Budgetary control techniques

August 2025

1 Questions

Question 4b

Zitamol is a pharmaceutical company that produces a cough syrup by blending three different material compounds namely: D, N and M.

The standard material compounds usage and costs per unit of a cough syrup are as follows:

Compound material		Sh.
D	0.51 kg at Sh.800 per kg	408
N	0.28 kg at Sh.600 per kg	168
M	0.21 kg at Sh.1,400 per kg	294
	1	870

Additional information:

1.	Actual units produced were 5,200 units of a cough syrup using 2,500kg of D, 1,500kg of N and 1,000kg of M.
2.	Zitamol uses activity-based costing (ABC) to allocate its overheads. One of its main overheads for ABC is machine-setup costs. The following information is available for the period ended 31 July 2025:

2.	Activity	Budget	Actual
	Number of units produced	250,000	300,000
	Number of set-ups	1,700	1,830
	Fixed set-up costs	Sh.476,000	Sh.550,000

Required:

Calculate the following variances for material compounds and set-up costs used to make the cough syrup:

(i) Material mix variance.

(ii) Material yield variance.

(iii) Fixed set-up cost expenditure variance using activity-based costing (ABC).

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April 2025

1 Questions

Question 5a

Usafi Council has been awarded a street cleaning contract against other competing private firms. The contract price is Sh.6,200 per kilometre of road and the budget and actual results are as follows:

For the year ended 31 March 2025
Budget	Sh.“000”	Sh.“000”
12,500 kilometres of cleaning each at Sh.6,200	-	77,500
Direct labour (3,200 hours each at Sh.7,000)	22,400
Direct materials (1,250Kgs each at Sh.5,000)	6,250
Variable overheads (3,200 hours each at Sh.4,500)	14,400
Fixed overheads (3,200 hours each at Sh.8,000)	25,600	(68,650)
Budget surplus	-	8,850
Actual	Sh.“000”	Sh.“000”
11,750 kilometres cleaned each at Sh.6,200	-	72,850
Direct labour (3,050 hours each at Sh.7,100)	21,655
Direct materials, (1,160Kgs each at Sh.5,000)	5,800
Variables overheads	13,945
Fixed overheads	25,100	(66,500)
Actual surplus	-	6,350

Required:

Reconcile the budget and actual surpluses.

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December 2024

2 Questions

Question 1a

Discuss FOUR benefits of using rolling budgets in an organisation.

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Question 5b

Plasmaz TV Ltd., makes smart television sets. The company operates a standard absorption costing system. The following data has been collected for the year ended 30 November 2024:

Actual cost incurred:	Sh.
Direct material used (165,000 kilograms)	15,675,000
Direct labour (80,000 hours)	5,800,000
Variable production overheads	16,800,000
Fixed production overheads	6,750,000

The variance reconciliation statement was prepared to investigate the main cause of difference between budgeted profit and actual profit. The following planning and operating variances were disclosed from the analysis:

	Favourable	Adverse
Planning and operating variances	Sh.	Sh.
Direct material price variance	825,000
Direct material usage variance		1,500,000
Direct labour rate variance		200,000
Direct labour efficiency variance		350,000
Variable production overhead:
Expenditure variance		800,000
Efficiency variance		1,000,000
Fixed production overhead:
Expenditure variance	1,250,000
Volume variance	6,250,000

Additional information:

1. Variable production overheads are absorbed based on actual hours worked.

2. There was no significant difference in opening and closing work-in-progress.

3. Actual production was 1,500 television set units for the year ended 30 November 2024.

Required:

Calculate the following:

(i) Standard material cost per unit.

(ii) Standard labour cost per unit.

(iii) Standard variable overhead absorption rate per unit.

(iv) Standard fixed overhead absorption rate per unit.

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August 2024

2 Questions

Question 2a

A zero base budgeting (ZBB) emerged in an attempt to overcome the limitations encountered by managers under incremental budgeting approach. It entails preparing the budgets of each cost centre from “scratch or zero”.

Required:

With reference to the above statement, outline SIX benefits of ZBB to an organisation.

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Question 3b

Mavazi Ltd. is a clothes making firm that makes men’s attire. Mavazi Ltd. makes three main products using the same resources, but in different amounts of material. The three types of clothes made are shirts, suits and jeans.

