KASNEB Management accounting - Question 2a

Identify FIVE challenges faced by a business in implementing a cost accounting system ... [Click to view full question and step-by-step solution]

KASNEB Management accounting - Question 3a

(i) Explain the term “budget committee”. (ii) Outline FOUR roles of a budget committee. ... [Click to view full question and step-by-step solution]

KASNEB Management accounting - Question 4a

Highlight FOUR arguments for the use of marginal costing. ... [Click to view full question and step-by-step solution]

KASNEB Management accounting - Question 5b

Explain THREE benefits of standard costing and variance analysis to an organisation. ... [Click to view full question and step-by-step solution]

MA August 2024 Past Paper & PDF Solutions

1a

Costing terms and concepts

With reference to cost classification, distinguish between the following types of costs:

(i) “Semi-variable costs” and “semi-fixed costs”.

(ii) “Prime costs” and “marginal costs”

1b

Costing terms and concepts

Cost Database Management System (DBMS) is a computer based software system that is used in management accounting to manage costs.

Required:

Highlight FOUR benefits of implementing a cost database management system for inventory.

1c

Cost-volume profit analysis (break-even analysis)

Medico Ltd. is a pharmaceutical company which manufactures three types of medicines namely; Alpha, Beta and Zeta using absorption costing system.

The company has two grades of labour; skilled labour and semi-skilled labour.

The following profit statement relates to the operations of Medico Ltd.

	Alpha Sh.	Beta Sh.	Zeta Sh.
Selling price per unit	595	870	1,095
Cost per unit:
Direct material	115	140	220
Direct labour:
Skilled labour (Sh.80 per hour)	80	160	240
Semi-skilled (Sh.60 per hour)	60	120	110
Fixed overhead cost (see note 1)	100	100	100
Total cost per unit	355	520	670
Net profit per unit	240	350	425
	Units	Units	Units
Expected maximum production and demand	3,000	5,000	6,500

Additional information:

1. Fixed overhead costs are Sh.1,450,000 per annum.

2. Variable overheads are absorbed into production at a rate of 100% for skilled labour and 50% of the semiskilled labour. These variable overheads have not been absorbed in the profit statement above.

3. There is a maximum of 28,000 skilled labour hours available.

4. Deficit units can be outsourced from chemist suppliers at the following prices:

Medicine	Alfa	Beta	Zeta
Purchase price per unit	Sh.425	Sh.650	Sh.895

Required:

(i) Compute the shortfall in skilled labour hours.

(ii) Determine the optimal production mix and the number of units to be outsourced from chemist suppliers.

(iii) Maximum net profit achievable for the period based on quantities determined in (c) (ii) above.

2a

The context of management accounting

Identify FIVE challenges faced by a business in implementing a cost accounting system

2b

Cost-volume profit analysis (break-even analysis)

Maziwa Ltd. is a small company that specialises in buying and selling of powdered milk. The milk tins are packaged in boxes.

The company started its operations on February 2024 with a capital of Sh.4,000,000. During the past period of six months, the following transactions have occurred:

	Powdered milk purchases		Sale of powdered milk
Date of receipt	Quantity (boxes)	Total cost Sh.	Date of dispatch	Quantity (boxes)	Total sales Sh.
February 13 March 8 April 11 May 12 July 15	200 400 600 400 500	72,000 152,000 240,000 140,000 140,000	March 10 May 20 July 25	500 600 400	250,000 270,000 152,000

Additional information:

1. The closing inventory counted on 31 July 2024 was 500 boxes.

2. General operating expenses paid during the period amounted to Sh.23,000.

3. The company uses LIFO method of inventory valuation.

Required:

Prepare:

(i) A stores ledger account.

(ii) Income statement for the company for the period ended 31 July 2024.

2c

Cost accumulation

Konya Ltd. had a weekly minimum and maximum consumption of material Q at 250 and 750 units respectively. The re-order quantity as fixed by the company is 3,000 units. The material is received within a period of 4 to 6 weeks from the date of issue of supply order.

Required:

Calculate the:

(i) Minimum stock level.

(ii) Maximum stock level.

3a

(i) Explain the term “budget committee”.

(ii) Outline FOUR roles of a budget committee.

3b

Introduction to cost estimation

The following cost data has been obtained from the records of Komputa Ltd., an IT company based in industrial area. The firm specialises in assembly of computers.

