MARCH 2024 PROFESSIONAL EXAMINATIONS

MANAGEMENT ACCOUNTING (PAPER 2.2)

CHIEF EXAMINER’S REPORT, QUESTIONS AND MARKING SCHEME

EXAMINER’S GENERAL COMMENTS

This report is focused on the evaluation of the Management Accounting paper written
in the March 2024 professional examination. The questions were balanced and
covered all the areas in the syllabus and were not beyond the competence of
candidates. Though the overall performance was good, there is still room for
improvement.

STANDARD OF THE PAPER

The standard is as good as the previous diets. Overall, the question quality and
standard are excellent. The questions are straight forward, unambiguous, clear and
error-free. The five questions have a wide coverage of the syllabus, with appropriate
marks allocated which is also in line with the syllabus. The questions have fair balance
between theory (31 marks) and practice (69 marks) and the time allotted is appropriate
for the tasks at hand. Detailed supporting information is provided for each question.
An appropriate level of testing in accordance with the Bloom’s taxonomy is achieved
and all questions reflect the inherent difficulty of the level of qualification
(application) and the requirement to attain professional competence.

PERFORMANCE OF CANDIDATES
Though there was an improvement in the performance of candidates it could have
been better. The performance seems to be concentrated. For instance, some packs of
40 scripts had more candidates passing than other packs.
No signs of copying were observed. Generally, the questions were within the
competence of an average candidate. Some candidates scored very high marks while
a great number of them scored low marks reflecting the level of preparation of
candidates.

NOTABLE STRENGHTS AND WEAKNESSES

Candidates performed quite well in the functional budget. The sales budget was well
prepared, production budget was good, but most candidates could not compute the
crude requirement for the preparation of the crude purchase.

The questions on the variances were well attempted. Candidates are encouraged to
note that in calculating the sales volume, mix and quantity variances the contribution
margin or profit is used not the selling price.

Payback period as a capital budgeting technique was very well understood.

Question five under short term decision making is an area candidate demonstrated
good knowledge of the principles. The theory questions were fairly answered except
that in cases where qualitative factors were required some candidates discussed
quantitative factors.

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Candidates had challenge with the Performance management in question 1. Even
though they understand the appraisal technique (ROI and RI) some of them did not
adjust the cashflows with the depreciation to arrive at the appropriate income and the
capital employed. The question on operating leverage was also poorly attempted.

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QUESTION ONE

a) The Board of Otmost Beauty Ltd, a beauty care production company is planning to
introduce a new product. The Board has tasked the Divisional Manager of the fragrance
division to evaluate two options to buy a production plant. Both options will have the same
capacity and expected life of four years but they will differ in capital costs and expected
net cash flows as shown in the table below:

Option 1 Option 2
GH¢’million GH¢’million
Initial capital investment year 0 640 520

Net cash flows ( before tax)

Year 1 240 260
Year 2 240 220
Year 3 240 150
Year 4 240 100

Net present value at 16% p.a 31.6 19.0

All divisions of the company are expected to generate pre-tax returns on divisional
investments in excess of 16% per annum, which the fragrance division currently is just
managing to achieve. Anything less than 16% would make the divisional managers
ineligible for the annual performance bonus.

The performance bonus is linked to Return on Investment (ROI) and Residual Income (RI)
and also has an impact on the calculation of retirement benefits, as the retirement benefits
take into consideration the performance bonus earned during the two preceding years. The
manager of the fragrance division is due to retire at the beginning of Year 3.

In calculating divisional returns, divisional assets are valued at the net book values at the
beginning of the year. Depreciation is charged on a straight line basis with nil residual
value.

