August 2025

1a

Environmental management accounting

Evaluate FOUR roles of management accounting in identifying and allocating environmental costs.

1b

Planning and decision making techniques

Uwese Ltd. is a company that specialises in the production of umbrellas. For the year ending 31 December 2026, the company is planning to produce special promotional umbrellas branded “Jumbo”. Uwese Ltd. wishes to determine the optimal number of umbrellas that should be produced.

Additional information:

1.	If all the umbrellas are sold within the year 2026, they would be sold at Sh.900 each.
2.	If the company is unable to sell all the umbrellas within the year 2026, then they would be sold in the following year at Sh.300 per umbrella.
3.	The production cost per umbrella amounts to Sh.400.
4.	The demand for the umbrellas depends on the performance of the economy which is highly unpredictable.

5.	The following are the possible states of the economy:
	Economy	Probability	Demand (Number of umbrellas)
	Good	0.30	500,000
	Average	0.46	350,000
	Poor	0.24	300,000

6.	Uwese Ltd. has to decide to produce the umbrellas at one of the states of the economy in order to match forecast demand.
7.	The opportunity cost of not selling an umbrella that is demanded is Sh.100.
Required:
(i)	Construct a payoff table showing all the possible outcomes.
(ii)	Advise the management of Uwese Ltd. on the optimal level of production based on the expected value, maximax and maximin criteria.

2a

Inventory control decisions

Jaribio Ltd. operates a conventional stock control system based on re-order levels and economic order quantities (EOQ). The various control levels were set originally based on estimates which did not allow for any uncertainty and this has caused difficulties because in practice, lead times, demands and other factors vary.

As part of a review of the system typical stock item, part No. H24, has been studied in detail as follows:

Data for Part No. H 24
Lead times (Days)	Probabbility
15	0.2
20	0.5
25	0.3
Daily demand (Units)	Probability
5,000	0.4
7,000	0.6

Additional information:

It costs Sh.1,000 to place an order.
The holding cost is estimated at Sh.0.025 for storage plus 10% opportunity cost of capital.
Each unit is purchased at Sh.2.
The re-order level for this part is currently 150,000 units.
The company works for 360 days per year.
Assume that the demands would apply for the whole of the appropriate lead-time.

Required:

(i) Calculate the level of buffer stock implicit in a re-order level of 150,000 units.

(ii) Calculate the probability of stock-outs.

(iii) Calculate the expected annual stock-outs in units.

(iv) Compute the stock-out costs per unit at which it would be worthwhile raising the re-order level to 175,000 units.

2b

Cost estimation and interpretation

Mambo Bakery bakes croissants. The management accountant of the bakery is in the process of estimating the cost function for the next month. The following data was gathered on the total cost of monthly production for the last 12 months:

Month	Number of croissants (units “000”)	Production cost Sh.“000”
1	60	1,350
2	180	2,100
3	60	900
4	30	900
5	180	2,700
6	150	2,250
7	30	1,050
8	150	1,950
9	90	1,350
10	120	1,950
11	120	1,800
12	90	1,500

The cumulative monthly total and monthly average figures for the last 12 months were as follows:

	Number of croissants	Production cost (Sh.)
Monthly total	1,260,000	19,800,000
Monthly average	105,000	1,650,000

Required:

(i) Devise an ordinary least squares regression equation in the form Y = a + bx.

(ii) If each croissant is sold at Sh.20, determine the break-even number of croissants.

3a

Strategic management accounting information

Explain FOUR stages involved in each of the following management accounting concepts:

(i) Throughput accounting.

(ii) Target costing.

3b

Planning and decision making techniques

Meromax Ltd. is evaluating the viability of a new product it intends to launch on the market based on three uncertain factors which are determined probabilistically. The three uncertain factors are market demand in units, contribution per unit and the fixed costs. These three factors are statistically independent of each other.

In analysing the auto-correlated factors, Meromax Ltd. estimated the following probability distributions:

Market demand		Contribution per unit		Fixed cost
Probability	Units	Probability	Sh.	Probability	Sh.
0.15	2,600	0.10	600	0.30	1,600,000
0.20	2,700	0.30	650	0.40	1,800,000
0.30	2,800	0.60	700	0.30	1,700,000
0.20	2,900
o.15	3,000

The random numbers for annual market demand, contribution per unit and the fixed cost are provided as follows:

Market demand	28	14	27	30	90	38	58	67
Contribution per unit	60	20	31	07	57	83	18	01
Fixed costs	57	30	69	19	02	29	71	00

Required:

(i) Calculate the expected net profit using the expected monetary value (EMV) approach.

(ii) Using Monte Carlo simulation analysis, compute the average expected net profit (ENP) using the above random numbers for 8 trials.

4a

Strategic performance measurement

Management Accounting performance measures have evolved from purely financial performance evaluations to incorporating broader non-financial performance measures with frameworks like the balanced scorecard model (BSCM) gaining prominence.

However, the BSCM has faced criticism for failing to address key dimensions of modern performance measurement.

Required:

(i) Explain the rationale behind the balanced scorecard model in contemporary management accounting.

(ii) Discuss THREE criticisms labelled against balanced scorecard model (BSCM).

4b

Budgetary control techniques

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).

5a

Strategic management accounting information

Describe the following types of business data analytics as used in strategic management accounting:

(i) Pricing analytics.

(ii) Forecasting analytics.

5b

Pricing decisions

Davetec Ltd., is a micro and small medium-sized enterprise that makes three types of computers which require the same production facilities. Information about the production cost for one unit of its computers is as follows:

	Cost per unit
Product	Tablet	Laptop	Desktop
Direct material	3,600	7,500	4,200
Labour: Skilled	1,800	2,700	900
Labour: Unskilled	600	1,200	3,000
Variable overhead costs	900	2,100	2,100

Additional information:

1.	All grades of labour and direct material costs are variable costs.
2.	Product “Tablet” is sold in regulated market and the regulators have set a price of Sh.9,000 per unit.
3.	Product “Laptop” has a contribution to sales ratio of 25%.
4.	The total fixed costs of Davetec Ltd. are Sh.86.4 million and the management has set a target net profit of Sh.3 million next year.

5.	The budgeted sales demand for next year are as follows:
	Product	Tablet	Laptop	Desktop
	Budgeted demand units	11,000	6,000	13,100

Required:

Compute the transfer prices to be charged for products “Laptop” and “Desktop” for the company to achieve its target net profit.

5c

Strategic performance measurement

Alumax Ltd. produces a single product branded “Salfa”. The machine used to make Salfa is obsolete and Alumax Ltd. is contemplating replacing it.

Additional information:

1.	The replacement cost of a new machine is Sh.1 million with expected useful life of five years.
2.	The machine will have no salvage value after decommissioning it.
3.	It is expected that the 20,000 units of Salfa will be produced and sold at a transfer price of Sh.300 per unit over a five-year period as follows:

3.	Year	1	2	3	4	5
	Units sold “000”	6	5	4	3	2

4.	Variable costs are expected to be Sh.165 per unit produced and sold.
5.	The incremental fixed costs, mainly the wages of a maintenance engineer, are expected to be Sh.200,000 per year.
6.	Alumax Ltd. uses an imputed interest cost of capital of 13% for the investment appraisal purposes.
7.	Depreciation on this machine is calculated on initial cost of the investment at the start of the year.
Required:
(i)	The residual income (RI) for each of the five years.
(ii)	The return on investment (ROI) for each of the five years.

August 2025

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