- Majimbo Ltd. Is a multi-divisional company operating in several countries. Division X wants
to buy component for its final product. Suppliers outside Majimbo Ltd. Have given...(Solved)
Majimbo Ltd. Is a multi-divisional company operating in several countries. Division X wants
to buy component for its final product. Suppliers outside Majimbo Ltd. Have given two bids
for sh.30,000 and 31,800. The supplier who bid sh.31,800 will in turn buy some raw
materials for sh.4,500 from Division Z of Majimbo Ltd. Which has spare capacity that will
increase A‟s contribution to overall company profits by sh.3,000. The supplier who
bids sh.30,000 will not buy any materials from Majimbo Ltd.
Required:
a) Prepare a diagram of the cash flow for both alternatives.
Does the use of the international market prices lead to optimal decision for Majimbo Ltd.? Explain
b) Suppose Division Y is working at full capacity and can provide the needed part to
Division X or to an outside customer at an assumed market price of sh.31,800. if market
pricing were the rule, division Y would have to meet the sh.31,000 bid. Further, assume
that the outlay costs to Y of filling the order were sh.22,500. Finally assume that Y,
unlike the outside suppler does not buy from Z because Majimbo Ltd is so large and
communications are so bad that the division Y management is unaware of this alternative.
c) Will the use of sh.31,800 as a transfer price lead to optimal decisions for Majimbo
Ltd? Show the net effects on cash flows.
Date posted: May 8, 2021. Answers (1)
- Racquet Sports produces a variety of racquets for the sports industry. It makes racquets for tennis, squash and badminton. The table below presents the relevant...(Solved)
Racquet Sports produces a variety of racquets for the sports industry. It makes racquets for tennis, squash and badminton. The table below presents the relevant data for the products produced.
Required:
a) (i) Determine the contribution percentage on each shillings of sales for each of the
products produced and sold.
(ii) What is the overall contribution that each sales shillings provides toward covering
the firm‟s fixed costs, that is overall break-even point in shillings sales?
(iii) Determine the profits if the plants operates at 70 per cent of the plant capacity.
b) Explain the limitations of the techniques you have used to solve part (a) above.
Date posted: May 8, 2021. Answers (1)
- Paul Akili, an aggressive entrepreneur, is working on some make – or – buy decisions and a
related inventory system. For one such product, he decides...(Solved)
Paul Akili, an aggressive entrepreneur, is working on some make – or – buy decisions and a
related inventory system. For one such product, he decides to use the classic economic – lot
– size model with no stockouts to determine an optimal order quantity. He initially
predicts that annual demand will be 2000 units, that each unit will cost sh.2,565, that the
incremental cost of processing each order (and receiving the ordered goods) will be Sh.3,819
in this case, and the incremental cost of storage will be sh.342 per physical unit per year.
Assume that the inventory cycle precisely repeats every year.
Required:
a) What is the optimal order quantity?
b) What are the total relevant costs of inventory from following your policy in (a) above?
c) Suppose that Paul Akili is incorrect in his sh.3,819 incremental – costs – per order
prediction but is precisely correct in all other predictions.
State and solve the equation to predict the maximum amount Paul Akili should pay to
discover the true incremental cost per order if:
(i) This true costs is sh.1,881 per order and
(ii) In the absence of any knowledge to the contrary, Paul Akili implement the
solutions in (a) above and will not alter it for one full year.
a) What happens t your answer in (c) above if we admit that Paul Akili has also made
errors in predicting demand price and the cost of storage?
d) Suppose Paul Akili implements the solution in (a) above for two years.
e) Further supposes that all of his initial predictions were, and are, correct except that the
actual incremental cost of storage is sh.1,140 per average unit.
If it costs Akili a total of sh.228 to alter his inventory policy, state the equation to
determine the cost of prediction error of not changing his inventory policy at the
beginning of the second year.
Date posted: May 8, 2021. Answers (1)
- Africa 1 and Kenya 1 are competing importers of lightweight industrial pick-up truck, the
“Miracle”. Market research suggests that there is demand for such vehicles of
about...(Solved)
Africa 1 and Kenya 1 are competing importers of lightweight industrial pick-up truck, the
“Miracle”. Market research suggests that there is demand for such vehicles of
about 1,200 units per year evenly spread over the year and that bearing in mind the
facilities available on the truck, its price should be around Sh.550,000 but discounts may be
available. The price to the dealer is about Sh.400,000 depending upon exchange rates.
The management Accountant at Africa 1 has the task of determining the price to charge for the
vehicle that will give the greatest monthly profit from the sale of Miracles. Past experience
suggest that Africa1‟s market share and profit will give the greatest monthly profit
from the sale of Miracles. Past experience suggest that Africa1‟s market share and
profit depends not only on the price it charges, but also the price that Kenya 1 charges.
