KASNEB Advanced Management Accounting - Question 4a

Explain three areas where environmental management accounting (EMA) might be applied. ... [Click to view full question and step-by-step solution]

KASNEB Advanced Management Accounting - Question 5a

The table below shows Safaris Airline Ltd.’s framework to lay out its balanced scorecard model: Balanced scorecard perspectiveObjectivesMeasurementsTargetI... [Click to view full question and step-by-step solution]

KASNEB Advanced Management Accounting - 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 litre353 litres of mate... [Click to view full question and step-by-step solution]

August 2022

1a

Budgetary control techniques Strategic performance measurement

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.

1b

Budgetary control techniques

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

1c

Strategic management accounting information

Many key business performance measures are not effective for most not-for-profit organisations (NPOs). For instance, the “bottom line” measurement of profit or loss indicates how effective a business is at achieving its goals of generating profit for the owners.

However, generating profit is not a goal for NPOs. These organisations have no owners, often provide goods and services to constituents free of charge and typically seek resources from people and organisations that do not expect economic benefit in return. Thus, the bottom line does not work for NPOs.

Required:

In the context of the above statement, evaluate four factors that make planning for NPOs complex.

1d

Strategic performance measurement

Explain the following measures of divisional performance:

(i) Return on capital employed.

(ii) Residual income.

2a

Strategic performance measurement

The Diamond division of a retailing group has five years remaining on a lease for premises in which it sells self assembly furniture. The management is considering the investment of Sh.600,000 on immediate improvements to the interior of the premises in order to stimulate sales by creating a more fascinating selling environment.

The following information is available:

1.	The forecast of the increase in sales revenue per annum from the premises is as follows:

	Year	Sales revenue Sh.“000”
	2022	700
	2023	600
	2024	500
	2025	400
	2026	300

2.	The average contribution to sales ratio is expected to be 40%.
3.	The cost of capital is 16% on the net book values of the investment at the beginning of the year.
4.	At the end of the five-year period, the premises improvements will have nil residual value.
6.	Depreciation is charged on straight line basis.
7.	The Diamond division has a target return on capital employed of 20%.
Required:
Prepare summary performance statement for the years 2022 to 2026 showing:
(i)	Residual income (RI).
(ii)	Return on investment (ROI).

2b

Strategic management accounting information

A manufacturing company produces Ball Pens that are printed with logos of various companies. Each pen is priced at Sh.50. Production costs are as follows:

Cost driver	Variable cost per unit Sh.	Level of cost driver
Units sold	25	-
Set ups	225	40
Engineering hours	10	250

Other data:

Total fixed costs (conventional costing) Sh.48,000

Total fixed costs (activity based costing) Sh.36,500

Required:

Compute the break-even point using Activity Based Analysis.

3a

Pricing decisions

Division X is a profit centre which produces four products namely; A, B, C and D. Each product is also sold in the external market.

The data for the period ended 30 June 2022 is as follows:

		Product
	A	B	C	D
Market price per unit (Sh.)	150	146	140	130
Variable cost of production per unit (Sh.)	130	100	90	85
Labour hours required per unit	3	4	2	3

Additional information:

1.	Product D can be transferred to Division Y, but the maximum quantity that may be required for transfer is 2,500 units only.
2.	The maximum sales in the external market are as follows:

2.		Units
	A	2,800
	B	2,500
	C	2,300
	D	1,600

3.	Division Y can purchase the same product at a price of Sh.125 per unit from external suppliers instead of receiving transfer of product D from Division X.

Required:

The transfer price for each of the 2,500 units of product D, if the total labour hours available in Division X are 20,000 hours.

3b

Pricing decisions

A hotel with 50 single rooms is recording 80% occupancy in normal season (8 months) and 50% occupancy in off season (4 months) in a year.

The following information is provided:

Annual fixed expenses:	Sh.
Staff salaries (excluding room attendants)	7,500,000
Repairs and maintenance	2,600,000
Depreciation on buildings and furniture	2,400,000
Other fixed expenses like dusting and sweeping	3,250,000
Total	15,750,000
Variable expenses (per guest per day):	Sh.
Linen and laundry	300
Electricity and other facilities	200
Miscellaneous expenses	250
The management wishes to realise a profit of 25% on total cost.
Assume a 30 day month in all cases.

Required:

(i) The required tariff rate per room.

(ii) The break-even occupancy in normal season assuming 50% occupancy in off-season.

(iii) The management is proposing a 20% decrease in tariff to improve occupancy at 100% and 70% in normal season and off-season respectively. Advise on the appropriateness or otherwise of the above proposal.

4a

Environmental management accounting

Explain three areas where environmental management accounting (EMA) might be applied.

4b

Inventory control decisions

Mwamba County water-treatment plant purchases 100 kgs of lime bags for use in the water treatment process. The number of bags used per day varies on the basis of water consumption. Examination of past records discloses the following data:

Usage during past re-order period Number of bags	Number of times this quantity was used
225	9
300	15
375	20
450	3
525	2
600	1

The economic order quantity (EOQ) has been established at 2,500 units with an average daily usage of 25 bags and a lead time of 15 days for its single product X.

Additional information:

1. Stock-out cost is Sh.300 per bag.

2. The optimum number of orders based on the EOQ model is 6 times per annum.

3. The normal carrying cost is Sh.50 per bag.

Required:

Advise the management accountant of Mwamba County on the desired level of safety stock in order to minimise the total inventory cost.

4c

Budgetary control techniques

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.

5a

Strategic performance measurement

The table below shows Safaris Airline Ltd.’s framework to lay out its balanced scorecard model:

Balanced scorecard perspective	Objectives	Measurements	Target	Initiative
S1	Profitability More customers	M1 Seat revenue	30% profit margin	J
	Fewer planes	Plane lease cost	20% customer retention 5% drop in cost
S2	Flight is on time Lowest prices	Arrival on time M2	Best ranked	Quality management customer loyalty programme
S3	Fast ground turnaround	On ground time On time departure	30 minutes	K
S4	Ground crew alignment	% Ground crew trained	Year 1: 70% Year 2: 90% Year 5: 100%	- ESOPS - Ground crew training

Required:

(i) Identify the balanced scorecard perspectives S1, S2, S3 and S4 above.

(ii) For the mentioned perspectives, state one performance measure labelled M1 and M2.

(iii) Explain initiatives J and K that Safaris Airlines Ltd. should excel in, in order to meet objectives and create value.

5b

Budgetary control techniques

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.

August 2022

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