KASNEB Advanced Management Accounting - Question 2a

Joe Mwinzi, the Management Accountant of Vera Enterprise that makes and sells product “Aloe” has made the following estimates: Sales demand Variable cost... [Click to view full question and step-by-step solution]

KASNEB Advanced Management Accounting - Question 4a

Discuss FOUR performance measures in the service industry. ... [Click to view full question and step-by-step solution]

KASNEB Advanced Management Accounting - Question 4b

Baby Com Ltd. compiled the following report for its toy division for the year ended 31 December 2023: Sh.“000”Sales3,200,000Non-interest bearing current ... [Click to view full question and step-by-step solution]

KASNEB Advanced Management Accounting - Question 5a

Explain THREE roles of accountants in environmental management. ... [Click to view full question and step-by-step solution]

April 2024

1a

Strategic performance measurement

Describe THREE non-financial key performance index (KPI) of the following perspectives of a balanced scorecard model:

(i) Customer perspective.

(ii) Internal business perspective.

1b

Cost estimation and interpretation

With reference to linear regression analysis, explain the following cost estimation concepts:

(i) Analysis of variance (ANOVA).

(ii) Goodness of fit tests.

1c

Planning and decision making techniques

Aerosky Holdings Ltd. manufactures and sells sky drones and their accessories. Aerosky Holdings Ltd. operates two divisions; Camera division and Sky division. Camera division manufactures a component branded “HD Camera” that is used by Sky division. Sky division is a manual assembly and final product division that assembles various components to make a product branded “mid-level drones”.

Both divisions produce one type of output only.

Sky division needs the HD camera component from Camera division for every “drone” produced. Camera division transfers to Sky division all of the HD camera components needed to produce a drone. Camera division also sells HD camera components to the external market. Sky division outsources its other components in the market from an external supplier.

The following budgeted information is available for each division:

Division	Camera division Sh.	Sky division Sh.
Market price per HD camera	19,000
Market price per drone		160,000
Production cost per HD camera	10,000
Assembly cost per hour		35,500
Total outsourcing cost of other components		1,686,670,000
Fixed non-manufacturing overheads	10,560,000	33,000,000
External demand	10,000 HD cameras
Production capacity	22,000 HD cameras

Additional information:

1. The production cost per HD camera is 60% variable.

2. Camera division sets a transfer price at 70% of the marginal cost.

3. The fixed manufacturing overheads are absorbed based on the budgeted output.

4. Assembly cost per hour is basically a manual job which is subjected to an 80% learning curve rate. The first drone will take 2 hours to assemble.

5. The learning curve coefficient at 80% level is –0.3219. This will apply to all 12,000 drones assembled.

6. Assume that the learning curve model is in the form of Y = ax^b

7. The tax rate applicable for both divisions is 30%.

Required:

In columnar format, compute the post-tax net profit generated by Camera division, Sky division and Aerosky Holdings Ltd. as a whole.

2a

Planning and decision making techniques

Joe Mwinzi, the Management Accountant of Vera Enterprise that makes and sells product “Aloe” has made the following estimates:

Sales demand			Variable cost per unit
Condition	Units	Probability	Condition	Sh.	Probability
Worst	45,000	0.30	Worst	350	0.30
Most likely	50,000	0.60	Most likely	400	0.55
Best	55,000	0.10	Best	550	0.15

Additional information:

1. The selling price of Aloe product is Sh.1,000 per unit.

2. Fixed costs attributable to Aloe product is Sh.24,000,000.

3. Vera Enterprise intends to achieve a target profit of Sh.6,000,000.

Required:

(i) Using a probability tree, compute the expected profit of Vera Enterprise.

(ii) Compute the probability that Vera Enterprise will fail to break-even.

(iii) Determine the probability that Vera Enterprise will not achieve the target profit.

2b

Inventory control decisions

The Management Accountant of Lengo Ltd. has noted that the management and control of inventories has become very uncertain. He has contracted you to devise an inventory system that allows for uncertainties to be applied to the current stock item branded “Safi”.

