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CPA Management accounting – August 2023 Past Paper & Answers

Unit: Management accounting

11 Questions

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Download CPA Management accounting August 2023 past paper with detailed answers and marking scheme. This paper is based on KASNEB examination standards and is ideal for revision and exam preparation.

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Other Management accounting Past Papers

1a
The context of management accounting
​​Explain THREE limitations of financial accounting which are addressed by management accounting.
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1b
Costing terms and concepts
​ ​​Distinguish between a “cost centre” and a “profit centre” as used in responsibility accounting.
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1c
Introduction to cost estimation
​ ​​The Management Accountant of Unga Safi Millers has presented the following data on machine hour and electricity consumption for the last 6 months:

Month
Machine Hours (“000”)
Electricity expense (Sh.“000”)
June
  78
1,800
July
  78
1,500
August
  93
1,590
September
105
1,650
October
129
1,740
November
144
2,040

Required: 
(i) Using High-Low method of cost estimation, develop a predictor equation in the form of Y = a + bx. 

(ii) Determine the total electricity expense at 120,000 machine hours. 

(iii) Explain TWO limitations of adopting High-low method in cost estimation. 
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2a
Budgetary control
​​Explain FOUR reasons for budgeting in a business.
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2b
Marginal and absorption costing
​ ​ ​ ​​Tazam Ltd. is developing a cost accounting system. Initially it has been decided to create four centres: Accommodation deals with guests, Kitchen prepares meals while Tours and Entertainment are internal service recreation centres. 

The following overheads details have been estimated for the month of August 2023:

Type of overhead 
Sh.“000”
Rent and taxes
75,000
General lighting
30,000
Indirect wages
150,000
Petrol and engine oil
88,500
Depreciation on tour buses
500,000
843,500

The following information is also available:

Total
Accommodation
Kitchen
Tours
Entertainment
Direct wages (Sh.“000”)
500,000
150,000
100,000
150,000
100,000
Floor area (​\(m^2\)​)
100,000
30,000
25,000
20,000
25,000
Value of tour buses (Sh.“000”)
1,250,000
350,000
650,000
150,000
100,000
Lighting points
60
20
15
10
15
Number of petrol fillings
150
40
50
60
-

Additional information:
1
In August 2023, it is estimated that there will be 20 guest-nights in Accommodation and 480 meals will be served in the Kitchen. 
2
Secondary allocation of overheads is as follows:
2
Cost centre
Tours
Entertainment
Accommodation
60%
50%
Kitchen
30%
30%
Tours
-
20%
Entertainment
10%
-

Required:
(i) Prepare an overhead analysis statement (OAS) showing primary allocation to each centre. 

(ii) Secondary allocation of the internal service recreation centre costs to production departments using simultaneous method. 

(iii) Calculate the appropriate overhead absorption rates for Accommodation and Kitchen. 

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3a
Cost-volume profit analysis (break-even analysis)
​ ​ ​​Urembo Lifestyles offers three different types of body grooming and fitness services. These are: salon, gym and barber shop using the same staff. Various estimates for the next year have been made as follows:

Service
Salon
Sh. per client
Gym
Sh. per client
Barber shop
Sh. per client
Service fee
300
390
200
Variable material costs
140
180
100
Variable labour costs
60
100
50
Fixed overhead costs
90
120
40
Labour hours per client 
2 hours
3 hours
1.5 hours

Additional information: 
1
Total fixed cost for the next year is expected to be Sh.400,000
2
The budgeted maximum demand of clients for the next year for the services is estimated as follows:
  • Salon............3,000.clients
  • Gym             1,000 clients
  • Barber shop 1,500 clients
3
Urembo Lifestyles has a maximum of 9,900 labour hours available next year
  
Required: 
(i) If the business were to offer salon services only, calculate the break-even number of clients. 

(ii) Prepare the limiting factor mix schedule to show the number of clients per service that maximises profitability. 