Required:
i) Calculate the ROI and RI for years 1 to 4 and select the best option from the point of view
of the fragrance division based on ROI and RI criteria. (10 marks)

ii) Explain why the fragrance Divisional Manager will not invest in the option showing the
higher NPV and comment on whether it will be acceptable to the Board. (5 marks)

b) Medo Ltd produces and markets a single product. The following information is relevant for
Medo Ltd and its main competitor:
Medo Ltd Medo Ltd’s competitor
Annual turnover GH¢100 million GH¢100 million
Contribution to sales 80% 45%
Fixed cost per annum GH¢20 million GH¢10 million

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 Required:
Compute the operating leverage for both Medo Ltd and its competitor and comment on
your results. (5 marks)

(Total: 20 marks)

QUESTION TWO

a) Squash Refinery has planned the following monthly sales for the first four months in the
year:
Months 1 2 3 4
Gasoline (litres) 140,000 200,000 220,000 250,000
Diesel (litres) 100,000 130,000 180,000 210,000

The proposed ex-refinery prices are GH¢12.5 and GH¢10.8 per litre for gasoline and diesel
respectively.

One metric tonne of crude oil when processed can yield 2,000 litres of gasoline and 2,500
litres of diesel. The inventory policy of the company is as follows:

 Closing inventory at the end of each month:

Finished products: Twice of the monthly sales for gasoline and 150% of the monthly
sales for diesel.
Crude: 80% of the following month’s requirement.

 The opening inventory are:

Finished products: Gasoline 200,000 litres, diesel 180,000 litres and crude: 140 metric
tonnes.

Note: The purchase of crude is based on the production requirement of gasoline.

Required:
Prepare the following budgets for each of the first three months:
i) Sales for gasoline and diesel. (3 marks)
ii) Quantity of crude to be purchased. (12 marks)

b) Business Process Re-engineering (BPR) is the fundamental redesign of workflows and

business processes within an organisation. BPR aims to streamline operations, improve
outcomes, cut costs and drive growth in business processes.

Required:
Explain THREE (3) conditions that may empower employees and junior managers to make
operational decisions under BPR. (5 marks)

(Total: 20 marks)

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QUESTION THREE

a) The following information relates to the estimate and actual results of Manjo Plc for the
month of January.
Particulars KO TO KA
Budgeted sales (units) 36,000 27,000 18,000
Standard selling price (GH¢) 15 10 12.5
Standard variable cost (GH¢) 8 4 7.5

Actual sales (units) 30,000 35,000 25,000

Actual sales (GH¢) 420,000 367,500 325,000

Required:
i) Calculate the sales price variance (3 marks)
ii) Calculate the sales volume variance (3 marks)
iii) Analyse the sales volume variance into:
 Sales quantity variances (5 marks)
 Sale mix variances (4 marks)

b) Total Quality Management (TQM) is a management framework based on the belief that an
organisation can build long-term success by having all its members from low level workers
to its highest ranking executives focus on improving quality and thus delivering customer
satisfaction.

Required:
Explain THREE (3) principles of TQM that improve operational processes in
organisations. (5 marks)

(Total: 20 marks)

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QUESTION FOUR

a) The following mutually exclusive investment opportunities are being proposed to Kwame
who wants reliable cash receipts on annual basis:

Proposal A: Purchase of a commercial vehicle at the cost of GH¢90,000 that will generate
weekly sales of GH¢800. The owner will incur the following annual expenses on the
vehicle:
GH¢
Insurance 1,200
Tyres 10,400
Road worthy 1,400
Routine maintenance 9,000

Note: assume 52 weeks in a year.

Proposal B: The repair of an unoccupied two-bedroom flat at the cost of GH¢90,000. The
flat was bought by Kwame for GH¢650,000 three years ago. The monthly rental will be
GH¢1,450 subject to 8% rent tax. The owner will also pay property tax of GH¢1,200 per
year.

