Exam (elaborations)
REVISION QUESTIONS ACCT 321 MANAGERIAL ACCOUNTING BUSINESS AND ECONOMICS ACCOUNTING, FINANCE AND INVESTMENT
REVISION QUESTIONS ACCT 321 MANAGERIAL ACCOUNTING BUSINESS AND ECONOMICS ACCOUNTING, FINANCE AND INVESTMENT Question One a. Maridadi Company Limited manufactures plastic egg trays. The company estimates to sell 20,000 units of egg trays with an average unit of cost of Sh. Direct material 30 Direct labor 10 Overhead: fixed 10 Variable 10 60 The management accountant is preparing a budget for the next financial year Additional Information i) Due to prevailing economic conditions prices of raw materials are expected to rise by 20%, direct labor 5%, variable overheads by 5% and fixed overheads by 25% ii) A cheaper material costing sh.31.25 per unit could however be used in place of the current material iii) If the cheaper material is used, 5% of completed output would be rejected by customers and an inspection process be introduced at a cost of sh.40,000 per annum (including sh.10,000 allocation of existing factory overheads). The 5% rejected output translates into sh.2.75 per unit iv) The company charges a mark up of 5% v) The previous year’s selling price was sh.90 per unit but it is now expected to vary with demand as follows Price per tray (sh.) 80 84 88 90 92 96 100 Demand (thousands of units) 25 23 21 20 19 17 15 Required: i) Advice the management on whether to adopt the cheaper material or continue using the current materials (20 Marks) ii) Determine the best selling price per tray based on your recommendation in (b) (i) above (10 marks) Question Two a. XYZ Ltd took 60 hours to produce the 1st unit of a product, industry experience associates such products with 80% learning rate Required: Determine how long it will take to produce i) 8 units ii) The 2nd unit iii) The 8th unit (6 marks) b. Swaza company ltd manufactures and sells three products namely; D, E and F. The company’s products department consists of processing and assembling. The management accountant of Swaza company ltd has provided you with the following budgeted information for the six month period ending 31 December 2013 Product Production Unit Selling price Sh. Direct Material cost per unit Sh. Direct labor cost per unit Sh. Machine Per unit Direct labor hours per unit D 100,000 45 16 14 4 14 E 80,000 95 50 30 10 6 F 60,000 70 30 30 8 4 In a bid to embrace modern business techniques, the management accountant intends adopt the activity based costly (ABC) method of cost allocation and has identified the following activities as the main cost drivers for the overhead costs; Overhead costs Cost drivers Processing services Machine hours Assembly services Direct labor hours Quality control Number of inspections Materials handling and dispatch Number of internal requisitions Selling and administration Number of customer orders Machine set ups Number of production runs The following additional information is provided (i) The company’s projected overhead costs for the period are; Cost pools Sh. Processing services 714,000 Assembly services 636,000 Quality control 52,000 Materials handling and dispatch 156,000 Selling and administration 168,000 Machine set up 156,000 1,882,000 (ii) All units produced will be sold within the six month period (iii) Production takes place in batches of 1000 units (iv) The following estimates have also been provided for the period Product Number of inspection Number of internal requisitions Number of customer orders D 240 8000 3000 E 400 8000 4000 F 400 16,000 4200 Required: i) Prepare budgeted income statement for the period ending 31 December 2013 based on activity based costing (ABC) (12 Marks) ii) Highlight the shortfalls of the actively based costing method over the conventional cost allocation methods (2 Marks) Question Three a. State and explain five differences between management and financial accounting (10 marks) b. XYZ ltd produces product W. The projected income statement for the year 2013 is as follows: Sh. Sh. Sales (50,000 units) 2,500,000 Variable cost Direct materials 600,000 Direct labor 300,000 Direct expenses 400,000 Variable overheads 140,000 (1,440,000) Contribution Margin 1,060,000 Less fixed costs 816,412 Net profit 243,588 Required: i) Break-even point in units and revenue (4 Marks) ii) How many units to be sold to earn a profit of sh.150,000 (4 marks) iii) For the projected level of sales, compute the margin of safety in units (2 marks) iv) Assuming a tax rate of 30%, how many units must be sold to realize an after tax profit of sh.84,000 (3 Marks) v) Suppose 30,000 units are sold above the break- even point, what is the operating profit for the company (3 Marks) vi) Assuming the price per unit increased by 20% fixed cost by sh.20,000, while variable costs remain the same, compute the break-even point in units and the contribution margin ration for the company (4 marks) Question Four a. A radio manufacturing company finds that it costs $625 to make each component XYZ. The same is available in the market at $485 each, with an assurance of continued supply. The breakdown of cost is $ Direct materials 275 Direct labor 175 Variable overheads 50 Depreciation 125 625 Required; (i) Should the company make or buy? (4 Marks) (ii) Explain two qualitative factors that the firm should consider for the decision made in (i) above (4 Marks) b. Due to industrial depression, a plant is currently operating at 50% capacity The following details are available; Cost of production per units $ Direct materials 2 Direct labor 1 Variable overhead 3 Fixed overhead 2 8 Production per month 20,000 units Total cost of production 160,000 Sales price 140,000 Loss (20,000) An exporter offer to buy 5,000 units per month at the rate of $6.50 per unit and the company hesitates to accept the offer for fear of increasing its already operating losses Required: Advice whether company should accept or decline this offer (12 Marks) Question Five a. Discuss the types of budgets (5 Marks) b. Elaborate on the importance of budgeting (10 marks) c. Discuss the limitations of budgeting (5 marks)