The following pattern seems to have emerged;
If both companies share the same price, then Africa 1 secures about 45% of the market and
Kenya 1 , 55%.
When Kenya 1 has a lower price, then Africa 1 loses about 3% market share for every
Sh.10,000 price difference. On the other hand, when Kenya1 has a higher price, then Africa
1 gains 2% market share over and above the 45% per sh.10,000 price difference. From
africa1‟s point of view, kenya1 normally changes its prices monthly.
Africa1‟s Management Accountant has ruled out trial and error pricing an has
decided to develop a simulation model to investigate price behaviour patterns based on
monthly periods.
Required:
a) Develop a simulation model from Africa1‟s point of view, using algebra, showing:
i An expression for monthly profits;
ii An expression for market share when Kenya1‟s price is the same as Africa 1‟s;
iii An expression for market share when Kenya1‟s price is higher than Africa1‟s;
iv An expression for market share when Kenya1‟s price is lower than Africa1‟s.
b) Draw a flow diagram to show how the model would be used to simulate pricing and
demand behaviour using a computer.
Date posted: May 8, 2021. Answers (1)
- Peter Oloo is a fishmonger in Kisumu. As a result of adverse business changes in the region,
the supply and demand for fish are subject to...(Solved)
Peter Oloo is a fishmonger in Kisumu. As a result of adverse business changes in the region,
the supply and demand for fish are subject to random variations making it difficult to
project the next day‟s business.
Management accounts in relation to the previous 300 days reveal the following mode of behaviour:
Peter Oloo buys each fish at Sh.40 and sells it for Sh.60 if sold on the same day; if the fish is
sold the following day it will fetch only Sh.20. If not sold during the second day its value
drops to zero and Peter Oloo do nates it to children‟s home. Peter Oloo‟s Policy is to
satisfy the days demand from the fresh fish first; and any further demand will be satisfied
from the stock of fish from previous day. Failure to satisfy demand costs Peter Oloo Sh.20
for every fish supplied to the customer. There are no back orders in the business.
Required:
a) Simulate Peter Oloo's operations for 8 days clearly indicating profits made each day.
b) What are the average daily profits for Peter Oloo?
Use the following random numbers
573423709751483681320931644925928345
Date posted: May 8, 2021. Answers (1)
- LP Ltd. produces two products, K-A and K-B by a joint process. One unit of input
X processed in Department 1 total will yield three units...(Solved)
LP Ltd. produces two products, K-A and K-B by a joint process. One unit of input
X processed in Department 1 total will yield three units of product K – A and two units
of K – B. The variable operating costs in Sh.2.50 per unit of input X processed. Each
unit of product K-A can either be sold at the split-off point for Sh.10 per unit or
processed further in Department 2 to for product K-C. One unit of product K-A is
needed to produce one unit of K-C. Variable processing costs incurred in Department 2
amount to Sh.7.50 per unit of K-A processed and each unit of K-C can be sold at a
price of Sh.22.50 product K-B can be sold at Sh.8.75 per unit at the split-off point.
Highly skilled labour is required in each of the two departments and the total available
labour force is limited to 80,000 hours per week. To process one unit of X requires 1.5
direct-labour hours. If K-A is processed further, three hours per unit of K-A processed
are needed. Furthermore raw material X can be acquired up to a maximum quantity of
40,000 units per week.
The company „s market survey shows that the maximum weekly demand for product K-A is
40,000 units and for product K-C is 5,000 units. The survey further concludes that virtually any
amount of product K-B can be sold immediately without difficulty. Weekly production does not
have to be equal to weekly sales for any of the company‟s products.
However, since all three products are perishable, any unsold quantity at the end of the
week will be discarded.
Required:
(i) Formulate a linear programe to determine the optimal weekly production mix for
LP Ltd. that maximizes profits subject to the various production, market and technology constraints.
Do not solve for optimal values but clearly define your variables.
(ii) Independent of (a) above, assume that at the optimum, the marginal values
associated with the maximum market demand for K-A constraint, the maximum
market demand for K-C constraint and the maximum supply of X constraint are
Sh.10, Sh.15 and Sh.15 respectively. Assume further that all other constraints have
zero marginal values.
What is the maximum achievable contribution? Show calculations.
Date posted: May 8, 2021. Answers (1)
- Briefly give five examples of business applications of linear programming.(Solved)
Briefly give five examples of business applications of linear programming.
Date posted: May 8, 2021. Answers (1)
- Through the end of 1993, Viatu Ltd., a shoe manufacturer had always sold its products
through distributors. In 1993, the turnover was Sh.87,500,000 and net profit...(Solved)
Through the end of 1993, Viatu Ltd., a shoe manufacturer had always sold its products
through distributors. In 1993, the turnover was Sh.87,500,000 and net profit was 10 per cent
of turnover. Total fixed expenses (manufacturing and selling) were Sh.17,500,000.
