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CPA Advanced Management Accounting – December 2024 Past Paper & Answers

Unit: Advanced Management Accounting

13 Questions

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Questions

Download CPA Advanced Management Accounting December 2024 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
​​Discuss FOUR benefits of using rolling budgets in an organisation.
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1b
Cost estimation and interpretation
​ ​ ​ ​​The management of Mario Processing Company Ltd. wishes to obtain a better cost estimate to evaluate the company’s operations more effectively. 

 The following information is provided to you for analysis:

Year 2023 
Equivalent production
Overheads
Month
Units “000” 
Sh.“000”
January
1,425
12,185
February
   950
  9,875
March
1,130
10,450
April
1,690
15,280
May
1,006
  9,915
June
   834
  9,150
July
   982
10,133
August
1,259
11,981
September
1,385
12,045
October
1,420
13,180
November
1,125
11,910
December
   980
10,431

Required: 
(i) Using high-low method, formulate the overhead cost function in the form Y = a + bx. 

(ii) Using the regression method, estimate the overhead cost function. 

(iii) The coefficient of determination ​\((r^2)\)​ has been determined to be 0.913. Interpret this result. 

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2a
Environmental management accounting
​​Simtel Ltd. is a small and medium-sized enterprise (SME) seeking opportunity in emerging business in mobile telephone innovation and digital marketing platform. However, the company is experiencing challenges in navigating the regulatory requirements such as compliance with Electronic Waste (e-waste) Management and Disposal Act. The project manager has proposed to the Management Accountant that they should implement e-waste management and disposal policy when disposing of its electronic waste for sustainable waste management. 

Required: 
Explain THREE sustainability issues that Simtel Ltd. could leverage on when implementing e-waste disposal policy.
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2b
Strategic management accounting information
​​With reference to international transfer pricing, explain the meaning of the following transfer pricing methods: 

(i) The “comparable uncontrolled price” method. 

(ii) The “resale price” method.
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2c
Pricing decisions
​ ​​Skyview Technologies Ltd. has two divisions; Motherboard Division and Smart TV Division. Motherboard Division is a profit centre which manufactures three intermediate components that are used to make smart televisions. The three components are U, S and B. Each component has an external market, but also transfers to Smart TV Division. Pertinent data about the three components is as follows:

Component
U 
Sh.
S
Sh.
B
Sh.
External market price per unit
2,400
2,300
2,000
Unit variable production cost in motherboard division 
1,650
1,200
1,400
Fixed production cost per unit 
3,500
2,800
1,900
Labour hours required per unit in motherboard division 
3 
4
2
Maximum external sales demand (units) 
8,000
5,000
3,000

Additional information: 
  1. Motherboard Division has received a special order to transfer 3,000 units of Component “S” to Smart TV Division. Smart TV Division has then sought the management of Motherboard Division to quote the transfer price for the supply of the 3,000 units. 
  2. Instead of receiving transfers of Component “S” from Motherboard Division, Smart TV Division could outsource similar component in the open market at a slightly cheaper price of Sh.2,200 per unit. 
  3. The total labour hours in the current period for Motherboard Division are limited to 56,000 labour hours. 
  4. Motherboard Division transfers the special order at a marginal cost plus opportunity cost. 
  5. Divisional managers are autonomous and will sacrifice the component that has the lowest priority ranking. 

Required: 
(i) The optimum production mix units under limiting factor analysis. 

(ii) The transfer price to be set by Motherboard Division for the special order in order to maximise profits at the optimum production mix
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3a
Inventory control decisions
​​Explain THREE reasons why firms hold inventory.
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3b
​ ​​Nehema Ltd. Stores’, Chief Executive Officer believes that the company is holding excessive inventory. He has requested you, the Management Accountant, to carry out an investigation. Information on the two items held by Nehema Ltd. Stores is given below:

Inventory item
Purchase price per unit
Cost of administration per order
Annual demand (units)
Holding cost per year as a percentage (%) of purchase price
Sh. 
Sh. 

F
200
80
15,000
13.33
G
25
28
2,800
8

The company’s stock ordering policy is based on the economic order quantity (EOQ). 

Required: 
(i) Determine the number of orders per year that the company will place for inventory item F. 

(ii) Determine the annual holding cost of the inventory item G. 
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3c
Strategic performance measurement
​​Southend Ltd. has two divisions namely; A and B, whose respective performances are under review. Division A is currently earning a profit of Sh.35 million and has net assets of Sh.150 million. Division B currently earns a profit of Sh.70 million with net assets of Sh.325 million. Southend Ltd. has a current cost of capital of 15%. 
 
Required: 
(i) Using the information above, determine return on investment (ROI) and residual income for the two divisions. 
 
