide Marks Marks a. Qualities of Good Information Mark for identification ½ Mark for explanation _½_ 1 5 b. The Levels of Planning 1 mark for identification 1 mark for explanation 2 marks each x 3 points 6

c. The Roles of Cost, Management and Financial Accounting: Cost Accounting 1 Management Accounting: 1 Financial Accounting: 1 3

d. Advantages and Disadvantages of Management Accounting Advantages: 1 Mark for Any Advantages of Management Accounting Any 3 Points = 3 Marks 3 Limitations/Disadvantages: Mark for Any Disadvantages of Management Accounting 1 _3_ _20_

Tiwantiwa Manufacturing Company Limited Determination of fixed and variable costs

a. High and Low Method Units Cost (N) High 3,000 3,800 Low (1,000) (2,600) Difference 2,000 1,200 Variable Cost/Unit (b) = Difference in Corresponding Cost (N) Difference in Activity Level (Units) = N1,200 2,000 = N.60 per unit 52 From the formula y = a + bX, determine the fixed element either at high or low points At high point OR At Low Point Y= a + bx Y= a + bx 3,800 = a + N0.6(3,000) 2,600 = a + N0.6(1,000) 3,800 = a + 1,800 2,600 = a + 600 a = 3,800 – 1,800 a = 2,600 – 600 = N2,000 = N2,000 Using Linear Regression Analysis Period Units (X) Expenses N (Y) XY X2 Y2 1 1,000 2,600.00 2,600,000 1,000,000 6,760,000 2 1,500 5,000.00 7,500,000 2,250,000 25,000,000 3 2,500 3,700.00 9,250,000 6,250,000 13,690,000 4 2,000 3,500.00 7,000,000 4,000,000 12,250,000 5 2,500 3,600.00 9,000,000 6,250,000 12,960,000 6 2,000 3,400.00 6,800,000 4,000,000 11,560,000 7 3,000 3,800.00 11,400,000 9,000,000 14,440,000 8 2,500 3,300.00 8,250,000 6,250,000 10,890,000 9 2,000 3,100.00 6,200,000 4,000,000 9,610,000 10 1,500 2,000.00 3,000,000 2,250,000 4,000,000 Total (∑) ∑X20,500 ∑Y34,000 ∑XY71,000,000 ∑X245,250,000 ∑X2121,160,000 b = ∑ ∑ ∑ ∑ – (∑ ) = ( , , ) – , ( , ) ( , , ) – ( , ) = , , – , , , , – , , = , , , , b =N0.4031 a = Y – bX Y = ∑𝒀𝐍 = , = 3,400 53 X = ∑𝑿𝐍 = 𝟐𝟎,𝟓𝟎𝟎 𝟏𝟎 = 2,050 a = 3,400 - (0.4031 * 2,050) a = 3,400 - 826.355 a =2,573.645 The linear regression equation is: Y = a + bX Y =2,573.65 + 0.4031X

b. The correlation co-efficient The correlation coefficient (r) measures the strength and direction of a linear relationship between two variables, X (units) and Y (expenses) in this case –r ranges from -1 to 1:

* +1 Perfect positive correlation (as X increases, Y increases) * –1 Perfect negative correlation (as X increases, Y decreases) * 0 No correlation (no linear relationship) * 0.4031 indicates a positive correlation * As units (X) increases, expenses (Y) tend to increase, but the relationship is strong. In this case, the correlation coefficient (r = 0.4031) suggests a positive correlation between units and expenses. This means that there might be other factors influencing expenses, and the relationship with units is very strong.

Examiner’s report This question tests candidates’ understanding of methods of separation of fixed and variable costs including the high and low, and linear regression methods. About 40% of the candidates attempted the question. The performance was poor as only about 20% of the candidates who attempted the question scored above 50%. The major pitfall was not having detailed knowledge of the topic. Candidates are advised to pay attention to this all important topic in their future preparations.

