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Traditional budgeting systems are incremental in nature and tend to focus on cost centers. Activity based budgeting (ABB) links strategic planning to the overall performance...
(Solved)
Traditional budgeting systems are incremental in nature and tend to focus on cost centers. Activity based budgeting (ABB) links strategic planning to the overall performance measurement aimed at continuous improvement.
Required:
i Explain the weakness of traditional incremental budgeting systems.
ii Describe the main feature of activity based budgeting system and comment on its advantages.
Date posted:
May 6, 2021
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Answers (1)
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“It is now fairly and widely accepted that conventional cost accounting, distorts
management's view of business through unrepresentative overhead allocation
and inappropriate product costing. This is because...
(Solved)
“It is now fairly and widely accepted that conventional cost accounting, distorts
management's view of business through unrepresentative overhead allocation
and inappropriate product costing. This is because the traditional approach usually absorbs
overhead costs across products solely on the basis of the direct labour involved in their
manufacture. As direct labour cost expressed as a proportion of total manufacturing cost
continues to fall, this leads to more an more distortion and misrepresentation of the impact
of particular products on total overhead costs (from Financial Times)
Required:
Briefly discuss the above statement and state what approaches are being adopted by management accountants to overcome such criticism.
Date posted:
May 6, 2021
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Answers (1)
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Briefly explain three methods that can be used to analyze uncertainty in cost-volume-profit (C-V-P) analysis.
(Solved)
Briefly explain three methods that can be used to analyze uncertainty in cost-volume-profit (C-V-P) analysis.
Date posted:
May 5, 2021
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Answers (1)
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A university offers a range of degree courses. The university's organization structure
consists of three faculties each with a number of teaching departments. In addition, there...
(Solved)
A university offers a range of degree courses. The university's organization structure
consists of three faculties each with a number of teaching departments. In addition, there is
a university administrative/management function and a central services function.
The following cost information is available for the year ended 30 June 2002
a) Occupancy costs total Sh.15,000,000. Such costs are apportioned on the basis of area
used which is:
2. Administration/management costs:
Direct costs: Shs.17,750,000
Indirect costs: an apportionment of occupancy costs.
Direct and indirect costs are charged to degree courses on a percentage basis.
3. Faculty costs:
Direct costs: Shs. 7,000,000.
Indirect costs: an apportionment of occupancy and central services costs.
Direct and indirect costs are charged to teaching departments.
4. Teaching departments:
Direct costs: Shs. 55,250,000.
Indirect cost: an apportionment of occupancy costs and central services costs plus all
faculty costs.
Direct and indirect costs are charged to degree courses on a percentage basis.
5. Central services:
Direct costs: Sh.10,000,000
Indirect costs: an apportionment of occupancy costs.
6. Direct and indirect costs of central services have in previous years been charged to users
on a percentage basis. A study has now been completed which has estimated what user
areas would have paid external suppliers for the same services on an individual basis. For
the year ended 30 June 2002, the apportionment of central services costs is to be
recalculated in a manner which recognizes the cost/savings achieved by using the central
services facilities instead of using external service companies. This is to be done by
apportioning the overall savings to user areas in proportion to their share of the
estimated external costs.
7. The estimated external cost of service provision are as follows:
Central services are apportioned as detailed in (5) above.
The total number of graduates from the university in the year to 30 June 2002 was 2,500.
Required:
a) Prepare a flow diagram which shows the apportionment of costs to user areas. (No value needs to be shown).
b) Calculate the average cost per graduate for the year ended 30 June 2002, for the
university and for each of the degree courses in business studies, mechanical engineering
and catering studies (round your values to the nearest Sh.1,000)
c) Suggests reasons for any differences in the average cost per graduate from one degree
course to another, and discuss briefly the relevance of such information to the
university's management.
Date posted:
May 5, 2021
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Answers (1)
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Large service organizations such as banks and hospitals used to be noted for their lack of
standard costing systems and their relatively unsophisticated budgeting and control...
(Solved)
Large service organizations such as banks and hospitals used to be noted for their lack of
standard costing systems and their relatively unsophisticated budgeting and control systems
compared to the practice in large manufacturing organizations. But this is changing any
many large service organizations are now reversing their use of management accounting techniques.
Required:
a) Explain which features of large service organizations encourage the application of
activity-based approaches to the analysis of cost information.
b) Explain which features of service organizations may create problems for the application
of activity-based costing.
c) Explain the uses of activity-based cost information in service industries.
Date posted:
May 5, 2021
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Answers (1)
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Explain the advantages and disadvantages of the Just-In-Tie (JIT) inventory system.
(Solved)
Explain the advantages and disadvantages of the Just-In-Tie (JIT) inventory system.
Date posted:
May 4, 2021
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Answers (1)
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In all the Republic of Ramuka there are five coal mines, which have the following outputs and production costs:
Required:
a) Determine how the output of each...
(Solved)
In all the Republic of Ramuka there are five coal mines, which have the following outputs and production costs:
Required:
a) Determine how the output of each mine should be allocated to the three preparation plants.
b) Following the installation of a new equipment at coal mine No.3, the production
cost is expected to fall to Sh.3,000 per tonne.
