TUESDAY: 22 August 2023. Morning Paper. Time Allowed: 3 hours.
Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings. Do NOT write anything on this paper.
QUESTION ONE
1. Explain THREE limitations of financial accounting which are addressed by management accounting. (6 marks)
2. Distinguish between a “cost centre” and a “profit centre” as used in responsibility accounting. (4 marks)
3. The Management Accountant of Unga Safi Millers has presented the following data on machine hour and electricity consumption for the last 6 months:
Required:
Using High-Low method of cost estimation, develop a predictor equation in the form of Y=a+bx.
(4 marks)
Determine the total electricity expense at 120,000 machine hours. (2 marks)
Explain TWO limitations of adopting High-low method in cost estimation. (4 marks)
(Total: 20 marks)
QUESTION TWO
1. Explain FOUR reasons for budgeting in a business. (4 marks)
2. Tazam Ltd. is developing a cost accounting system. Initially it has been decided to create four centres:
Accommodation deals with guests, Kitchen prepares meals while Tours and Entertainment are internal service recreation centres.
The following overheads details have been estimated for the month of August 2023:
Additional information:
1. In August 2023, it is estimated that there will be 20 guest-nights in Accommodation and 480 meals will be served in the Kitchen.
2. Secondary allocation of overheads is as follows:
Required:
Prepare an overhead analysis statement (OAS) showing primary allocation to each centre. (10 marks)
Secondary allocation of the internal service recreation centre costs to production departments using
simultaneous method. (4 marks)
Calculate the appropriate overhead absorption rates for Accommodation and Kitchen. (2 marks)
(Total: 20 marks)
QUESTION THREE
1. Urembo Lifestyles offers three different types of body grooming and fitness services. These are: salon, gym and barber shop using the same staff. Various estimates for the next year have been made as follows:
Additional information:
1. Total fixed cost for the next year is expected to be Sh.400,000.
2. The budgeted maximum demand of clients for the next year for the services is estimated as follows:
• Salon 3,000 clients
• Gym 1,000 clients
• Barber shop 1,500 clients
3. Urembo Lifestyles has a maximum of 9,900 labour hours available next year.
Required:
If the business were to offer salon services only, calculate the break-even number of clients. (3 marks)
Prepare the limiting factor mix schedule to show the number of clients per service that maximises
profitability. (6 marks)
The maximum net profit achievable based on service mix determined in (a) (ii) above. (3 marks)
2. Sigma Ltd. operates a standard marginal costing system. The following data has been collected for the month of July 2023 for its main product branded “SGM”:
Additional information:
1. Variable production overheads are absorbed based on actual hours worked.
2. There was no significant difference in opening and closing work in progress.
3. Actual production of product SGM was 1,080 units in the month of July 2023.
Required:
Prepare a standard product cost sheet for one unit of product SGM. (8 marks)
(Total: 20 marks)
QUESTION FOUR
1. Explain THREE factors that might be considered before choosing a suitable method for labour remuneration. (6 marks)
2. Mars Bottlers Ltd manufactures and sells four products. Details of the four products and relevant information are given below for the month of August 2023:
Additional information:
1. Currently production overheads are absorbed based on conventional machine hour basis although the
management is proposing the adoption of activity-based costing (ABC) technique.
2. The production overheads for the period have been analysed as follows together with ABC cost drivers:
Required:
Compute a budgeted unit cost and total cost using:
Conventional technique. (6 marks)
Activity based costing (ABC) technique. (8 marks)
(Total: 20 marks)
QUESTION FIVE
1. The analysis of total cost into its behavioural elements is essential for effective cost and management accounting.
With reference to the above statement, enumerate FOUR cost behaviour patterns. (4 marks)
2. Hard Board Ltd. produces a product that passes through three processes. The data about refining process is as follows:
1. Opening work in progress was 900 units at a total cost of Sh.45,000,000. The degree of completion is as follows:
• Direct material 100%
• Direct labour 40%
• Production overheads 60%
2. Data about refining process is as follows:
• Input of raw materials is 9,100 units for Sh.273,000,000
• Direct labour is Sh.125,700,000
• Production overheads is Sh.81,000,000
3. Finished units transferred to finished stores were 7,800 units.
4. Normal scrap loss was 10% of input units and the scrapped units realised Sh.30,000 per unit.
5. Units scrapped were 1,200 units with the following degrees of completion:
• Direct material 100%
• Direct labour 70%
• Production overheads 70%
6. Closing work in progress was 1,000 units with the following degrees of completion:
• Direct material 100%
• Direct labour 80%
• Production overheads 70%
7. Hard Board Ltd. uses first in first out (FIFO) method.
Required:
Prepare the following:
Statement of equivalent units of production. (6 marks)
Statement of cost. (4 marks)
Statement of valuation. (3 marks)
Refining process account. (3 marks)
(Total: 20 marks)