Marking guide Marks Marks a. (i) High and Low Method 10 ticks for 5 marks 5 ½ Mark per tick

(ii) Using Linear Regression Analysis ¼ Mark x 28 Ticks 7 1 Mark x 3 Ticks 3 10 54

b. Explaining the Correlation Co-Efficiency Obtained in (a)(ii) above The correlation coefficient measures the strength and direction of a linear relationship between two variables 5 20

a. Abangam Manufacturing Limited Optimal Production Mix Product Kylian Leo Mane Nani Profit per unit (N) 360 300 560 270 Period Cost (N) 40 120 120 30 Unit Contribution (N) = (T) 400 420 680 300 Add: Unit Variable costs (N) 320 390 720 420 Unit Selling Price (N) 720 810 1,400 720 Direct mat/unit (N)=(K) 200 210 600 300 Contribution per N of mat (T÷K) 2 2 1.13 1 Ranking 2nd 1st 3rd 4th Budgeted sales (N’000) 21,600 25,920 42,000 20,160 Budgeted sales units 30,000 32,000 30,000 28,000 Allocation of available N38m 6,000,000 6,720,000 18,000,000 7,280,000 Available sales units 30,000 32,000 30,000 24,246 Advice: Based on the ranking above, the company should produce as follows: Kylian - 30,000 units Leo - 32,000 units Mane - 30,000 units Nani - 24,266 units

b. Revised Income Statement Product Kylian Leo Mane Nani TOTAL Budgeted Sales (Units) [a] 30,000 32,000 30,000 24,247 Contribution/Unit (N) [b] 400 420 680 300 Total Contribution(N’000) [c = a x b] 12,000 13,440 20,400 7,280 53,120 Period Cost (N) [d] 40 120 120 30 Total Period Cost (N’000) [e = a x d] 1,200 3,840 3,600 840 (9,480) NET PROFIT 43,640 (1)

Note – Period cost for Product – Nani is based on budgeted units and not on optimal production mix. 55

Examiner’s report This question tests candidates’ understanding of the concept of optimal production mix. About 25% of the candidates attempted the question but performance was poor as only about 20% of them scored 50% of the allocated marks and above. Students demonstrated poorunderstanding of the topic. It is recommended that candidates devote more efforts towards understanding this major topic in their future preparations.

Marking guide Marks Abangam Manufacturing Limited Optimal production mix 28 Ticks for 14 Marks ½ Mark per Tick 14 Revised Income Statement 10 ticks for 5 marks ½ mark per tick 5 1 1 mark for Net Profit 20

a. Four (4) Remuneration Systems/Methods

i) Time-Based Remuneration Payment made to employees based on the time they have worked, such as hourly, daily, weekly, or monthly rates.

ii) Performance-Based/Piecerate/Commission/Bonus/Incentive/Output-Based Remuneration Payment made to employees based on their performance, achievements, or contributions to the organization, often tied to specific targets or goals.

iii) Skill-Based Remuneration Payment made to employees based on their skills, qualifications, or competencies, recognising their expertise and value to the organisation.

iv) Profit-Sharing Remuneration Payment made to employees as a share of the organization's profits, often in the form of bonuses, stock options, or other forms of profit-related compensation. 56

b. Advantages and Disadvantages of Each Methods

i. Advantages of Time-Based Remuneration

• Simple to administer

• Provides predictable income for employees

• Encourages employees to work regular hours

• Easy to calculate and record

• Suitable for roles with clear work schedules Disadvantages of Time-Based Remuneration

• May not incentivize productivity or performance

• Can lead to inefficiencies if employees are not motivated

• May not account for differences in employee performance

• Does not reward exceptional performance

• Can lead to complacency

ii. Advantages of Performance-Based Remuneration

• Incentivizes productivity and performance

• Encourages goal-oriented behaviour

• Can improve overall organizational performance

• Recognizes and rewards outstanding performance

• Can increase employee motivation and engagement Disadvantages of Performance-Based Remuneration