Required:
i) Advise Kwame which of the proposals is acceptable using the payback period method of
investment appraisal. (8 marks)
ii) Explain TWO (2) factors that can affect the reliability of the cash flow of the transport
business. (2 marks)
iii) State TWO (2) qualitative factors that may influence the decision to opt for proposal B.
(2 marks)
iv) Explain TWO (2) reasons the NPV may be a better appraisal technique than the payback
period. (3 marks)

b) Just-In-Time (JIT) is an inventory management system in which goods are received from
suppliers only as they are needed. The main objective of this method is to reduce inventory
holding costs and increase inventory turnover. Despite the benefits of JIT, it has some
disadvantages.

Required:
Examine THREE (3) challenges associated with the implementation of JIT Inventory
Management System. (5 marks)

(Total: 20 marks)

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QUESTION FIVE

Hwerema Technologies produces various components for telecom companies. The demand
for these components is increasing. However, Hwerema Technologies’ production facility
is restricted to 50,000 machine hours. Therefore, the company is considering whether to
import certain components to make up for the shortfall in production so as to meet market
demand. In this respect, the following information has been gathered:

Description Components
A B C D
Estimated demand in units 6,500 2,000 7,100 4,500
Machine hours required per unit 8 4 5 2
GH¢ GH¢ GH¢ GH¢
Selling price per unit 37.00 50.00 35.50 38.00
In- house cost per units:
Direct material 20.00 28.00 23.00 22.00
Direct labour 9.00 5.00 9.00 8.00
Factory overheads 16.00 8.00 8.50 5.00
Allocated administrative overheads 5.00 4.00 3.00 2.00
50.00 45.00 43.50 37.00
External price of the components 35.00 40.00 34.00 33.00

Factory overheads include fixed overheads estimated at GH¢1.50 per machine hour.

Required:
a) Determine the optimal units to be produced in-house and units to be imported. (16 marks)
b) State FOUR (4) qualitative consideration relevant to make-or-buy decision. (4 marks)

(Total: 20 marks)

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SUGGESTED SOLUTION

QUESTION ONE
a)
i) Computation of ROI and RI
Option 1 ( GH¢ Million)
Y1 Y2 Y3 Y4 Total
NBV at the beginning of the year 640 480 320 160
Net cash flows 240 240 240 240 960
Depreciation 160 160 160 160 640
Profit 80 80 80 80 320
Imputed Interest 16% 102 77 51 26 256
Residual Income (22) 3 29 54 64
ROI 12.5% 16.7% 25.0% 50.0%

Option 2 ( GH¢ Million)

Y1 Y2 Y3 Y4 Total
NBV at the beginning of the year 520 390 260 130
Net cash flows 260 220 150 100 730
Depreciation 130 130 130 130 520
Profit 130 90 20 -30 210
Imputed Interest 16% 83 62 42 21 208
Residual Income 47 28 (22) (51) 2
ROI 25.0% 23.1% 7.7% -23.1%

Over the entire life of the project both ROI and RI favour Option 1. ROI and RI
averages to 26.05% and GH¢16 million for Option 1 whereas it is 8.18% and GH¢0.5
million for option 2.

Alternatively:
Option 1
workings
Depreciation = 640/4 = 160

Year 1 2 3 4
Beginning NBV 640 480 320 160

Profit (Cashflow – Depreciation) = 240 - 160 = 80

ROI
Year 1 2 3 4
Profit 80 80 80 80
Capital Employed 640 480 320 160
12.5% 16.7% 25% 50%

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 RI
Year 1 2 3 4
Profit 80 80 80 80
Less ICC 102.4 76.8 51.2 25.6
(22.4) 3.2 28.8 54.4

*ICC = Implied Cost of Capital

Option 2
workings
Depreciation = 520/4 = 130

Year 1 2 3 4
Beginning NBV 520 390 260 130
*Profit 130 90 20 (30)

*Profit (Cashflow – Depreciation)

ROI
Year 1 2 3 4
Profit 130 90 20 (30)
Capital Employed 520 390 260 130

25% 23% 7.7% (23%)

RI
Year 1 2 3 4
Profit 130 90 20 (30)
Less ICC 83.2 62.4 41.6 (20.8)
46.8 27.6 (21.6) (50.8)

(Marks are evenly spread using ticks = 10 marks)

ii) The manager will favour Option 2 because it yields a higher ROI and RI over the
first two years. He will probably focus on a two-year time horizon because of his
personal circumstances, as choosing option 1 is likely to result in losing the bonus.

