THE MOMBASA POLYTECHNIC UNIVERSITY COLLEGE

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1 THE MOMBASA POLYTECHNIC UNIVERSITY COLLEGE Faculty of Business & Social Studies DEPARTMENT OF BUSINESS STUDIES BACHELOR OF BUSINESS ADMINISTRATION HBC 2213: MANAGEMENT ACCOUNTING END OF SEMESTER EXAMS SERIES: APRIL/MAY TIME: 2 HOURS INSTRUCTIONS TO CANDIDATES 1. The paper consists of TWO sections A and B. 2. Answer Question 1 (compulsory) and any other TWO questions from Section B. SECTION A (Compulsory) Q.1 (a) Define Management Accounting by clearly explaining any FIVE components. The following data relates to Mum Co. Ltd. Period Activity level (Units) Costs (Ksh) , , , , , , Mombasa Polytechnic University College Page 1

2 (i) (ii) Using High/Low Method, estimate the cost of product of 400 units. The following data has been observed from DAMCO Co. Ltd. Month Cost January 380,000 February 300,000 March 450,000 April 350,000 May 420,000 Using a moving average of 4 months, estimate the cost for the month of June and July. (c) The DA division of Business Industries makes two component parts X23 and Y99. It supplies X22 to market division to be used in the manufacture of car engines and supplies Y99 to DBA division to be used in the manufacturer of gearboxes. The DA division is the only supplier of these specialized components. When transfers are made in house full cost plus 10% is used. The unit cost information for X23 and Y99 are as follows: X23 Y99 Shs. Shs. Variable cost per unit 11 8 Allocated fixed cost per unit 14 7 The market division feels that the price for X23 is too high and has told DA that it is outsourcing for a supplier who would sell to them at a linear price. Wellingtone, the DA s Management Accountant, calls Jacky, his assistant into his office. We can t afford to lose the DMKT division. Our fixed costs won t go away even if we stop supplying DMKT and this means that the cost of supplying X99 to DBA will increase. Then they will start wanting to buy from outside. We and security looking at shutting down the entire division if we lose DMKT. See if you can find a different method of allocating fixed costs that will decrease X23 s transfer price to Kshs I hope DBA will be willing to pay a somewhat higher price for Y99. (i) Calculate the transfer price for X23 and Y Mombasa Polytechnic University College Page 2

3 (ii) Calculate the fixed cost per unit that Jacky would have to allocate to X23 to enable DA to transfer X23 at Kshs per unit. (iii) Explain any FIVE advantages of acquiring an intermediate good from within the organization as compared to buy from outside. SECTION B (Answer any TWO questions.) Q.2 (a) Zerocal Ltd. Manufactures and Markets a sliming drink which they sell at 20/= per can. Current output is 400,000 cans per month which represents 80% of capacity. They have received an order to make 150,000 cans per month at 13/= per can from a supermarket chain who will sell it as a own label product. Total cost for last month were Kshs.5,600,000 of which KSHS.1,600,000 were fixed costs. Advice the company on whether to accept or reject the order. Show all your workings. (10 marks) The following details are available regarding three products X, Y and Z. Products X Y X Shs. Shs. Shs. Selling Price 2,000 3,000 4,000 Material (shs.40 per kg) ,400 Labour (shs.15 per hrs) Variable overhead Variable overheads are recovered at the rate of shs.5 per hour. Calculate the priority ranking of these products when the limiting factor is: (i) Materials (ii) Labour Q.3 (a) A firm has a fixed cost of Kshs.50,000 per year and has three products in sales and contribution of which are shown below. Product Sales Contribution C/S ratio Kshs. Kshs Mombasa Polytechnic University College Page 3

4 X 150,000 30,000 20% Y 40,000 20,000 50% Z 60,000 25,000 42% (i) Calculate the break even point in Sales. (ii) Assuming the sales ratios are maintained, how much sales of each product is required for the company to break even. A manufacturer incurred the following costs in a period for his sole product. Kshs. Labour (25% variable) 8,000 Material (100% variable) 12,000 Selling costs (10% variable) 2,000 Other costs (Fixed) 7,000 Total costs 29,000 A normal period s sales are 500 units at shs.70 each, but up to 650 units could be made in a period. Various alternatives are being considered. (i) (ii) (iii) Reduce the price to shs.63 each and sell all that could be made. Increase the price to shs.80 each and sales would be 400 units. Keep the present plan. What is the most profitable plan? Show all your workings. (10 marks) Q.4 The manufacturer of product Tee involves the production processes namely welding, filling and spraying. In the month of November, 200 units valued at Kshs.50 each entered production and the costs incurred for the processes are given below: Process Type of cost Welding Filing Spraying Total Direct Materials Direct Labour Direct Expenses Overheads 40,000 60,000 10,000 60,400 80,000 4,520 69, , , ,000 14, ,000 The amount of output from each process was as follows: Welding 184 units Filing 174 units Spraying 160 units The estimated normal loss for each process was: 2010 Mombasa Polytechnic University College Page 4

5 Welding 10% Filing 5% Spraying 10% The loss to each process represented defective units which could be disposed of at the following values: Welding shs.30 per unit Filing shs.50 per unit Spraying shs.60 per unit. There was no stocks of materials or work in progress at the beginning or end of the month. The output of each process passes directly to the next process at cost without any provision for internal profit. Manufacturing overheads are absorbed by each process at 50% of the direct labour cost. Prepare in a good form the following: (a) Process accounts for each of the three processes. (15 marks) Abnormal Loss and Abnormal Gain Accounts. Show all your workings. Q.5 (a) Briefly explain any FIVE limitations of Responsibility Accounting. (10 marks) Bidii Company Ltd. manufactures a single product and uses standard costing. The standard cost for producing one unit of the product is as follows: Shs. Direct Material: Material X (3 Kgs) 30 Material Y (5 Kgs) 25 Direct Labour (5 hrs) 40 Production overheads: Variables 30 Fixed 20 Standard Unit Cost 145 Note: Overhead is applied on basis of direct labour hours. In the month of May 2008, the company had budgeted to produce 10,000 units. However, 11,000 units were actually produced and the costs 2010 Mombasa Polytechnic University College Page 5

6 incurred were as follows: Shs. Shs. Direct Material: Material X (34000 Kgs) 323,000 Material Y (52000 Kgs) 312, ,000 Labour costs (51000 hrs) 433,500 Manufacturing overheads: Variables 340,000 Fixed 220, ,000 Total Manufacturing Costs 1,628,500 Calculate the following variances indicating whether they are favourable or unfavourable. (i) Material Price Variance (2 marks) (ii) Material Usage Variance (2 marks) (iii) Labour Rate Variance (2 marks) (iv) Labour Efficiency Variance (2 marks) (v) Total Variable Overhead Variance (2 marks) 2010 Mombasa Polytechnic University College Page 6

Module Title: Management Accounting 2

CORK INSTITUTE OF TECHNOLOGY INSTITIÚID TEICNEOLAÍOCHTA CHORCAÍ Semester 2 Examinations 2008/09 Module Title: Management Accounting 2 Module Code: ACCT 6004 School: Business Programme Title: Bachelor of