Unit: Advanced Management Accounting
10 Questions| Selling price per unit Sh. | Probability | Variable cost per unit Sh. | Probability |
| 200 | 0.25 | 80 | 0.20 |
| 250 | 0.40 | 100 | 0.50 |
| 300 | 0.35 | 120 | 0.30 |
| Doll type | Estimated demand Units | Standard material cost sh. | Standard labour cost Sh. | Estimated sale price per unit Sh. |
| A | 50,000 | 20 | 15 | 60 |
| B | 40,000 | 25 | 15 | 80 |
| C | 35,000 | 32 | 18 | 100 |
| D | 30,000 | 50 | 20 | 120 |
| Dress kit | 200,000 | 15 | 5 | 50 |
| Sh. | |
| Plastic waste cost per chair | 300 |
| Labour cost per hour | 200 |
| Fixed overheads per year | 1,250,000 |
| Capital investment | 1,600,000 |
| 1. | The estimated time to produce the first chair is 10 hours. |
| 2. | It is estimated that a learning curve effect of 90% on labour to produce the chairs will be experienced. |
| 3. | The contract requires skilled labour that cannot be increased above the currently available hours. The available hours will produce 5,000 chairs for the first year. |
| 4. | Assume that an equilibrium of labour hours in the first year will be available in both year 2 and year 3. |
| 5. | The selling price per chair is set at Sh.900. |
| 6. | All cash flows occur at the year end while the initial investment is incurred at the start of year 1. |
| 7. | The capital investment has a nil salvage value at the end of the contract period. |
| 8 | The company has a cost of capital of 12%. |
Required: | |
| (i) | Using the Net Present Value (NPV) of the contract, advise the management of the company on whether to accept or reject the contract. |
| (ii) | State four other factors that the management of the company should consider before making the decision in (b) (i) above. |
| Year | Quarter | Quarter number | Units produced |
| 2019 | 1 | 1 | 2,000 |
| 2 | 2 | 2,500 | |
| 3 | 3 | 3,000 | |
| 4 | 4 | 6,000 | |
| 2020 | 1 | 5 | 5,000 |
| 2 | 6 | 4,000 | |
| 3 | 7 | 6,000 | |
| 4 | 8 | 10,000 |
| Where; | X represents units produced per quarter. |
| Q represents the quarter number |
| Cost item | Relationship |
| Office rent | TC = 500,000 |
| Office salaries | TC = 200,000 + 2x |
| Fuel cost | TC = 45,000+ 6x |
| Transport wages | TC = 62,000 + 8x |
| Sundry costs | TC = 29,965 + x |
| Where; | TC represents the total cost per quarter |
| x represents the number of units produced per quarter |
| 1. | Stock item X The weekly demand for the item is 200 units, with a normally distributed demand with a standard deviation of 30 units and a lead time of 16 weeks. |
| 2. | Stock item Y It has a daily demand of 50 units with a lead time that is normally distributed with a mean of 20 days and a standard deviation of 2 days. The re-order level of the stock item has been set at 1,100 units. |
| 3. | Stock item Z The item is ordered every 6 months. The lead time is 3 months and demand is normally distributed with a mean of 1,000 units per month and a standard deviation of 80 units. The cost of stock-out is Sh.80 and the cost of holding one unit of buffer stock is Sh.20 per annum. |
Required: | |
| (i) | The re-order level of stock item X that would restrict the probability of a stock out at 5% during a single re-order period. |
| (ii) | The probability of a stock out of item Y during a single re-order period. |
| (iii) | The total annual cost of holding safety stock and stock out cost if re-order level is set at 3,600 units. |
| Actual | Budgeted | |
| Sales volume (units) | 4,900 | 5,000 |
| Selling price per unit (Sh.) | 150 | 140 |
| Production volume (units) | 5,400 | 5,000 |
| Direct materials (kilograms) | 10,600 | 10,000 |
| Direct materials price per kilogram (Sh.) | 6 | 5 |
| Direct labour hours per unit | 5.5 | 5.0 |
| Direct labour rate per hour (Sh.) | 11.4 | 12.0 |
| Fixed production overheads (Sh.) | 103,000 | 100,000 |
| Variable production overheads at Sh.8 per direct labour hour (Sh.) | 215,000 | 200,000 |
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