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- Mwito Club is a charitable organization based in Nairobi. For the last 20 years, the
club has held an annual dinner and dance event with the...(Solved)
Mwito Club is a charitable organization based in Nairobi. For the last 20 years, the
club has held an annual dinner and dance event with the primary aim of raising
funds to help the less fortune members of the society.
This year, there is concern that an economic recession may adversely affect the
success of the event with a fall in the number of guests attending and sale of
advertising space in the published events programme.
A study of past experience, current prices and quotations shows that the following
costs and revenues will apply for the event:
Revenue
Dinner and dance
Required:
(i) The expected profit from the event. (Assume one raffle ticket and one
photograph per attendant).
(ii) Describe how cost-volume-profit (C-V-P) analysis can be applied in
absorption costing.
Date posted: May 7, 2021. Answers (1)
- Angels of Mercy Mission Hospital operates on charity basis. The hospital?s board
of directors has recently complained about the increasing size of the cost budget insisting...(Solved)
Angels of Mercy Mission Hospital operates on charity basis. The hospital‟s board
of directors has recently complained about the increasing size of the cost budget insisting that
the management should cut down on costs.
The major concern of the board is the cost of maintaining patients at the intensive care unit
(ICU).
The following information is available on the operations of the hospital:
1. The average cost of maintaining a patient at the ICU per week is Shs. 200,000 compared
to Shs. 100,000 per week incurred in maintaining a patient at the high dependency unit
(HDU) and Shs. 50,000 per week of maintaining a patient at the general ward (GW).
2. Past information on patients indicates that:
(i) 50% of the patients in ICU at the beginning of the week will remain in ICU
at the end of the week and 50% will be transferred to HDU by the end of the
week.
(ii) 10% of the patients in HDU at the beginning of the week will be transferred
to ICU, 50% will remain in HDU, and 40% will be transferred to GW.
(iii) 85% of the patients in the GW at the beginning of the week will remain in
GW at the end of the week, 10% will be transferred to HDU and 5% to ICU.
3. The board of directors believe that the criteria for maintaining patients in the ICU is too
strict and should be relaxed so that only 40% of the patients in ICU at the beginning of
the week remain there at the end of the week while 60% are transferred to HDU.
4. The staff at the hospital insist that if the proposed criterion is adopted:
(i) 20% of patients in HDU at the beginning of the week will be transferred to
ICU, 50% will remain in HDU while only 30% will be transferred to GW.
(ii) No changes will be expected in the GW.
5. Past hospital records indicate that the hospital serves an average of 4,000 patients
weekly.
Required:
(a) The steady state weekly costs under the current policy.
(b) The steady state weekly costs under the proposed policy.
(c) Advise the board on the best policy.
(d) State the assumptions of the quantitative technique used in solving problems (a) and
(b) above.
Date posted: May 7, 2021. Answers (1)
- Pwani Marine Ltd., a boat construction company, has developed a new type
of speed boat called “Speed Surf.”
The following information has been availed to you:
1. Boat...(Solved)
Pwani Marine Ltd., a boat construction company, has developed a new type
of speed boat called “Speed Surf.”
The following information has been availed to you:
1. Boat construction is a continuous assembling process carried out at
the company‟s yard.
2. Boat assembling is labour intensive involving the use of two classes of
labour namely:
Skilled labour at a standard rate of Shs. 1,250 per hour.
Semi-skilled labour at a standard rate of Shs. 950 per hour.
3. Experience on boat construction from other models indicates that the use of
skilled labour is associated with an 80% learning curve effect whereas use of
semi-skilled labour is associated with a 90% learning curve effect.
4. Labour usage for the first speed boat assembled was as follows:
Skilled labour – 952 hours.
Semi-skilled labour – 650 hours.
5. In October 2005, the sixth and the seventh speed boats were assembled
from start to finish. During the month, the following labour usage and costs
were recorded:
Skilled labour – 680 hours at a total cost of Shs. 800,400.
