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CPA Management accounting – May 2016 Past Paper & Answers

Unit: Management accounting

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Download CPA Management accounting May 2016 past paper with detailed answers and marking scheme. This paper is based on KASNEB examination standards and is ideal for revision and exam preparation.

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Other Management accounting Past Papers

1a
Cost-volume profit analysis (break-even analysis)
​ ​ ​ ​​The following information has been made available from the records of Keni Automotives Ltd.. a company dealing with the manufacture of spare parts:

Direct materials
Price per unit
        Sh.
X
Y
Direct wages
X
Y
Variable.overheads
Fixed overheads
Selling price
X
Y
       800
       600

12.hours.at.Sh.50.per.hour
8 hours at Sh.45 per hour
150% of direct wages
Sh.750,000
      Sh.
    2,500
    2,000

The directors of the company have sought your advice on the following alternative sales mix in the budget for the next period: 

I.  2,500 units of X and 2.500 units of Y. 

II. 4,000 units of Y only. 

III. 4,000 units of X and 1.000 units of Y. 

IV. 1,500 units of X and 4.000 units of Y. 

Required: 
Advise the management of the company on which of the alternative sales mix you would recommend. Justify your answer. 
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1b
Cost-volume profit analysis (break-even analysis)
​ ​ ​ ​​A company intends to start selling a new pair of hand held pliers in the upcoming financial year. The company wishes to establish how many hand held pliers should be sold in order to break even on this investment. The chief accountant has provided the following data:

Fixed costs
Sh.
Metal molding machine
1,000,000
Plastic grip molder
250,000
Sander
50,000

Variable cost (per unit)

Sh.
Packaging material
400
Raw materials
700
Grip metal
200
Shipping
75

Additional information: 
  1. The marketing department estimates that they could sell the new pair of hand held pliers for Sh.1,500 per unit and that projects' sales will average 16,000 units per month. 
  2. The company wishes to break even and start to earn profit within the first month. 
  3. The target profit level at the end of the first month is Sh.250,000. 
Required: 
(i) The number of units required to break even. 

(ii) Based on the projected monthly sales, calculate the margin of safety. Comment on your answer 

(iii) The number of units required to earn the target profit at the end of the first month.
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2a
Standard costing and variance analysis
​ ​​ Rivt Fries Enterprises: Ltd. manufactures food products. The details of the manufacturing cost of one of its products branded "Tamu" is provided below: 

Standard cost per unit: 
Materials: 6 kilograms at Sh.480 per kilogramme 

Labour: 4.8 hours at Sh.800 per hour. 

Additional information: 
  1. The actual cost for the month of April 2016 was as follows: Materials: 59,000 kilograms at Sh.500 per kilogramme Labour: 47,500 hours at Sh.900 per hour 
  2. The actual production amounted to 10.000 units. 
  3. The variable production overheads are absorbed at 50% of the direct labour cost. 

Required: 

(i) The material cost variance. 

(ii) The labour cost variance. 

(iii) Reconciliation of standard and actual costs in (a)(i) and (a)(ii) above.
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2b
Introduction to cost estimation
​ ​​Talde Ltd.. a manufacturing company, is concerned about the variation in its total manufacturing costs. The production manager has therefore requested you to estimate a predictable cost pattern to be used in future cost prediction. 

Based on judgement, the plant manager has classified each manufacturing cost as fixed, variable, or part fixed and part variable. He has provided you with the following information for the month of April 2016 when 10,000 units were produced:

Details of cost
Direct materials
Direct labour
Depreciation
Telephone
Other utilities
Supervisors salary
Equipment repairs
Indirect materials
Factory.maintenance 
Cost(Sh.)
420.000
150.000
80,000
2.000
40,000
200.000
60,000
4,000
60,000
Cost.behaviour
Variable
Variable
Fixed
Fixed
20% fixed
80% fixed
10% fixed
Variable
90% fixed

Required:

(i) Using the accounts analysis method, estimate the fixed cost per month and the variable cost per unit. 

