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- High-tex Engineering Company Limited wishes to set flexible budgets for each of its operating departments. A separate maintenance department performs all routine and major repair...(Solved)
High-tex Engineering Company Limited wishes to set flexible budgets for each of its operating departments. A separate maintenance department performs all routine and major repair works on the company‟s equipment and facilities. The company has determined that maintenance department performs all routine and major repair works on the
company's equipment and facilities. The company has determined that maintenance cost is
primarily a function of machine hours worked in the various production departments.
The maintenance cost incurred and the actual machine hours worked during the months of
January, February, March and April 2003 were as follows:
Required:
a) Determine the cost estimation function using:
i High-low method.
ii Regression analysis
b) Using the regression function estimate:
i The maintenance costs that would have been incurred if the machine hours were expected to be 900 in the month of May 2003.
ii The maximum machine hours that would have been worked If the maintenance cost incurred had been limited to Sh.400,000 for the month of May 2003.
c) Assuming that in the month of May 2003 machine hours were 900, establish a 95% confidence interval for this point estimate. (Assume tc = 2.7764 and standard error of estimate, se = 63.25).
Date posted: May 6, 2021. Answers (1)
- Joan Odero, an independent movie producer, is negotiating with Roadshow Productions
Limited on a contract for the production and marketing of her next film, titled “The
rise...(Solved)
Joan Odero, an independent movie producer, is negotiating with Roadshow Productions
Limited on a contract for the production and marketing of her next film, titled “The
rise and fall of a cock”. The budget for the film is, Sh.100 million.
Roadshow Productions Limited is offering Joan Odero a choice of one of the three contracts.
Contract A
1. Roadshow Productions Limited will pay all the production and marketing costs.
2. Joan Odero will receive a fixed fee of Sh.10 million.
3. Joan Odero will receive 10% of gross revenue from the film in excess of Sh.1 billion
(no payment is made for gross revenue up to Sh.1 billion).
Contract B
1. Roadshow Productions Limited will pay 80% of all the production and marketing costs
up to Sh.100 million and 30% of production and marketing costs in excess of Sh.100 million
2. Joan Odero will receive 10% of all gross revenue for the film. Contract C
1. Roadshow Productions Limited will pay 50% of production and marketing costs up to Sh.100 million.
2. Joan Odero will receive 30% of all gross revenue from the film.
Joan Odero estimates the following probabilities for the gross revenues:
P(high demand of Sh.2 billion) 0.1
P(medium demand of Sh.500 million) 0.3
P(low demand of Sh.100 million) 0.6
She estimates the following probabilities for the cost of production:
P(budgeted cost of Sh.100 million) 0.6
P(high cost of Sh.200 million) 0.4
Required:
a) The expected monetary value for Joan Odero under each contract for each of the six possible events.
(Hint: The possible events are high demand – budgeted costs, high demand –
high costs, medium demand – budgeted costs, medium demand – high costs, low demand – budgeted costs, and low demand – high costs).
b) Joan Odero will choose the contract that maximizes her expected monetary value from the film. Which contract should she choose? (Show calculations).
c) What information might Joan Odero use in assessing the probability distribution for the production and marketing costs of “The rise an fall of cock” film?
Date posted: May 6, 2021. Answers (1)
- 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. Answers (1)
- “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. Answers (1)
- 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. Answers (1)
- 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. Answers (1)
- 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. Answers (1)
- Tritech Ltd. has semi-automatic machine process in which a number of tasks are performed.
A system of standard costing and budgetary control is in operation. The...(Solved)
Tritech Ltd. has semi-automatic machine process in which a number of tasks are performed.
A system of standard costing and budgetary control is in operation. The process is
controlled by machine attendants who are paid a fixed rate per hour of process time. The
process has recently been reorganized as part of an ongoing total quality management
programme in the company.
The nature of the process is such that the machines incur variable costs even during nonproductive
(idle time) hours. Non-productive hours include time spent on the rework of
products.
(Note: Gross machine hours = productive hours + non-productive hours)
The standard data for the machine process are as follows:
1. Standard non-productive (idle time) hours as a percentage of gross machine hour is
10%.
2. Standard variable machine cost per gross hour is Sh.270.
3. Standard output productivity is 100% that is one standard hour of work is expected in
each productive machine hour.
4. Machine costs are charged to production output at a rate per standard hour sufficient to
absorb the cost of the standard level of non-productive time.