Semi-skilled labour – 1,256 hours at a total cost of Shs. 1,281,200.
The management of Pwani Marine Ltd. is concerned about the cost variances and
would like to learn more on the composition of the variances.
Required:
(i) Calculate the standard labour cost of the month of October 2005.
(ii) Reconcile the standard cost with the actual cost for the month of October
2005 showing the labour rate and labour efficiency variances.
(iii) Express the labour efficiency variance in terms of labour mix and labour
output variances. (Value the labour mix variances using standard rates).
Date posted: May 7, 2021. Answers (1)
- Explain the applications of the learning curve.(Solved)
Explain the applications of the learning curve.
Date posted: May 7, 2021. Answers (1)
- Kutwa Ltd. is a manufacturing company with two divisions; A and B. Division A
manufactures a single standard product K, some of which is sold externally...(Solved)
Kutwa Ltd. is a manufacturing company with two divisions; A and B. Division A
manufactures a single standard product K, some of which is sold externally and the
remainder used as an input in division B in the manufacture of product M.
The unit production costs of product K are given below:
The manager of division B suggests that based on the above results, a transfer price of Shs.
120 would offer division A a reasonable contribution towards its fixed cost and earn
division B a reasonable profit. This would lead to an increase in the output and overall
profitability of the company.
Required:
( a) Calculate the effect of the existing transfer pricing system on the company‟s profits.
( b) Calculate the effect of adopting the transfer price of Shs. 120 on the company‟s
profits.
Date posted: May 7, 2021. Answers (1)
- Nairobi Manufacturers Ltd. produces component X on machine Y at a rate of 4,000
units per month. Machine Z uses component X at the rate of...(Solved)
Nairobi Manufacturers Ltd. produces component X on machine Y at a rate of 4,000
units per month. Machine Z uses component X at the rate of 1,000 units per month,
the remainder being put into stock. It costs Shs. 2,000 to set up machine Y while the
stock holding cost is estimated at Shs. 2.50 per unit per annum plus a 20% opportunity
cost of capital per annum. Each component costs Shs. 25 to produce.
Required:
(i) Compute the optimal batch size that should be produced using machine Y.
(ii) Assume that the actual set-up cost of machine Y is Shs. 1,000 instead of
Shs. 2,000. Calculate the cost of prediction error.
Date posted: May 7, 2021. Answers (1)
- Manukato Ltd. produces a designer perfume called “Hint of Elegance.”
Production of the perfume involves the use of two ingredients, X1 and X2
represented by the production...(Solved)
Manukato Ltd. produces a designer perfume called “Hint of Elegance.”
Production of the perfume involves the use of two ingredients, X1 and X2
represented by the production function given below:
Required:
(i) Calculate the daily expected profit of the company.
(ii) Simulate the company‟s profit for 10 days using the following
random numbers:
58, 71, 96, 30, 24, 18, 46, 23, 34, 27, 85, 13, 99, 24, 44, 49,
18, 09, 79, 49, 74, 16, 32, 23, 02, 56, 88, 87, 59, 41, 06
Date posted: May 7, 2021. Answers (1)
- Shadow prices may be used in the setting of transfer prices between divisions in a
company, where the intermediate products being transferred are in short supply.
Required:
Explain...(Solved)
Shadow prices may be used in the setting of transfer prices between divisions in a
company, where the intermediate products being transferred are in short supply.
Required:
Explain why the transfer prices thus calculated are more likely to be favoured by the
management of the divisions supplying the intermediate products rather than the
management of the divisions receiving the intermediate products.
Date posted: May 7, 2021. Answers (1)
- Transfer pricing of products between processes in a manufacturing company can be done at:
1. Cost or
2. Sales value at the point of transfer.
Required:
Discuss how each...(Solved)
Transfer pricing of products between processes in a manufacturing company can be done at:
1. Cost or
2. Sales value at the point of transfer.
Required:
Discuss how each of the above methods could be used effectively in the operations
of a responsibility accounting system.
