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Managerial Accounting Question Paper

Managerial Accounting

Course:Bachelor Of Business Administration

Institution: Kenya Methodist University question papers

Exam Year:2012

DEPARTMENT OF BUSINESS ADMINISTRATION
ACCT 321: MANAGERIAL ACCOUNTING
November 2012
QUESTION ONE
A.
What do you understand by the term:
i. Yield variance
ii. Sales volume variance
Illustrate your answer with an example of each calculated from the following figure.
Budgeted sales 1020 unit
Standard yield per batch 106 liters
Actual sales 1130 units
Actual yields 3000 liters
Standard cost per litre Shs 30
Standard selling price per unit Shs 50
Actual number of batches 30 Batches
B.
A company has budgeted to produce 2750 articles in 22000 hours, with fixed overhead of sh 880,000
and variable overhead of sh 550,000 in the event, production during the period of the budget amount
to 2700 articles in 21500 working hours with fixed overheads costing Sh 900,000 and variable
overheads Shs 580,000.
Required
Calculate the following variances and prepare summary.
a) Overhead variances
b) Fixed production overhead variance
c) Variable production overhead variance
d) Fixed production expenditure overhead
e) Fixed production overhead volume variance
f) Fixed cost productivity variance
g) Capacity variance
C.
i. State objectives of standard costing
ii. What is relevance of standard costing in Business
D.
What are the possible reasons for:-
i. Material price variance
ii. Material usage variance
iii. Labour rate variance
iv. Labour efficiency variance
v. Fixed overhead variance
QUESTION TWO
The Anderson Company has recently purchased a plant to manufacture a new product. The
following data pertains to the new operation:
Estimated annual sales 3,500 units @shs.20
Estimated costs:
Direct materials shs.6.00/unit
Direct labor shs.l.00/unit
Factory overhead (all fixed) shs.12,000 per year
Selling expenses 30% of sales
Administrative expenses (all fixed) shs.16,000 per year
Determine:
a) The Break-even point in units (4marks)
b) The selling price if profit per unit is shs.2.04 (5marks)
QUESTION THREE
The following information relates to the unit manufacturing costs of product by Mafuta
Company.
Shs
Selling price 100
Cost of sales
Material 35
Labour 20
Overhead 10
Variable cost 65
Fixed costs 20 85
Gross profit 15
Selling and administrative cost 10
Net profit 5
The company budget for fixed production costs of Shs 3,600,000 and administrative costs of
Shs. 750,000 per annum. These costs are spread evenly during the year. During the latest
financial year, the following results were achieved.
Jan-March April-June
Production (units) 25,000 20,000
Sales (units) 21,000 26,000
Opening stock at the beginning of the year, 3000. Fixed production and selling and
administrative costs incurred during the year were equal to the budget.
Required
a) Prepare operating statement for each of the two quarter periods using each of the
following methods.
i. Absorption costing (10 marks)
ii. Marginal costing (10 marks)
b) Prepare reconciliation statement (4 marks)
c) Highlight 2 main differences between (4 marks)
QUESTION FOUR
The Vernom Corporation, which produces and sells to wholesalers a highly successful line of
summer lotions and insect repellents, has decided to diversify in order to stabilize sales
throughout the year. A natural area for the company to consider is the production of winter
lotions and creams to prevent dry and chapped skin. After considerable research, a winter
products line has been developed. However, because of the conservative nature of the
company management, Vernom’s president has decided to introduce only one of the new
products for this coming winter. If the product is a success, further expansion in future years
will be initiated.
The product selected (called “Chap-off”) is a lip balm that will be sold in a lipstick-type tube.
The product will be sold to wholesalers in boxes of 24 tubes for shs. 8 per box. Because of
available capacity, no additional fixed charges will be incurred to produce the product.
However, a shs.100,000 fixed charge will be absorbed by the product to allocate a fair share
of the company’s present fixed costs to the new product.
Using the estimated sales and production of 100,000 boxes of Chap-off as the standard
volume, the accounting department has developed the following costs:
shs.
Direct labor 2.00 per box
Direct materials 3.00 per box
Total overhead 1.50 per box
Total 6.50 per box
Vernom has approached a cosmetics manufacturer to discuss the possibility of purchasing the
tubes for Chap-off. The purchase price of the empty tubes from the cosmetics manufacturer
would be shs.0.90 per 24 tubes. If the Vernom Corporation accepts the purchase proposal, it
is estimated that direct labor and variable overhead costs would be reduced by 10 percent and
direct material costs would be reduced by 20 percent:
1. Should the Vernom Corporation make or buy the tubes? Show calculations to support
your answer.
2. What would be the minimum purchase price acceptable to the Vernom Corporation
for the tubes? Support your answer with an appropriate explanation.
3. Instead of sales of 100,000boxes, revised estimates show sales volume at
125,000boxes. At this new volume, additional equipment, at an annual rental of shs.
lO,OOO, must be acquired to manufacture the tubes. However, this incremental cost
would be the only additional fixed cost required even if sales increased to 300,000
boxes. (The 300,000 level is the goal for the third year of production.) Under these
circumstances, should the Vernom Corporation make or buy the tubes? Show
calculations to support your answer.
4. The company has the option of making and buying at the same time. What would be
your answer to question 3 if this alternative was considered? Show calculations to
support your answer (20 marks)

Managerial Accounting Question Paper

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