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Caa 201: Introduction To Management Accounting Question Paper
Caa 201: Introduction To Management Accounting
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2009
1
UNIVERSITY EXAMINATIONS: 2008/2009
THIRD YEAR STAGE 1 EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CAA 201: INTRODUCTION TO MANAGEMENT ACCOUNTING
DATE: APRIL 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer question ONE and any other TWO questions
QUESTION ONE
a) Explain and illustrate the following terms as used in management accounting:
i) Contribution margin
ii) Margin of safety
iii) Flexible budget
iv) Step costs
v) Mixed costs (5Marks)
b) Explain five objectives of standard costing (5Marks)
c) Cost volume profit analysis is based on certain assumptions. Briefly explain such assumptions.
(8Marks)
d) Briefly explain the underlying principle that should be followed in determining relevant costs for
decision making. (7Marks)
QUESTION TWO
Umoja limited budgets its costs and revenue for product A for the next financial period June-
December as follows:
Shs per unit
Selling price 2000
2
Direct material 400
Direct labour 300
Variable overhead 150
For the period concerned the budgeted fixed overhead is Shs 5,000,000 and the budgeted sales are
12,000 units.
REQUIRED:
a) calculate the budgeted profit for the period. (4Marks)
b) calculate and explain the significance of
i) The Break Even Point in units and shillings (4Marks)
ii) The margin of safety in units and shillings (4Marks)
c) Show by means of a statement the effect on the budgeted profit of each of the following
independent courses of action, and calculate the Break Even point for each of the three courses of
action:
i) Reduce the selling price to shs1,750 per unit , this will increase sales by 2,000 units with an
increase in fixed overhead of shs500,000.
ii) Increase the selling price to shs2,250 per unit, this will reduce sales by 4,000units and increase
direct material costs by shs100 per unit for all units, with fixed costs being unchanged.
iii) Reduce the selling price to shs1,500 per unit, this will increase sales by 5,000 units, increase
fixed overhead by shs600,000 and decrease direct material costs by shs150 per unit for all units.
(13Marks)
QUESTION THREE
Mwangaza limited is comparing budget and actual data for the last three months.
Budget Actual
Shs Shs Shs Shs
Sales 950,000 922,500
Cost of sales
Raw materials 133,000 130,500
Direct labour 152,000 153,000
3
Variable production
Overheads 100,700 96,300
Fixed production
Overheads 125,400 115,300
511,100 495,100
Net income 438,900 427,400
The budget was prepared on the basis of 95,000 units produced and sold, but actual production and
sales for the three-month period were 90,000 units.
MS limited uses standard costing and absorbs fixed production overheads on a machine hour basis. A
total of 28,500 standard machine hours were budgeted. A total of 27,200 machine hours were actually
used in the three-month period.
REQUIRED:
a) prepare a revised budget at the new level of activity using a flexible budgeting approach. (6Marks)
b) Calculate the following:
i) raw material total cost variance
ii) direct labour total cost variance
iii) fixed overhead efficiency variance
iv) fixed overhead capacity variance
v) fixed overhead expenditure variance (15Marks)
c) Suggest possible explanations for the following variances:
i) raw materials total cost variance
ii) fixed overhead efficiency variance
iii) fixed overhead expenditure variance (4Marks)
QUESTION FOUR
Twiga racers has designed a radically new concept in racing bikes with the intension of selling them
to professional racing teams. The estimated cost and selling price of the first bike to be manufactured
and assembled is as follows:
4
Shs
Materials 1000
Assembly labour (50hours at shs10 per hour) 500
Fixed overheads (200% of assembly labour) 1000
Profit (20% of total cost) 500
Selling price 3,000
Twiga Racers plans to sell all bikes at total cost plus 20% and the material cost per bike will remain
constant irrespective of the number sold.
Twiga Racers` management expects the assembly time to gradually improve with experience and has
estimated an 80% learning curve.
A racing team has approached the company and asked the following quotations:
1. If we were to purchase the first bike assembled, and immediately put in an order for the
second, what would be the price of the second bike?
2. If we waited until you had sold two bikes to another team, and then ordered the third and and
fourth bikes to be assembled, what would be the average price of the third and fourth bikes?
3. If we decided to immediately equip our entire team with the new bike, what would be the price
per bike if we placed an order for the first eight to be assembled?
REQUIRED:
a) Explain learning curve theory and in particular the concept of cumulative average time.
(4Marks)
b) Provide detailed price quotations for each of the three enquiries outlined above. (12Marks)
c) Identify the major areas within management accounting where learning curve theory is likely to
have consequences and suggest potential limitations of this theory. (9Marks)
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