During 1993, a number of Viatu's competitors had begun selling their products
through distributors. Viatu's marketing research group was asked to predict the effects of
eliminating distributors from the channels of distributors and selling direct to retailers.
The group was instructed to predict both changes in sales volume and changes in selling
expenses, under the provision that the selling price per unit would remain unchanged.
The marketing analysis yielded the following predictions:
Turnover in1994 would drop 20 percent from the 1993 figures, but net profit for 1994
would rise to Sh.9,100,000 owing to savings in selling expenses.
This net savings in selling expenses from eliminating the “middleman” was
impressive, since total fixed expenses manufacturing and selling) would increase to
Sh.18,900,000 because of the additional warehouse and delivery facilities required:
If the 1993 distribution system were continued, however, 1994, results would replicate 1993.
Required:
a) What was the breakeven point (turnover) under the original situation prevailing in 1993?
b) What would be the breakeven point (turnover) under the proposed situation for 1994?
c) On the basis of this analysis, Viatu Ltd, adopted the new direct-distribution plan for
1994, and reduced 1994 production on the 70,000,000 turnover level. Unfortunately, it
became clear by early December 1994 that sales would reach only 66,500,000 and
Viatu cut back productions so that no ending inventory remained.
Variable costs per unit and total fixed costs were as predicted.
Compute the cost of Viatu‟s prediction error.
Assume that sales would have been Sh.87,500,000 if the 1993 distribution system had
been continued.
Date posted: May 8, 2021. Answers (1)
- Mitumba Ltd. has set the following standards:
Required:
Comprehensive computation showing the yield, mix and price variances.(Solved)
Mitumba Ltd. has set the following standards:
Required:
Comprehensive computation showing the yield, mix and price variances.
Date posted: May 8, 2021. Answers (1)
- Uchunguzi Ltd. plans to conduct a questionnaire survey. The table below shows the tasks involved, the immediately proceeding tasks and for each task duration the...(Solved)
Uchunguzi Ltd. plans to conduct a questionnaire survey. The table below shows the tasks involved, the immediately proceeding tasks and for each task duration the most likely estimate (L), optimistic estimate (O) and the pessimistic estimate (P).
Using the project evaluation and review technique (PERT) the meantime, M and standard
deviation O. for the duration of each task are estimated from t he most likely (L), Optimistic
(O) pessimistic (P) estimates by using the formulae:
M = 0.08333 (4L + O + P)
O = 0.08333 (P – O)
Required:
a) Compute the mean duration and standard deviation for each task.
b) The project is budgeted to cost Sh.500,000. Actual costs per day are Sh.10,000.
Can the project be implemented within the budget?
Date posted: May 8, 2021. Answers (1)
- Mwendandamu Company Ltd. can produce a product using either labour-intensive or machine-intensive operations. Cost of each method are as follows:
Required:
a) Develop probability tree to show...(Solved)
Mwendandamu Company Ltd. can produce a product using either labour-intensive or machine-intensive operations. Cost of each method are as follows:
Required:
a) Develop probability tree to show the possible profits from labour-intensive and
machine-intensive production.
b) Determine the following for each production method:
i Expected profits;
ii Probability of at least breaking even;
iii Probability of profits of at least Sh.1,000,000.
c) Which production method do you prefer and why?
d) Discuss other factors that Mwendamu Company Ltd.'s management should
consider before deciding on the production method.
Date posted: May 8, 2021. Answers (1)
- The Hatari Weapons Ltd. desires to submit a tender for 32 “string-to-surface”
rockets required by Vita Ltd. it is estimated that each rocket will cost approximately
Sh.40,000,000...(Solved)
The Hatari Weapons Ltd. desires to submit a tender for 32 “string-to-surface”
rockets required by Vita Ltd. it is estimated that each rocket will cost approximately
Sh.40,000,000 for material and variable overhead costs. Total fixed costs will amount to
approximately Sh.1,600,000 over the two years it will take to build the rockets all of which
would have to be recovered against this contract.
The company, as a result of past experience, anticipates it could expect a 75 per cent learning
curve and that the steady state would not be achieved during this production run. Building
the first rocket would require approximately 400,000 hours of direct labour at a direct labour
cost of Sh.150 per hour. Variable overhead costs which vary with direct labour amount to
Sh.50 per direct labour hour.
Eight rockets will be built during the first year of the contract and the remaining 24 will be
completed during the second year. The Hatari Weapons Ltd. always adds 25 per cent profit
margin to the estimated costs of the contract for which they tender.