Budgeted information per unit for the month of September 2024 is as follows:

Type of clothes made	Shirts “Sh. Per unit”	Suits “Sh. Per unit”	Jeans “Sh. Per unit”
Selling price	1,600	10,000	4,000
Direct material (Sh.800 per \(\text{m}^2\))	400	4,000	1,200
Direct labour (Sh.480 per hour)	480	1,440	1,080
Variable overheads (Sh.120 per machine hour)	120	360	280
Budgeted demand in September 2024 (units)	6,000	2,000	4,000

Additional information:

The budgeted total fixed costs amount to Sh.13,700,000 per month.
Mavazi Ltd. has received a special order from Fashion Ltd. who has ordered 1,000 units each of shirts, suits and jeans for delivery in September 2024.
The budgeted demand above does not include this special order from Fashion Ltd.
In September 2024, there will be limited resources available. Direct material will be limited to 14,500 square meters (\(\text{m}^2\)).
There will be no opening inventory of material, work-in-progress and finished goods in September 2024.
The special order from Fashion Ltd. must be supplied in full.

Required:

(i) Prepare a statement that shows the optimal production mix and the resultant profit or loss for September 2024.

(ii) Advise the management on whether or not to accept the special offer.

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April 2024

1 Questions

Question 5b

Afya Bora Manufacturers adopts absorption costing system in variance analysis and investigation. The following profit reconciliation statement analyses the performance of Afya Bora’s main product “Y” for the month of March 2024.

	Adverse Sh.“000”	Favourable Sh.“000”	Total Sh.“000”
Budgeted profit			30,000
Sales variances:
Volume variances		6,000
Price variances		3,600
Material cost variances:
Price variances	37,500
Usage variances	4,500
Labour cost variances:
Rate variances	10,200
Efficiency variances		1,200
Variable overhead variances:
Expenditure variances		3,900
Efficiency variances		600
Fixed overhead variances:
Efficiency variances		300
Expenditure variances	1,500
Capacity variance		2,700
Total variances	(53,700)	18,300	(35,400)
Actual profit/(loss)			(5,400)

Product “Y” is made from a single product mix with a standard cost of Sh.130,000 made up as follows:

	Sh.“000”
Direct material (15 kilograms at Sh.5,000 per kilogram	75
Direct labour (5 hours at Sh.6,000 per hour)	30
Variable overheads (5 hours at Sh.3,000 per hour)	15
Fixed overheads (5 hours at Sh.2,000 per hour)	10
Standard cost	130
Standard margin	20
Standard selling price	150

Additional information:

1. The monthly budget projects production and sales of 1,500 units.

2. During the month, the actual number of units produced was 2,100 units.

3. The actual direct material purchased were 37,500 kilograms.

4. The actual selling price per unit was Sh.152,000.

5. The budgeted fixed overhead cost was Sh.15,000,000 while budgeted variable overhead cost was Sh.31,500,000.

Required:

(i) Actual direct material cost.

(ii) Actual quantity of material used.

(iii) Actual labour cost.

(iv) Actual labour hours.

(v) Actual variable overhead cost.

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August 2023

2 Questions

Question 3a

Zeta Ltd. manufactures one standard product branded “Boma” and operates a system of variance analysis using a fixed budget. As the assistant management accountant, you are responsible for preparing the monthly operating statements.

The budgeted information of product “Boma” for the month ended 31 July 2023 was as follows:

		Sh.
Selling price per unit		880
Cost per unit:
Direct material: A	(2 kgs at Sh.100 per kg)	200
Direct.material:.B	(1 litre at Sh.150 per litre)	150
Direct labour	(3 hours at Sh.90 per hour)	270
Variable overhead	(3 hours at Sh.20 per direct labour hour)	60

Additional information:

1.	Zeta Ltd. budgeted sales and production for the month of July 2023 was 10,000 units.
2.	Annual budgeted fixed overheads were Sh.14,400,000 which are assumed to be incurred evenly throughout the year.
3.	The company uses marginal costing system for internal profit measurement purposes.

4.	The actual data for the month of July 2023 were as follows:
	Actual production and units sold	9,000 Units
	Selling price	Sh.900
	Direct materials consumed:
	A: 19,000 kgs consumed at a cost of Sh.2,090,000
	B: 10,100 litres consumed at a cost of Sh.1,414,000
	Direct labour incurred 28,500 hours at a cost of Sh.2,736,000
	Variable overheads incurred	Sh.520,000
	Fixed overheads incurred	Sh.1,160,000

Required:

(i) A budgeted profit statement.

(ii) Actual profit statement.

(iii) A reconciliation statement of actual profit and budgeted profit. (Show all planning and operating variances).

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Question 2c

Aloe Vera Group has two operating divisions; Aloe division and Vera division. Aloe division produces a high quality fabric that is used in making curtains. The budgeted cost per unit of the fabric is made up as follows:

Variable costs:	Sh.
Direct labour	33
Direct material	77
Marginal cost	110
Fixed costs:
Production overheads	100
Full cost	210

Additional information:

1. The budgeted output for Aloe division is 450,000 units each year and the market price for the fabric is Sh.250 per unit.

