KASNEB Management accounting - Question 2a

Discuss four objectives of budgetary control system in an organisation. ... [Click to view full question and step-by-step solution]

KASNEB Management accounting - Question 3a

Describe four limitations of management accounting in an organisation. ... [Click to view full question and step-by-step solution]

KASNEB Management accounting - Question 5a

In the context of costs classification, explain three types of costs based on behaviour. ... [Click to view full question and step-by-step solution]

November 2020

1a

Cost accumulation

Mejwa Ltd. is a manufacturing firm operating in the textile industry The company recorded the following transactions in relation to product BT during the month of January 2020:

Date	Purchases		Sales
	Quantity (Units)	Unit price Sh.	Quantity (Units)	Unit price Sh.
January: 1	12,000	150
3	8,000	160
7			12,000	200
8	10,000	155
13			5,000	210
17			8,000	205
20	12,000	140
23	7,000	152.5
25			11,000	200
27			10,000	202.5
31			200	212

Additional information:

1. The opening inventory of product BT on 1 January 2020 comprised of 9,500 units purchased at a cost of Sh. 135 per unit

2. On 9 January 2020, the company reported a shortage of 300 units.

3. On 19 January 2020, 600 units of the units sold on 17 January 2020 were returned by the customer

Required.

(i) A store ledger account for the month of January 2020 using first in first out (FIFO) method of inventory valuation.

(ii) The value of the closing stock

1b

Introduction to cost estimation

Ujenzi Company specialises in the manufacture of building blocks used in the construction industry. The cost sccountant of the company has prepared a schedule of estimated overhead cost on the assumption that production will be 170,000 blocks.

Overhead costs have been classified as fixed and variable costs by the company's cost accountant as indicated below:

Overheads	Amount
	Sh. "000"
Indirect materials	5,700 (all variable)
Indirect labour	4,100 (all variable)
Rent and rates	2,800 (all fixed)
Machinery depreciation	1,700 (all fixed)
Maintenance	5,200 (3,100 variable)
Technical support	1,620 (all fixed)
Storage cost	4,300 (4,100 variable)
Heat and light	3,100 1,000 fixed)
Water bill	1,700 (650 fixed)
Transport	2,900 (900 fixed)
Supplies	4,000 (all variable)

Required:

Using accounts analysis method, determine a cost estimation equation in the form of Y=a+bX taking the number of blocks to be the only cost driver

2a

Budgetary control

Discuss four objectives of budgetary control system in an organisation.

2b

Cost accumulation

A company uses two methods to remunerate its casual workers as follows:

Piece rate with guaranteed time rate.

The company pays its casual workers Sh.25 for every good output produced by them. Any spoilt output is paid at the rate of Sh. 10 and a penalty of 8% is charged based on the rate of the good production. The employees are guaranteed a minimum monthly pay of Sh.8,000.

Differential piece rate

An employee is compensated on piece rate basis and the following schedule is applied to determine his or her remuneration.

Number of units.	Rate of wages per unit Sh.
1 - 250 251 - 500 501 - 1,000 over1,000	15 20 25 30

Spoilt units are deducted from the first production, paid at the rate of Sh. 10 per unit and a penalty of 8% applied at the differential rate of the first production.

Three employees of the company produced the following number of units during the month of March 2020:

Employee	Number of units produced	Spoilt Unit
Amboga Banyala Charlie	2,000 1,800 1,650	200 100 50

Required:

(i). Determine the wages payable to each employee under the two labour remuneration methods.

(ii). Advise each employee on the best labour remuneration method to accept based on your computations in b (1)

above

3a

The context of management accounting

Describe four limitations of management accounting in an organisation.

3b

Cost-volume profit analysis (break-even analysis)

A manufacturing firm produces three products namely; X, Y and Z.

The following information relates to the production of the three products:

	Product
Details	X Sh.	Y Sh.	Z Sh.
Unit selling price	250	460	320
Variable production cost per unit:
Raw materials	70	155	110
Labour	24	44	32
Overheads	56	98	75

Additional information:

1. The total fixed production cost for the three products amounted to Sh.400,000.

2. Labour hours are currently limited to 25.000 hours paid at an hourly rate of Sh.8 during the production period.

3 The maximum demand for product X, Y and Z are 2,000 units, 1,800 units and 3,000 units respectively

Required:

(i). The current shortfall in labour hours at maximum demand.

(ii). The optimal product mix and the resultant profit.

4

Standard costing and variance analysis

Zaidi Merchants is a newly established manufacturing enterprise that uses standard costing in its operations. The firm manufactures a product branded "MX" which has a standard selling price of Sh. 120 per unit. Inventory is valued at standard cost.

The standard variable cost of one unit of MX is as follows:

	Sh.
Direct materials	20
Direct labour (6 hours at Sh.8 per hour)	48
Production overhead	24
Total	92

Additional information:

1	The budgeted and actual activity levels for the month of April 2020 were as follows:

		Budgeted units	Actual units
	Sales Production	25,000 25,000	25,000 26,000

2	The actual sales and variable costs for the month of April 2020 were as follows:

		Sh.
	Sales	2,995,000
	Direct materials (purchased and used)	532,800
	Direct labour (150,000 hours)	1,221,000
	Variable production overhead	614,000

Required:

(a). Calculate the following cost variances for the month of April 2020:

(i). Total direct materials cost variance.

(ii). Total variable production overheads variance,

(iii). Direct labour rate variance.

(iv). Direct labour efficiency variance

(b). A reconciliation statement between actual and budgeted profit or loss for the month of April 2020.

(c). Explain two factors to be taken into account in deciding whether or not to investigate individual variances.

5a

Costing terms and concepts

In the context of costs classification, explain three types of costs based on behaviour.

5b

Cost accumulation

Suggest four reasons that would lead a cost accountant to prefer Just-in-Time (JIT) purchasing over conventional purchasing models:

5c

Product costing methods

BIX Feeds Ltd. operates several production processes involving the mixing of ingredients to produce bulk animal feedstuffs. Its main product branded "HW" undergoes two processes; Process 1 and Process 2.

The following information relates to Process 2 for the period under consideration:

Costs incurred	Sh.
Transfers from Process 1	18,770,400
Raw materials cost	4,797,200
Conversion costs	6,317,600
Opening work-in-progress	300,900
Production	Units
Opening work-in-progress 100% complete, apart from Process 2 conversion costs which were 50% complete)	1,200
Transfers from Process 1	112,000
Completed output	105,400
Closing work-in-progress (100% complete apart from Process 2 conversion costs which were 75% complete)	1,600

Additional information:

1. Normal wastage of materials (including product transferred from Process 1), which occurs in the early stages of Process 2 (after all materials have been added), is expected to be 5% of input,

2 Process 2 conversion costs are all apportioned to units of good output.

3. Wastage materials have no saleable value

Required:

Process 2 account for the period, using the First-in-First-Out (FIFO) method.

November 2020

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