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Advanced Management Accounting Question Paper

Advanced Management Accounting

Course:Bachelor Of Science In Computer Technology

Institution: Kca University question papers

Exam Year:2010

1
UNIVERSITY EXAMINATIONS: 2009/2010
SECOND YEAR STAGE 2 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
GE Railways plc (GER) operates a passenger train service in Holtland. The directors have always
focused solely on the use of traditional financial measures in order to assess the performance of GER
since it commenced operations in 1992. The Managing Director of GER has asked you, as a
management accountant, for assistance with regard to the adoption of a balanced scorecard approach to
performance measurement within GER.
Required:
(a) Prepare a memorandum explaining the potential benefits and limitations that may arise from the
adoption of a balanced scorecard approach to performance measurement within GER. (8 Marks)
2
(b) The following information is available in respect of GER for the years ended 31 May 2009 and
2008:
(1) Summary financial statements
Profit and Loss Account
2009 2008
Shs000 Shs000
Sales 33,000 30,525
Cost of sales (14,850) (14,652)
Gross Profit 18,150 15,873
Operating expenses (8,250) (7,293)
Depreciation (3,300) (3,300)
Net Profit 6,600 5,280
Balance Sheet
2009 2008
Shs000 Shs000
Fixed Assets (net book value) 33,160 29,500
Net Current Assets
9,360 6,420
Net Assets 42,520 35,920
Financed by:
Ordinary Share Capital (Shs1 each) 22,500 22,500
Retained Earnings
20,020 13,420
Capital Employed
42,520 35,920
(2) Other information relating to GER
Sales revenue (Shs000) 2009 2008
Existing routes 25,080 24,420
New routes 7,920 6,105
Current Assets and Current Liabilities (Shs000)
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Stocks 6,610 4,950
Debtors 2,560 3,550
Creditors 3,960 3,300
Other statistics:
Number of new routes (planned) 4 6
Number of new routes (actual) 6 4
Number of customer ticket enquiries received 1,375,000 1,271,875
Number of customer tickets sold 1,100,000 1,017,500
Number of routes in operation 36 30
Number of routes producing 80% of total revenue 20 24
Number of trains in operation 15 15
Average number of days in use 320 335
Number of passenger miles 66,000,000 61,000,000
Average train occupancy 80% 78%
Number of times trains were 100% occupied 120 39
Number of train journeys 4,000 3,900
Number of train station ‘stops’ 10,000 9,500
Number of late arrivals at train station ‘stops’ 200 285
Number of employees 254 250
Number of hours of employee training 2,159 2,000
(3) Each new route introduced required a cash investment in capital equipment of Shs660,000.
Required:
(i) Using only the above information, prepare a statement (in columnar format) which shows goals,
measures (one of which must be cash flow) and statistics for each of the four perspectives of the
balanced scorecard in respect of GER. Your answer should include TWO goals, measures and
statistics relating to each perspective of the balanced scorecard. Insofar as possible you should
show statistics for 2008 and 2009. (9 Marks)
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(ii) Suggest THREE other performance measures (not applied in (i)) which might be used to assess the
customer perspective of the balanced scorecard of GER. (3 Marks)
(TOTAL 20 Marks)
QUESTION THREE
Hyper Text Ltd., a medium-sized company is run on divisional basis. All divisional managers are
evaluated annually and those with outstanding performance rewarded.
The Divisional Manager of Division Z is faced with the following mutually exclusive
investment projects:
Project A
Sh.
Project B
Sh.
Initial capital investment 12,800,000 10,400,000
Net cash flows: 2010
2011
2012
2013
4,800,000
4,800,000
4,800,000
4,800,000
5,200,000
4,400,000
3,000,000
2,000,000
Additional information:
1. The company’s required rate of return is 16%.
2. Neither project is expected to have a residual value and the initial capital outlay is to be
amortized evenly over the project’s useful life. The initial capital outlay is to be made
on 31 December 2009.
3. All cash flows are assumed to accrue at the end of each year.
4. In determining the expected divisional returns, divisional assets are valued at net book
value at the beginning of each year.
5. Ignore taxation.
Required:
Advise the Divisional Manager of Division Z on the project that maximizes the divisional
performance in the long run based on:
a)Residual income. (5 Marks)
b) Return on investment. (5 Marks)
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c) State the comparative advantages and disadvantages of the methods in (a) and (b) above
(5 Marks)
(Total: 15 Marks)
QUESTION FOUR
Stay Cool Ltd provides refrigerated storage facilities for major food producers. The directors are
currently evaluating two quotations from alternative suppliers in respect of the replacement of the
refrigeration system at one of their depots. The following information is available in respect of each
quotation:
(1) Refrigeration system:
Supplier NN Ltd KK Ltd
System ‘Steadychill’ ‘Technofreeze’
Anticipated working life (years) 4 6
Initial investment (Shs) 440,000 690,000
Residual value (Shs) 0 0
Working capital requirement (Shs) 120,000 120,000
(2) The forecast pre-tax net cash inflows (excluding maintenance costs) associated with each
refrigeration system are
as follows:
Years ahead
1 2 3 4 5 6
Shs000 Shs000 Shs000 Shs000 Shs000 Shs000
‘Steadychill’ 440 500 460 420
‘Technofreeze’ 500 540 600 600 450 350
(3) Maintenance costs for the ‘Steadychill’ system are estimated at Shs50,000 for each year of the
system’s life whereas maintenance costs for the ‘Technofreeze’ system are estimated to be Shs50,000
in year 1 and thereafter to increase by Shs10,000 in each subsequent year of its life.
(4) KK Ltd has recently entered the market for the storage of refrigerated foods and has received
favourable publicity from trade journals regarding their technically complex refrigeration systems, of
which the ‘Technofreeze’ system is a ‘prototype’. Due to the fact that KK Ltd has relatively untried
refrigeration systems, the finance director of Stay
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Cool Ltd has suggested that an appropriate discount rate for the ‘Technofreeze’ system is 12% per
annum, which is 2% higher than his estimate of the appropriate discount rate for the “Steadychill”
system.
(5) Taxation at 30% is payable one year in arrears, and capital allowances are available at a rate of
25% on a reducing balance basis.
(6) .Ignore inflation.
Required:
(a) (i) Calculate the net present value and payback period for each of the refrigeration systems.
(12 Marks)
(ii) Recommend which of the refrigeration systems should be purchased. (1 Mark)
(b) State FOUR reasons why payback period is widely used by organisations in the capital investment
appraisal process. (2 Marks)
(TOTAL 15 Marks)

Advanced Management Accounting Question Paper

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