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Caa 201A Introduction To Management Accounting Question Paper
Caa 201A Introduction To Management Accounting
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2011
1
UNIVERSITY EXAMINATIONS: 2010/2011
SECOND YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
CAA 201A INTRODUCTION TO MANAGEMENT ACCOUNTING
DATE: DECEMBER2011 TIME: 2 HOURS
INSTRUCTIONS: Answer Question One and Any Other Two Questions
QUESTION ONE
The following information was extracted from the books of BAT (K) ltd for the year 2010:
Budget Actual Variance
Sales and production (units) 10,000 8,000 2,000 A
Sh. Sh. Sh.
Sales
Direct materials
Direct labour
Variable production overhead
Fixed production overhead
Profit
50,000
10,000
10,000
5,000
15,000
40,000
10,000
39,000
8,500
7,500
5,500
15,500
37,000
2,000
11,000
1,500
2,500
500
500
3,000
8,000
A
F
F
A
A
A
A
Selling price per unit
Materials price per tonne
Materials purchased & used
Direct labour rate
5
1
10,000 tonnes
0,5
4.875
8500/7750
7,750 tonnes
7,500/16,500
2
Direct labour hours worked
Direct labour hours paid
Variable overhead cost per direct labour hour
20,000 hrs
20,000 hrs
0.25
15,500 hrs
16,500 hrs
5,500
15,500
Required:
a) Compute the variances below
b) Material cost variance (2 Marks)
c) Material price variance (2 Marks)
d) Material usage variance (2 Marks)
e) Labour cost variance (2 Marks)
f) Labour rate variance (2 Marks)
g) Labour efficiency variance (2 Marks)
h) Labour idle time variance (2 Marks)
i) Variable overhead cost variance (2 Marks)
i) Variable overhead expenditure variance (2 Marks)
ii) Variable overhead efficiency variance (2 Marks)
QUESTION TWO
Mwalimu King’ang’i, a financial analyst at Coast Air Bus Company Ltd., is examining the
behaviour of the company’s monthly transportation costs for budgeting purposes. The
transportation costs are a sum of two types of costs:
1. Operating costs, such as fuel and labour.
2. Maintenance costs, such as overhaul of engines and spraying.
Kichumi collects monthly data items 1 and 2 above and the distance covered by the buses.
Monthly observations for the year ended 31 December 2010 were as follows:
Month Operating costs
Sh.’000’
Maintenance costs
Sh.’000’
Distance covered in
kilometers (d)
‘000’
January 471 437 3,420
February 504 388 5,310
3
March 609 343 5,410
April 690 347 8,440
May 742 294 9,320
June 774 211 8,910
July 784 176 8,870
August 986 210 10,980
September 895 280 4,980
October 651 394 5,220
November 481 381 4,480
December 386 514 2,980
Kichumi ran three linear regression equations based on the data above and came up with the
following results:
Regression equation 1
Operating costs = a + bd
Variable Coefficient
Constant 309.19
Distance covered in kilometers 0.054
Coefficient of determination 60%
Regression equation II
Maintenance costs = a + bd
Variable Coefficient
Constant 531.55
Distance covered in kilometers -0.031
Coefficient of determination 68%
Regression equation III
Total transportation costs = a + bd
Variable Coefficient
Constant 840.73
Distance covered in kilometers 0.023
Coefficient of determination 29%
4
Required:
a) Evaluate the three linear regression equations using:
i) Economic plausibility . (5 Marks)
ii) Goodness of fit (5 Marks)
b) List three variables, other than distance covered, that could be important drivers of the
company’s transport costs. (3 Marks)
c) Explain any TWO limitations of the linear regression analysis used by the company.
(2 Marks)
QUESTION THREE
Horizons ltd is a manufacturing company which produces and sells a single product known as T1 at
a price of Sh.10 per unit. The company incurs a variable cost of Sh.6 per unit and fixed costs of
Sh.400,000. Sales are normally distributed with a mean of 110,000 units and a standard deviation
of 10,000 units. The company is considering producing a second product, T2 to sell at Sh.8 per
unit and incur a variable cost of Sh.5 per unit with additional fixed costs of Sh.50,000. The
demand for T2 is also normally distributed with a mean of 50,000 units and standard deviation of
5,000 units. If T2 is added to the production schedule, sales of T1 will shift downwards to a mean
of 85,000 units and standard deviation of 8,000 units. The correlation between sales of T1 and T2
is –0.9.
Required:
a) The company’s break-even point for the current and proposed production schedules
(8 Marks)
b) The coefficient of variation for the two proposals (10 Marks)
c) Based on your computations in (i) and (ii) above advise the company on whether to add T2
to its production schedule. (2 Marks)
QUESTION FOUR
XYZ Company Limited intends to introduce product “Zed” into its product portfolio. The
following information relates to projected estimates of demand and costs for the proposed product
under two possible selling prices:
Sales volume(thousands of units)
Demand forecast Probability Selling price
of Sh.150
Selling price of
Sh.200
Optimistic 0.3 36 28
5
Most likely 0.5 28 23
Pessimistic 0.2 18 23
Variable manufacturing cost
per unit excluding material
cost:
Sh.30 Sh.30
Fixed cost Sh.650,000 Sh.1,360,000
Additional information:
1. Each unit requires 3 kilogrammes of materials and because of storage problems, any
unused material must be sold at Sh.10 per kilogramnme.
2. The sole supplier of the material offers three purchase options as follows:
Option A: Purchase any quantity at Sh.30 per kilogramme
Option B: Purchase a minimum quantity of 50,000 kilogrammes at Sh.27.50 per
kilogramme
Option C: Purchase a minimum quantity of 70,000 kilogrammes at Sh.25 per kilogramme.
Required:
Assuming that the company is risk neutral;
a) Advise the company on which selling price and purchasing option to adopt. (10 Marks)
b) Determine the expected value of perfect information based on your recommendation in (a)
(i) above. (5 Marks)
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