Actual data for the period August to November 2002 have been summarized below:
Required:
a) Calculate the machine variances for productivity, excess idle time and expenditure for
each of the two months of September and October.
b) In order to highlight the trend of variances in the months from August to
November 2002, express each as a percentage term as follows:
i Productivity variance as a percentage of standard cost of production achieved.
ii Excess idle time variance as a percentage of expected idle time.
iii Expenditure variance as a percentage of hours paid for all standard machine cost.
c) Comment on the trend of variances in the August to November period and possible
inter-relationships. Particularly in the context of the total quality management
programme which is being implemented.
Date posted: May 5, 2021. Answers (1)
- A company has determined that the EOQ for its only raw material is 2000 units every 30
days. The company knows with certainty that a four-day...(Solved)
A company has determined that the EOQ for its only raw material is 2000 units every 30
days. The company knows with certainty that a four-day lead time is required for
ordering. The following is the probability distribution of estimated usage of the raw
material for the month of December 2002.
Stock-outs will cost the company Sh.100 per unit and the average monthly holding cost
will be Sh.10 per unit
Required
i Determine the optimal safety stock
ii Compute the probability of being out of stock.
Date posted: May 4, 2021. Answers (1)
- 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. Answers (1)
- 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. Answers (1)
- Zimco Media Group has three major divisions: Newspapers. Television. Film studios.
The manager of each division has an annual bonus plan based on his division's
return on...(Solved)
Zimco Media Group has three major divisions: Newspapers. Television. Film studios.
The manager of each division has an annual bonus plan based on his division's
return on investment (ROI). The company defines ROI as operating income divided by total
assets. Senior executives from divisions reporting increases in the division's ROI from
the prior year are automatically eligible for a bonus. Senior executives of division reporting a
decline in ROI have to provide persuasive explanations for the decline. In order to be
eligible for any bonus, and they are limited to 50% of the bonus paid to the division
managers reporting an increase in ROI.
J. Kanyama, manager of the newspapers division is considering a proposal to invest Sh. 200
million in a fast speed printing process with colour options. The estimated increment to year
2002 operating income would be Sh. 30 million. The media group has a 12% required rate of
return for investments in all three divisions.
Required:
a. Use the Dupont Method to explain differences among the three divisions in their
2001 ROI. (Use 2001 total assets as the denominator).
b. Explain whether J Kanyama should undertake the fast-speed printing press
investments proposal.
c. T. J. Zimco the Chairman of the media group, has received a proposal to base senor
executive compensation in each division on Residual Income (RI) defined as
operating income less imputed interest charge. Compute the residual income (RI) of
each division in the year 2001
d. Would adoption of the residual income (RI) basis change J. Kanyama's decision on the acceptance of the fast-speed printing press investment proposal?
Date posted: May 4, 2021. Answers (1)
- Computer Games Ltd. (CGL) makes and sells three types of computer games for which the following budget/standard and actual information is available for a week...(Solved)
Computer Games Ltd. (CGL) makes and sells three types of computer games for which the following budget/standard and actual information is available for a week period:
Required:
a) Prepare a summary of sales variances for quantity, mix and volume for each model
and in total, where individual product standard contribution per unit is used as the
variance valuation base.
b) Prepare an alternative summary giving the same range of variances as in (a) above,
but using the budgeted weighted averaged contribution per unit as the variance valuation
base.
c) Prepare a report to the management which specifically comments on each of the
following points:
i. Similarities between the variances calculated in (a) as compared with those calculated
in (b) above.
ii. The arguments which may be put in favour of the individual product quantity and mix
variances as calculated in (b) above.
iii. The relevance of the individual product, quantity and mix variances to management.
Date posted: May 4, 2021. Answers (1)
- “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. Answers (1)
- 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. Answers (1)
- Discuss the three main elements of strategic costs management.(Solved)
Discuss the three main elements of strategic costs management.
Date posted: May 4, 2021. Answers (1)
- 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. Answers (1)
- Describe the advantages and disadvantages of using simulation to investigate queuing situations compared with the use of queuing formulae.(Solved)
Describe the advantages and disadvantages of using simulation to investigate queuing situations compared with the use of queuing formulae.
Date posted: May 4, 2021. Answers (1)
- New Books Publishers (NBP) Ltd. are planning to introduce a new management accounting text
book. The company's management accountant estimates that the initial distribution
for likely sales...(Solved)
New Books Publishers (NBP) Ltd. are planning to introduce a new management accounting text
book. The company's management accountant estimates that the initial distribution
for likely sales is normal with a mean of 20,000 books. In addition, it has been determined that
there is a probability of 0.5 that the likely sales will lie between 16,000 and 24,000 books.