The focus is on short term rather than long term. Sub-optimal decision as manager
is considering personal interest as against company interest.

Board comment:
The Board will not accept this short term option (Option 2) because:
 It does not give a clear objective that builds value and does not ensure long-term
stability and profitability.
 It does not place emphasis on risk management.
(5 marks)

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b) Calculating of operating leverage = contribution margin/ operating income
Or
(sales – variable cost)/ (sales – variable cost – fixed cost)

Medo Ltd Medo Ltd’s Competitor

Contribution margin/operating income 80/(80-20) 45/(45-10)
Operating leverage 1.33 times 1.28 times

Comments
Medo Ltd has a higher operating leverage compared to its competitor which means
Medo Ltd can earn more operating income from increasing sales through good
marketing than competitor. On the other hand, Medo Ltd is more vulnerable than
competitor, to the decline in revenue.
(5 marks)

(Total: 20 marks)

EXAMINER’S COMMENTS
Sub-question a) though not beyond the competence of candidates did not receive the
correct responses. Candidates understand Return on Investment and Residual Income
as a technique for divisional performance measure and got the formulae right.
i) Calculation of ROI and RI; The challenge for most of the candidates was the
determination of the appropriate income and capital employed. Some candidates
disregarded the depreciation while others who calculated it could not apply it in
arriving at the income and capital employed as required in the question. Most of
the candidates used the cash flows given in the question for the periods and the
beginning capital in calculating the ROI. In the same way the imputed cost of
capital was based on the initial capital for all the periods. Few of the candidates
also used 31.6% and 19.0% respectively for the cost of capital for options one and
two respectively. Based on the outcome of the formula used, the decisions were
correct in most cases indicating an understanding of the principle involved in the
technique.

ii) Decision of the Divisional Manager against that of the board; This portion which
tries to bring to fore the probability of taking a wrong decision with short-term as
against long-term perspective was well argued out by candidates except that some
lost marks because they did not state whether the Board would take a long-term
view and reject the decision of the Divisional Manager.

For sub-question b), computation of operating leverage; candidates demonstrated lack

of knowledge of the concept of operating leverage. Most of them ended with the
calculation of the profits for Medo Ltd. and her competitors. Those who went beyond
did not get the formula right. The meaning or significance of operating leverage could
not be explained by most of the candidates who attempted the question.

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QUESTION TWO
a)
i) Sales Budget
Month 1 2 3
Products: Gasoline Diesel Gasoline Diesel Gasoline Diesel
Quantity 140,000 100,000 200,000 130,000 220,000 180,000
Selling Price
GH¢ 12.5 10.8 12.5 10.8 12.5 10.8
Sales value
GH¢ 1,750,000 1,080,000 2,500,000 1,404,000 2,750,000 1,944,000
(Marks are evenly spread using ticks = 3 marks)

ii) Production Budget (Gasoline)

Month 1 2 3 4
Sales 140,000 200,000 220,000 250,000
Add closing stock 280,000 400,000 440,000 500,000
420,000 600,000 660,000 750,000
Less opening stock 200,000 280,000 400,000 440,000
220,000 320,000 260,000 310,000
(Marks are evenly spread using ticks = 6 marks)

Crude to Purchase
Month 1 2 3 4
Requirement 110 160 130 155
Add closing stock 128 104 124
238 264 254
Less opening stock 140 128 104
Quantity to purchase 98 136 150
(Marks are evenly spread using ticks = 6 marks)

b) Conditions that will help employees to take operational decisions

 Employees need to have immediate access to information.
 Junior managers without financial background should be trained.
 Accounting information should be made simple and understandable.
 Operating environment should encourage employees to take initiative.
(Any 3 points @ 1.667 marks each = 5 marks)

(Total: 20 marks)

EXAMINER’S COMMENTS
The a) part of the question was on Functional budget, an area candidates’ usually score
good marks. Candidates are familiar with the principles and procedures, but some
could not relate them to the preparation of the production and crude purchases
budgets.