What effect, if any, will have on the allocation of coal to the preparation plant?
c) It is planned to increase the output of coal mine No.5 to 180 tonnes per day, which
can be achieved without any increase in production cost per tonne.
How will this affect the allocation of coal to the preparation plants?
Date posted:
May 4, 2021
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Answers (1)
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“If a manager searches for a system that will provide the „true costs? of each service produced by his firm he is attempting the impossible”....
(Solved)
“If a manager searches for a system that will provide the „true costs‟ of each service produced by his firm he is attempting the impossible”. Discuss.
Date posted:
May 4, 2021
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Answers (1)
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State the major characteristics of modern businesses that necessitate the introduction of a strategic cost management system
(Solved)
State the major characteristics of modern businesses that necessitate the introduction of a strategic cost management system
Date posted:
May 4, 2021
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Answers (1)
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Kisumu Municipal council operates a mini-bus service to take shoppers and tourist from the bus and the railway stations to various locations in the Municipality....
(Solved)
Kisumu Municipal council operates a mini-bus service to take shoppers and tourist from the bus and the railway stations to various locations in the Municipality. The following data have been collected for the arrival of passengers at the bus stop outside the railway station:
Time between successive arrivals 0 1 2 3 4 5 6
(minutes)
Probability 0.04 0.16 0.24 0.28 0.16 0.10 0.02
The mini-buses are scheduled to run every 10 minutes but variation in traffic conditions
results in the following distribution.
Time between successive buses 8 10 12 14 16
(minutes)
Probability 0.10 0.38 0.28 0.15 0.09
The number of empty seats on the bus is found to follow the distribution below:
Number of empty seats 0 1 2 3 4 5 6
Probability 0.06 0.18 0.27 0.34 0.11 0.03 0.01
Required:
i. Simulate the arrival of to passengers at the bus stop assuming that the simulation clock
begins at time zero. Use the following random numbers:
18262318624207384092976446757444417165809
i i. Estimate the average time a passenger must wait for a bus and the average length of queue
Date posted:
May 4, 2021
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Answers (1)
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Kamau and Njoroge are two cousins specializing in hawking business along River
road. Kamau specializes in second hand shirts while Njoroge specializes in cheap
electronic goods. However,...
(Solved)
Kamau and Njoroge are two cousins specializing in hawking business along River
road. Kamau specializes in second hand shirts while Njoroge specializes in cheap
electronic goods. However, sales have been decreasing partly due to the harsh
economic condition in Kenya and partly due to restrictions by the City Council.
Each of the cousins is considering expanding to include in their lines of business,
items on which their rivals now have a monopoly. Each knows that the other is
considering this expansion and this influences each of their decisions.
Kamau figures out that if he does not expand his business and his cousin does, it will
hurt his trade by Sh.500 of profit per day. If neither of them expands inventory to
include the extra product, Kamau thinks it will boost his net profit by Sh.500 per day
due to his superior location. If he expands and his cousin does also, he believes the
combination of location and expanded inventory will increase his profits by Sh.1,000
per day. However, if he alone expands and his cousin does not, this will result in no
net increase in business.
Required:
i Prepare a game matrix and show that a pure strategy does not exist.
ii Solve the above game to determine the average winnings (or losses) each of the cousins would expect.
Date posted:
May 4, 2021
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Answers (1)
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Mount Sinai Health Centre specializes in the provision of sports/exercise and
medical/dietary advice to clients. The service is provided on a residential basis and
clients reside for...
(Solved)
Mount Sinai Health Centre specializes in the provision of sports/exercise and
medical/dietary advice to clients. The service is provided on a residential basis and
clients reside for whatever number of days that suit their needs.
Budgeted estimates for the year ending 300 June 2002 are as follows:
1. The maximum capacity of the center is 50 clients per day for 350 days in the year.
2. Clients will be invoiced at a fee per day. The budgeted occupancy level will vary with
the client fee level per day and is estimated at different percentages of maximum
capacity as follows:
3. Variable costs are also estimated at one of the three levels per client day. The high
most likely and low levels per client per day are Sh.1,900, Sh.1,700 ad Sh.1,400
respectively.
4. The range of cost levels reflects only the possible effect of the purchase prices of
goods and services.
Required:
i. A summary which shows the budgeted contribution to be earned by Mount Sinai Health
Centre for the year ended 30 June 2002 for each of the nine possible outcomes.
ii. State the client fee strategy for the year to end 30 June 20002 which will result from the use
of each of the following decision rules.
(a) Maximax;
(b) Maximin;
(c) Minimax regret.
Date posted:
May 4, 2021
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Answers (1)
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Kanorer Enterprises Ltd has two divisions Mugaa and Gwashati. Mugaa division manufactures an intermediate product for which there is no external market. Gwashati division incorporates...