2. Vera division makes curtains and uses 1.1 metres of this fabric to make one curtain. The budgeted output for Vera division is 200,000 units of curtains.

3. The management of Aloe Vera Group insists that Aloe division must sell to Vera division as much of the fabric as is required to meet its needs and any surplus output can then be sold to external customers.

4. The management of Aloe Vera Group also insists that Vera Division must buy all its requirements for this fabric from Aloe division.

5. Vera division sells its output at Sh.310 per unit. In addition to the cost of fabric, it incurs fixed costs at the rate of Sh.40 per unit of the budgeted output.

Required:

The budgeted profit for both Aloe division and Vera division, assuming a transfer pricing policy is based on:

(i) Marginal costing transfer pricing.

(ii) Market based transfer pricing.

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April 2023

1 Questions

Question 5a

Orion Ltd. manufactures three products namely; P, Q and R using broadly the same production methods. A conventional product costing system is used at present to allocate all overhead costs using total direct labour hours, although an activity-based budgeting (ABB) system is being considered.

1.	Details of the three products for the period is as follows:
	Product	P	Q	R
	Annual output (units)	2,000	1,600	400
	Annual direct labour hours	200,000	220,000	80,000
	Selling price per unit (Sh.)	4,000	6,000	8,000
	Raw material cost per unit (Sh.)	400	600	900

2.	The annual cost driver volumes relating to each activity and for each type of product are as follows:
	Product	Number of deliveries to retailers	Number of set-ups	Number of purchase orders
	P	100	35	400
	Q	80	40	300
	R	70	25	100
		250	100	800

3.	The annual costs relating to these activities and their cost drivers are as follows:
		Sh.	Cost driver
	Deliveries to retailers	2,400,000	Number of deliveries to retailers
	Set-up costs	6,000,000	Number of set-ups
	Purchase orders	3,600,000	Number of orders

4.	All direct labour is paid at a rate of Sh.5 per hour. The company operates on a just in time (JIT) production policy.
Required:
(i)	Prepare activity based budget statement for the period.
(ii)	Compute the profit or loss per unit for each product.

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December 2022

2 Questions

Question 1b

Trans Ltd. has provided the following operating statement, which represents an attempt to compare the actual performance for the quarter which has just ended with the budget:

	Budget	Actual	Variance
Number of units sold (“000”)	640	720	80
	Sh.“000”	Sh.“000”	Sh.“000”
Sales	1,024	1,071	47
Cost of sales:
Direct materials	168	144	24
Direct labour	240	288	(48)
Overheads	32	36	(4)
	440	468	(28)
Fixed labour cost	100	94	6
Selling and distribution costs:
Fixed	72	82	(11)
Variable	144	153	(9)
Administrative costs:
Fixed	184	176	8
Variable	48	54	(6)
	548	560	(12)
Net profit margin	36	43	7

Required:

(i) Using flexible budgeting approach, redraft the operating statements so as to provide a more realistic indication of the variances.

(ii) Discuss TWO problems associated with the forecasting of figures which are to be used in flexible budgeting.

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Question 5b

Timiza Ltd. makes spectacles for a variety of customers. The spectacles pass through several production processes. The first process is fitting and the standard costs for fitting lenses on spectacles are as follows:

	Standard cost per unit	Sh.
Direct material Q	7 kilograms at Sh.70 per kilogram	490
Direct labour	5 hours at Sh.50 per hour	250
Overheads (fixed and variable)	5 hours at Sh.66 per hour	330
		1,070

Additional information:

1.	The overhead allocation rate is based on direct labour hours and comprises an allowance for both fixed and variable overhead costs.
2.	With the aid of regression analysis, the fixed element of overhead cost has been estimated at Sh.90,000 per week and the variable overhead costs have been estimated at Sh.6 per direct labour hour.
3.	The fitting department comprises its own premises, and all of the department’s overhead costs can be regarded as being the responsibility of divisional managers.
4.	In week 5, the division casted 294 spectacles and actual costs incurred were:

4.		Sh.
	Direct material Q (2,030 kilogram used)	141,250
	Direct labour (1,520 hours worked)	78,540
	Overhead expenditure	102,000

5.	The 1,520 hours worked by direct labour included 40 hours overtime, which is paid at a rate of 50% above the normal pay rates.

Required:

A reconciliation statement of actual cost and the standard cost. (Show all planning and operating variances).

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August 2022

4 Questions

Question 1a

The effective use of the control information provided by the management accounting department of an organisation to the operating managers depends on various factors.

Explain four actions that the management accounting department might take to enhance the effective use of the above information by the operating managers.

