KASNEB Management accounting - Question 1b

Rengo ltd. has provided the following data for the financial year 2022: 1Budgeted output for the year9,800 units2Standard details for one unit:Direct mater... [Click to view full question and step-by-step solution]

KASNEB Management accounting - Question 4a

Distinguish between 'marginal costing' and 'absorption costing' techniques. ... [Click to view full question and step-by-step solution]

KASNEB Management accounting - Question 5a

Smart products Ltd. operates standard costing and budgetary control system. The following is the company's standard cost card: Sh.Direct materials120Direc... [Click to view full question and step-by-step solution]

MA April 2022 Past Paper & PDF Solutions

1a

The context of management accounting

Cost accounting uses information provided by financial accounting together with other details of internal operations of an organisation.

With reference to the above statement, describe three similarities between cost accounting and financial accounting.

1b

Standard costing and variance analysis

Rengo ltd. has provided the following data for the financial year 2022:

1	Budgeted output for the year	9,800 units
2	Standard details for one unit:
	Direct materials	40 square metres at Sh.530 per square metre.
	Direct labour costs:
	.......- Bonding cost centre	48 hours at Sh.250 per hour
	.......- Finishing cost centre	30 hours at Sh.190 per hour
3	Budgeted costs and hours per annum:

3	Variable overhead:	Hours	Sh.
	....Bonding cost centre	500,000	3,750,000
	....Finishing cost centre	300,000	1,500,000
	Fixed overhead:
	....Production		39,200,000
	....Selling and distribution		19,600,000
	....Administration		9,800,000

Required:

Prepare a standard cost statement of a unit cost showing:

(i) Prime cost.

(ii) Variable production cost.

(iii) Total cost.

(iv) Selling price per unit at a notion profit of 15% on cost.

1c

Introduction to cost estimation

Jambo Ltd. manufactures bracelets for export trade. The sales revenue is dependent on level of advertising expenditure per month. The company has recorded the following sales information for the past six months:

Month	Advertising expenditure Sh."000"	Sales revenue Sh. "000"
1 2 3 4 5 6	1.5 2 1.75 3 2.5 2.75	30 27 25 40 32 38

The following has also been calculated:

Σ(Advertising expenditure)	= Sh.13,500
Σ(Sales revenue)	= Sh.192,000
Σ(Advertising expenditure × Sales revenue)	= Sh.447,250,000
Σ(Sales revenue²)	= Sh.6,322,000,000
Σ(Advertising expenditure²)	= Sh.32,125,000

Required:

Estimate fixed and variable elements of the sales revenue using the least squares regression analysis.

2a

Cost accumulation

Discuss four circumstances under which time-based labour remuneration system is deemed to be more appropriate than the output based system.

2b

Cost accumulation

The following data relate to a particular stock item of Magala Ltd. The company's management is in the process of setting its stock levels as a way to address the escalating stock handling costs.

The following information is provided:

Normal usage per day	1,100 units
Minimum usage per day	500 units
Maximum usage per day	1,400 units
Lead time	25-30 days
Economic order quantity (previously calculated)	50,000 units

Required:

Compute the following:

(i) Re-order level.

(ii) Maximum stock level.

(iii) Minimum stock level.

(iv) Average stock level.

3a

The context of management accounting

Discuss four challenges that you are likely to encounter when installing a costing management system.

3b

Cost accumulation

The following information is provided in relation to Baridi Kuu Ltd. The annual demand of its product branded 'D' is 30,000 units. The ordering cost per order is Sh.2,500. The holding cost is expressed as a percentage of purchase price at 20%.

The following price ranges are given with their respective quantities:

Range	Quantities (Units)	Price (Sh.)
1	1-3,000	21
2	3,001-5,000	19
3	5,001-7,000	17
4	7,001-9,000	15.50
5	9,001-10,000	13

Required:

Advise the company on the quantity to purchase.

3c

Activity based costing

Seek Plastics Ltd. manufactures plastic components for water pumps.

