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Caa 303: Advanced Management Accounting Question Paper
Caa 303: Advanced Management Accounting
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2009
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UNIVERSITY EXAMINATIONS: 2009/2010
THIRD YEAR STAGE1 EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CAA 303: ADVANCED MANAGEMENT ACCOUNTING (SATURDAY)
DATE: DECEMBER 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer ALL Questions
Show any relevant workings
QUESTION ONE
Oliver is the owner and manager of Oliver’s Salon which is a quality hairdresser that experiences high
levels of competition. The salon traditionally provided a range of hair services to female clients only,
including cuts, colouring and straightening. A year ago, at the start of his 2009 financial year, Oliver
decided to expand his operations to include the hairdressing needs of male clients. Male hairdressing
prices are lower, the work simpler (mainly hair cuts only) and so the time taken per male client is much
less. The prices for the female clients were not increased during the whole of 2008 and 2009 and the
mix of services provided for female clients in the two years was the same.
The latest financial results are as follows:
2008 2009
Shs Shs Shs Shs
Sales 200,000 238,500
Less cost of sales:
Hairdressing staff costs 65,000 91,000
Hair products – female 29,000 27,000
Hair products – male - 8,000
––––––– ––––––
94,000 126,000
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Gross profit 106,000 112,500
Less expenses:
Rent 10,000 10,000
Administration salaries 9,000 9,500
Electricity 7,000 8,000
Advertising 2,000 5,000
––––––– –––––––
Total expenses 28,000 32,500
Profit 78,000 80,000
Oliver is disappointed with his financial results. He thinks the salon is much busier than a year ago and
was expecting more profit. He has noted the following extra information:
1. Some female clients complained about the change in atmosphere following the introduction of
male services, which created tension in the salon.
2. Two new staff were recruited at the start of 2009. The first was a junior hairdresser to support
the specialist hairdressers for the female clients. She was appointed on a salary of Shs.9,000 per
annum. The second new staff member was a specialist hairdresser for the male clients. There
were no increases in pay for existing staff at the start of 2009 after a big rise at the start of 2008
which was designed to cover two years’ worth of increases.
Oliver introduced some non-financial measures of success two years ago.
2008 2009
Number of complaints 12 46
Number of male client visits 0 3,425
Number of female client visits 8,000 6,800
Number of specialist hairdressers for female clients 4 5
Number of specialist hairdressers for male clients 0 1
Required:
a) Calculate the average price for hair services per male and female client for each of the years
2008 and 2009. (3 Marks)
b) Assess the financial performance of the Salon using the data above.
(11 Marks)
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c) Analyse and comment on the non-financial performance of Oliver’s business, under the
headings of quality and resource utilisation. (6 Marks)
QUESTION TWO
a) Explain the term ‘backflush accounting’ and the circumstances in which its use would be
appropriate.
(6 Marks)
b) CSIX Ltd manufactures fuel pumps using a just-in-time manufacturing system which is
supported by a backflush accounting system. The backflush accounting system has two trigger
points for the creation of journal entries.
These trigger points are:
the purchase of raw materials the manufacture of finished goods.
The transactions during the month of October 2009 were as follows:
Purchase of raw materials Shs5,575,000
Conversion costs incurred:
Labour Shs1,735,000
Overheads Shs3,148,000
Finished goods completed (units) 210,000
Sales for the month (units) 206,000
There were no opening inventories of raw materials, work-in-progress or finished goods at 1
October. The standard cost per unit of output is Shs48. This is made up of Shs26 for materials
and Shs22 for conversion costs (of which labour comprises Shs8·20).
Required:
i) Prepare ledger accounts to record the above transactions for October 2009.
(9 Marks)
ii) Briefly explain whether the just-in-time system operated by CSIX Ltd can be
regarded as ‘perfect’.
(5 Marks)
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QUESTION THREE
Moffat Ltd, which commenced trading on 1 December 2008, supplies and fits tyres and exhaust pipes
and services motor vehicles at thirty locations. The directors and middle management are based at the
Head Office of Moffat Ltd. Each location has a manager who is responsible for day-to-day operations
and is supported by an administrative assistant. All other staff at each location are involved in fitting
and servicing operations.
The directors of Moffat Ltd are currently preparing a financial evaluation of an investment of Shs2
million in a new IT system for submission to its bank. They are concerned that sub-optimal decisions
are being made because the current
system does not provide appropriate information throughout the organisation. They are also aware that
not all of the benefits from the proposed investment will be quantitative in nature.
Required:
a) Explain the characteristics of THREE types of information required to assist in decisionmaking
at different levels of management and on differing timescales within Moffat Ltd,
providing TWO examples of information that would be appropriate to each level.
(9 Marks)
b) Identify and explain THREE approaches that the directors of Moffat Ltd might apply in
assessing the QUALITATIVE benefits of the proposed investment in a new IT system.
(6 Marks)
QUESTION FOUR
The directors of Blaina Packaging Co (BPC), a well-established manufacturer of cardboard boxes, are
currently considering whether to enter the cardboard tube Market. Cardboard tubes are purchased by
customers whose products are wound around tubes of various sizes ranging from large tubes on which
carpets are wound, to small tubes around which films and paper products are wound. The cardboard
tubes are usually purchased in very large quantities by customers. On average, the cardboard tubes
comprise between 1% and 2% of the total cost of the customers’ finished product.
The directors have gathered the following information:
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1. The cardboard tubes are manufactured on machines which vary in size and speed. The lowest
cost machine is priced at $30,000 and requires only one operative for its operation. A one-day
training course is required in order that an unskilled person can then operate such a machine in
an efficient and effective manner.
2. The cardboard tubes are made from specially formulated paper which, at times during recent
years, has been in short supply.
3. At present, four major manufacturers of cardboard tubes have an aggregate Market share of
80%. The current Market leader has a 26% Market share. The Market shares of the other three
major manufacturers, one of which is JOL Co, are equal in size. The product ranges offered by
the four major manufacturers are similar in terms of size and quality. The Market has grown by
2% per annum during recent years.
4. A recent report on the activities of a foreign-based multinational company revealed that
consideration was being given to expanding operations in their packaging division overseas.
The division possesses large-scale automated machinery for the manufacture of cardboard
tubes of any size.
5. Another company, Plastic Tubes Co (PTC) produces a narrow, but increasing, range of plastic
tubes which are capable of housing small products such as film and paper-based products. At
present, these tubes are on average30% more expensive than the equivalent sized cardboard
tubes sold in the Marketplace.
Required:
a) Using Porter’s five forces model, assess the attractiveness of the option to enter the Market for
cardboard tubes as a performance improvement strategy for BPC. (10 Marks)
b) JOL Co was the Market leader with a share of 30% three years ago. The managing director of
JOL Co stated at a recent meeting of the board of directors that: ‘our loss of Market share
during the last three years might lead to theend of JOL Co as an organisation and therefore we
must address this issue immediately’.
Required:
Discuss the statement of the managing director of JOL Co and discuss six performance
indicators, other than decreasing Market share, which might indicate that JOL Co might fail as
a corporate entity. (5 Marks)
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