The textbooks will sell for Sh.1,000 per copy but the publishing company pays the author
10% of revenue in royalties while the fixed costs of printing and marketing the book are
calculated at Sh.2.5 million. Using current printing facilities, the variable production costs are
Sh.400 per book, however the NBP Ltd. Has the option of hiring a special machine for
Sh.1.4 million which will reduce the variable production costs to Sh.250 per book.
Required:
a) Show the standard deviation of likely sales is approximately 6,000.
b) Using standard deviation = 6000, determine the probability that the company will at least break even if:
i Existing printing facilities are used.
ii The special machine is hired.
c) By comparing expected profits, decide whether or not the publishing company should
hire the special machine.
d) By using the normal distribution, it can be shown that he following probability
distribution may be applied to the book sales.
Sales Sh „000‟ 0 – 10 10 - 16 16 – 20 20 – 24 24 – 30 30 - 40
Probability 0.05 0.20 0.25 0.25 0.20 0.05
By assuming that the actual can only take the mid-points of theses classes, determine the
expected value of perfect information and interpret it.
Date posted: May 4, 2021. Answers (1)
- Madoadoa Limited is a multi-division manufacturing company. The manufacture of M101.
One of the company?s finished products involves two divisions; Mwanzo and
Mwisho.Mwanzo division manufactures the chassis...(Solved)
Madoadoa Limited is a multi-division manufacturing company. The manufacture of M101.
One of the company‟s finished products involves two divisions; Mwanzo and
Mwisho.Mwanzo division manufactures the chassis for M101 and transfers it to Mwisho
division where it is reworked, fitted and assembled into the finished product. The two
divisions are housed in the same building whose lease is due to expire in two years‟ time.
Data on the operations of the two divisions for the year just ended is as follows:
Mr. Makini, the general manager of Mwisho division, has been considering the possibility of
sourcing the chassis from outside suppliers. He has received a quotation from Samawati
Ltd., a competitor of Mwanzo division offering to supply a minimum of 30,000 and a
maximum of 40,000 units of chassis per year for two years with adequate guarantees as to
quality and continuity of suppliers. The unit price would be Sh.22,000. Mr.Makini is of the
opinion that his division should be allowed to take all its requirement (30,000 units per year)
of chassis from Samawati Ltd., unless Mwanzo division agrees to cut the unit transfer price
to Sh.22,000. He suggests that if Mwanzo division cannot reduce the price it would be better
for it to cease operations and the space it now occupies be taken up by Mwisho division,
which is currently seeking extra warehouse space.
The summarized profit and loss accounts of the divisions for the past year ended 31
October 2001 is as follows:
You have been asked to investigate and advise on Makini‟s proposal. You have
gathered the following additional information:
The limitation of the proposed contract with Samawati Ltd. To a two-year period would be
agreeable to Madoadoa Ltd. As the lease for the factory is unlikely to be renewed in two years‟
time and there is no wish to enter into firm commitments beyond that date. If
Mwanzo division is closed, most of the work force could be productively absorbed by other
divisions of Madoadoa Ltd., which operate in the vicinity at no additional cost to those
divisions.
The manager of Mwanzo division complains that his division has to bear exceptionally
heavy depreciation charges and fixed overheads (including central office charges) which are
beyond his control. Without these expenses, he believes that Mwanzo division could match
price quoted by Samawati Ltd., and still make a reasonable profit. He also believes that with
a price of Sh.22,000, it should be possible to operate at full capacity, selling 25% of the
output in the open market. The additional output would increase the direct materials cost
and variable overhead proportionately but he estimates that the total direct labour cost
would only increase by 10%.
The plant used by Mwanzo division has a book value of Sh.150,000,000. Its current resale is
probably Sh.50,000,000. in two years it is estimated that it will have negligible value.
The storage space required by Mwisho division will probably cost Sh.10,000,000 per annum if rented.
Mwanzo division has in stock sufficient raw material for nine months‟ production if
production is continued at the same level as he has achieved last year. If this raw material is
sold off (following the decision to close Mwanzo division), it would probably fetch 25% of
its cost.
Required:
a) Mwanzo division‟s combined profit and loss account for the ensuring two-year
period on the assumption that the division continues to operate after reducing its
transfer price to Sh.22,000 and operating at full capacity as expected.
b) A statement of costs and benefits to Madoadoa Ltd. If a decision to adopt the
proposal made by Mr. Makini rather than the plan put forward by the manager of
Mwanzo division is taken.
Date posted: May 4, 2021. Answers (1)