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Question 5b

Moran Ltd. has established the following standard mix of producing 9 litres of product “MRN”:

	Sh.
5 litres of material M at Sh.7 per litre	35
3 litres of material R at Sh.5 per litre	15
2 litres of material N at Sh.2 per litre	4
Actual input was as follows:
	Sh.
53,000 litres of material M at Sh.7 per litre	371,000
28,000 litres of material R at Sh.5.30 per litre	148,400
19,000 litres of material N at Sh.2.20 per litre	41,800

Additional information:

1. A standard loss of 10% of the input is expected to occur.

2. Actual output for the period was 92,700 litres of product MRN.

Required:

Compute and interpret the following variances:

(i) Material price variance.

(ii) Material mix variance.

(iii) Material yield variance.

(iv) Material usage variance.

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Question 1b

Describe three negative side effects which might arise from the imposition of budgets by senior management and propose ways to deal with them.

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Question 4c

Ukunda Ltd. operates a standard marginal cost accounting system. Information relating to product Jipe, which is made in one of the company’s departments, is given below:

Product Jipe	Standard marginal cost per unit Sh.
Direct materials: 6 kgs at Sh.40 per kg	240
Direct labour: 1 hour at Sh.70 per hour	70
Variable production overhead	30
	340

Additional information:

1. Variable production overheads vary with units produced.

2. Budgeted fixed production overhead per month amount to Sh.1,000,000.

3. The budgeted production for product Jipe amounted to 20,000 units per month.

4. Actual production and costs for the month of June 2022 were as follows:

Number of units of product Jipe produced	18,500
	Sh.
Direct materials purchased and used (113,500 kgs)	4,426,500
Direct labour (17,800 hours)	1,299,400
Variable production overheads incurred	588,000
Fixed production overhead incurred	1,040,000
Actual production cost	7,353,900

Required:

Prepare in columnar form a statement showing:

(i) Original budget by element of cost.

(ii) Flexed budget by element of cost.

(iii) Actual production statement by element of cost.

(iv) A reconciliation of the actual production cost with the budgeted production cost.

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April 2022

3 Questions

Question 3b

Dominion Beverages Ltd. makes and sells two beverage products branded "Bingo" and "Boost".

The budgeted sales and profits for the year 2021 were as follows:

Product	Sales quantity (Units)	Revenue (Sh.)	Costs (Sh.)	Profit (Sh.)
Bingo	400	8,000	6,000	2,000
Boost	300	12,000	11,100	900
				2,900
Actual sales were as follows:
Bingo	280 units with a profit of Sh.5.30 per unit.
Boost	630 units with a profit of Sh.2.80 per unit.

The company management is able to control the relative sales of each product through the allocation of sales effort, advertising and sales promotion expenses.

Required:

Calculate and interpret the following variances:

(i) Sales margin price variance.

(ii) Sales margin volume variance.

(iii) Sales margin mix variance.

(iv) Sales margin quantity variance.

(v) Sales margin total variance.

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Question 1a

In control theory, a "feedback control" mechanism is the one which supplies information to determine whether corrective action should be taken to re-establish control of a system.

In the context of the above statement, distinguish between "feedforward" and "feedback" controls giving an example of each as used in management accounting.

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Question 5b

Rigid Ltd. prepared fixed and flexible budgets for the financial year 2020/2021 as provided below:

	Fixed budget for full capacity	Flexible budget for 75% level
Sales	1,350,000	1,012,500
Direct materials	425,000	318,750
Direct labour	185,000	138,750
Variable overheads	215,000	161,250
Semi variable overheads	365,000	323,750
Profit	160.000	160.000

After the closing of the financial year 2020/2021, the total actual sales stood at Sh.1,107,000 and there was a favourable sales price variance of Sh. 27,000.

Required:

Prepare a flexible budget for the actual level of sales.

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Pilot December 2021

2 Questions

Question 5

Holiday Tours sells tours packages to Dubai through newspaper advertisements. Tourists are flown each week of the holiday season to Dubai where they take a 10-days touring holiday. The company uses the least squares regression to forecast the demand for holidays by locals.

As the newly employed management accountant of the company, you just found the following regression model to estimate the holiday demand per year; Y = 640 + 40t

Where, Y represents the annual holiday demand and t represents the year.

The data started with 2011 as year 1. To obtain the weekly holiday demand, the results are divided by 25 holiday weeks in a year.

