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Buss 219 Question Paper

Buss 219

Course:Managerial Accounting

Institution: Kenya Methodist University question papers

Exam Year:2008

KENYA METHODIST UNIVERSITY

END OF FIRST TRIMESTER 2008 EXAMINATION

FACULTY : BUSINESS AND MANAGEMENT STUDIES
DEPARTMENT : BUSINESS ADMINISTRATION
COURSE CODE : BUSS 219
COURSE TITLE : MANAGERIAL ACCOUNTING
TIME : 3 HOURS

INSTRUCTIONS
• Answer Question ONE and any other THREE Questions

(a) Compare and contrast the economists and the accountant’s presentation of the effect of sales volume on costs and profits (CVP analysis) of a firm.
(10 Marks)

(b) Changanyika Ltd. Produces two products in the ratio M:N=7:3 and the following is
their budget for year 200n.

P R O D U C T S
M N
SH SH
Selling Price 60 120
Variable costs 20 40
Fixed costs (apportioned) 11.2 Million 20 Million.

REQUIRED
(i) The break –even units for each product. (4 Marks

(ii) The number of units of each product to be sold for the company to make
sh. 7.80 million over all profit. (7 Marks)

(iii) The percentage by which the volume in (ii) above would fall for the
company to start making over all loss. (4 Marks)

Question 2
(a) Gurudumu Enterprises manufactures bicycle wheel tyres. Their data for
year 2007 is as follows:

BUDGET ACTUAL
Units Sold 30,000 28000
Units selling price (sh) 110 118
Unit variable cost (sh) 74 80
Total Fixed cost 540,000 540,000

REQUIRED
Income variance reports based on:
(1) A Static Budget (6 Marks)

(ii) Flexible Budget (3 Marks)

(2) Brief comment on the results in (1) above. (6 Marks).

(b) Modern Co. Ltd uses standard costs for their budgets and performance
evaluation. The following information concerns their last fiscal year
during which 30,000 finished units were produced.

STD per Unit of Output Actual totals used

Direct Raw Materials 2Kg at sh. 30/Kg 58 000Kg
Direct Manufacturing Labour 1.5hr at sh. 24/hr 48750hrs for sh. 990,000

A total of 90,000kg of Raw material were purchased for Sh. 2.90Million.

REQUIRED
Calculate the year’s Price and Efficiency variances for Raw materials and Direct labour.
(10 Marks)

Question 3
Cucar motors is a local division of a motor vehicle assembly multinational corporation. Cucar’s first quarter operational details are as follows:

Units
Beginning stock Zero
Production 1000
Sales 700

Unit variable costs (Million sh.)
Manufacturing 1.0
Marketing and Administration 0.3

Fixed cost (Million Sh)
Manufacturing 200.0
Marketing and Administration 60.0

The selling price per motor vehicle is Sh. 2.4 Million

REQUIRED
(a) Income statement for the quarter under;
(1) Absorption costing method (5 Marks)
(ii) Variable costing method (5 Marks)

(b) Calculate and explain the percentage change in income under each method if the
quarter’s production was increased by 600 units but without any change in units
sold . (11 Marks)

( c) Suggest two approaches (other than variable costing).to counter managers’ attempts
to show increases in profits by building up stocks of manufactured units.
(4 Marks)

Question 4
(a)Kenya Fabrics makes water proof jackets and has a monthly production capacity
of 50, 000 units. It has a temporary excess capacity projecting a monthly production
and sale of 40, 000 jackets for the next three months. A jacket sells for Sh. 500.
Projected monthly costs are as follows;

Unit variable costs (sh) fixed cost(million sh)
Direct Labour 120 Indirect Labour 2.00
Direct Materials 80 Manufacturing Overheads 2.80
Manufacturing Over Heads 20 Marketing & Distrubution 1.05

A security firm has offered to purchase for its staff 3, 000 jackets per month for the next two months at Sh. 450 a unit. The firm requires that its logo be fixed on each jacket, which will cost Kenya Fabrics Sh. 5.0 per jacket.
REQUIRED
Should Kenya Fabrics accept the security firm’s offer? (12 Marks)

(b). ABC Ltd is a major petroleum products dealer. ABC arrangement is evaluating whether to outsource their electronic data processing function. The costs assigned to that department are:
(Sh’000)
Direct labour 270, 000
Direct Materials 60, 000
Variable Overheads 135, 000
Fixed Overheads 75, 000
540, 000
These costs are expected to remain unchanged in the foreseeable future if the department continues operating.
The outsource data processor will charge Sh. 450.0 Million fee annually for the next five years. Transporting data to and from the outsource offices will cost ABC Ltd. Sh. 45.0 Million per year. Outsourcing data processing would abolish all direct labour, direct materials and 50 % of variable overheads associate with that department, but fixed overheads would remain unchanged.
REQUIRED
Advice the ABC Ltd Management under each assumption:-
(i) Assuming no altenative use of the data processing facilities is available.
(7 Marks)
(ii) Assuming the data processing facilities could be used for mail order services at costs matching the data processing activity except for 50 % increase in Direct Materials and 40 % decrease in variable overheads. Revenue from the mail order service would be 462.0 Million per year. (6 Marks)

Question 5
(a) A public transport company acquired 5 minibuses at about the same time. To come up with a maintenance budget, the manager would like to determine the relationship between maintenance cost of a mini bus and its age. The following data is available.

Bus 1 2 3 4 5
Age (months) 22 23 26 27 35
Maintenance cost (‘000 SH) 27.8 28.5 30.0 35.0 36.4

REQUIRED
(i) A scatter diagram of the data (Cost=Y axis) (2 Marks)

(ii) Determine the best straight line representing the relationship using the
“least squares” approach (9Marks)

(ii) Using (ii) above, forecast the maintenance cost for a 40 months old Mini-bus. (2 Marks)

(iii) As in (ii) above but using the High –Low method (5 Marks)

b) ABAX Ltd. Distributes computer hardware and provides free maintenance over the warranty period. The maintenance manager feels that the method currently being used to forecast maintenance costs is biased towards underestimating the monthly costs. You obtain the following data for the last nine months.

Month 1 2 3 4 5 6 7 8 9
Forecast cost - 58 54 60 55 62 62 65 63
Actual cost 58 55 59 55 61 62 64 63 69

REQUIRED
Advice the maintenance manager (7 Marks)

Buss 219 Question Paper

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