• May lead to competition rather than collaboration

• Can create undue stress and pressure

• May lead to burnout if targets are unrealistic

• Can be subjective or biased

• May not account for factors outside employee control

iii. Advantages of Skill-Based Remuneration

• Encourages skill development and career growth

• Recognizes and rewards employee expertise

• Can improve employee retention

• Supports succession planning

• Can improve overall organizational capability Disadvantages of Skill-Based Remuneration

• May lead to pay disparities if not managed carefully

• Can create administrative complexities

• May not account for differences in employee performance

• Can be expensive to implement and maintain

• May not be suitable for all roles or industries 57

iv. Advantages of Profit-Sharing Remuneration

• Aligns employee interests with company performance

• Encourages teamwork and collaboration

• Can improve employee motivation and engagement

• Can be a cost-effective way to reward employees

• Can attract and retain top talent Disadvantages of Profit-Sharing Remuneration

• May be volatile and unpredictable

• Can create uncertainty for employees

• May not be directly tied to individual performance

• Can be affected by external factors (e.g., market conditions)

• May require significant administrative effort

c. Cost Control and Cost Reduction Cost Control is the process of managing and regulating costs within an organization to achieve its objectives. It involves establishing budgets, monitoring expenses, and taking corrective action to stay within budget, with the aim of optimizing resource allocation and reducing waste. Cost Reduction is the process of identifying and implementing ways to reduce costs, with the goal of decreasing expenses and improving efficiency, ultimately leading to improved profitability. It involves analyzing costs, identifying areas for improvement, and implementing changes to achieve cost savings. Difference between Cost Control and Cost Reduction S/N AREA OF DIFFERENCE COST CONTROL COST REDUCTION

i. Objective Manage and regulate costs to stay within budget Decrease costs and improve efficiency

ii. Focus Maintaining cost stability and preventing unnecessary expenses Reducing expenses and achieving cost savings

iii. Approach Establishing budgets, monitoring expenses, and taking corrective action Analysing costs, identifying areas for improvement, and implementing changes

iv. Outcome Optimised resource allocation and reduced waste Improved profitability and efficiency 58

Examiner’s report This question tests candidates’ understanding of labour remuneration methods and the differences between cost control and cost reduction. About 50% of the candidates attempted the question and performance was average as about 50% of the candidates who attempted the question scored above 50% of the marks allocated. Candidates’ performance revealed that they did not consider this topic during their preparation for this examination. Candidates should pay more attention to this topic in their future preparations.

Marking guide Marks Marks a. Four (4) remuneration systems/methods Mark for identification ½ Mark for identification ½ Mark each x 4 points 1 4 b 3 advantages and 2 disadvantages of any two (2) of the methods of remuneration 1 mark each for advantages x 3 3 1 mark each for disadvantages x 2 _2 5 marks x Any 2 methods = 10 marks _5_ 10 c Cost Control and Cost Reduction 1 mark each for definition of cost control and cost reduction 1 mark per point x any 2 differences under cost control and reduction 4 _6_ _20_ 59

Mahye Nigeria Limited

a. Standard Cost Card of the Product ½ N Direct Materials:

- Material A (2kg @ N300) 600 - Material B (1kg @ N400) 400 Direct Labour (5hrs @ N400) 2,000 Variable Overhead (5hrs @ N100) 500 Fixed Overhead (5hrs @ N200) 1,000 Standard Production Cost 4,500 Standard margin 500 Standard selling price 5,000 Calculation of Equivalent units Materials units Conversion cost (labour + overhead) units Units completed 6,000 6,000 Closing WIP 600 (50% of 600) 300 Equivalent units of production 6,600 6,300 (These will be taken as quantity produced)