The following budgeted information is available for three of their key plastic components:

	W Sh. per unit	X Sh. per unit	Y Sh. per unit
Selling price	200	183	175
Direct materials	50	40	35
Direct labour	30	35	30
Units produced and sold	10,000	15,000	18,000

Additional information:

1	The total number of activities for each of the three products for the period is as follows:

1			Product
		W	X	Y
	Number of purchase requisitions	1,200	1,800	2,000
	Number of set ups	240	260	300

2	Overhead costs have been analysed as follows:
	Receiving/ inspecting quality assurance	Sh.1,400,000
	Production scheduling/ machine set up	Sh.1,200,000

Required:

Determine the budgeted profit per unit of each of the three products using Activity Based Costing (ABC) method.

4a

Marginal and absorption costing

Distinguish between "marginal costing" and "absorption costing" techniques.

4b

Product costing methods

Bahati Limited operates a chemical process which produces four different products namely C, F, T and S from the input of raw materials plus water.

Budget information for the forthcoming financial year is as follows:

	Sh. "000"
Raw materials cost	268
Initial processing cost	264
Conversion cost	200

Product	Output (litres)	Sales (Sh.000)	Additional processing cost (Sh.000)
C	400,000	768	160
F	90,000	232	128
T	5,000	32	-
S	9,000	240	8

Additional information:

The company's policy is to apportion the costs prior to the split-off point on a method based on net realisable value (NRV).
Currently, the intention is to sell product T without further processing, but to process the other three products after the split-off point.
An alternative strategy is being proposed so as to sell all the four products at the split-off point without further processing. If this were done, the selling prices obtainable would be as follows:

	Product	Selling price per litre (Sh.)
	C	1.28
	F	1.60
	T	6.40
	S	20

Required:

(i) Budgeted profit statement showing the profit or loss for each product assuming the current processing policy is adopted.

(ii) The profit or loss by product, and in total, assuming the alternative strategy was to be adopted.

5a

Budgetary control

Smart products Ltd. operates standard costing and budgetary control system.

The following is the company's standard cost card:

	Sh.
Direct materials	120
Direct labour	60
Variable overheads	20
Fixed overheads	30
Standard cost per unit	230
Standard profit per unit	20
Standard selling price per unit	250

Additional information:

Each unit requires 3 kgs of material which cost Sh.40 per kg and 45 minutes of direct labour at a rate of Sh.80 per hour.
Variable overheads are recovered on direct labour hour basis.
Fixed overhead are absorbed on annual production budget of 180,000 units.
For the year to 31 March 2022, 120,000 units had been manufactured and sold. Contrary to the managements expectation, the company's profit and loss statement reflected a loss of Sh.1,380,000 instead of the expected profit of Sh.3,6000,000 as provided below:

	(Sh.000)	(Sh.000)
Sales (120,000 units)		22,800
Production cost:
Direct materials (100,000kgs)	12,000
Direct labour (52,000 hours)	3,900
Variable overheads	2,880
Fixed overheads	5,400	24,180
Profit (loss)		(1,380)

Required:

(i) Budgeted profit and loss account for the year ended 31 March 2022.

(ii) Flexible budget for the production achieved.

5b

Cost-volume profit analysis (break-even analysis)

Wasiri Ltd. produces 10,000 units per annum by employing 50% of the total factory capacity.

The selling price per unit is Sh.500 and the total costs are as follows:

	Sh."000"
Materials	1,000
Wages	2,000
Fixed overheads	1,000
Fixed Overheads	400
Total costs	4,400

Additional information:

Variable overheads maintains a constant ratio to the number of units produced.
The production manager is evaluating acceptance of a special offer of additional 10,000 units at a selling price of Sh.387.50 each.
The increased volume of purchases will reduce the material price by 2.5%.
The wage rates will remain constant but due to employment of new workers, there will be a drop in labour efficiency by 5% on all production.

Required:

(i) Prepare a statement showing the variation of net profits resulting from the acceptance of the order.

(ii) Advise the management of Wasiri Ltd. on whether to accept the offer.

April 2022

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