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i) Preparation of sales budget; Most candidates performed very well in this question.
Almost all those who attempted the sales budget scored the full marks.
ii) Preparation of production and crude purchases budgets; Candidates lost sight of
the fact that since crude purchases were based on gasoline there was no need for
the preparation of production budget for Diesel. The production budget was fairly
attempted by some candidates. However, some of them could not easily convert
the monthly production figures to crude requirement to help them prepare the
budget for crude purchases. Only a few were able to score the marks on the budget
for crude purchase.

Conditions that may empower employees to make operational decisions under BPR;
Some candidates wasted time talking about the concept of Business Process Re-
engineering (BPR) and went on to discuss its benefits. Others wrote about the process
of implementing BPR. Only a few answered the question well as per the requirement.
Candidates are cautioned to read the requirements carefully and respond accordingly.

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QUESTION THREE
a)
i) Calculation of sales price variance
SPV (KO) = (Budgeted Selling price – Actual selling price) x Actual units sold
= [(15 – (420,000/30,000)] x 30,000
= (15 -14) x 30,000 = 30,000 Adverse

SPV (TO) = (Budgeted Selling price – Actual selling price) x Actual units sold
= [(10 – (367,500/35,000)] x 35,000
= (10 -10.5) x 35,000 = 17,500 Favourable

SPV (KA) = (Budgeted Selling price – Actual selling price) x Actual units sold
= [(12.5 – (325,000/25,000)] x 25,000
= (12.5 -13) x 25,000 = 12,500 Favourable
(3 marks)

ii) Calculation of sales volume variance

Particulars KO TO KA TOTAL
Actual sales (units) 30,000 35,000 25,000
Budgeted sales (units) 36,000 27,000 18000
Volume variance (units) 6,000 A 8,000 F 7,000 F

Standard contribution/unit (GH¢) 7 6 5

Volume variance (contribution) 42,000 A 48,000 F 35,000 F
TOTAL 41,000 F
(Marks are evenly spread using ticks = 3 marks)

iii) Sales quantity variance

Workings
Particulars KO TO KA TOTAL
Standard selling price (GH¢) 15 10 12.5
Standard variable cost (GH¢) 8 4 7.5
Standard contribution/unit (GH¢) 7 6 5
Budgeted sales (units) 36,000 27,000 18000 81,000
252,000 162,000 90,000 504,000
Standard average contribution/ GH¢6.2222
unit (GH¢504,000 / 81,000 units)

Actual sales (units) 30,000 35,000 25,000 90,000

Particulars
Budgeted sales in total (units) 81,000
Actual sales (units) 90,000
Sales quantity variance (units) 9,000 F

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 Standard contribution/unit (GH¢) 6.2222
Volume variance (contribution) 56,000 F

Alternatively:
Sales Quantity Variance
Total budgeted sales 81,000
Less actual sales 90,000
Total increase in quantity 9,000

Increase in sales at standard mix

Standard
contribution Amount
KO (36,000/81,000)*9000 4,000 7 28,000
TO (27,000/81,000)*9000 3,000 6 18,000
KA (18,000/81,000)*9000 2,000 5 10,000
56,000

(Marks are evenly spread using ticks = 5 marks)