Date posted: May 7, 2021. Answers (1)
- State four objectives of a transfer pricing system.(Solved)
State four objectives of a transfer pricing system.
Date posted: May 7, 2021. Answers (1)
- State the limitations of the use of fame theory in decision making.(Solved)
State the limitations of the use of fame theory in decision making.
Date posted: May 7, 2021. Answers (1)
- Topcom Kenya International Limited (TKIL) is a telecommunications company
situated in Nakuru. Recently, the company was faced with a workers strike which
necessitated a renegotiation of the...(Solved)
Topcom Kenya International Limited (TKIL) is a telecommunications company
situated in Nakuru. Recently, the company was faced with a workers strike which
necessitated a renegotiation of the workers‟ salaries through their union.
The management with the help of a consultant, has prepared the pay-off matrix
shown below:
A positive sign represents a wage increase while a negative sign represents a wage decrease.
Required:
(i) Advise the management on the best strategies.
(ii) The value of the game
Date posted: May 7, 2021. Answers (1)
- Makazi Ltd. manufactures a hedge-trimming tool which has been selling at Shs.
1,600 per unit for a number of years. The selling price is to be...(Solved)
Makazi Ltd. manufactures a hedge-trimming tool which has been selling at Shs.
1,600 per unit for a number of years. The selling price is to be reviewed and the
following information is available on costs and the likely demand:
1. The standard variable cost of manufacturing the tool is Shs. 1,000 per unit and
an analysis of the cost variances in the past 20 months shows the following
pattern which the production manager expects to continue in the future.
Adverse variances of 10% of the standard variables cost occurred in ten
of the twenty months.
Nil variances occurred in six of the twenty months.
Required:
(i) Based on the information given above, advise the management of Makazi Ltd.
on whether they should change the selling price. Indicate the price you would
recommend.
(ii) The expected profit at the price you have recommended in (i) above and the
resulting margin of safety expressed as a percentage of expected sales
(iii) Comment on the method of analysis you have used to deal with the
probabilities given in the question.
(iv) Explain briefly how the use of a computer program would improve your
analysis.
Date posted: May 7, 2021. Answers (1)
- Nyali Ltd. is a distributor of an industrial chemical in the South Coast. The chemical is
supplied in drums which have to be stored at a...(Solved)
Nyali Ltd. is a distributor of an industrial chemical in the South Coast. The chemical is
supplied in drums which have to be stored at a controlled temperature. The
company‟s objective is to maximize profits, however the management team disagrees on
the stock control policy and holds the following different views:
The Managing Director's view:
The company's managing director (MD) wishes to improve the stock holding
policy by applying the economic order quantity (EOQ) model. Each drum of the chemical
costs Shs. 5,000 from a supplier and is sold for Shs. 6,000. The annual demand is estimated
to be 10,000 drums which the MD assumes to be evenly distributed over the 300 working
days in a year. The cost of delivery is estimated at Shs. 2,500 per order and the annual
variable holding cost per drum at Shs. 4,500 plus 10% of the purchase price.
Using these data, the MD calculated the EOQ and proposes that it should be used as the
basis for future purchasing decisions of the industrial chemical.
The Purchasing Manager‟s view:
Provided in the employment contract of the company‟s purchasing manager (PM), is a
clause stating that he will receive a bonus (rounded at the nearest Shs. 100) calculate as follows:
b = [1,000,000 – (OC + HC)] x 0.1
where: b is the annual bonus.
OC is the annual ordering cost.
HC is the annual holding cost.
Using the same assumption as the MD, the PM points out that in making his calculation, the
MD has not only ignored the bonus but also the fact that suppliers offer quantity discounts
on purchase orders, where if the order size is 200 drums or above, the price per drum for an
entire consignment is only Shs. 4,990 compared to Shs. 5,000 when the order is between 100
and 199 drums and Shs. 5,010 when an order is between 50 and 99 drums.
