KASNEB Management accounting - Question 1b

Highlight FOUR benefits of continuous stock taking to a company. ... [Click to view full question and step-by-step solution]

KASNEB Management accounting - Question 4a

Explain FOUR arguments in favour of marginal costing system. ... [Click to view full question and step-by-step solution]

KASNEB Management accounting - Question 4b

Quota Ltd manufactures and sells a single product branded “TT” with a standard cost of Sh.1,100 made up as follows: Sh.Direct materials (15 square metres a... [Click to view full question and step-by-step solution]

KASNEB Management accounting - Question 5a

Summarise FOUR salient features of process costing systems. ... [Click to view full question and step-by-step solution]

KASNEB Management accounting - Question 5b

Highlight SIX benefits that a firm would derive from establishing a good cost accounting system. ... [Click to view full question and step-by-step solution]

MA December 2022 Past Paper & PDF Solutions

1a

Budgetary control

Outline SIX benefits that would accrue to an organisation that encourages employees to participate in budget preparation.

1b

Cost accumulation

Highlight FOUR benefits of continuous stock taking to a company.

1c

Cost accumulation

Babu Ltd. places orders for one of the components used in its manufacturing process. The price of the component has been fluctuating thus affecting the production of the final product and hence eroding market confidence of the company’s clients. The company’s accountant has presented the following quantity ranges and respective price of the component which he believes would result in a cost saving to the company:

Range number	Quantity range Units	Prices per unit of the component
I	1 – 6,000	420
II	6,001 – 10,000	380
III	10,001 – 14,000	340
IV	14,001 – 18,000	310
V	18,001 and above	260

Additional information:

The company’s annual demand is 60,000 units.
The ordering cost per order is Sh.50,000.
The holding cost is 20% of the purchase price
The company practices continuous stock taking throughout the year.

Required:

Advise the company on the quantity range that would yield the highest cost savings.

2a

Cost accumulation

Explain the meaning of the following types of inventory costs:

(i) Out of pocket costs.

(ii) Set-up costs.

(iii) Opportunity costs.

2b

Cost-volume profit analysis (break-even analysis)

Lengo Ltd. manufactures and sells two products L and G to a number of customers. The company is currently preparing its budget for the year ending 31 December 2023.

The cost, selling prices and demand units details for its two products are as follows:

Product	L Sh.	G Sh.
Selling price per unit	2,000	2,100
Variable costs per unit:
Direct material Q (Sh.25 per litre)	200	250
Direct material T (Sh.40 per litre)	400	200
Direct labour (Sh.140 per hour)	280	350
Overhead (Sh.40 per hour)	160	200
Fixed production cost per unit	400	500
Maximum sales demand for the month	Units 1,000	Units 3,000

Additional information:

The fixed production cost per unit is based upon an absorption rate of Sh.200 per direct labour hour and total annual production activity is 90,000 direct labour hours. One-twelfth ( 1 /12) of the annual fixed production cost will be incurred.
In addition to the above costs, non-production overhead costs are expected to be Sh.577,500.
During the period, the availability of material Q is expected to be limited to 31,250 litres.
It is the policy of Lengo Ltd not to hold inventory of finished goods

Required:

(i) Compute the shortfall in litres for material Q.

(ii) The optimal production mix based on priority ranking.

(iii) The net profit at optimal production mix.

3a

Activity based costing

TQM Ltd. is a manufacturing company that makes three products namely; T, Q, and M. The data for the period ended 30 November 2022 is given as follows:

Units produced and sold	T 12,000	Q 16,000	M 8,000
	Sh.	Sh.	Sh.
Sales price per unit	50	70	60
Direct material cost per unit	16	24	20
Direct labour cost per unit	8	12	8

Production overheads costs	Total Sh.	Cost drivers
Machining costs	102,000	Machine hours
Production scheduling	84,000	Number of production runs
Set-up costs	54,000	Number of production runs
Quality control	49,200	Number of production runs
Receiving materials	64,800	Number of component receipts
Packing materials	36,000	Number of customer orders
	390,000

Information on the cost driver is given as follows:

	T	Q	M
Direct labour hours per unit	1	1\(\frac{1}{2}\)	1
Machine hours per unit	\(\frac{1}{2}\)	1	\(1\frac{1}{2}\)
Number of components per unit	3	5	8
Number of component receipts	18	80	64
Number of customer orders	6	20	10
Number of production runs	6	16	18

Required:

Using activity-based costing (ABC), determine the cost and gross profit per unit for each product during the period.

3b

Cost accumulation

Bingwa Ltd. operates a premium bonus system where workers receive a guaranteed basic hourly minimum rate of pay plus a bonus of 50% of the time saved.

The following data is provided for the last week of November 2022:

Particulars	Bella	Chali	Dan
Time rate (Sh. per hour)	300	280	320
Units produced	2,500 units	2,200 units	2,600 units
Time allowed for 100 units	2 hours 36 minutes	2 hours 30 minutes	2 hours 30 minutes
Time taken	55 hours	58 hours	54 hours
Rejected units	100 units	40 units	200 units

Additional information:

No payment is made beyond the time allowed.
The bonus which is paid at the basic hourly rate is applicable to the accepted output only.
No penalty is imposed on rejected output.

Required:

From the above information, calculate for each employee:

(i) Bonus hours and amount of bonus earned.

(ii) Labour cost for each good unit produced.

4a

Marginal and absorption costing

Explain FOUR arguments in favour of marginal costing system.

4b

Standard costing and variance analysis

Quota Ltd manufactures and sells a single product branded “TT” with a standard cost of Sh.1,100 made up as follows:

	Sh.
Direct materials (15 square metres at Sh.30 per square metre)	450
Direct labour (5 hours at Sh.100 per hour)	500
Variable overheads (5 hours at Sh.20 per hour)	100
Fixed overheads (5 hours at Sh.10 per hour)	50

The standard selling price per unit is Sh.1,300. The monthly budget projects production and sales of 1,000 units.

Actual figures for the month of November 2022 are as follows:

Sales 1,200 units at Sh.1,320 per unit.
Actual production 1,400 units.
Direct materials 22,000 square metres at Sh.40 per square metre.
Direct wages 6,800 hours at Sh.110.
Variable overheads was Sh.110,000.
Fixed overheads was Sh.60,000.

Required:

(i) Material price variance and material usage variance.

(ii) Labour rate variance and labour efficiency variance.

(iii) Fixed overhead capacity variance and fixed overhead efficiency variance.

5a

Product costing methods

Summarise FOUR salient features of process costing systems.

5b

The context of management accounting

Highlight SIX benefits that a firm would derive from establishing a good cost accounting system.

5c

Introduction to cost estimation

Ocean Ltd. is preparing its budget for the year ending 30 June 2023.

It is decided to estimate an equation of the form, Y = a + bx,

Where;

Y is the total maintenance expense at an activity level x.
a is the fixed maintenance expense.

The following information relate to the year ending 30 June 2023:

Month	Machine hours	Maintenance Cost (Sh.“000”)	Month	Machine hours	Maintenance Cost (Sh.“000”)
September 2022	400	960	February 2023	240	640
October 2022	240	880	March 2023	160	560
November 2022	80	280	April 2023	480	1,350
December 2022	400	1,200	May 2023	320	660
January 2023	320	800	June 2023	160	440

Required:

(i) Estimate the total cost function using the ordinary least squares method.

(ii) Determine the total cost if 1,050 machine hours were applied.

December 2022

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