Required:

(a)	Using the least squares regression model above, estimate the weekly holiday demand for 2019.
(b)	Identify three weaknesses of the least square regression
(c)	The fixed budget and actual cost for the 10-day happy holiday for the year ended 31st December 2021 is given below:

(c)	Details	Fixed budget	Actual	Variance
	Air tickets	2,800,000	2,920,000	120,0000A
	Coach bus hire	100,000	80,000	20,000F
	Room charges	1,000,000	1,020,000	20,000A
	Meals	480,000	440,000	40,000F
	Tour guide charges	360,000	330,000	30,000F
	Advertising	400,000	350,000	50,000F
	Total cost	5,140,000	5,140,000	0

(c)	Key: A represents adverse while F represents favorable results. The finance manager availed the following additional information:

(c)	1.	Each holiday lasts for 10 days with full accommodation.
	2.	The return air ticket is Sh.70,000 per passenger on condition that booking is done in batches of 20 seats.
	3.	The hiring charges for coach bus, tour guide and advertisement are fixed.
	4.	Meal cost was budgeted at Sh.1,200 per guest per day.
	5.	Charges for single room was budgeted at Sh.3,500 while for double room at Sh.5,000 per guest per day. Out of the 38 guests who travelled for the holiday, 4 booked single rooms while 17 booked double rooms.
	6.	The price of a holiday is Sh.10,000 more if one books a single room.
	Required:
	(i)	Prepare a flexible budget and identify any resulting variances.
	(ii)	Explain which one between the fixed and flexible budgets is more useful for cost management.
	(iii)	Identify three factors to consider in deciding whether or not to investigate individual variances.

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Question 3b

Amadi hospital is organised into separate medical units offering specialized nursing care services such as maternity and pediatric services. Information for pediatric unit for 2020 has just been availed. Revenue earned was Sh. 4,400,000 and patients were charged a fee of Sh.2,000 per patient day for nursing care. The cost of running the unit consists of variable costs on catering and laundry services. These are based on the number of patient days spent in the hospital, direct staffing costs established from personnel requirements applicable to particular levels of patient days and allocated fixed costs such as security and administration that are based on bed capacity. The bed capacity currently stands at 80 beds.

The number of beds available for occupation is regarded as bed capacity and which is agreed and held constant for the whole year. There was an agreement that a bed capacity of 80 would apply to the pediatric for the 365 days of the year.

The table below shows the variable cost information in the pediatric unit based on patient days in 2020:

	Sh.
Catering	4,500,000
Laundry	1,500,000
Pharmacy	5,000,000
	11,000,000

Staffing cost: Each specialty recruits its own nurses, supervisors and assistants. The staffing requirements for the pediatric unit is on the actual patient days.

Patient days p.a	Supervisors	Nurses	Assistants
Upto 20,500	4	10	20
20,501 – 23,000	4	13	24
Over 23,000	4	15	28

The annual costs of employment per employee are:

	Sh.
Supervisors	220,000
Nurses	160,000
Assistants	120,000

Fixed costs based on bed capacity are:

	Sh.
Administration	8,500,000
Security	800,000
Rent and property	7,200,000
	16,500,000

During the year 2020, the pediatric unit operated at 100% bed capacity for 100 days. In fact, the demand was at least 20 beds more than the capacity during these days. As a consequence, in the 2021 budget, an increase in bed capacity has been agreed. 20 extra beds will be contracted for the whole year. It is assumed that the 100 beds will be fully occupied for the 100 days. An increase of 10% in employment costs due to a rise in wage rate is expected to occur in 2021 for all personnel. The revenue per patient day, all other cost factors and the remaining occupancy will remain the same as 2020.

Required:

(i) Determine the actual number of patient days, bed occupancy percentage, net profit or loss and break even number of patient days for the year 2021.

(ii) Prepare the budget for 2021 showing the revised number of patient days, bed occupancy percentage, net profit or loss and the number of patient days required to achieve the same profit or loss in 2019.

(iii) Advice the unit manager based on your findings in b(i) and (ii) above.

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December 2021

1 Questions

Question 5b

You are the management accountant of Zeta Ltd.

The following computer printout shows details relating to budgeted and actual production for the month of July 2021:

	Actual	Budgeted
Sales volume (units)	4,900	5,000
Selling price per unit (Sh.)	150	140
Production volume (units)	5,400	5,000
Direct materials (kilograms)	10,600	10,000
Direct materials price per kilogram (Sh.)	6	5
Direct labour hours per unit	5.5	5.0
Direct labour rate per hour (Sh.)	11.4	12.0
Fixed production overheads (Sh.)	103,000	100,000
Variable production overheads at Sh.8 per direct labour hour (Sh.)	215,000	200,000

Additional information:

1. Zeta Ltd. uses a standard absorption costing system.

2. There was no opening or closing work in progress.

Required:

Prepare a statement which reconciles the budgeted profit with actual profit for the month of July 2021.

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September 2021

4 Questions

Question 5b

The standard cost of a certain chemical mixture is:

40% material A at Sh.20 per kg.
60% material B at Sh.30 per kg.

