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CPA Advanced Management Accounting – August 2026 Past Paper & Answers

Unit: Advanced Management Accounting

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Download CPA Advanced Management Accounting August 2026 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.

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1a
Environmental management accounting Strategic management accounting information Strategic performance measurement
​​Kiongozi Advisory LLP prepares board reports using competitor prices, customer-retention data, supplier-risk indices and long-term sustainability indicators. The partner in charge is concerned that strategic management accounting information could be manipulated or disclosed selectively during capital allocation discussions. In relation to this scenario, evaluate THREE governance and ethical safeguards that should be applied before the information is used by the board.
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1b
Cost estimation and interpretation
​ ​​AfriScan Diagnostics Ltd. operates mobile diagnostic units for corporate medical-screening contracts. The management wants to price a new regional contract using a regression-based cost model. The commercial director is concerned that the model may understate the cost of remote routes where emergency maintenance and travel disruptions are common.

Additional information:
  1. Monthly operating cost is measured in Sh. million.
  2. The estimated regression model is: Y = 2.750 + 0.480X1 + 1.600X2 + 0.022X3, where X1 is kilometres travelled in thousands of kilometres, X2 is screening tests in thousands of tests and X3 is emergency maintenance hours.
  3. The regression was estimated from 24 monthly observations.
  4. The regression output is as follows:
  5. R-squared is 0.88; adjusted R-squared is 0.86; F-statistic is 45.20 with p-value <0.001.
  6. Variance inflation factors are: kilometres travelled 1.9, screening tests 2.4 and emergency maintenance hours 6.8.
  7. The Durbin-Watson statistic is 1.14; a value materially below 1.50 indicates possible positive serial correlation.
  8. For the proposed contract, expected monthly activity is 26,000 kilometres, 13,200 screening tests and 90 emergency maintenance hours.
  9. A reliability surcharge of 10% is added to estimated operating cost because service interruptions attract penalties.
  10. The required operating margin is 20% of the final contract price.

Required:
(i) Calculate the predicted monthly operating cost and determine the minimum monthly contract price after incorporating the reliability surcharge and required margin.

(ii) Interpret the significance, economic plausibility and reliability of the regression output for contract pricing.

(iii) Recommend TWO managerial actions before relying on the model for remote-route bids. 
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2a
Cost estimation and interpretation
​​Nuru Millers Ltd. has discovered that waste grain, rework, off-specification flour and disposal costs are hidden within general factory overheads. In relation to this situation, analyse TWO ways in which flow cost accounting could improve environmental cost visibility and control.
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2b
Planning and decision making techniques
​​Mtiro Components Ltd. manufactures three filtration products using the same coating chamber, which is the bottleneck resource. The sales manager has received a special export order that could displace normal production. Management requires a decision that protects contribution, bottleneck utilisation and long-term customer relationships. For decision purposes, products should be ranked by contribution per coating chamber minute after deducting all variable costs. Reputational penalties should be considered only where normal demand is displaced or remains unmet.

Additional information:
1.Normal monthly demand, selling prices and variable costs are as follows:
ProductDemand (units)Selling price perDirect material perOther variable cost
unit Sh.unit Sh.per unit Sh.
Kingo12,0001,850790410
Lumo9,0002,4001,050530
Safi7,0003,2001,410840
2.Coating chamber minutes required per unit are Kingo 6 minutes, Lumo 9 minutes and Safi 14 minutes.
3.Available coating chamber time for the month is 184,500 minutes.
4.Fixed production cost attributable to the product range is Sh.18,500,000 per month and is unavoidable in the short term.
5.A regional distributor has offered to buy 3,500 additional units of Lumo at Sh.2,050 each.
6.The special order requires the same coating time as normal Lumo units, a special export inspection cost of Sh.85 per unit and additional documentation cost of Sh.650,000 in total.
7.If normal demand is not met, reputational penalties are estimated at Sh.120 per unit of unmet demand for Kingo, Sh.180 for Lumo and Sh.300 for Safi.
8.Management wants the recommendation to consider the incremental financial effect, reputational penalties and future market access.

Required: 
(i) Determine the optimal monthly production plan before considering the special export order using contribution per coating chamber minute. 

(ii) Calculate the incremental financial effect of accepting the special export order after allowing for displaced normal production and reputational penalty. 

(iii) Recommend whether the special export order should be accepted after considering the financial effect and future market access. 

(iv) Explain TWO qualitative factors that could alter the recommendation in (b) (iii) above. 
 
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3a
Strategic performance measurement
​​Nyota Appliances Ltd. intends to launch a connected cooker in a price-sensitive regional market. The marketing team prefers value-based pricing while the production team prefers full cost-plus pricing. In the context of this product launch, evaluate TWO strategic risks of relying mainly on full cost-plus pricing.
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3b
Strategic performance measurement
​ ​​Jasiri Guest Services Ltd. manages serviced apartments through three customer channels. The general manager is negotiating a renewal contract with online agents after complaints that headline room-night volume hides the real cost of booking changes, service recovery and loyalty administration. The board requires customer-channel performance measures that balance profitability, service quality, innovation and flexibility.