(ii) Based on your answer in part (b)(i) above, compute the incremental cost of producing 2,000 units. 
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3a
The context of management accounting
​​Describe six cost accounting tasks that could be routinely undertaken by using computers.
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3b
Activity based costing
​ ​​QFX Ltd. uses batch costing in cost analysis. The following information is provided:

Batch
Output in units

Cost per batch
Direct labour (Sh.)
Direct materials (Sh.)

Labour.hours.per.batch
P
2,500


92,000
16,500

11,500
Ο
600


15,200
7,500

1,900
R
2,000


68,800
21,000

8,600
S
1,200


 24,000
9,000

3,000

The following data relates to the total production overheads for the period ended 31 March 2016:

Particulars
Stores
Inspection
Set-up
Engineering support
Machine related costs
Materials dispatch
Cost(Sh.)
82,500
58,500
62,000
83,000
146,000
68,000
500,000
Cost driver
Number.of.requisitions
Number of inspections
Number of set-ups
Engineering hours
Machine hours
Materials movements

Corresponding cost driver volumes for the batches were as follows:


Requisitions
Inspections
Setups
Engineering hours
Machine hours
Materials.movement
P
400
180
120
650
5,200
1,800
Q
210
80
70
380
2,550
700
R
430
130
160
520
6,100
2,050
S
260
80
80
350
3,250
400
Total
1,300
470
430
1,900
17,100
4,950


Required: 

Compute the batch cost and unit cost using: 

(i) Traditional costing based on a labour hour overhead absorption rate. 

(ii) Activity based costing (ABC) system.
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4
Budgetary control
​ ​ ​ ​ ​​Mark Ltd. operates a budgetary control system. The following is the company's income forecast for the four months period ending 31 August 2016:


2016


Sales
Cost of sales
Gross margin 
Selling and administration expenses:
     Selling expenses
     Administration expenses
....Total.selling.and.administration.expenses
Net operating income
May
Sh."000"
45,000
(21,000)
24,000

7,000
5,500
12,500
11,500
June
Sh."000"
55,000
(28,000)
27,000

8,400
5,900
14,300
12,700
July
Sh."000"
75,000
(42,000)
33,000

11,200
6,900
18,100
14,900
August
Sh."000"
50,000
(22,000)
28,000

7,300
5,200
12,500
15,500

Additional information: 

  1. Administration expenses include depreciation of Sh.1,800,000 each month. 
  2. 20% of the sales are on cash basis. 
  3. Credit sales are collected over a 3-month period with 20% collected in the month of sale. 65% in the month following the month of sale. and 15% in the second month following sale. 
  4. Sales for the months of March 2016 and April 2016 totalled Sh.27 million and Sh.33 million respectively 
  5. Inventory purchases are paid for within 15 days. Therefore. 50% of a month's inventory purchase are paid for in the month of purchase and the remaining 50% paid for in the following month. Accounts payable for inventory purchases as at 30 April 2016 totaled Sh.11.1 million. 
  6. The company maintains its ending inventory levels at 25% of the cost of the merchandise to be sold in the following month. The merchandise inventory as at 30 April 2016 amounted to Sh.5.25 million. 
  7. Land costing Sh.4.3 million will be purchased in May 2016. 
  8. Dividends of Sh.1.3 million will be declared and paid in July 2016. 
  9. The cash balance on 30 April 2016 amounted to Sh.8.4 million and the company must maintain a cash balance of at least this amount at the end of each month. In case of any deficit, a bank overdraft is obtained. 

Required: 

For the three months ending 31 July 2016. prepare: 

(a) Debtors collection schedule. 

(b) Creditors payment schedule. 

(c) Cash budget. 
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5a
The context of management accounting
​ ​​Explain three benefits that could be derived by an organisation from operating an integrated cost accounting system.
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5b
The context of management accounting
​​Describe three factors to be considered by an organisation when undertaking performance measurements.
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5c
Cost accumulation
​​Discuss four requirements for the proper operation of Just-in-time (JIT) system in an organisation.
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