(ii) State which of the two performance evaluation methods used in (c) (i) above would be more useful when comparing divisional performance and why.  
 
(iii) Outline general aspects of performance measures, that would be appropriate for a service sector company
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4a
Cost estimation and interpretation
​ ​​Agrovet Group is a multidivisional agrochemical firm that deals in multiple products. Delta Division, one of its subsidiaries makes three products branded Betax, Zetay and Alphaz. The management is contemplating changing the sales mix in scenario I to a new sales mix in scenario II in order to maximise the net profit. 

The two scenarios are envisaged as below:

Scenario I 
The sales, cost and output data for original sales mix for the year 2024 for three products are as follows: 

Product
Betax
Zetay
Alphaz
Total
Sales mix
40%
30%
30%
Sh.“per unit”
Sh.“per unit”
Sh.“per unit”
Sh.
Selling price
2,000
3,000
2,500
Variable cost 
1,000
1,800
1,500
Total fixed costs
15,664,000
Total sales revenue 
45,000,000

Scenario II
Agrovet Group’s estimated sales, costs and new sales mix are as follows: 


Product
Betax
Zetay
Alphaz
Total
Sales mix
50%
20%
30%
Sh.“per unit”
Sh.“per unit”
Sh.“per unit”
Sh.
Selling price
2,000
2,800
2,500
Variable cost 
1,000
1,680
1,500
Total fixed costs



15,664,000
Total sales revenue 



45,000,000

Additional information: 
1. Management performance measures are based on cost volume profit (CVP) analysis. 
2. The weighted average contribution margin ratio of each scenario is determined based on its sales mix. 

Required: 
(i) Compute both the break-even point in sales value and the net profit for each scenario.

(ii) By comparing the break-even point and net profit, advise the management of Agrovet Group whether it is worthwhile to change the sales mix. 
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4b
Planning and decision making techniques
​ ​​Lambda Investment Ltd. is a real estate firm. Recently, the company acquired a piece of land in a metropolitan area with prospective investment opportunities to develop. The investment centre manager is to make a decision on which of the three mutually exclusive projects to invest in the next year. Each project is considered to be an investment centre. The three investment centres are; corporate offices, shopping malls and residential estate. 

The projected annual payoffs per project under the three economic states of nature are as follows:

Decision alternatives 
Economic state
Probability
Corporate offices
Sh.
Shopping mall
Sh.
Residential estate
Sh.
Optimistic
30%
100,000,000
110,000,000  
90,000,000 
Most likely
40%
  70,000,000
90,000,000
120,000,000   
Pessimistic
30%
130,000,000
90,000,000
70,000,000

Required: 
The investment centre to invest in so as to: 

 (i) Satisfy the maximax criterion. 

(ii) Minimise the expected opportunity loss (EOL). 
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4c
Planning and decision making techniques
​Lambda Investment Ltd. is contemplating acquiring perfect information from an investment research firm about the viability of the investment opportunities. The investment research firm is willing to provide perfect information about the investment project at a cost of Sh.30 million. 

Required: 
Using suitable computations, advise Lambda Investment Ltd. on whether or not to acquire the perfect information from the investment research firm.
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5a
Strategic management accounting information
​​Explain FOUR internal transfer pricing methods.
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5b
Budgetary control techniques Cost estimation and interpretation
​ ​ ​ ​​Plasmaz TV Ltd., makes smart television sets. The company operates a standard absorption costing system. The following data has been collected for the year ended 30 November 2024:

Actual cost incurred: 
Sh.
Direct material used (165,000 kilograms)
15,675,000
Direct labour (80,000 hours) 
5,800,000
Variable production overheads 
16,800,000
Fixed production overheads 
6,750,000

The variance reconciliation statement was prepared to investigate the main cause of difference between budgeted profit and actual profit. The following planning and operating variances were disclosed from the analysis:

Favourable
Adverse
Planning and operating variances 
Sh.
Sh.
Direct material price variance
825,000
Direct material usage variance 
1,500,000   
Direct labour rate variance
200,000
Direct labour efficiency variance 
350,000
Variable production overhead: 
Expenditure variance 
800,000
Efficiency variance 
1,000,000   
Fixed production overhead:
Expenditure variance 
1,250,000
Volume variance 
6,250,000

Additional information: 
1. Variable production overheads are absorbed based on actual hours worked. 
2. There was no significant difference in opening and closing work-in-progress. 
3. Actual production was 1,500 television set units for the year ended 30 November 2024. 

Required: 
Calculate the following: 

(i) Standard material cost per unit.

(ii) Standard labour cost per unit. 

(iii) Standard variable overhead absorption rate per unit. 

(iv) Standard fixed overhead absorption rate per unit.
 
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