b. Direct Material Cost Variances Material A Direct Material Cost Variance = Standard Cost – Actual Cost = (N600 x 6,600) – 4,306,500 = 3,960,000 – 4,306,500 = N346,500 (A) Direct Material Price Variance = (N300 x 14,850) – 4,306,500 = 4,455,000 – 4,306,500 = N148,500 (F) Direct Material Usage Variance = ((2 x 6,600) – 14,850) x N300 = (13,200 – 14,850) x N300 = N495,000 (A) Material B Direct Material Cost Variance = Standard Cost – Actual Cost = (N400 × 6,600) – 2,975,000 = 2,640,000 – 2,975,000 = N335,000 (A) 60 Direct Material Price Variance = (N400 × 7,260) – 2,904,000 = 2,975,000 – 2,904,000 = N71,000 (A) Direct Material Usage Variance = ((1 × 6,600) – 7,260) × N400 = (6,600 – 7,260) × N400 = N264,000 (A) Direct Labour Cost Variances

i. Direct Labour Cost Variance = Std. Cost – Act. Cost = (6,300 @ N2,000) – 12,750,000 = 12,600,000 – 12,750,000 = N150,000 (A)

ii. Direct Labour Rate Variance = AH (SR- AR) =32,000hrs (N400 – [12,750,000/32,000]) = 32,000 (N400 – 398.4375) = N50,000 (F)

iii. Direct Labour Efficiency Variance = SR (SH-AH) =N400(6,300 × 5 hrs) – 32,000)) = N400(500) = N200,000 (A)

c. Overheads Cost Variances (both Variable and Fixed)

i. Variable Overhead Cost Variance = Std. Cost – Act. Cost = (5hrs x 6,300 @ N100) – 3,200,000 = 3,150,000 – 3,000,000 = N150,000 (F)

ii. Variable Overhead Rate Variance = AH (SR- AR) =(32,000 @ N100) – 3,000,000 = N3,200,000 – N3,000,000 = N200,000 (F)

iii. Variable Overhead Efficiency Variance = SR (SH-AH) = N 100(6,300 × 5 hrs) – 3400 hrs = N50,000 (A)

iv. Fixed Overhead Cost Variance =(Std. Cost - Act cost) =(6,300 × N 1,000) – N806,000 =6,300,000 – 8,060,000 = N1,760,000 (A)

v. Fixed Overheads Volume Variance =SR (SH-AH) =(N200 x 32,000) – 8,060,000 61 62 = N1,660,000 (A) vi. Fixed Overhead Expenditure Variance = 6,300,000 – 8,060,000 = N100,000 (A)

d. Sales Margin Variances

i. Sale Price Variance = AQ (AM – BM) = 6,000 ([5,083.33 – 4,500] – 500) = 6,000(83.33) = N500,000 (F)

ii. Sale Volume Variance = BM (AQ – BQ) = 500(6,000 – 6,000) = 500(0) = N (A)

Note: It is assumed that 6,000 is the budgeted sales units.

e. Operating Statements for the month of October using the Variances Details Total N Budgeted Profit 1,350,000 Favourable Adverse Sales Margins: 500,000 Direct Materials - Material A 346,500 - Material B 335,000 Direct Labour 150,000 Variable Overheads 150,000 Fixed Overheads 1,760,000 (1,941,500) ACTUAL PROFIT (591,500)

Examiner’s report This question tests candidates’ understanding of standard costing with emphasis on variance analysis. About 30% of the candidates attempted the question but performance was below average.It was obvious that students did not prepare for the topic, judging from their approach to the question About 25% of the candidates who attempted the question scored above 50% of the marks allotted.Candidates demonstrated poor knowledge of variance analysis. Candidates should realise that standard costing and variance analysis are very critical parts of management accounting and should therefore treat them w

Marking guide Marks Marks a. Standard Cost Card of the Product ½ Mark for heading 6 Ticks x ¼ Mark _2_ 2

b. Direct Material Cost Variances 5 10 ticks for 5 Marks ½ Mark per tick

c. Direct Labour Cost Variances 3 6 ticks for 3 Marks ½ Mark per tick

d. Overheads Cost Variances(both Variable and Fixed) 3 12 ticks for 3 Marks ¼ Mark per tick

e. Sales Margin Variances 3 6 ticks for 3 Marks ½ Mark per tick

f. Operating Statements for the month of October using the Variances 4 8 Ticks for 4 Marks ½ Mark per Tick ____ 20_ 63