(Solved)
Kanorer Enterprises Ltd has two divisions Mugaa and Gwashati. Mugaa division manufactures an intermediate product for which there is no external market. Gwashati division incorporates the intermediate product into a final product, which it sells. One unit of the intermediate product is used in the production of the final product. The expected units of the final product which Gwashati division estimates it can sell at various selling
prices are as follows:
Required:
a) Profit statements for each division and the company as a whole for the various selling
prices.
b) Which selling prices maximize the profits of Gwashati division and the company as a
whole? Comment on why the selling price (which is selected by the company) is not
selected by Gwashati division.
c) It has been argued that full cost is an inappropriate basis for selling transfer prices.
Outline the objections which can be raised against this basis.
Date posted:
May 3, 2021
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Answers (1)
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ABC Lt. Is a manufacturing company that makes only three products P, Q, and R. Data for the period ended last month are as follows:
Required:
Using...
(Solved)
ABC Lt. Is a manufacturing company that makes only three products P, Q, and R. Data for the period ended last month are as follows:
Required:
Using activity based costing (ABC) show the cost and gross profit per unit for each product during the period.
Date posted:
May 3, 2021
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Answers (1)
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Explain the advantages of using Value Added Statements (VAS) for interdivision for comparisons in decentralized firm.
(Solved)
Explain the advantages of using Value Added Statements (VAS) for interdivision for comparisons in decentralized firm.
Date posted:
May 3, 2021
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Answers (1)
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Some businesses which supply two or more separate markets from a single source may decide to charge a higher price for sales to home markets...
(Solved)
Some businesses which supply two or more separate markets from a single source may decide to charge a higher price for sales to home markets than for export sales. The businesses may justify their pricing policy by stating that they need to earn foreign exchange from foreign markets and recover their research and development costs, plus production overheads against home demand.
Required:
i Critically explain briefly the rationale for such a differential pricing policy.
ii Should earning of foreign exchange be a factor in a firm's pricing policy.
Date posted:
May 3, 2021
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Answers (1)
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Alvis Kiptoo has budgeted that output and sales of his single product will be 100,000
units in the coming year. At this level of activity, his...
(Solved)
Alvis Kiptoo has budgeted that output and sales of his single product will be 100,000
units in the coming year. At this level of activity, his unit variable costs are budgeted at
Sh.50 and his unit fixed costs at Sh.25. His sales manager estimates that the demand for
the product would increases by 1000 units for every decreased of Sh.1 in unit selling
price (and vice versa) and that at a unit selling price of Sh.200 demand would be nil.
Information about two price increases has just been received from suppliers: one is for
materials (which are included in Alvis Kiptoo‟s variable costs) and one is for
fuel (which included in his fixed costs). Their effect will be to increase both the variable
and fixed costs by 20% each over the budgeted figures.
Alvis Kiptoo aims at maximizing profits from his business.
Required:
a. Calculate before the cost increases the budgeted contribution and profit at the budgeted levels of 100,000 units.
b. Calculate the level of sales at which profits would be maximized and the amounts of these maximum profits before the cost increases.
c. Show whether and by how much Alvis Kiptoo should adjust his selling price in respect to increases in:
- Fuel costs.
- Material costs.
Date posted:
May 3, 2021
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Answers (1)
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A critic has suggested that budgets should be abolished because they introduce rigidity and hamper creativity. Discuss.
(Solved)
A critic has suggested that budgets should be abolished because they introduce rigidity and hamper creativity. Discuss.
Date posted:
May 3, 2021
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Answers (1)
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In his study of: “the impact of budgets on people” C Argyris reported the following
comment by a financial controller on the practice of participation in...
(Solved)
In his study of: “the impact of budgets on people” C Argyris reported the following
comment by a financial controller on the practice of participation in setting budgets in
his company:
“We bring in the supervisors of budget areas, we tell them that we want their frank
opinion, but most of them just sit there and nod their heads. We know they are not
coming out with exactly what they feel. I guess budget scares them”.
Explain why managers may be reluctant to participate fully in setting budgets, indicating
the negative side effects, which may arise from the imposition of budgets by senior management.
Date posted:
May 3, 2021
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Answers (1)
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Watt Lovell Ltd. (WLL) is trying to decide whether or not to drill for oil on a particular site
in North Eastern Kenya. The Chief Engineer...
(Solved)
Watt Lovell Ltd. (WLL) is trying to decide whether or not to drill for oil on a particular site
in North Eastern Kenya. The Chief Engineer has assessed the probabilities that there will be
oil as follow, based on past experience.
Oil 0.2
No oil 0.8
It is possible for WLL to hire a firm of international consultants to carry out a complete
survey of the site. WLL has used the firm many times before and has made the following
estimates:
1. If there really is oil, then there is a 95% chance that the report will be favourable.
2. If there is no oil then there is only a 10% chance that the report will indicate that there is oil.
The following additional information is also provided:
The cost of drilling is Sh.10 million.
The value of the benefits if oil is found is Sh.70 million
The cost of obtaining information is Sh.3 million.
Required:
a) Advise the company on whether to acquire additional information from the consultants
b) Compute the value of imperfect information.
Date posted:
May 3, 2021
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Answers (1)