Standard loss of 10% is expected during production.

During the month of July 2021, the actual data was as follows:

Materials used: Material A: 90 kgs at a cost of Sh.18 per kg.
Material B: 110 kgs at a cost of Sh.34 per kg.

The weight produced was 182 kgs of good production.

Required:

Compute:

(i) Material price variance.

(ii) Material mix variance.

(iii) Material yield variance.

(iv) Material cost variance.

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Question 4a

Explain three differences between "standard costing" and "target costing".

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Question 1b

Examine four advantages of responsibility accounting.

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Question 1a

Explain the term "responsibility accounting".

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May 2021

2 Questions

Question 4b

Klepotmine Ltd. manufactures a single product K20 whose standard cost is Sh.7,500 made up as follows:

	Sh.
Direct material (20 square metres at Sh.200 per metre)	4,000
Direct labour (5 hours at Sh.400 per hour)	2,000
Variable overheads (5 hours at Sh.200 per hour)	1,000
Fixed overheads (5 hours at Sh.100 per direct labour hour)	500
	7,500

Additional information:

1.	The standard unit selling price of product K20 is Sh.9,800.
2.	Monthly budget production and sales is set at 1,000 units.

3.	The following figures relate to the month of October 2020:
	Sales	150 units at Sh. 10.400
	Production	1,200 units (there was no opening stock)
	Direct material 18,800 square metres at Sh.400 per square metre
	Direct wages	5,800 hours at Sh.500 per hour.
	Total variable overheads	Sh. 942,000
	Total fixed overheads	Sh.600,000

Required:

(i) Actual profit or loss statement.

(ii) Flexible profit or loss statement.

(iii) A reconciliation statement for the reported variances.

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Question 4a

Picky Ltd. is a large public company in the telecommunications sector. One of its main planning and control tools is the preparation and use of traditional annual budgets.

Whilst this might be appropriate for the sales and manufacturing divisions, it draws criticisms from the directors of divisions such as Training and Education, Advertising and Publicity, and Research and Development who are responsible for large amounts of discretionary expenditure.

These directors have submitted a joint report to the Finance Director which suggests that Zero-Based Budgeting (ZBB) should be used for their respective divisions.

The Finance Director has agreed to use the Research and Development Division as a pilot for ZBB for the next financial year.

Required:

(i) Explain the meaning of the term "Zero-Based Budgeting (ZBB)".

(ii) Discuss the main stages that would need to be undertaken to introduce ZBB into the Research and Development Division.

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November 2020

2 Questions

Question 1a

Explain three factors to consider before investigating variances in a profit driven organisation.

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Question 5

Hi-Tech Ltd. intends to launch a locally manufactured printer in the coming month of December 2020. The research and development department of the company has provided the following information relating to the production of the printer:

	Sh.	Sh.
Selling price per printer		17,500
Variable production cost:
Direct materials (800 grams at Sh.7,500 per kg)	6,000
Direct labour (75 minutes at Sh.3,000 per hour)	3,750
Variable overheads (60% of direct labour)	2,250	(12,000)
Contribution per printer		5,500

Additional information:

1. Production of the printer is scheduled to commence on 1 December 2020.

2 The company plans to produce and sell 3,000 printers per month.

3. A direct material loss of 10% is expected with no resale value.

4 The annual fixed cost attributable to the production of the printers is Sh.60 million. This cost accrues evenly throughout the year.

5 A learning curve effect of 95% is expected.

Required

(a)	Determine the standard labour cost for the month of December 2020.
(b)	Prepare a budget for the month of December 2020 showing the budgeted profit.
(c)	Assume the actual results for the month of December 2020 for the production level of 3,000 printers are as follows.

		Sh."000"
	Sales (3,000 at Sh. 18,000 each)	54,000
	Direct materials (2,700 kgs at Sh. 7,000 per kg)	18,900
	Direct labour (1,700 hours at Sh.3,250 per hour)	5,525
	Variable overheads	3,400
	Fixed costs	5,075
		21,100

Required:

Reconcile the budget profit in (b) above with the actual profit showing clearly all the operating variances.

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November 2019

1 Questions

Question 3b

Dawa Chemical Ltd. manufactures a single product branded."XP". The following information for the financial year 2018 relates to the product:

1	Standard cost per unit of product XP:

Material	Kgs	Price per Kg Sh.	Total Sh.
F G H	15 12 8	4 3 6	60 36 48
Labour	Hours	Rate per hour Sh.
Department P Department Q	4 2	10 6	40 12 196

2	Budgeted sales for the period amount to 4,500 units at Sh.260 per unit.
3	There were no budgeted opening and closing inventories of product XP.
4	The actual materials and labour used were as follows:

	Materials	Kgs	Price per Kg	Total Sh.
	F G H	59,800 53,500 33,300	4.25 2.80 6.40	254,150 149,800 213,120

	Labour Department	Hours	Rate per hour Sh.	Sh.
	P Q	20,500 9,225	10.60 5.60	217,300 51,660

5	During the period, 4,100 units of product XP were produced and sold for Sh.1,158,000.

Required:

Compute the following variances:

(i) Material price variance.

