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CPA Management accounting – August 2024 Past Paper & Answers

Unit: Management accounting

13 Questions

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Questions

Download CPA Management accounting August 2024 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.

Other Management accounting Past Papers

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”
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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.​
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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.
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2a
The context of management accounting
​​Identify FIVE challenges faced by a business in implementing a cost accounting system
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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.
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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.
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3a
​​(i) Explain the term “budget committee”. 

(ii) Outline FOUR roles of a budget committee.
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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.
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4a
Marginal and absorption costing
​​Highlight FOUR arguments for the use of marginal costing.
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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.
 
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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 
  
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5b
Standard costing and variance analysis
​​Explain THREE benefits of standard costing and variance analysis to an organisation.
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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”.
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