Sales mix variance

Product Actual Standard Mix Standard Mix
mix mix variance contribution variance
per unit
Units Units Units (GH¢) (GH¢)
KO (36,000/90,000*100) = 40% 30,000 40,000 10,000 A 7 70,000 A
TO (27,000/90,000*100) = 30% 35,000 30,000 5,000 F 6 30,000 F
KA (18,000/90,000*100) = 20% 25,000 20,000 5,000 F 5 25,000 F
90,000 90,000 0 15,000 A
(Marks are evenly spread using ticks = 4 marks)

b) Achieving success in TQM

 Cease the dependence on mass inspection to achieve quality. Quality should
rather be built into the production process.
 Improve every process. There should be a continuous search for ways of
introducing further improvement into processes.
 Top management commitment and action. The success of TQM depends on total
support and commitment of top management.
 Drive out fear. Establish an open two-way communication system between
employees and management and drive out the fear of blame for making mistakes.
 Break down barriers. Barriers between different functions and departments
within the entity should be removed.
 Effective communication
(Any 3 points @ 1.667 marks each = 5 marks)

(Total: 20 marks)

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EXAMINER’S COMMENTS
Candidates demonstrated good knowledge of the topic in the a) part of this question.
Some however, had challenges with the sales volume, quantity and mix variances.
Others lost marks because they could not interpret their outcomes as to whether they
are Favourable or Adverse
i) Sales price variance; The price variances for the various products were correctly
computed and most of the candidates scored the allocated marks.
ii) Sales volume variance; Candidates demonstrated they understand the concept of
volume variance but some used the selling prices as against the contributions in
arriving at the amounts.
iii) Sales quantity and mix variances; Similarly, some candidates used the prices
instead of the contributions in calculating the amounts for the quantity and mix
variances. The performance was average.

For sub-question b), Principles of TQM that improve operational processes; The
question was well attempted. Candidates stated the principles and explained them
quite well. Overall performance was very good.

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QUESTION FOUR
a)
i) Transport
Receipts GH¢ GH¢
Sales (800 × 52) 41,600 (0.5)
Direct expenses:
Insurance 1,200
Tyres 10,400
Road worthy 1,400
Maintenance 9,000 (22,000) (0.5)
Net cash inflow 19,600 (0.5)

Payback period = GH¢90,000/ GH¢ 19,600

= 4.59 years (2)

Rental
GH¢
Monthly rent 1,450
Tax (8%) 116
Net 1,334 (1)

Annual (1,334×12) 16,008

property tax 1,200
Net receipt 14,808 (0.5)

Payback period = GH¢90,000/ GH¢14,808

= 6.08 years (2)

Advise: Accept investment in transport. (1)

(8 marks)
ii) Factors that can affect the reliability of cash flow of the transport business
 Lack of patronage by passengers due to poor customer care
 Increase in direct operational cost e.g. fuel
 Increase in the annual cost
 Careless handling of the vehicle
(Any 2 points @ 1 mark each = 2 marks)

iii) Qualitative factors for acceptance of option B

 The property may deteriorate again if not renovated now.
 Its value will appreciate after renovation
 It has a longer life span than the vehicle.
 Risk exposure is relatively low.
(Any 2 points @ 1 mark each = 2 marks)

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iv) Why NPV may be preferred
 It considers the cash flow for the entire project life.
 It factors in the time value of money
 The cost of capital is considered.
 It will normally reject unprofitable projects.
(Any 2 points @ 1.5 marks each = 3 marks)

b) Problems with JIT

 Zero inventories cannot be achieved in some industries where customer demand
cannot be predicted.
 It might be difficult to arrange a reliable supplier who will deliver materials at the
time needed.
 EOQ minimizes the total inventory cost, any quantity greater or less than that will
increase total inventory cost.
 Ensuring defect free production system may not be easily attainable.
(Any 3 points @ 1.667 marks each = 5 marks)

(Total: 20 marks)

EXAMINER’S COMMENTS
Question 4 a) was a simple capital budgeting question on two mutually exclusive
projects. The payback method is well understood by candidates.
 Acceptability of projects based on payback; Candidates who attempted it were able
to compute the cash flows for both projects. A few however added the sunk cost
of the building and therefore could not score all the marks for the rental project.
 Factors that can affect reliability of cashflow; Candidates responded well to the
requirement here. Most of them scored all the marks.
 Qualitative factors; Only a few answered this part correctly. Most of the candidates
discussed factors that are quantitative.
 Reasons why NPV is preferred; Candidates explained quite well why the NPV is
preferred to other techniques.