Additional information:
Customer channelRoom nightsRevenue per night Sh.Direct variable service
cost per night Sh.
Corporate accounts8,0008,2004,600
Online agents5,0007,4005,900
Walk-in guests3,0006,9005,100

1.Customer-support activity costs for the year ending 31 December 2026 are as follows:
Activity cost poolCost driverTotal cost Sh.Corporate accountsOnline agentsWalk-in guests
Booking changesNumber of changes4,200,0006001,200400
Service recoveryNumber of complaint cases2,880,0009018090
Loyalty administrationNumber of active accounts3,360,0004014020
2.
The board requires each customer channel to earn at least a 12% profit margin on revenue after assigning customer-support activity costs.
3.The online-agent contract is expected to generate the same 5,000 room nights next year unless the price is increased beyond market tolerance.
 
Required: 
(i) Calculate the customer-channel profit before and after allocating customer-support activity costs using activity-based customer profitability analysis. 

(ii) Determine the minimum average revenue per room night required from online agents to achieve the board’s 12% profit-margin target. 

(iii) Assess TWO Fitzgerald and Moon performance standards, such as ownership, achievability or equity, that Jasiri Guest Services Ltd. should apply when evaluating the online-agent renewal contract. 
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4a
Budgetary control techniques
​​Bahari Components Ltd. uses annual incremental budgets despite frequent changes in customer orders and production technology. In relation to this environment, summarise TWO benefits of feed-forward and rolling budgetary controls.
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4b
Inventory control decisions
​​Kazi Medical Kits Ltd. is preparing a material requirement plan for component pack CP-7, which is used in assembling emergency medical kits for institutional buyers. Hospital orders are revised frequently, but the production manager must maintain a minimum closing inventory reserve while avoiding unnecessary purchases.

Additional information:
1. Each emergency medical kit requires 3 units of component pack CP-7.
2. Opening inventory of CP-7 at the start of Week 1 is 3,300 units.
3. A scheduled receipt of 1,800 units is due in Week 2.
4. A minimum closing inventory reserve of 600 units must be maintained at the end of each week.
5. Orders are placed using lot-for-lot ordering.
6. The lead time for CP-7 is one week.
7. The master production schedule for emergency medical kits is as follows: 

Week123456
Master production schedule for kits (units)9001,1001,2001,0001,3001,400

Required: 
Prepare a material requirement plan for CP-7 for Weeks 1 to 6, showing gross requirements, scheduled receipts, projected inventory, planned order receipts and planned order releases. 
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4c
Budgetary control techniques
​ ​​Pamba Devices Ltd. uses ex-post standards to separate planning variances from operational variances after a technology change affected labour time and labour rates. The production director wants supervisors assessed fairly, but avoidable inefficiencies must still be investigated.

Additional information:
1. Original budget: 10,000 units requiring 5,000 labour hours at Sh.1,200 per hour.
2. Actual output was 11,500 units; actual labour hours were 6,200 at a total cost of Sh.7,130,000.
3. Revised ex-post standard: 0.45 hours per unit at Sh.1,100 per hour.
4. Management estimates that investigating the adverse pattern will cost Sh.280,000.
5. Corrective action is expected to save Sh.720,000 next quarter if the variance pattern is controllable; the probability that it is controllable is 0.60.

Required:
(i) Calculate the planning variance and the operational variance for total direct labour cost.

(ii) Decompose the operational variance into labour rate and labour efficiency components using the revised standard.

(iii) Advise whether the adverse variance pattern should be investigated using the expected-value investigation model.
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5a
Environmental management accounting
​​Zawadi Pack Ltd. faces volatile input prices, rising waste-disposal charges and frequent machine changeovers. The finance director wants environmental costs to influence product pricing and product-mix decisions rather than remain hidden in general overheads. In relation to this operating environment, evaluate TWO strategic implications of making environmental costs visible for pricing and product-mix decisions.
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5b
Environmental management accounting Strategic performance measurement
​ ​​Mapato BioChem Ltd. produces two biodegradable cleaning products: PureA and PureB. The company is introducing environmental activity-based costing to improve the visibility of environmental costs and to support strategic product-mix and pricing decisions. The board also wants to understand whether recognising environmental costs changes the division’s value creation.

Additional information:
1.The processing division reported operating profit of Sh.140,000,000 before recognising the environmental costs shown below. The listed environmental costs are incremental and have not been included in the reported profit.
2.Capital employed in the processing division is Sh.620,000,000.
3.The company’s weighted average cost of capital is 12%.
4.For economic value-added purposes, ignore taxation.
5.Environmental cost pools and drivers are as follows:
Environmental cost poolCost driverTotal cost Sh.
Waste-water treatmentEffluent litres36,000,000
Emissions monitoringMachine hours
12,000,000
Hazardous waste disposalHazardous waste kilograms18,000,000
6.
Activity-driver usage by product line is as follows:
Activity driverPureAPureBTotal
Effluent litres240,000360,000600,000
Machine hours18,00012,00030,000
Hazardous waste kilograms20,00070,00090,000
 
Required: 
(i) Allocate the environmental costs to PureA and PureB using environmental activity-based costing.

(ii) Calculate the division’s economic value added before and after recognising the environmental costs. 

(iii) Evaluate how environmental activity-based costing and economic value added could jointly improve strategic performance management, pricing and product-mix decisions at Mapato BioChem Ltd.
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