(iii) The maximum net profit achievable based on service mix determined in (a) (ii) above. 
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3b
Standard costing and variance analysis
​ ​ ​ ​ ​ ​​​Sigma Ltd. operates a standard marginal costing system. The following data has been collected for the month of July 2023 for its main product branded “SGM”:

Actual costs incurred:
Sh.“000”
Direct material (1,188 kilograms)
 11,286
Direct labour (5,760 hours)
 41,760
Variable production overheads 
 12,096
Fixed production overheads
 48,600

Variances:

Sh.“000”
Direct material price variance
594 Favourable
Direct material usage variance
1,080 Adverse
Direct labour rate variance
1,440 Adverse
Direct labour efficiency variance
2,520 Adverse
Variable overhead expenditure variance
576 Adverse
Variable overhead efficiency variance
720 Adverse
Fixed overhead expenditure variance
900 Favourable
Fixed overhead volume variance
4,500 Favourable 

Additional information: 
  1. Variable production overheads are absorbed based on actual hours worked. 
  2. There was no significant difference in opening and closing work in progress. 
  3. Actual production of product SGM was 1,080 units in the month of July 2023. 

Required: 
Prepare a standard product cost sheet for one unit of product SGM.
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4a
Cost accumulation
​​Explain THREE factors that might be considered before choosing a suitable method for labour remuneration.
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4b
Activity based costing
​ ​ ​ ​​Mars Bottlers Ltd manufactures and sells four products. Details of the four products and relevant information are given below for the month of August 2023:

Product
A01
B02
C03
D04
Total
Output units
1,200 units
1,000 units
800 units
1,200 units
4,200 units
Machine hours per unit
4 hours
3 hours
2 hours
3 hours
12 hours
Production runs 
6
5
4
6
21
Requisitions raised
20
20
20
20
80
Orders executed 
12
10
8
12
42

Cost per unit: 

Sh.

Sh.

Sh.

Sh.
Direct material
3,300
4,125
2,475
4,950
Direct labour
2,310
1,980
1,155
1,815

Additional information:
1
Currently production overheads are absorbed based on conventional machine hour basis although the management is proposing the adoption of activity-based costing (ABC) technique.
2
The production overheads for the period have been analysed as follows together with ABC cost drivers: 
Cost element
Sh. “000”
Cost driver
Machinery cost centre
10,430  
Total machine hours
Set-up costs
5,250
Number of production runs
Stores receiving costs
3,600
Requisitions raised
Inspection costs
2,100
Number of production runs
Material handling costs
4,620
Orders executed 
26,000  
 
Required: 
Compute a budgeted unit cost and total cost using: 

(i) Conventional technique. 

(ii) Activity based costing (ABC) technique.

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5a
Costing terms and concepts
​​The analysis of total cost into its behavioural elements is essential for effective cost and management accounting. 

With reference to the above statement, enumerate FOUR cost behaviour patterns.
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5b
Product costing methods
​ ​ ​ ​​Hard Board Ltd. produces a product that passes through three processes. The data about refining process is as follows:

1
Opening work in progress was 900 units at a total cost of Sh.45,000,000. The degree of completion is as follows:
  • Direct.material............100%
  • Direct labour                40%
  • Production overheads 60% 
2
Data about refining process is as follows:
  • Input of raw materials is 9,100 units for Sh.273,000,000
  • Direct labour is Sh.125,700,000
  • Production overheads is Sh.81,000,000
3
Finished units transferred to finished stores were 7,800 units.
4
Normal scrap loss was 10% of input units and the scrapped units realised Sh.30,000 per unit. 
5
Units scrapped were 1,200 units with the following degrees of completion:
  • Direct material 100%
  • Direct labour 70%
  • Production overheads 70%
6
Closing work in progress was 1,000 units with the following degrees of completion:
  • Direct material 100%
  • Direct labour 80%
  • Production overheads 70%
7
Hard Board Ltd. uses first in first out (FIFO) method.


Required: 
Prepare the following: 

(i) Statement of equivalent units of production. 

(ii) Statement of cost.

(iii) Statement of valuation. 

(iv) Refining process account.
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