Unit: Advanced Management Accounting
11 Questions| Average total cost (Sh.) | Probability |
| 105 107 110 121 125 126 142 156 158 | 0.05 0.10 0.08 0.12 0.14 0.16 0.12 0.18 0.05 |
| (i) | Expected value of the average total cost based on the above probability distribution. |
| (ii) | Evaluate the decision that the company's manager is likely to make based on the average total cost in (c) (i) above and the current average delivery cost of Sh.125 per delivery, assuming the manager is:
|
| ........................................... | Cost per batch | |||
| Ingredient | Machine hours per batch | Variable Sh. | Fixed Sh. | Total Sh. |
| A | 6 | 200 | 60 | 260 |
| B | 10 | 220 | 70 | 290 |
| C | 12 | 240 | 180 | 420 |
| Cost of assembly | 320 | 130 | 450 | |
| Total cost per batch | 1,420 | |||
| Profit mark-up | 280 | |||
| Selling price | 1,700 | |||
| 1 | During discussion on the budget for the year ending 31 December 2020, the sales manager estimated that sales volume might grow either by 50% or 75% provided the required machine capacity is available. |
| 2 | hile assembly capacity could be increased and meet the projected growth in demand, the machine capacity of 28,000 hours cannot be increased. Therefore, in order to take advantage of the buoyant market, the management is considering the purchase of one of the three ingredients. |
| 3 | The following quotation has been received from an external supplier: |
| Ingredient | Price per batch (20 litres) Sh. | |
| A B C | 290 320 390 |
| 4 | The management of QHY Ltd. has decided to buy only one ingredient in any one financial period. |
| Usage during the re-order period (units) | Number of times the quantity is used |
| 1,800 1,900 2,000 2,100 2,200 2,300 | 34 40 90 20 10 6 |
| Sh. | |
| Materials | 6,000 |
| Assembly labour (12 hours at Sh.300 per hour) | 3,600 |
| Manufacturing overheads (150% of labour cost) | 5,400 |
| Profit mark-up | 6,000 |
| Selling price | 21,000 |
| 1 | It is expected that material cost per bicycle is to remain constant irrespective of the number of bicycles manufactured. |
| 2 | The management expects the assembly time to gradually improve with experience and has therefore estimated an 80% learning curve. |
| 3 | A racing team has approached the club's assembly department and made enquiries on the following quotations:
|
| 1 | Standard cost per unit of product XP: |
| Material | Kgs | Price per Kg Sh. | Total Sh. | |
| F G H | 15 12 8 | 4 3 6 | 60 36 48 | |
| Labour | Hours | Rate per hour Sh. | ||
| Department P Department Q | 4 2 | 10 6 | 40 12 196 |
| 2 | Budgeted sales for the period amount to 4,500 units at Sh.260 per unit. |
| 3 | There were no budgeted opening and closing inventories of product XP. |
| 4 | The actual materials and labour used were as follows: |
| Materials | Kgs | Price per Kg | Total Sh. | |
| F G H | 59,800 53,500 33,300 | 4.25 2.80 6.40 | 254,150 149,800 213,120 |
| Labour Department | Hours | Rate per hour Sh. | Sh. | |
| P Q | 20,500 9,225 | 10.60 5.60 | 217,300 51,660 |
| 5 | During the period, 4,100 units of product XP were produced and sold for Sh.1,158,000. |
| Automatic plant Sh. | Manual plant Sh. | |
| Initial capital investment | 9,600,000 | 7,800,000 |
| Net cash flows before tax: | ||
| Year: 1 | 3,600,000 | 3,900,000 |
| 2 | 3,600,000 | 3,300,000 |
| 3 | 3,600,000 | 2,250,000 |
| 4 | 3,600,000 | 1,500,000 |
| Net present value at 16% | 473,451 | 284,422 |
| Year 1 | Year 2 | Year 3 | |
| Units manufactured and sold | - | 100,000 | 200,000 |
| Sh. | Sh. | Sh. | |
| Research and development costs | 160,000,000 | ||
| Products design costs | 800,000,000 | ||
| Marketing costs | 1,200,000,000 | 1,000,000,000 | 1,750,000,000 |
| Manufacturing costs: | |||
| - | 40,000 | 42,000 |
| - | 650,000,000 | 1,290,000,000 |
| Distribution costs: | |||
| - | 4,000 | 4,500 |
| - | 120,000,000 | 120,000,000 |
| Selling costs: | |||
| - | 3,000 | 3,200 |
| - | 180,000,000 | 180,000,000 |
| 200,000,000 | 900,000,000 | 1,500,000,000 |
| 1 | The returns of each investment of a division is determined using the following formula: Return = Divisional revenues (sales to outsiders and insiders) - direct divisional costs - allocated central corporate costs |
| 2 | The investment of a division is determined as follows: Investment = Book value of assets |
| 3 | Book value of assets is the aggregate of the accounts receivable net of accounts payable, inventories including raw materials, work in-progress and finished goods and long term assets net of accumulated depreciation. |
| 4 | The actual ROI is calculated monthly for each division and the formula is uniform across all divisions as it is centrally determined. |
| 5 | In undertaking performance evaluation, emphasis is laid on trends rather than absolute goals and standards. |
| 6 | The management also lays emphasis on divisions whose performance is improving or deteriorating and has set a minimum expected ROI below which the manager is required to face disciplinary action. This minimum ROI is however loosely set hence easily achievable. |
| 7 | The minimum ROI is determined by applying different weights to the three investment components as follows; 20% of depreciable assets, 12% for inventories and 6% for account receivables. |
| 8 | Transfer prices between divisions are negotiated between themselves. |
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