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Advanced Management Accounting Question Paper
Advanced Management Accounting
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2010
UNIVERSITY EXAMINATIONS: 2009/2010
THIRD YEAR STAGE 1 EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CAA 303: ADVANCED MANAGEMENT ACCOUNTING
DATE: APRIL 2010 TIME: 2 HOURS
INSTRUCTIONS: Answer ALL Questions
QUESTION ONE
a) Outline and briefly explain the essential factors for continuous improvement under the kaizen
principle and discuss their relevance to the modern day organizations. (10 Marks)
b) Discuss the following techniques as used in the contemporary management accounting theory and
assess their practical usefulness in modern organizations:
i. Life cycle costing (5 Marks)
ii. JIT inventory policy (5 Marks)
(Total: 20 Marks)
QUESTION TWO
a) State and explain any FIVE areas in corporate management where strategic management
accounting can provide useful information. (8 Marks)
b) Discuss any FOUR contingent factors that play a role in the design of a management
accounting system (12 Marks)
(Total: 20 Marks)
QUESTION THREE
Nairobi Enterprise Ltd. (NEL) is a divisionalised enterprise. Among its divisions, are South and North. Both of these divisions have a wide range of independent activities. One product, Xcel, is made by South division for North division. South division does not have any external customers for the product.
The central management of NEL delegates all pricing decisions to divisional managers and the pricing of Xcel has been a contentious issue. It has been suggested that South division should give a transfer price schedule for the supply of Xcel based on South division’s own production costs and that all goods transferred would be made at South division’s marginal costs. The North division would then order the quantity it requires each month. South estimates its monthly total costs (TC) in shillings for producing Xcel using the following equation:
TCS = 1,000,000 + 550QS + 0.002QS
Where Qs is the quantity of Xcel manufactured.
North division total costs (TCN) in shillings using Xcel, excluding transfer price are:
TCN = 1,500,000 + 1100QN + 0.001Q2
N
Where QN is the quantity produced by the North division which incorporates one unit of Xcel.
The North division estimates that the demand function for its product incorporating Xcel is: PN = 4,500 – 0.0008QN
Where PN is the price per unit of the product incorporating Xcel.
Neither division holds any stocks of Xcel.
Required:
(a) (i) The quantity of Xcel which would maximize profits for NEL. (5 Marks)
(ii) The transfer price in shillings corresponding to the maximum production in (i) above if South division’s marginal cost are adopted for transfer pricing. Show the resulting
profit for each division. (5 Marks)
(b) State and explain the challenges faced in international transfer pricing (5 Marks)
(Total: 15 Marks)
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