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Introduction To Mangement Accounting (Day) Question Paper
Introduction To Mangement Accounting (Day)
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2011
UNIVERSITY EXAMINATIONS: 2010/2011
SECOND YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
CAA 201: INTRODUCTION TO MANGEMENT ACCOUNTING (DAY)
DATE: AUGUST 2011 TIME: 2 HOURS
INSTRUCTIONS: Answer ALL Questions
Question One
a) An investment trust manager wishes to buy a portfolio of shares. He has sufficient funds to buy
either portfolios A, B or C. The potential gains from the portfolios will depend upon the level
of economic activities in future, and the following estimates have been made (all figures in
millions of shillings).
States of Nature
Expansion Stability Constriction
A 100 50 -50
B 50 150 -25
Portfolio
C -50 0 180
Required:
Which portfolio should be selected if the manager applies:
i) The maximax criterion (5 Marks)
ii) The maximin criterion (5 Marks)
2
b) Mount Sinai Health Centre specializes in the provision of sports/exercise and medical/dietary
advice to clients. The service is provided on a residential basis and clients reside for whatever
number of days that suit their needs.
Budgeted estimates for the year ending 30 June 2012 are as follows:
1. The maximum capacity of the centre is 50 clients per day for 350 days in the year.
2. Clients will be invoiced at a fee per day. The budgeted occupancy level will vary with
the client fee level per day and is estimated at different percentages of maximum
capacity as follows:
Client fee Occupancy level Occupancy as a % of
Per day (Sh.) maximum capacity
3600 High 90%
4000 Most likely 75%
4400 Low 60%
3. Variable costs are also estimated at one of the three levels per client day. The high,
most likely and low levels per client per day are Sh.1,900, Sh.1,700 and Sh.1,400
respectively.
4. The range of cost levels reflected only the possible effect of the purchase prices of
goods and services.
Required:
i) A summary which shows the budgeted contribution to be earned by Mount
Sinai Health Centre for the year ended 30 June 2012 for each of the nine possible
outcomes. (10 Marks)
(Total: 20 Marks)
Question Two
High-tex engineering Company Limited wishes to set flexible budgets for each of its operating
departments. A separate maintenance department performs all routine and major repair works on the
company’s equipment and facilities. The company has determined that maintenance cost is primarily a
function of machine hours worked in the various production departments.
The maintenance cost incurred and the actual machine hours worked during the months of January,
February, March and April 2010 were as follows:
3
Month Machine hours in
production departments
Maintenance department’s
costs
Sh.’000’
January
February
March
April
800
1,200
300
1,600
350
350
160
550
Required:
a) Determine the cost estimation function using:
i) High-low method (5 Marks)
ii)Regression analysis. (5 Marks)
b) Using the regression function estimate:
i) The maintenance costs that would have been incurred if the machine hours were expected to be
900 in the month of May 2010 (2 Marks)
ii)The maximum machine hours that would have been worked if the maintenance cost incurred had
been limited to ksh.400,000 for the month of May 2010 . (3 Marks)
(Total: 15 Marks)
Question Three
Mitumba Ltd. has set the following standards:
Sh.
75
45
30
150
Litres of material X @ Sh.21
Litres of material Y @ Sh.30
Litres of material Z @ Sh.24
=
=
=
1,575
1,350
720
3,645
This standard mix should produce 135 litres of Maliza juice.
The company does not maintain any stocks of raw materials. Purchases are made as needed, so that all
price variances relate to materials used.
Actual results showed that 75,000 litres were used during March 2010:
Sh.
4
39,000
24,000
12,000
75,000
Litres of X at actual cost of Sh.18
Litres of Y at actual cost of Sh.31.50
Litres of Z at actual cost of Sh.28.50
=
=
=
702,000
756,000
342,000
1,800,000
The good quality output was as follows:
60,000 litres at standard cost of Sh.27 = 1,620,000
180,000
Required:
Comprehensive computations showing the price, mix and yield variances (20 Marks)
(Total: 20 Marks)
Question Four
a) ABC Ltd. Intends to launch a new product into the market. The management of the company are
uncertain of some variables namely; the selling price, the variable costs and the annual sales
volume of the product.
The following information relates to the possible values of the above variables and their associated
probabilities:
Additional information:
1. The sales volume is the estimated annual sales.
2. The uncertain variables are independent of one another.
Required:
Simulate the above problem in 7 cycles and use the results to determine the average annual
contribution of the product.
Use the following random numbers:
80,60,43,63,21,40,36,05,69,16,73,86,28,31,61,57,39,96,47,72,69. (15 Marks)
(Total: 15 Marks)
b) State and explain any three methods of conducting a C.V.P analysis under conditions of uncertainity
(6 Marks)
(15 Marks)
Selling price
per unit (Sh.)
Probability Variable
cost per unit (Sh.)
Probability Sales volume Probability
400 0.30 200 0.10 300,000 0.2
500 0.50 300 0.60 400,000 0.4
600 0.20 400 0.30 500,000 0.4
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