(ii) Material mix variance.

(iii) Material yield variance.

(iv) Labour rate variance.

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May 2019

2 Questions

Question 1b

The following details show the direct labour requirements for the first six batches of a new product that were manufactured during the month of March 2019 by Tengeneza Ltd.:

	Budget	Actual
Output (batches)	6	6
Labour hours	2,400	1,950
Total labour cost (Sh.)	1,680,000	1,365,000

The Management Accountant reported the following variances:

Total labour cost variance	Sh.315,000 (favourable)
Labour rate variance	Nil
Labour efficiency variance	Sh.315,000 (favourable)

The production manager has now revealed that he forgot to inform the Management Accountant that he expected a 90% learning curve to apply for at least 10 batches.

Required:

Compute the the planning and operational variances that analyse the actual performance taking into account anticipated learning effect.

Note: The learning index for a 90% learning curve is -0.1520.

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Question 5b

Hazina Ltd. is a cosmetics company that produces perfumes. The perfume market is very competitive and subject to frequent changes. The finance team at Hazina Ltd. prepare monthly rolling budgets as part of their planning and management control process. The data for the forthcoming new budget period are as follows:

1. The variable cost of producing a bottle of perfume is Sh.210.

2. The planned selling price of a bottle of perfume is Sh.450 and at this selling price, demand for the perfume is expected to be 125,000 bottles.

3. Information from the marketing division at Hazina Ltd. suggests that for every Sh.30 increase in the selling price, the customer demand would reduce by 10,000 bottles and that for every Sh.30 decrease in the selling price, the customer demand would increase by 10,000 bottles.

Required:

(i) Advise on the revenue that Hazina Ltd. would earn if the selling price of a bottle of perfume was set in such a way that profits would be maximised for the forthcoming budget period.

(ii) Explain the use of rolling budgets in planning and management control process at Hazina Ltd.

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November 2018

2 Questions

Question 5a

Explain four shortcomings of the traditional budgeting process.

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Question 5b

Discuss four factors that could encourage the adoption of activity based costing (ABC) in a large service organisation.

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May 2018

2 Questions

Question 4b

Smart Furniture Ltd. makes and sells three types of sofa sets namely; American, Butterfly and Comfy.

The management accountant of Smart Furniture Ltd. has provided the following budgeted information for the coming period:

	Type of sofa set
	American	Butterfly	Comfy
Production and sales (units)	900	800	1,000
Selling price per unit (Sh.)	40,000	20,000	30,000
Price cost per unit (Sh.)	35,000	16,000	24,000

Additional information:

1	The company's budgeted overhead costs for the coming period are:

		Sh.
	Processing services	3,480,000
	Assembly services	2,562,000
	Quality control	1,930,500
	Selling and administration	3,007,500
		10,980,000

2	The overheads are currently absorbed to products based on assembly labour hours.
3	Production of each type of sofa set takes place in batches of 50 units.
4	The company has also provided the following estimates for the coming period:

	Type of sofa set
	America	Butterfly	Comfy
Machine hours per unit	4	3	6
Direct labour hours per unit	7	5	8
Number of customer orders	30	40	50

5	The management accountant has just learnt of activity based costing (ABC) and would be willing to apply it.

Required:

A budgeted profit statement using:

(i) Conventional absorption costing using assembly labour hourly rate.

(ii) Activity based costing (ABC).

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Question 4a

Explain the following budget setting styles.

(i) Imposed style.

(ii) Participatory style.

(iii) Negotiated style.

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November 2017

2 Questions

Question 3b

Wood Master Ltd. makes quality wooden benches both for indoor and outdoor use. Results have been disappointing in recent years and a new managing director has been appointed in order to boost the production volumes.

After an initial assessment, the director has noted that the budgets had been set at easily achievable levels for employees. He argues that employees would be better motivated by setting budgets that challenged them more in terms of higher expected output other than changing the overall budgeted output. The director has not yet altered the standard cost card. The budgeted output and sales for the month of October 2017 was 4,000 benches.