The Finance Director's view:
The company's finance director (FD) accepts the need to consider quantity
discounts and pay a bonus, but he also holds the view that the MD‟s approach is too
simplistic. He points out that there is a three days lead time for an order and that demand has
not been entirely even over the past year. Moreover, if the company has no drums of the
chemical in stock, it will lose specific orders as potential customers will source the chemical from
competitors. He gives the frequency of lead time demand over the last year as follows:
Under the circumstances, the MD decided that he would seek further advice on the
course of action to be taken by the company.
Required:
(a) The EOQ as originally determined by the company‟s managing director.
(b) Determine the optimum order quantity, taking into consideration the MD‟s
assumptions and after allowing for the purchasing manager‟s bonus and
supplier quantity discount.
(c) The safety stock the company should maintain after applying the finance director‟s
assumptions and assuming further that the supplier‟s contract requires
that the order quantity be constant for all the orders in a year.
(d) As a consultant, write a brief report to the managing director on the
company‟s stock ordering and stock holding policies, referring where necessary to
your answers in (a) to (c) above. The report should refer to other factors that should be
considered when making the final decisions on stock ordering and holding policies.
Date posted: May 7, 2021. Answers (1)
- Tony Kichumi, a financial analyst at Green City Bus Company Ltd. is examining the
behaviour of the company?s monthly transportation costs for budgeting purposes.
The transportation costs...(Solved)
Tony Kichumi, a financial analyst at Green City Bus Company Ltd. is examining the
behaviour of the company‟s monthly transportation costs for budgeting purposes.
The transportation costs are a sum of a 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 on items 1 and 2 above and the distance covered by the
buses. Monthly observations for the year ended 31 December 2004 were as follows:
Required:
(a) Evaluate the three linear regression equations using:
(i) Economic plausibility.
(ii) Goodness of fit
(iii) Significance of independent variables.
(iv) Specifications analysis criteria
(Use a 95% confidence level where applicable).
(b) List three variables, other than distance covered, that could be important drivers of
the company's operating costs.
(c) Suggest an alternative database that Kichumi could have used to examine the drivers
of the company‟s maintenance costs.
(d) Explain three limitations of the linear regression analysis used by the company.
Date posted: May 7, 2021. Answers (1)
- Equi -solutions Ltd. was formed ten years ago to provide business equipment solutions tolocal business. It has separate divisions for research, marketing, product design, technologyand...(Solved)
Equi -solutions Ltd. was formed ten years ago to provide business equipment solutions to
local business. It has separate divisions for research, marketing, product design, technology
and communication services, and now manufactures and supplies a wide range of business
equipment. To date the company has evaluated its performance using monthly financial
reports that analyze profitability by type of equipment. The managing director of Equi solutions
Ltd. has recently returned from a course in which it has been suggested that the
“Balanced Scorecard” could be a useful way of measuring performance.
Required:
a) Explain the “Balanced Scorecard” and how it could be used by Equi-solutions Ltd. to
measure its performance.
b) The managing director of Equi-solutions Ltd. also overheard someone mention how the
performance of their company had improved after they introduced “Bench marking.”
Required:
Explain “Bench-marking” and how it could be used to improve the performance of
Equi -solutions Ltd.
Date posted: May 7, 2021. Answers (1)
- Best Sell Ltd. has decided to launch a new product in addition to its range of
products. The following information is available:
1. The new product may...(Solved)
Best Sell Ltd. has decided to launch a new product in addition to its range of
products. The following information is available:
1. The new product may be distributed through any combination of the two
company warehouses W1 and W2.
2. The available monthly production capabilities for the new products are:
1000 units at plant A
2000 units at plant B
1000 units at plant C
3. Three major concentration points of customer demand are at locations E, F
and G which are estimated to have a monthly demand of:
900 units at E
800 units at F
900 units at G
4. The unit production costs amount to Sh.30, Sh.40, Sh.10 at A, B and C
respectively.
5. The unit handling costs at the warehouses amount to Sh.20 and Sh.30 at W1
and W2.
6. The unit transportation costs from plant to warehouse and unit delivery cost
from warehouse to customers are as shown below:
Required:
Determine the optimum production and distribution schedule to minimize total cost.
