Unit: Advanced Management Accounting
11 Questions| ...................................................................... | Note | Sh."000" |
| Direct materials: | ||
| 100,000 welding rods at Sh.10 per rod | 1 | 1,000 |
| 300,000 welding rods at Sh.12 per rod | 3,600 | |
| Other materials | 2 | 2,000 |
| Labour cost: | ||
| Skilled: 30,000 hours at Sh.30 per hour | 3 | 900 |
| Unskilled: 20,000 hours at Sh.15 per hour | 4 | 300 |
| Depreciation: General purpose machines | 5 | 100 |
| Specific purpose machines | 6 | 200 |
| Total cost | 8,100 | |
| Profit | 810 | |
| Suggested price | 8,910 |
| 1 | The repair contract requires 400,000 welding rods of which 100,000 rods are already in inventory. These types of rods are about to be phased out of the market and hence if they are not used, they will have to be discarded. If ABC Ltd. is awarded the contract, it will have to purchase an extra 300,000 welding rods of the new model at a cost of Sh. 12 per rod. |
| 2 | Other materials will have to be bought at the above price if the contract is to be undertaken. |
| 3 | Skilled workers will have to be hired at the cost provided. |
| 4 | ABC Ltd. has five unskilled workers who are currently idle. The cost shown above is the guaranteed salary payable to the five workers. |
| 5 | The depreciation given is for the general purpose machines which are normally used to do other jobs including the special one if allocated. |
| 6 | The depreciation given is for machines which will be bought specifically for this contract. After the contract is complete, the machines will be scrapped without any alternative use. |
| 7 | ABC Ltd. aims to earn a profit mark up of 10% on cost on all work undertaken. |
| 1 | There is a 90% probability that the production processes will remain in control. |
| 2 | The benefit of investigating variances is Sh.55,000. |
| 3 | It will cost Sh.1,500 to inspect the process at the investigation point. |
| 4 | If a correctable cause is discovered, it will cost Sh.10,000 to make the necessary adjustments. |
| 1 | The budgeted sales volume in the first year of operation is 18,000 units. This sales volume is expected to grow at the rate of 10% for years one, two and three but no further growth is expected from year four. |
| 2 | The selling price will be set at Sh.900 per unit for the first two years but then reduce by 5% per annum for each of the next two years. |
| 3 | Gross profit is expected to be 40% of sales in the first year, but will reduce as the sale price reduces. The purchase price on goods for resale will remain constant for the four years. |
| 4 | The overheads including depreciation are budgeted at Sh.5,250,000 for the first two years rising to Sh.6,000,000 in years three and four. |
| 5 | The new outlet requires an investment of Sh.7,500,000 at the start of its first year of trading. |
| 6 | STM Ltd. depreciates its non-current assets at the rate of 25% on cost with nil residual value expected. |
| 1 | Daily demand is probabilistic and follows the following distribution: |
| Demand (Units) | Probability | |
| 10 14 18 22 | 0.22 0.30 0.40 0.08 |
| 2 | Lead time is also probabilistic and follows the following distribution: |
| Lead time (days) | Probability | |
| 2 3 4 5 | 0.1 0.3 0.2 0.4 |
| 3 | Ordering cost is Sh.1,000 per order. |
| 4 | Holding cost is Sh.50 per day while stock out cost is Sh.200 per unit. |
| 5 | The policy of the company is to order 55 books whenever stocks fall below 15 books. |
| 6 | The opening inventory on the first day was 55 books. |
| 7 | The following random numbers are provided: 94562406423947955223705699163168744270003 |
| Units produced: | Existing product | 25,000 |
| New product | 5,000 | |
| Production cost (Sh.): | Existing product | 375,000 |
| New product | 70,000 | |
| Sales revenue (Sh.): | Existing product | 550,000 |
| New product | 125,000 | |
| Hours worked: | Existing product | 5,000 |
| New product | 1,250 | |
| Development cost (Sh.) | 47,000 |
| Details | 1 January 2018 | 31 December 2018 | 31 December 2019 | 31 December 2020 |
| Research and development cost (Sh.) | 850,400 | 200,000 | ||
| Production cost: | ||||
| Variable cost per unit (Sh.) | - | 100 | 80 | 90 |
| Total fixed cost (Sh.) | - | 500,000 | 500,000 | 500,000 |
| Marketing cost: | ||||
| Variable cost per unit (Sh.) | - | 12 | 8 | 10 |
| Total fixed cost (Sh.) | - | 200,000 | 150,000 | 100,000 |
| Distribution cost: | ||||
| Total fixed cost (Sh.) | - | 120,000 | 120,000 | 120,000 |
| Disposal of special equipment (Sh.) | - | - | - | 300,000 |
| Present value factor | 1 | 0.89 | 0.8 | 071 |
| Production (units) | - | 20,000 | 20,000 | 20,000 |
| 1 | The production manager expects an 80% learning effect for this type of work. |
| 2 | The company uses standard absorption costing. |
| 3 | The costs attributable to the centre in which Product Aye is manufactured are as follows: |
| Direct materials | Sh.30 per unit | |
| Direct labour | Sh.6 per hour | |
| Variable overheads | Sh.0.50 per direct labour hour | |
| Fixed overheads | Sh.6,000 per four-week operating period |
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