The standard cost card at this output level is provided below:

	Sh.
Wood (25 kgs at Sh.32 per kg)	800
Labour (4 hours at Sh.80 per hour)	320
Variable overheads (4 hours at Sh.40 per hour)	160
Fixed overheads (4 hours at Sh.160 per hour)	640
Total standard cost	1,920
Selling price	2,200
Standard profit	280

Additional information:

1	Overheads are absorbed on the basis of labour hours and the company uses an absorption costing system.
2	Stocks are valued at standard cost. There were no stocks at the beginning of the month of October 2017.
3	Actual results for the month of October 2017 were as follows:

		Sh."000"
	Wood (80.000 kgs at Sh.35 per kg)	2,800
	Labour (16,000 hours at Sh.70 per hour)	1,120
	Variable overheads	600
	Fixed overheads	1,960
	Total production cost (3,600 benches)	6,480
	Closing stock (400 benches at Sh.1,920 each)	(768)
	Cost of sales	5,712
	Sales (3,200 benches)	7,200
	Actual profit	1,488

4	The average monthly production and sales for some years prior to October 2017 had been 3,400 units and budgets had previously been set at this level. Very few operating variances had historically been generated by the standard cost used.
5	The finance director suggested that an absorption costing system is misleading and that marginal costing system should be considered at some stage in the future to guide decision making.

Required:

(i) The operating variances.

(ii) A statement reconciling the actual profit and the budgeted profit for Wood Master Ltd.

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Question 2a

One of the major purposes of a budget is operational control. Through budgeting, management tries to match actual results to outcomes.

Required:

Other than control, discuss four other purposes of a budget.

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May 2017

3 Questions

Question 5a

Summarise four factors that should be taken into consideration in establishing the length of a proposed budget period.

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Question 3c

You have been provided with the following operating statement which represents an attempt by a firm to compare the actual performance with the budget for the quarter which has just ended:

	Budget	Actual	Variance
Number of units sold	640,000	720,000	80,000
	Sh. "000"	Sh. "000"	Sh. "000"
Sales	1,024	1,071	47
Cost of sales (all variable):
Materials	168	144
Labour	240	288
Overheads	32	36
Total variable costs	440	468	(28)
Fixed labour cost	100	94	6
Selling and distribution costs:
Fixed	72	83	(11)
Variable	144	153	(9)
Administrative costs:
Fixed	184	176	8
Variable	48	54	(6)
	548	560	(12)
Net profit	36	43	7

Required:

(i) Using a flexible budgeting approach, redraft the operating statement so as to provide a more realistic indication of the variances.

(ii) Explain why the original operating statement was of little use to the management.

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Question 3a

Explain the term "incremental budgeting", citing one of its major limitations as a budgeting technique.

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November 2016

1 Questions

Question 1b

The following information relates to night shift operations at Waki Ltd., a manufacturing company.

1	The night shift workers normally consist of 30 skilled men, 15 semi-skilled men and 10 unskilled men, who are paid at standard hourly rates of Sh.80, Sh.60 and Sh.40 respectively.
2	A normal working week consists of 40 hours.
3	The weekly output for night shift workers is expected to be 2,000 units.
4	In the second week of the month of October 2016, the night shift workers consisted of 40 skilled men, 10 semi-skilled men and 5 unskilled men, who were paid at Sh.70, Sh.65 and Sh.30 respectively. During that week, 4 hours were lost due to abnormal idle time and 1,600 units were produced.

Required:

Compute for the second week of October 2016:

(i) Labour cost variance.

(ii) Labour rate variance.

(iii) Labour efficiency variance.

(iv) Labour mix variance.

(v) Idle time variance.

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May 2016

1 Questions

Question 4b

Ujuzi Ltd. operates a standard marginal cost accounting system. The information relating to product "Exa" which is manufactured in one of the company's department is given below:

	Standard marginal cost per unit Sh.
Direct materials: 6 kgs at Sh.40 per kg.	240
Direct labour: 1 hour at Sh.70 per hour	70
Variable production overhead	30
	340

Additional information:

1	Variable production overheads vary with units produced.
2.	Budgeted fixed production overheads per month amount to Sh.1,000,000.
3.	Budgeted production for product Exa amounted to 20,000 units per month.
4.	Budgeted selling price per unit amounted to Sh.440.
5.	The actual results for the month of April 2016 were as follows:
	Units of Exa produced	18,500
		Sh.
	Direct materials purchased and used (113,500 kgs.)	4,426,500
	Direct labour (17.800 hours)	1,299,400
	Variable production overheads incurred	588,000
	Fixed production overheads incurred	1,040,000
		7,353,900
	Actual selling price per unit Sh.480

Required:

(i) Prepare in columnar format, the original budget, flexed budget and actual profit statement.

(ii) Statement reconciling the original budgeted profit and the actual profit. (Show all operating variances).

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