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Introduction To Management Accounting Question Paper
Introduction To Management Accounting
Course:Bachelor Of Economics And Statistics
Institution: University Of Nairobi question papers
Exam Year:2012
University of Nairobi
University Examinations 2011/2012
Second Year Examinations For the Degree of Bachelor of Economics and Statistics
XEA 202: Introduction to Management Accounting
Date: 19th September, 2012 Time: 3.00.P.M.- 5.00.P.M.
Instructions:
a) Answer all the four questions
b) Show your workings
c) Be neat
Question One
A factory has been in operation for an number of years. Data collected from each year in the last six years is given below:
Year Output ‘000 Total cost ‘000
_ X Y
1 2 9
2 3 11
3 1 7
4 4 13
5 3 11
6 5 15
Required:
a) Determine the unit variable cost and fixed cost. Using high/low method and regression method.[6 marks]
b) Why do you think the two methods do not give similar results always? [6 marks]
c) Is there any correlation between output and cost? [4 marks]
Question Two
a) What are the principle differences between job costing and process costing? [4 marks]
b) Hi-Tech Company uses a job order cost system. The following relate to the month of October 2011.
i. Raw materials issued to production Ksh.96,000
ii. Director labour cost Ksh.78,000
iii. Manufacturing overhead is applied to production on the basis of Sh.4 per direct labour hours incurred
iv. Total manufacturing overhead for the month was Ksh.54,000
v. Production orders that cost 20,000/= were completed in the month
vi. Production orders that cost Ksh.190,000 were slipped and invoiced to customers during the month of October at a profit of 20% based on cost.
Required:
i. Prepare T accounts to record these transactions. [5 marks]
ii. What is the ending balance of work in progress? [3 marks]
iii. What is the gross profit? [3 marks]
c) ABC limited uses process costing for its products. The following information relates to its September 2011 production.
Units started and completed 100,000
Ending work in progress 5,000
Ending work in process was 60% complete
Total cost in the month was Ksh.191,400/=
Required:
i. Determine the equivalent units [4 marks]
ii. Determine the cost of production for each stock item [6 marks]
You are given that the company uses weighted average method of stock valuation
Q3. a) Discretionary costs are troublesome because managers usually find them difficult to separate and quantify the results of their use in the business as compared with variable and fixed costs.
Required:
a) Discuss the above statement and include in your answer the meaning of discretionary cost, variable cost and fixed cost giving two examples of each category. [10 marks]
b) Opportunity costs and notional costs are recognized by financial accounting system but need to be considered in many decisions taken by management. [9 marks]
c) Explain whether you agree with each of the following statements.
i. “All direct costs are variable” [2 marks]
ii. “Variable cost is controllable and fixed costs are not” [2 marks]
iii. “Sunk cost is irrelevant when providing decision making information” [2 marks]
Q4. a) What are relevant costs? [3 marks]
b) S. Ltd has 100 scrap metals that are carried in stock at a purchase Ksh.100,000 but can be sold at Ksh.10000. The parts can be remachined for Ksh.30000 and then sold for Ksh.50,000.
What action should management take? Show your workings. [10 marks]
d) A washing machine which costs Ksh.120,000 has been 2/3 depreciated on straight line basis and now has book value of Ksh.40000. it has remained useful life of 4 years. This machine has disposable value of Ksh.40000 now. In four years to come its disposable value will be zero. A new machine is available that will dramatically reduce operating costs. Annual revenue of Ksh.100,000 will not change regardless of the decision. The new machine promises to slash variable operating cost from Ksh.80,000 per year to Ksh.56,000 per year.
Required:
What action should the management take? Show your workings. [12 marks]
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