Date posted: May 7, 2021. Answers (1)
- Explain the following terms as applied in competitive situations:
i) Degeneracy
ii) Pure strategy
iii) Mixed strategy
iv) Dominance rule(Solved)
Explain the following terms as applied in competitive situations:
i) Degeneracy
ii) Pure strategy
iii) Mixed strategy
iv) Dominance rule
Date posted: May 7, 2021. Answers (1)
- Farmers Limited had received an order for a piece of special machine from Naivasha
Flowers Limited. Just as farmers completed the machine, Naivasha Flowers Limited was
declared...(Solved)
Farmers Limited had received an order for a piece of special machine from Naivasha
Flowers Limited. Just as farmers completed the machine, Naivasha Flowers Limited was
declared bankrupt, defaulted on the order, and forfeited 10% deposit paid on the selling
price of Sh. 72,000,000. Farmers Limited engineering department manager identified the
costs already incurred in the production of the special machine for Naivasha Flowers limited
as follows:
10. Farmers Limited normally sells a sufficient number of standard models for the company
to operate at a volume in excess of a breakeven point.
11. Farmers Limited does not consider the time value of money in the analysis of special
orders and projects whenever the time period is less than one year because the effect is
not significant.
Required:
(a) Determine the total contribution in shillings for each of the three alternatives
(b) If Narok Corporation makes a counter offer, what is the lowest price farmers
limited should accept for the reworked machine from Narok Corporation?
Explain your answer.
(c) Discuss the influence that fixed factory overhead costs should have on the sales
quoted by Farmers Limited for special orders when:
(i) A firm is operation at or below the breakeven point
(ii) A firm‟s special orders constitute efficient utilization of unused
capacity above the breakeven volume.
Date posted: May 7, 2021. Answers (1)
- Industrial Chemical Ltd. (ICL) produces chemical Y. the standard ingredients of 1 kilogram
of Y are:
0.65 kilograms of ingredient F @ Sh. 40 per Kg
0.30 kilograms...(Solved)
Industrial Chemical Ltd. (ICL) produces chemical Y. the standard ingredients of 1 kilogram
of Y are:
0.65 kilograms of ingredient F @ Sh. 40 per Kg
0.30 kilograms of ingredient D @ Sh. 60 per Kg.
0.20 kilograms of ingredient N @ Sh. 25 per Kg.
The following additional information is provided:
1. Production of 4,000 kilograms of chemical Y was budgeted for October 2004.
2. The production of chemical Y is entirely automated and production costs attributed to
its production comprise only direct materials and overheads.
3. ICL‟s production process works on a just-in-time (JIT) inventory system and
no ingredients or inventories of chemical Y are held.
4. Overheads budgeted for the production of Y in the month of October 2004 were as
follows:
5. In October 2004, 4,200 kilograms of Y were produced and the cost details were as
follows:
Materials used
2,840 kilograms of F, 1,210 kilograms of D and 860 kilograms of N at a total cost of
Sh. 203,800.
Actual overhead costs
12 supply deliveries at a cost of Sh.48,000 and 38 customer dispatches at a cost of
Sh. 78,000 were made.
6. ICL‟s budget committee met recently to discuss the preparation of the cost
control report for October 2004 and the following discussion took place:
Chief accountant: “the overheads do not vary directly worth output and
are therefore by definition „fixed‟. They should be analyzed and reported
accordingly”.
Management accountant: “the overheads do not vary with output, but they
are certainly not fixed. They should be analyzed and reported on an activity based
basis.”
Required:
Having regard to this discussion,
a) Prepare a variance analysis of the production costs of Y in October 2004. (Separate the
material cost variance into price, mixture and yield components and the overhead cost
variance into expenditure, capacity and efficiency components using consumption of
ingredient F as the overhead absorption base).
b) Prepare a variance analysis of the overhead production costs on Y in October 2004 on
an activity based basis.
Date posted: May 7, 2021. Answers (1)