Unit: Management accounting
13 Questions| Product................................... | Sofa.sets | Tables | Beds | Total |
| Production and sales (units) | 1,000 | 2,000 | 800 | |
| Direct material cost per unit | Sh.4,500 | Sh.2,000 | Sh.3,100 | Sh.10,980,000 |
| Direct labour hours per unit | 2.5 | 2 | 3 | 8,900 |
| Machine hours per unit | 1.5 | 1 | 2 | 5,100 |
| Direct labour cost per hour | Sh.1,000 | Sh.800 | Sh.750 | |
| Cost drivers: | ||||
| Number of production runs | 3 | 7 | 20 | 30 |
| Number of deliveries | 30 | 20 | 50 | 100 |
| Number of requisitions raised | 15 | 35 | 220 | 270 |
| Number of orders executed | 15 | 10 | 25 | 50 |
| 1 | The company operates a just in time (JIT) inventory policy and receives each component once per production run |
| 2 | Currently, production overheads are allocated based on direct labour hours absorption basis. |
| 3 | Susana Njeri, the company management accountant has recently attended a conference on activity-based costing (ABC) system where she learnt that overheads costs can be analysed by the major activities in order to compute the activity-based costs. Therefore, she proposed the adoption of activity-based costing (ABC) technique. |
| 4 | The production overheads for the period have been analysed as follows together with their cost drivers: |
| Production overhead cost | Cost driver | Sh. | |
| Set up costs | Number of production runs | 300,000 | |
| Machining costs | Number of machine hours | 1,122,000 | |
| Requisition costs | Number of requisitions raised | 1,350,000 | |
| Inspection costs | Number of deliveries | 1,493,000 | |
| Material handling costs | Number of orders executed | 1,075,000 | |
| 5,340,000 |
| Debits Sh. | Credits Sh. | |
| Cash | 60,000 | |
| Accounts receivable | 195,000 | |
| Allowance for bad debts | 24,000 | |
| Inventory | 120,000 | |
| Accounts payable | 90,000 |
| 1 | Purchases are payable within 10 days. Assume that one-third (1/3) of the purchase of any month are due and paid for in the following month. |
| 2 | The unit cost of the inventory purchased is Sh.10. At the end of each month, the firm’s policy is to have an inventory equal to 50% of the following month’s unit sales. |
| 3 | Sales terms include a 1% discount if payment is made by the end of the calendar month in which the sale took place. Past experiences indicate that 60% of the billings will be collected during the month of the sale, 30% in the following calendar month, 6% in the next following calendar month and 4% will be uncollectible. |
| 4 | The following data relates to sales: |
| Sh. | ||
| Selling price per unit | 150 | |
| January 2025 actual sales revenue | 150,000 | |
| February 2025 actual sales revenue | 450,000 | |
| March 2025 actual sales revenue | 360,000 | |
| April estimated sales revenue | 270,000 | |
| Total sales expected in the fiscal year | 4,500,000 |
| 5 | The firm’s fiscal year begins on 1 January of every year. |
| 6 | Exclusive of bad debts, the total budgeted selling and general administrative expenses for the fiscal year are estimated at Sh.705,000 of which Sh.210,000 is fixed expense (inclusive of Sh.90,000 annual depreciation charge). |
| 7 | Fixed expenses are incurred uniformly throughout the year |
| 8 | The balance of the selling and general administrative expenses varies with sales. Expenses are paid as incurred. |
| Types of exercise book ........................................ | 200 pages “Sh.per.unit” | 96 pages “Sh.per.unit” | 120 pages “Sh.per.unit” |
| Direct material cost | 60 | 22 | 26 |
| Direct labour cost | 25 | 10 | 20 |
| Variable.overhead.cost | 5 | 3 | 6 |
| Fixed overhead cost | 20 | 20 | 20 |
| Net profit/(loss) | 10 | (5) | 8 |
| Retail selling price | 120 | 50 | 80 |
| Product | Expected demand per week (units) | Machine hours per unit required |
| 200 pages book | 8,000 | 15 minutes |
| 96 pages book | 25,000 | 45 minutes |
| 120 pages book | 22,000 | 30 minutes |
| Order.level............ | Discount (%) |
| 0 – 199 | 1 |
| 200 – 499 | 3 |
| 500 – 699 | 5 |
| 700 units or more | 7 |
| Order cost | Sh.2 per order |
| Annual.demand | 15,000 units |
| Purchase price | Sh.15............... |
| Current EOQ | 200 units |
Month | Production cost Sh. | Number of gas cookers |
| 1 | 10,473,000 | 1,200 |
| 2 | 11,322,600 | 1,400 |
| 3 | 10,623,800 | 1,250 |
| 4 | 10,802,200 | 1,300 |
| 5 | 10,247,600 | 1,150 |
| 6 | 10,954,800 | 1,350 |
| Production cost Sh. | Number of gas cookers | |
| Monthly total | 65,424,000 | 7,650 |
| Monthly average | 10,904,000 | 1,275 |
| Sh. Per unit | Sh. Per unit | |
| Selling price | 1,200 | |
| Direct material | 220 | |
| Direct labour | 360 | |
| Variable overhead | 140 | |
| Fixed overhead | 120 | (840) |
| Net profit | 360 |
| Standard cost (for one unit) | Sh. |
| Direct materials: 10 units @Sh.1.50 | 15 |
| Direct labour: 5 hours @ Sh.8 | 40 |
| Production overheads: 5 hours @ Sh.10 | 50 |
| 105 | |
Actual figures (for whole activity): | |
| Direct materials: Sh.6,435 | |
| Direct labour: Sh.16,324 |
Analysis of variances: | ||
| Direct materials: | Price | Sh.585(A) |
| Usage | Sh.375 (F) | |
| Direct labour: | Rate | Sh.636 (F) |
| Efficiency | Sh.360 (A) | |
| Production overheads: | Expenditure | Sh.400 (F) |
| Volume | Sh.750 (F) |
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