W1-2-60-1-6
JOMO KENYATTA UNIVERSITY
OF
AGRICULTURE AND TECHNOLOGY
University Examinations 2014/2015
FOURTH YEAR SECOND SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF PURCHASING AND SUPPLIES MANAGEMENT
HPS 2408: MANAGEMENT ACCOUNTING
DATE: AUGUST 2014 TIME: 2 HOURS
INSTRUCTIONS: ANSWER QUESTION ONE (COMPULSORY) AND ANY OTHER TWO QUESTIONS
Question One (30 Marks)
As the Head of Procurement Department, you are responsible for all decisions made by your department, to enhance the decision making skills of your team, you have decided to educate them about the decision making process. With the use of diagram prepare a well detailed presentation that you will use to educate them about the decision making process. (30 Marks)
Question Two (20 Marks)
a) Mumias Sugar Ltd is trying to set the selling price for one of its products and three prices are under consideration. These are Kshs. 4, Kshs. 4.30 and Kshs. 4.40.
The following information is also provided:
Alternatives
| Conditions | Kshs. 4.00 | Kshs. 4.30 | Kshs. 4.40 |
| Best possible | 16,000 | 14,000 | 12,500 |
| Most likely | 14,000 | 12,500 | 12,000 |
| Worst possible | 10,000 | 8,000 | 6,000 |
| Fixed costs = | Kshs. 20,000 | ||
| Variable cost per unit= | Kshs. 2 |
Required:
Advice the company on the best price to set by use of: (15 Marks)
Minimax regret criterion
(ii) Maxima decision rule
(iii) Laplace criterion of rationality
b) Write brief notes to distinguish between variable cost and fixed cost. (5 Marks)
Question Three (20 Marks)
a) The Production Manager of XYZ Company, is concerned about the apparent fluctuation in efficiency and wants to determine how labour cost (in Kshs.) are related to volume. The following data presents results of the 1.2 most recent weeks:
| Week No. | Units produce (x) | Labour costs (y) |
| 1 | 34 | 340 |
| 2 | 44 | 346 |
| 3 | 24 | 287 |
| 4 | 36 | 262 |
| 5 | 30 | 220 |
| 6 | 49 | 416 |
| 7 | 39 | 337 |
| 8 | 21 | 180 |
| 9 | 41 | 376 |
| 10 | 47 | 295 |
| 11 | 34 | 215 |
| 12 | 24 | 275 |
Required:
Estimate the cost function using regression analysis. (15 Marks)
b (i)
| Finished products | NIKS | ARGS |
| The Sales Director has estimated the following: | ||
| (i) Demand for the COS products | 4,500 units | 4,000 units |
| (ii) Expected S. P per unit | Kshs. 32 | Kshs. 44 |
| (iii) Closing stock @ 31st December 2015 is required to be | 400 units | 1,200 units |
| (iv) Opening stocks at 31st January 2014 | 900 units | 200 units |
| (v) Unit cost of this opening stock will be | Kshs. 20 | Kshs. 28 |
| (vi) The amount of plant capacity required for each
product is: Machining Assembling |
15 mins 12 mins |
24 mins 18 mins |
| (vii) The raw material content per unit is:
Material A Material B |
1.5 kg 2.0 kg |
0.5 kg 4.0 kg |
| (viii) Direct labour hours required @ unit of each product is | 6 hrs | 9 hrs |
Finished goods are valued at FIFO basis at full factory cost:
(ii)
| Raw materials | Material A | Material B |
| (i) Closing stock requirement kilos at 31st December 2015 | 600 | 1,000 |
| (ii) Opening stock at 1st April 2014 | 1,100 | 600 |
| (iii) Budgeted cost of raw materials per kilo | Kshs. 1.50 | Kshs. 1.00
|
Actual cost per kilo of opening stocks are as budgeted cost for the coming year:
(iii) Direct labour
The standard wage rate of direct labour is Kshs. 1.50/hr.
(iv) Factor overhead
Factory overhead is absorbed on the basis of machining hours with separate absorption rates for each department.
You have been provided with the following data about a particular company:
Fixed cost: Kshs. 500
Variable cost per unit: Kshs. 10
Volume production: 1,000 units
Required:
Calculate the total cost of production for the company. (5 Marks)
Question Four (20 Marks)
a) Alimak P/C produces two products Niks and Args. The budget for the next year to 31st 2015 is to be prepared expectations for the forthcoming year includes the following ALIMAR PLC.
Balance Sheet as at 1st January 2014:
| Kshs. | Kshs. | Kshs. | |
| Fixed Assets | |||
| Land and buildings | 45,000 | ||
| Plant and Equipment(NBV) | 112,000 | ||
| Current Assets: | |||
| Raw materials | 7,650 | ||
| Finished goods | 23,615 | ||
| Debtors | 19,500 | ||
| Cash | 4,300 | ||
| 55,065 |
| Current liabilities: | |||
| Creditors | 6,800 | ||
| Taxation | 24,500 | (31,300) | 23,765 |
| 180,765 | |||
| Financed by: | |||
| 150,000 ordinary shares of Kshs. 1 each | 150,000 | ||
| Retained profit | 30,765 | ||
| 180,765 |
The following expected overheads in the production cost centre budgets:
| Machinery Depart
Kshs. |
Assembly Depart
Kshs. |
|
| Supervisors salaries | 10,000 | 9,150 |
| Power | 2,400 | 2,000 |
| Maintenance and running costs | 2,100 | 2,000 |
| Consumables | 3,400 | 500 |
| General expenses | 19,600 | 5,000 |
| 39,500 | 18,650 |
Depreciation is taken at 5% straight – line on plant and machinery equipment. A machine costing the company Kshs. 20,000 is due to be installed on 1st October 2014 in machinery department which already has machinery installed to the value of Kshs. 100,000 at cost.
f) Selling and distribution expenses:
| Kshs. | |
| Selling commission and salaries | 14,300 |
| Travelling distribution | 3,500 |
| Office salaries | 10,100 |
| General administration expenses | 2,500 |
| 30,400 |
There is no opening and closing work in progress and inflation should be ignored:
Required:
Prepare the following budgets for the year ended 31st December 2015 for Alimak PLC.
(15 Marks)
(i) Sales budget
(ii) Production budget (units)
(iii) Direct material utilization budget
h) What are the advantages of standard costing? (5 Marks)
Question Five (20 Marks)
a) The standard cost for the production of a saloon car model called ALLION 260 is as follows:
| Inputs | Standard quality | Standard price |
| Direct materials | 3kg | 4.00 |
| Direct labour | 2.5 hrs | 14.00 |
During the month, 6,500kg of raw materials were purchased at Kshs. 3.80 per kilo and all of it was used to produce 2,000 units of finished products. Also 4,500 hours of direct labour time were used at a total cost of Kshs. 64,350. (12 Marks)
Required:
Calculate:
(i) Direct material price variance
(ii) Direct material usage (efficiency) variance
(iii) Direct labour efficiency variance
(iv) And comment on the result for each
b) What are the causes of?
(i) Price variances
(ii) Labour efficiency variances