The following are the details of stock item “Safi”:

Daily demand (units)	Probability	Lead time days	Probability
3,000	0.2	20	0.4
5,000	0.5	25	0.6
6,000	0.3

Additional information:

1. The daily demand applies for the whole lead-time.

2. Inventory carrying cost is 12.5% of inventory value.

3. The purchase cost and order cost are Sh.100 per unit and Sh.15,950 per order respectively.

4. The current re-order point is 120,000 units. 5. One year has 300 working days.

Required:

(i) Economic order quantity.

(ii) The relevant inventory cost for the year.

(iii) The current level of safety stock implicit in the current reorder period.

(iv) The probability of stock out.

3a

Strategic management accounting information

“Management Accounting is an invaluable tool to any organisation at both the operational level and the strategic management level”.

Discuss THREE reasons to support the claim.

3b

Planning and decision making techniques

Solamax Ltd. makes small assembled solar panels for the domestic local market. The marketing manager believes that in the short run their sales can improve by launching a massive marketing campaign strategy.

The following marketing strategies have been proposed based on the demand for the product:

Strategy A:	Advertise locally
Strategy B:	Online marketing
Strategy C:	Mass media advertisement with the local television media house

The company uses expected value to make this type of decision. The estimated annual profit or (loss) under the three states of market reaction for each market strategy is as follows:

	Market reaction (Demand)
Marketing strategy	High Sh.“000”	Medium Sh.“000”	Low Sh.“000”
Market locally	1,300,000	500,000	350,000
Online marketing	1,500,000	850,000	410,000
Mass media advertisement	1,700,000	905,000	(105,000)

Additional information:

1. Strategy A has low fixed costs and high variable costs; strategy B has average fixed costs and average variable costs while strategy C has high fixed costs and low variable costs.

2. There is a 30% chance that demand will be high, a 40% chance that demand will be medium and a 30% chance that demand will be low.

3. A market research company believes it can provide perfect information at a cost of Sh.100,000,000.

Required:

(i) Calculate the maximum amount payable to acquire perfect information.

(ii) Advise the management of Solamax Ltd. whether it is viable to acquire the perfect information from the market research company.

3c

Planning and decision making techniques

Olympix Motors Ltd. assembles and sells a single brand of luxurious vehicles branded “Viva”. The following data has been extracted from the current year’s budget:

Contribution per unit	Sh.800,000
Total weekly fixed costs	Sh.100 million
Weekly profit	Sh.220 million
Contribution to sales ratio	40%

Additional information:

1.	The company’s production capacity is not being fully utilised in the current year and three possible scenarios are under consideration.
2.	Each scenario involves reducing the unit selling price on all units sold with an expected consequential effect on the budgeted volume of sales.

3.	Details of each scenario are as follows:
	Scenario	S1	S2	S3
	Reduction in unit weekly selling price	2%	5%	7%
	Expected increase in sales volume over budget	10%	18%	25%

4.	The company operates just-in-time (JIT) system and holds no inventory of finished goods.

Required:

(i) Calculate for the current year, the weekly sales in units.

(ii) Determine (with supporting calculations) which one of the three scenario should be adopted by the company in order to maximise weekly profits.

4a

Strategic performance measurement

Discuss FOUR performance measures in the service industry.

4b

Strategic performance measurement

Baby Com Ltd. compiled the following report for its toy division for the year ended 31 December 2023:

	Sh.“000”
Sales	3,200,000
Non-interest bearing current liabilities	64,000
Interest expense	41,000
Interest-bearing current liabilities	55,000
Assets	1,210,000
Net income	98,930

The tax rate is 33% and the company’s cost of capital is 8%. The required rate of return is 9%.

Required:

(i) Calculate the two components of return on investment (ROI) and show how the two components can be used to calculate the ROI.

(ii) Prove your ROI in (b) (i) above using the straight forward approach to calculating ROI.

(iii) Calculate residual income (RI) and interpret your answer.

5a

Environmental management accounting

Explain THREE roles of accountants in environmental management.

5b

Budgetary control techniques

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.

April 2024

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