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CPA Advanced Management Accounting – August 2022 Past Paper & Answers

Unit: Advanced Management Accounting

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Download CPA Advanced Management Accounting August 2022 past paper with detailed answers and marking scheme. This paper is based on KASNEB examination standards and is ideal for revision and exam preparation.

Access the full paper online, download the PDF, or study offline. Each question includes step-by-step solutions to help you understand key concepts in Advanced Management Accounting.

Other Advanced Management Accounting Past Papers

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.
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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.
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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.
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1d
Strategic performance measurement
​ ​​ Explain the following measures of divisional performance: 

(i) Return on capital employed. 

(ii) Residual income.  ​​
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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). 

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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. 
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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. 
 
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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. 
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4a
Environmental management accounting
​​Explain three areas where environmental management accounting (EMA) might be applied.
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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. 
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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.
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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. 
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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. 

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