Month	Number of computers assembled	Total cost incurred Sh."000"
January	1,600	164,000
February	900	112,000
March	1,100	100,000
April	820	96,000
May	1,160	120,000
June	1,200	124,000
July	1,300	128,000
August	1,360	130,000
September	1,400	140,000
Ovtober	1,500	148,000
November	1,700	180,000

Required:

(i) Using the high-low method, formulate an equation that can be used to estimate the future total cost in the form of y = a + bx.

(ii) Using the least square method, formulate the cost function in the form of y = a + bx.

(iii) Using the equations obtained in (b)(i) and (b) (ii) above, estimate the total cost to be incurred in December if 1,800 computers are expected to be assembled.

4a

Marginal and absorption costing

Highlight FOUR arguments for the use of marginal costing.

4b

Activity based costing

Aquatiq Ltd. manufactures water dispensers for both domestic and office use using absorption costing system. There are three models branded “regular”, “medium” and “deluxe”.

Selected data for the three products is as follows:

Model...................................	Regular...	Medium.....	Deluxe
Direct material cost per unit	Sh.2,500	Sh.3,250	Sh.5,500
Direct labour hours per unit	0.75hours	1.5 hours	1 hour
Machine hours per unit	1.5 hours	1 hour	3 hours
Production volume	800 units	1,200 units	4,800.units

Additional information:

1	The total cost per unit is loaded a profit markup of 20% to determine the selling price
2	Direct labour cost is Sh.2,100 per labour hour
3	Currently, production overheads are absorbed based on a blanket-wise machine hour absorption costing basis. The rate for the period is Sh.1,500 per machine hour.
4	Budgeted annual production overheads for Aquatiq Ltd. amounted to Sh.25,200,000. Further analysis shows that the production overheads can be apportioned according to activity based costing (ABC) approach as follows:

4	Cost pools	Apportionment	Cost driver
	Set-up costs	40%	Number of set-ups
	Machine costs	20%	Number of machine hours
	Material procurement cost	10%	Number of orders
	Quality control cost	30%	Number of inspections
		100%

5	The following cost drivers are associated with the models:

5	Model	Regular	Medium	Deluxe
	Number of set-ups	64	120	320
	Number of orders	12	21	87
	Number of inspections	120	180	456
	Number of machine hours	1,200	1,200	14,400

Required:

Calculate for each model, the full cost and selling price per unit under:

(i) Blanket-wise absorption costing approach.

(ii) Activity based costing (ABC) approach.

5a

Costing terms and concepts

The table below shows the type of cost classification base and an example of type of cost. By giving one example in each, fill in the missing letters W, X, Y and Z.

Cost classification	Example of cost
Example:
Functional classification	Production cost, Administrative cost

(i)	On basis of time	W
(ii)	X	Variable cost, fixed cost
(iii)	By nature of elements	Y
(iv)	Z	Opportunity cost, sunk cost

5b

Standard costing and variance analysis

Explain THREE benefits of standard costing and variance analysis to an organisation.

5c

Product costing methods

Saruji Ltd. manufactures a product branded “GemLime”. The company operates several manufacturing processes. In the process I, joint products “Gem” and “Lime” are produced in the ratio of 5:3 by volume from the raw material input.

The following information relates to process I for the first week of the month of July 2024:

Raw material input	60,000 kilograms at a cost of Sh.3,810,000
Abnormal gain	1,000 kilograms

Other costs incurred upto the split off point:

Direct labour cost	Sh.1,800,000
Direct expenses	Sh.540,000
Production overheads	110% of direct labour cost

Additional information:

1. Normal loss in process I of 5% of the raw material input is expected. Losses have a realisable value of Sh.50 per kilogram.

2. The company holds no work-in-progress.

3. The joint costs are apportioned to the joint products using the physical volume measure basis at split off point.

Required:

(i) Prepare process I account for the first week of the month of July 2024 in which both the output volumes and values for each of the joint products are shown separately.

(ii) Saruji Ltd. can sell product Gem for Sh.20 per kilogram at the end of process I. It is considering a proposal to further process Gem in process II in order to create product “GemLime”. The further processing in process II would cost Sh.4 per kilogram input from process I. In process II, there would be a normal loss in volume of 10% of the input to that process. This loss has no realisable value. Product “GemLime” could then be sold for Sh.26 per kilogram.

Determine based on financial considerations only, whether product Gem should be further processed to create product “GemLime”.

August 2024

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