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CPA Management accounting – December 2023 Past Paper & Answers

Unit: Management accounting

14 Questions

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Questions

Download CPA Management accounting December 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.

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
​​Discuss THREE essential features of a budget.
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1b
Cost accumulation
​ ​ ​ ​​Godoro Ltd. supplies high quality mattresses. The company outsources these mattresses from a supplier in town. Godoro Ltd. estimates that the total inventory holding cost of one mattress per annum is as follows:

Cost
Percentage of purchase price per unit per annum (%)
Opportunity cost
5
Obsolescence cost
4
Storage charges
3
Handling cost
2
Insurance cost
..1..
15

Additional information: 
  1. The annual sales demand of the mattresses is 480 mattresses. 
  2. Each mattress costs Sh.4,000 to purchase from the supplier. 
  3. The ordering cost is Sh.6,250 per order. 
  4. The supplier offers a 3% discount for orders of 120 mattresses and a discount of 5% for orders of 180 mattresses. 

Required: 
(i) The economic order quantity (EOQ) of the mattresses. 

(ii) The cost minimising order size from the supplier.
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1c
Cost-volume profit analysis (break-even analysis)
​ ​ ​​Jeffy Ltd. has been manufacturing and selling three textile products. The following details are available for each of the three products:

Product
Cotton
Sh. per unit 
Linen
Sh. per unit 
Polyester
Sh. per unit 
Direct material 
350
365
255
Direct labour
480
240
210
Variable production overheads
150
115
205
Fixed production overheads
...300
...300
...300
Total cost per unit
1,280
1,020
970
Selling price
1,600
1,340
1,300
Net profit
320
320
330

Budgeted annual demand (units)

1,600

2,400

3,000

Additional information: 
  1. Each direct labour hour is charged at Sh.120 for cotton, Sh.120 for linen and Sh.70 for polyester. 
  2. The direct labour force is threatening to go on strike for two weeks. This means that only 10,100 hours will be available for production rather than the expected 20,200 hours. 

Required: 
If the strike goes ahead as planned, advise the management of Jeffy Ltd. on the product(s) that should be produced if profits are to be maximised.
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2a
Cost-volume profit analysis (break-even analysis)
​ ​ ​​The Management Accountant of Almah Ltd. provided the following profit statement for the year ended 31 October 2023:


Revenue
Total costs
Net profit
Sh.“million”
60
(48)
12

The contribution sales ratio is 50%. 

Required: 
(i) Calculate the break-even sales. 

(ii) Calculate the margin of safety.
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2b
Cost-volume profit analysis (break-even analysis)
​ ​ ​​The management of Almah Ltd. in (a) above is considering two options with a view to increase sales in the year 2024. 

These options are: 

Option one: Increase sales by 30% and incur a sales promotion campaign worth Sh.5 million. 

Option two: Increase sales by 20% and reduce the selling price by 10%. 

Required: 
Advise the management of Almah Ltd. on the better option to implement.
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2c
Cost-volume profit analysis (break-even analysis)
​ ​​Dimax College has been using their own van to transport students to and from college. The new principal feels this may be too expensive for the school. He suggests that the college could lease transport services from Gari Ltd. at a cost of Sh.308,000 per month. 

The college accountant revealed the following information:

Sh.
Cost of the van 
7,000,000
Annual insurance
790,000
Annual repairs
440,000
Driver’s monthly salary
90,000
Annual road licence
100,000
Transport levy per annum
154,000
Scrap value of the van 
1,000,000
Tyres and tubes annual cost
126,000
Inspection cost per year
10,000
Petrol cost per kilometre
154

Additional information: 
1
The van is estimated to cover 40,000 km per year. It has an estimated useful life of six years.
2
A new traffic rule has been issued requiring all passenger vehicles including college vans to be fitted with speed governors and seat belts. This will cost Sh.40,000 per annum.
3
Gari Ltd.’s monthly cost of Sh.308,000 is attributed as follows:
3

Van hire 
Driver’s salary
Maintenance.fee  
Sh.
220,000
50,000
...38,000
308,000

Required:
 (i)
Compute the cost per kilometre if the college:
  • Uses its own transport.
  • Hires transport services.
(ii)
Outline THREE other factors that the college might consider in choosing the best alternative

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3a
Cost accumulation
​​Differentiate between “overhead allocation” and “overhead absorption”.
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3b
Cost accumulation
​ ​ ​​Maono Ltd. has a budgetary activity level of 50,000 direct hours and budgeted production overheads of Sh.10,000,000. The following information was obtained from its three departments namely; A, B and C. 

  1. Department A: 50,000 direct hours are worked and the actual overheads were Sh.9,400,000. 
  2. Department B: 43,000 direct hours are worked and the actual overheads were Sh.10,000,000. 
  3. Department C: 45,000 direct hours are worked and the actual overheads were Sh.9,600,000. 

