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CPA Management accounting – December 2022 Past Paper & Answers

Unit: Management accounting

12 Questions

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Questions

Download CPA Management accounting December 2022 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
Budgetary control
​​Outline SIX benefits that would accrue to an organisation that encourages employees to participate in budget preparation.
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1b
Cost accumulation
​​Highlight FOUR benefits of continuous stock taking to a company.
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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: 
  1. The company’s annual demand is 60,000 units. 
  2. The ordering cost per order is Sh.50,000. 
  3. The holding cost is 20% of the purchase price 
  4. The company practices continuous stock taking throughout the year. 
Required: 
Advise the company on the quantity range that would yield the highest cost savings.
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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.
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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: 
  1. 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. 
  2. In addition to the above costs, non-production overhead costs are expected to be Sh.577,500. 
  3. During the period, the availability of material Q is expected to be limited to 31,250 litres. 
  4. 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.

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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.
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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: 
  1. No payment is made beyond the time allowed. 
  2. The bonus which is paid at the basic hourly rate is applicable to the accepted output only. 
  3. 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.
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4a
Marginal and absorption costing
​​Explain FOUR arguments in favour of marginal costing system.
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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.
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5a
Product costing methods
​​Summarise FOUR salient features of process costing systems.
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5b
The context of management accounting
​​Highlight SIX benefits that a firm would derive from establishing a good cost accounting system.
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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. 
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