KASNEB Management accounting - Question 4a

Distinguish between “joint-products” and “by-products” as used in process costing.... [Click to view full question and step-by-step solution]

CPA Management accounting – April 2026 Past Paper & Answers

Unit: Management accounting

14 Questions

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Questions

Download CPA Management accounting April 2026 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 Management accounting.

The context of management accounting

Discuss THREE attributes of good management information and how each enhances the quality of a manager’s decision-making process.

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Introduction to cost estimation

IHG Enterprises intends to improve cost forecasting for its laundry department for the month of April 2026. The management has decided to apply the ordinary least squares (OLS) regression method to estimate the fixed and variable components of laundry costs.

The following data relate to the six months ended 31 March 2026:

Month	Guest-nights (x)	Laundry costs (Sh.'000')
October 2025	1,400	2,100
November 2025	1,800	2,450
December 2025	1,200	1,950
January 2026	2,100	2,700
February 2026	1,600	2,300
March 2026	1,500	2,180

Additional information:

1. Fixed costs will increase by 10% in April 2026.

2. The hotel charges Sh.2,500 per guest-night for laundry services provided.

Required:

(i) Derive a cost estimation equation in the form Y = a + bx using OLS regression.

(ii) Determine the number of guest-nights required in April 2026 to achieve a target laundry profit of Sh.600,000.

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The context of management accounting

Explain FOUR limitations of management accounting information that may hinder its effectiveness in providing guidance for managerial decision-making.

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Cost accumulation

Ndovu Enterprises purchases component “Z-10” for use in production. The management is evaluating whether to accept a quantity discount offered by a supplier. The following information is available:

1. Annual demand is 24,000 units.

2. Purchase price is Sh.800 per unit.

3. Ordering cost is Sh.500 per order.

4. Annual holding cost is 10% of purchase price.

5. A quantity discount of 3% is offered if orders of 5,000 units are placed.

6. Demand is constant and the company uses the Economic Order Quantity (EOQ) model.

Required:

Supporting your answer with appropriate calculations, advise the management of Ndovu Enterprises whether the discount offer should be accepted.

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Budgetary control

Lango Manufacturing Ltd. produces specialised industrial fittings supplied to construction firms. The management is preparing the production budget for the second quarter for the year ending 31 December 2026 in order to ensure sufficient inventory is maintained to meet expected demand.

Budgeted sales are as follows:

Month	Units
April	2,000
May	2,500
June	3,000

Additional information:

1. Budgeted sales for July 2026 are 3,500 units.

2. The company maintains closing inventory equal to 20% of the following month’s sales.

3. Opening inventory on 1 April 2026 is 400 units.

Required:

Prepare a production budget in units for each of the three months in the second quarter of 2026.

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Activity based costing

Describe the FOUR levels in the hierarchy of cost drivers as used in an Activity-Based Costing (ABC) system.

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Activity based costing

Maridadi Furniture Ltd. produces two types of chairs: Standard and Executive. The management has analysed overhead costs into activity cost pools for purposes of Activity-Based Costing (ABC).

Budgeted production data for the coming month is as follows:

Product	Standard	Executive
Production (units)	2,000	1,000
Direct material cost per unit (Sh.)	2,500	5,000
Direct labour hours per unit	2	4
Production runs	10	15
Purchase orders	20	30

Additional information:

Direct labour is paid at the rate of Sh.500 per direct labour hour.

Total overhead costs amount to Sh.1,200,000 and have been analysed as follows:

Cost pool	Cost driver	Amount (Sh.)
Set-up costs	Production runs	450,000
Purchasing costs	Purchase orders	300,000
General factory costs	Direct labour hours	450,000

Required:

Calculate the unit production cost for each product using Activity-Based Costing (ABC).

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Standard costing and variance analysis

Maridadi Furniture Ltd. uses a standard costing system to control material costs in production. The Management Accountant wishes to analyse the difference between standard and actual material costs for the Standard chair.

The standard material requirement for one unit of the Standard chair is 5 kg each at Sh.400 per kg.

Actual results for the month were as follows:

Output produced: 2,400 units

Material used: 12,500 kg

Actual price: Sh.420 per kg

Required:

Compute the following:

(i) The material price variance

(ii) The material usage variance.

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Product costing methods

Distinguish between “joint-products” and “by-products” as used in process costing.

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Product costing methods

Madawa Chemicals Ltd. manufactures industrial cleaning agents using a continuous production process. One of the stages of production is Process 1, where raw materials are mixed and chemically treated before being transferred to the next stage.

The company applies process costing using the weighted average method to determine the cost of production.

The following information relates to the month of March 2026:

1. Raw material input during the month was 20,000 litres costing Sh.3,000,000.

2. Conversion costs incurred amounted to Sh.1,800,000.

3. Normal loss is 5% of input.

4. Units lost under normal loss are sold for Sh.100 per litre.

5. Output transferred to Process 2 was 18,400 litres.

6. Closing work-in-progress was 600 litres, which was 100% complete for materials and 50% complete for conversion costs.

7. There was no opening work-in-progress.

Required:

Prepare the Process 1 account for the month of March 2026 showing equivalent production and cost allocation.

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Cost-volume profit analysis (break-even analysis)

MCL Ltd. has received a special order from a new customer requesting 1,000 litres of the product branded “ZELL” at a price lower than the normal selling price. The management is considering whether accepting the order would be beneficial to the company.

The following information is available:

1. The special order price offered is Sh.350 per litre.

2. The variable production cost per litre is Sh.280.

3. Acceptance of the special order would require the company to forego a regular sale that normally generates a contribution of Sh.80 per litre

Required:

Advise management whether the special order should be accepted.

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Budgetary control

Discuss TWO behavioural issues that might arise when managers are excluded from the budget-setting process.

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Cost accumulation

Bidii Ltd. manufactures agricultural equipment and remunerates its machine operators using the Halsey premium bonus scheme. The scheme pays workers Sh.600 per hour and allows employees to earn a bonus equal to 50% of the time saved. During the previous week, Juma Otieno completed a task for which the standard time allowed was 10 hours, but he actually took 8 hours to complete the job.

Required:

Calculate Juma’s total earnings and the effective hourly rate.

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Cost-volume profit analysis (break-even analysis)

Ukweli Feed Ltd. produces three specialised animal feed products namely; X, Y and Z. The company operates in a competitive agricultural market where profitability depends on the efficient utilisation of scarce production resources.

For the coming month, skilled labour hours are limited to 3,500 hours and the management must determine how these hours should be allocated among the three products in order to maximise contribution.

Product	X	Y	Z
Selling price per unit (Sh.)	1,200	1,500	1,800
Variable cost per unit (Sh.)	800	600	1,100
Skilled labour hours per unit	2	3	4
Maximum demand (units)	1,000	800	600

Required:

Determine the:

(i) Optimal production plan that will maximise total contribution for the month.

(ii) Total contribution expected.

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