Challenges associated with implementation of JIT; Candidates were able to explain

the problems associated with the implementation of Just in Time inventory
management system and scored some good marks.

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QUESTION FIVE

a) Optimal decision
Description Components
A B C D
Estimated demand in units 6,500 2,000 7,100 4,500
Machine hours required per unit 8 4 5 2
GH¢
In-house cost 50.00 45.00 43.50 37.00
Less irrelevant cost for decision
making
- 1.5 x machine hours per unit 12.00 6.00 7.50 3.00
- Allocated administrative 5.00 4.00 3.00 2.00
overheads
Relevant cost of production 33.00 35.0 33.50 32.00
External price of the components 35.0 40.0 34.0 33.0
Incremental cost in case of external 2.00 5.00 1.00 1.00
buying
Decision Make Make Make Make

Selling price 37.00 50.00 35.50 38.00

Less variable 33.00 35.00 33.50 32.00
Contribution per unit 4.00 15.0 2.00 6.00
Contribution per limiting factor 0.50 3.75 0.40 3.00
Ranking 3rd 1st 4th 2nd

Product Decision Quantity Limiting factor

B Make 2,000 8,000
D Make 4500 9,000
A Make 4,125 33,000/8
50,000
A Buy 2,375
C Buy 7,100

Alternative for Determining Rankings

Components A B C D
External price 35 40 34 33
Cost of production:
Direct Material 20 28 23 22
Direct Labour 9 5 9 8
Variable factory overheads 4 2 1 2
33 35 33 32

Savings – In-house production 2 5 1 1

Machine hours (limiting factor) 8 4 5 2

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 Savings/Limiting factor 0.25 1.25 0.2 0.5

Ranking 3rd 1st 4th 2nd

(Marks are evenly spread using ticks = 16 marks)

b) Non-financial considerations relevant to make or buy decisions

Risk of outsourcing works:
 Suppliers may produce items to a lower standard of quality.
 The supplier may fail to meet delivery date and the buyer may depend on the
supplier to commit onward delivery to its buyer. In case of buying of a component,
production process of the end-product may be held up by a lack of component.

Benefits of outsourcing work:

 Outsourcing work will enable the management to focus all its efforts on those
aspects of operation the entity does best.
 The external supplier may have specialist expertise which enables it to provide
outsourced products more efficiently and at a cheaper price.
(4 points @ 1 mark each = 4 marks)

(Total: 20 marks)

EXAMINER’S COMMENTS
The question was on Production plan and outsourcing; Candidates demonstrated
understanding of the principles in the outsourcing decision and were able to apply it
under limited resources. Those who attempted the question did well in computing the
savings made when producing in house as against outsourcing. Few of them could
not identify the fixed factory and administrative overheads as irrelevant and so
included it in the cost build up resulting in wrong amount for savings.

Calculation of savings per limiting factor was well done to decide which products
were to be produced and those to be outsourced. The ranking for the production plan
was done well. On the whole candidates did well in this question.

A good number of the candidates stated factors which are quantitative instead of
qualitative and could not score the full marks allocated.

CONCLUSION:
The overall performance is below expectation in view of the level of clarity and the
standard of the paper. Out of 1,151 candidates who wrote the paper 294 passed
representing 25.54%. If the candidates had prepared well the performance could have
been better.

Candidates writing this paper should note that questions are set to cover all the areas
in the syllabus and marks are allotted based on the weights of the topics so should be

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guided accordingly. Facilitators who prepare candidates should encourage them to
attain some level of understanding of the principles before registering to write the
paper.

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