Required: 
Determine over or under absorption of overheads of each department.
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3c
Cost-volume profit analysis (break-even analysis)
​ ​ ​​Tamu Ltd. is a company located in the Eastern part of the country and manufactures juices. The company plans to establish a subsidiary in western part of the country to produce mineral water. Tamu Ltd. estimates that the subsidiary can produce 40,000,000 bottles of water in the next one year. 

The cost analysis for the subsidiary yielded the following estimates:

Sh.“000”
Percentage of total annual cost that is variable (%)
Material cost 
1,936,000
100
Labour cost
900,000
70
Overhead cost
800,000
64
Administrative cost
300,000
30

Additional information: 
  1. The bottled water produced by the subsidiary will be sold by sales representatives who will receive a commission of 8% of the sales price. 
  2. The subsidiary will operate independently in terms of costs and revenue. 

Required: 
(i) Compute the sales price per bottle to enable management realise an estimated 10% profits on sales proceeds in the subsidiary. 

(ii) Calculate the break-even point in value for the subsidiary on the assumption that the sales price is Sh.110 per bottle.
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4a
Marginal and absorption costing
​ ​​Melta Ltd. has just completed its first year in operation. The unit costs and selling price based on absorption costing basis are as follows:

Standard cost and selling price: 
Sh.
Direct material
(2 kilograms at 350 per kilogram)
700
Direct labour
(0.5 hours at Sh.1,600 per hour)
800
Production overhead:
Variable overheads
(0.5 hours at Sh.600 per hour)
300
(0.5 hours at Sh.600 per hour)
(0.5 hours at Sh.900 per hour)
450
Standard production cost
2,250
Standard profit margin
2,750
Standard selling price
5,000

Additional information:
1
Other budgeted costs during the period in relation to selling and distribution and administration were as follows:
1
Variable costs
Fixed costs (Sh.)
Selling and distribution
10% of sales
  9,000,000
Administration
12,300,000
2
During the year, the company had the following activity levels:
  • Actual production was 24,000 units.
  • Units sold were 21,300 units
3
Actual fixed production overheads was Sh.300,000 less than absorbed fixed production overheads.
4
Budgeted fixed selling and distribution overheads were Sh.50,000 less than the actual fixed overheads.
5
Melta Ltd. used an expected activity level of 24,000 direct labour hours to compute the predetermined overhead rates.

Required: 
Prepare the following operating statements: 

(i) Absorption costing profit or loss statement. 

(ii) Marginal costing profit or loss statement. 

(iii) A reconciliation statement for absorption and marginal profits.

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4b
Budgetary control
​ ​​Motomoto Ltd. operates standard costing system. The following budgeted information relates to its only product:

Quantity
Unit price (Sh.)
Standard cost per unit (Sh.)
Direct material A
3 kilograms
140
420
Direct material B 
2 kilograms
250
500
Direct labour
2 hours 
105
110
Fixed overheads
...270...
Standard cost per unit
1,300  

Budgeted production amounted to 800 units at a unit price of Sh.1,300.

Actual production data for the month of November 2023:

Quantity
Sh.
Sales revenue
850 units
1,326,000
Direct material A
2,410 kilograms
(325,350)
Direct material B
1,000 kilograms
(270,000)
Direct labour
890 hours
(97,900)
Fixed overheads
(229,500)
Net profit
403,250
Actual output amounted to 850 units.

Additional information: 
  1. Budgeted fixed overheads for its product is based on budgeted output of 800 units per month. 
  2. Standard selling price was budgeted as Sh.1,600 per unit. 
  3. There was no opening or closing inventory of direct material. 

Required: 
Flexible budget profit statement.

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5a
Costing terms and concepts
​​Major policy decisions in business are based on cost factor and it is important to distinguish between controllable and non-controllable costs in decision making. However, the classification of cost as controllable and non-controllable depends on the point of reference. 

Required:
(i) With reference to the above statement, explain TWO possible uses of cost information to the management. 

(ii) By distinguishing between “controllable costs” and “non-controllable costs”, discuss how the classification of cost as controllable and non-controllable depends on a point of reference.
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5b
Activity based costing
​​Activity Based Costing (ABC) attempts to relate the incidence of costs to the level of activities undertaken. 

Required: 
In relation to the above statement, explain the following hierarchy of activities that are used in activity based costing system: 

(i) Unit level activities. 

(ii) Batch level activities. 

(iii) Product level activities.
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5c
Standard costing and variance analysis
​ ​​ABC Ltd. produces and sells a single product Zed whose standard cost is as follows:

Sh.
Direct material (15kgs at Sh.260 per kg)
3,900
Direct wages (5 hours at Sh.60 per hour)
300
Fixed production overheads
....500
4,700

Additional information:
1
The fixed overheads included in the standard cost is based on an expected monthly output of 1,000 units.
2
Fixed production overheads are absorbed on the basis of direct labour hours.
3
During the month of November 2023, the actual results were as follows:
3
Production
890 units
Material
12,100 units costing Sh.1,835,500
Direct wages
4,200 hours worked for Sh.241,500
Fixed production overheads
Sh.470,000

Required: 
(i) Material price variance and material wage variance. 

(ii) Labour rate variance and labour efficiency variance.

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