NATIONAL OPEN UNIVERSITY OF NIGERIA

14/16 AHMADU BELLO WAY, VICTORIA ISLAND, LAGOS

COURSE CODE: ACC313 CREDIT UNIT: 3

QUESTION ONE
Johnson Company Limited is a large integrated conglomerate with shipping, metals and
mining operations throughout the country. The General Manager of the shipping division has
been directed by the Board to submit his proposed capital budget for 2016 for inclusion in the
company wide budget. The Divisional Manager is considering the following projects, all of
which require an outlay of capital and have equal risk.
Project Investment required Return
N‟000 N‟000
1 24,000 5, 520
2 9, 600 3, 072
3 7, 000 980
4 4, 800 864
5 3, 200 640
6 1, 400 392
The Divisional Manager must decide which of the projects to accept. The company has a cost
of capital of 15%. An amount of N60 million is available to the division for investment
purposes.
Required:
Compute the total investment, total return on capital invested and residual income on each of
the following assumptions, indicating the preferred project:
a). The company has a rule that all projects promising at least 20% or more should be
accepted.
b). The divisional manager is evaluated on his ability to maximise his return on capital
invested.
c). The divisional manager is expected to maximize residual income as computed by using
the 15% cost of capital.

QUESTION TWO
Angold and printing compny is a company that is specialised in printing jobs. The Managing
Director is sadled with the task of preparing bids for most of the company’s jobs. His cost
budget for 2016 is as follows:

1.
 N N
Material 500,000
Labour 200,000
Overhead:
Variable 250,000
Fixed 150,000 400,000
Total production cost of the job 1,100,000
Selling and Administration:
Variable 85,000
Fixed 120,000 205,000
Total cost 1,305,000
He has a target profit of N295, 000 for the year 2016.
Required:
a. In respect of the job, compute the average target mark-up percentage for setting prices as a
percentage of
i. Prime costs
ii. Variable production cost
iii. Total production cost
iv. All variable costs
v. Total costs
b. Explain the major factors involved in pricing decisions.
QUESTION THREE
Magama Ltd. has the following total factory overhead computed at both the high and low
levels of activity for a given month of operation:
Levels of activity High Low
Direct labour hours 150,000 100,000
Total factory cost(N) 352,500 284,000
The total factory overhead above consists of indirect materials, repairs and rent expenses. The
company has analysed, at the 100,000 direct labour hours of activity level that costs exist in
the following proportions:
N
Indirect materials (variable) 100,000
Repairs 64,000
Rent (fixed) 120,000
284,000
For planning purposes, the company wishes to break the repairs cost into its variable and
fixed elements
You are required to:
(a) Determine how much of the N352,500 total factory overhead costs at the high level of
activity above that relates to repairs costs.
(b) Determine by means of the high and low method of cost analysis, the cost function for
the repairs cost.
(c) State three major problems involved in separating mixed costs into fixed and variable
elements in practice.

QUESTION FOUR
Topclass Limited produces two products “Ade and Ada”. The standard times for the
production of the products are 30 minutes for Ade and 45 minutes for Ada. The budget for
January is 60,000 units of Ade and 24,000 units of Ada.
During the month, 28,000 labour hours were worked and 40,000 units of Ade and 15,000
units of Ada were produced.
You are required to compute the following and interpret your result:
(i) The activity ratio
(ii) The efficiency ratio
(iii) The capacity ratio
b. State and explain briefly SIX objectives of budgetary control.

QUESTION FIVE
The following information has been gathered with regard to material X of Adams Ltd.
Units
Normal month usage 24,600
Maximum anticipated monthly usage 27,000
Minimum anticipated monthly usage 6,400
Delivery period from suppliers:
Maximum 3 months
Normal 2 months Minimum 1.2 month
Re-order quantity (EOQ) 10,000 units
Required:
(a) Calculate:
(i) Re-order level
(ii) Minimum stock level
(iii) Maximum stock level.
(b) Comment on four factors, which may have to be taken into accounts in setting the
maximum stock level
(c) The company required 80,000 units per year which will be used at a constant rate. The
purchasing manager is considering what size to be used. The holding cost is 20% of the
purchase price. The cost per order is N2,500 while the purchase price is N24 per unit.
Calculate Economic Order Quantity, using the formula.

QUESTION SIX
Amanda Nigerian Limited began work on 1 January 2010 on a contract for the building of an
extension to new Lagos road amounting N1,800,000. The retention on contract is agreed at
10%. On November 2010 the certificate of work approved amounted to N1,200,000. The
following information is available.
N
Materials sent to site 450,000
Labour engaged on site 360,000
Plant installed at cost 180,000
Direct expenditure 72,000
Establishment charges 150,000
Materials returned to stores 15,000
Cost of work not yet certified 90,000
Materials on site at 31 December 2010 45,000
Wages accrued at 31 December 2010 15,000
Direct expenses accrued at 31 December 2010 3,000
Value of plant at 31 December 2010 120,000
You are required to complete the Contract Account, showing the amount of profit likely to be
taken into annual accounts to 31 December 2010 and to calculate the value of work in
progress.