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CPA Management accounting – May 2018 Past Paper & Answers

Unit: Management accounting

12 Questions

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Download CPA Management accounting May 2018 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
The context of management accounting
​​ Describe four limitations of management accounting.
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1b
Cost accumulation
​​XYZ Ltd, manufactures a component branded "zed" at the rate of 4,000 units per week. Demand for the component is 2,000 units per week while the production set up cost is Sh.50 per batch. The accountant has provided the holding cost per unit per annum as Sh.0.001

Assume a 50-week year.

Required:
(i) Economic Batch Quantity (EBQ) for the company

(ii) Determine the relevant costs for the EBQ in (b) (i) above
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1c
Costing terms and concepts
​ ​​Louise Njambi has taken a lease on a stall from the county government at a down payment of Sh.50,000. The annual rental payment amounts to Sh.50,000. If the lease is cancelled, the initial payment of Sh.50,000 is forfeited. Louise plans to use the stall in selling women's clothes and the estimated operation costs for the next 12 months are as follows:

Sh.
Sh.
Sales
1,150,000
Value added tax (VAT)
(150,000)
Net sales
1,000,000
Cost of goods sold
500,000
Wages and casual labour
120,000
Rent including the down payment
100,000
Rates, heating, lighting and insurance
130,000
General expenses
20,000
(870,000)
Net profit 
130,000

Additional information: 
1. No provision has been made for Louise Njambi's salary but it is estimated that half of her time will be devoted to the business. 

2. She has an option of subletting the stall to a friend at a monthly rent of Sh.5,500 if she does not use the stall herself. 

Required: 
(i) Explain using relevant examples from the situation depicted above; sunk costs and opportunity costs. 

(ii) Using a cost analysis statement, advise Louise Njambi on whether to use the stall herself or sublet it.
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2a
Costing terms and concepts
​​Classification of cost based on function involves classifying costs on the basis of the purpose for which costs are incurred

With reference to the above statement, explain three types of costs classified by function.
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2b
Introduction to cost estimation
​The administrator of Chehatok Hills Hospital would like to establish a cost formula linking the administrative costs involved in admitting patients to the number of patients admitted during the month. The admissions department's costs and the number of patients admitted during the last eight months for the year 2017 are given below

Month

May
June
July
August
September
October
November
December		Number of patients
admitted
1,800
1,900
1,700
1,600
1,500
1,300
1,100
1,500		Admission department's
Cost "Sh."
14,700
15,200
13,700
14,000
14,300
13,100
12,800
14,600

Required:
(i)Using the high-low method, estimate the fixed and variable components of admission costs.
(ii)Using the least squares method, estimate the relationship between number of patients admitted and the admission costs in the form of Y = a + bx
(iii)Using the relationship obtained in (b) (ii) above, estimate the admission costs incurred in January 2018 if admission was 2,000 patients
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3a
Cost accumulation
​​Savanah Company is highly automated and uses computers to control manufacturing operations. The company uses job order costing system and applies manufacturing overhead costs to products on the basis of computer hours. 

The following estimates were used in preparing predetermined overhead rates at the beginning of the financial year ended 31 March 2018.

Computer hours
85,000
Fixed manufacturing overhead costs
Sh. 1,275.000
Variable manufacturing overhead per computer-hour
Sh.3.0

During the year, a severe economic recession resulted in cutting back production and a buildup of inventory in the company's warehouse. The company's cost records disclosed the following actual costs and operating data for the year ended 31 March 2018:

Computer hours
60,000
sh.
Manufacturing overhead costs
1,350,000
Cost of goods sold
2,800,000
Inventories at the year-end:
Raw materials
400,000
Work-in-progress
160,000
Finished goods
1.040.000

Required:
(i)
Compute the company's predetermined overhead absorption rate for the year.
(ii)
Compute under-applied or over-applied overhead cost for the year.
(iii)
It is the policy of the company to allocate any under or over-applied overheads to cost of goods sold.

Determine the cost of goods sold to be charged to the income statement.
 
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3b
Budgetary control
​​Better Designs Ltd. manufactures a single product using a single grade of labour. Its sales budget and finished goods inventory budget for the third quarter of the year 2018 are as follows:

Units
Sales
7,000
Opening inventories finished goods
500
Closing inventories finished goods
700

Additional information: 
1 The goods are inspected only when production work is completed and it is budgeted that 10% of finished work will be scrapped. 

2. Standard direct labour hours per unit is 3. 

3. The budgeted productivity ratio for the direct labour is only 80% (which means that labour is working at 80% efficiency).
 
4. The company employs 18 direct employees who are expected to average 1,440 working hours each for the quarter. 

Required: 
(i) Production budget for the quarter.

(ii) Direct labour budget. 

(iii) Calculate the shortfall in direct labour hours.
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4a
The context of management accounting
​​Summarise four advantages of value chain analysis in cost management.
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4b
Product costing methods
​​Karibu Cottages Ltd. operates three types of suites for its customers namely: Standard, Deluxe and Luxury. 

The following information is provided:

1
The number of suites of each type are:
Standard
100
Deluxe
30
Luxury
20
2
The rent of Deluxe suite is to be fixed as 1½ times the standard suite and that of Luxury as twice the standard suite. 
3
The occupancy level for each suite is as follows:
Peak season
Off peak season
Standard suites
90%
50%
Deluxe suites
80%
20%
Luxury suites
60%
20%
4
The expenses are as follows:
o
Room attendant wages per day when occupied:
Suite
Peak season
Sh.
Off peak season
Sh.
Standard
20
30
Deluxe
30
45
Luxury
40
60
o
Lighting, heating and power for full month, when occupied is as follows:
Suite
Lighting
(Sh.)
Power
 (Sh.)
Standard
400
200
Deluxe
600
300
Luxury
800
400
o
Other costs (annual):
Staff salaries
2,200,000
Repairs and renovations
420,000
Linen and laundry
450,000
Interior decorations
500,000
Sundries
315,500
o
Annual depreciation is charged on a straight line basis as follows:
Asset
Cost of asset (Sh.)
Rate per annum (%)
Building
14,000,000
5
Furniture and fixtures
1,000,000
10
Air conditioners
2,000,000
10
5
Peak season is assumed to be 7 months and off-peak season 5 months in a year. One month is taken to have 30 days.
6
Profit including interest on investment is 25% on cost.

Required: 
Advise on the amount of rent to be charged for each type of suite per day.

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5a
Cost accumulation
​​Distinguish between "interlocking accounting systems" and "integrated accounting systems" as used in cost bookkeeping.
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5b
Marginal and absorption costing
​​Highlight two advantages of marginal costing.
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5c
Standard costing and variance analysis
​​The standard cost card for production of a component "Wye" is as follows:

Materials
1 kg at Sh.4 per kg per unit
Labour
25 hours (100 units) at Sh.8 per hour
Variable overheads
Sh.48,000 for budget period
Fixed overheads
Sh.120,000 for budget period
Output
24,000 units

Details for a production of 2,000 units are as follows:

Materials issued
2,000 kgs at Sh.3.50 per kg
Actual production
1,800 units
Actual wages 
480 hours at Sh.8.50 per hour
Actual variable overheads
Sh.4,000
Actual fixed overheads
Sh.10,600

Required: 
(i) Materials usage v ariance. 

(ii) Labour rate variance. 

(iii) Variable overheads efficiency variance. 

(iv) Fixed overheads volume variance.
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