Required:
a) Calculate the total labour hours that will be required to build the 32 rockets.
b) Draw up a quotation showing the total price to be quoted, with details of the constituent
parts of the cost structure and the profit added.
c) Assuming the contract is awarded to the company, and no costs are deferred over the
two-year period, draft estimated income statements for the first and second years of the
contract life. Revenue is to be recognized on the basis of completed rockets. Fixed costs
are incurred equally each year.
Date posted: May 8, 2021. Answers (1)
- Chakula Engineering Company Limited (CECL) recently sent their chief designer to the
USA and UK to review developments in the American and British Markets. He has...(Solved)
Chakula Engineering Company Limited (CECL) recently sent their chief designer to the
USA and UK to review developments in the American and British Markets. He has now
returned with details of a new type of food mixer that is being developed over there. CECL
are considering the design and manufacture of a liquidizer gadget attachment to be used as
an extra gadget for the new mixer when it is sold in Kenya. The chief designer‟s notes
show that 10% of the experts he questioned in both the UK and USA believed the new
mixer would reach the Kenyan market in a year‟s time, whereas 30% thought it
would be launched in four year‟s time, and the remainder suggested a five-year delay
before it reached Kenyan.The presents value (PV) of net cash flows form making and selling
the liquidizer are estimated by the company to be sh.8 million, if the market develops one
year from now and sh.3.2 million if it develops five years from now.
CECL have not developed a liquidizer before, and whilst it immediate development would
cost Sh.2 million, they feel they have only a 50% chance of a successful development at
present. A number of alternative courses of action present themselves. The company could
abandon the whole project, or wait for one year to see if the mixer has penetrated the
Kenyan market. They would then abandon or develop the liquidizer at a PV cost of Sh.1.8
million, with a 70% chance of success, but they would be late into the market and the PV of
their receipts they estimate at Sh.4.8 million, including the expenditure of Sh.400,000 on
acquiring extra product data during the second year of delay, and the chance of a successful
development would be 90%. At this point, however, the mixer could only come on the
market at the four or five year point from now.
Required:
Using a decision tree approach, advise the company on the course of action to adopt.
Date posted: May 8, 2021. Answers (1)
- James Ugenya is the Final Director of Ugenya Ltd. He wishes to install an inventory control
system an, in particular, calculate and utilize an optimal order...(Solved)
James Ugenya is the Final Director of Ugenya Ltd. He wishes to install an inventory control
system an, in particular, calculate and utilize an optimal order quantity using the EOQ
model. He has collected the following data about inventory item NPD:
- Purchase price Sh.31.25 per unit
- Inventory insurance and other variable
costs of storage paid at year-end Sh.0.625 per unit
- Annual demand 1,250 units
Ugenya‟s opportunity rate of return is 10 per cent. He anticipates no need for a safety stock.
He is unsure about the cost behaviour associated with ordering inventory. He collected
some data about the most recent 20 orders made for inventory item NPD. He also ran a
regression using the number of units in each order to predict the total cost of the order. The
results are as follows:
Required:
a) Using only the data given above, what optimal order quantity would you recommend?
b) What is the 95% confidence interval of the variable ordering cost per unit ordered?
c) List two regression assumptions that must be maintained in order to answer (b) above.
d) The actual costs of ordering turned out to be Sh.50 per order plus Sh.4.375 per unit ordered.
Date posted: May 8, 2021. Answers (1)
- Katiba Ltd. is changing its current short-term planning approach in an attempt to
incorporate some newer planning techniques that will permit selection of an optimum
production mix.
The...(Solved)
Katiba Ltd. is changing its current short-term planning approach in an attempt to
incorporate some newer planning techniques that will permit selection of an optimum
production mix.
The company‟s director of operations has developed the following price and cost
information per unit of each product.
Assume the total production level of 60,000 units made up of equal amounts of each
product. Required: (Parts (a) and (b) below are independent of each other)
a) All three products use the same direct material which cost Shs. 270 per kilogramme and
direct-labour rate is Shs. 900 per hour. Monthly capacities are 2,000 direct-labour hours
and 20,000 kilogrammes of direct materials. Fixed overhead is assumed to be the same
for each product.
Formulate and clearly label the linear-programming (LP) functions necessary to maximize
Kariba‟s net income. Show supporting computation but do not solve t he linear
programming functions.
b) Katiba‟s management has decided to produce product 3 only. The sales and
marketing director has presented the following results of a price analysis for product 3.
at a selling price of Sh.7200 per unit, the probability distribution of total sales is uniform
between Sh.27,000,000 and Sh.54,000,000. At a selling price lowered to Shs. 6,300 per
unit. The probability distribution of total sales is uniform between Shs. 54,000,000 and
Sh.81,000,000.
i What is the probability of at least breaking even at a selling price of Sh.7,200 per unit
ii Which pricing strategy yields a higher expected profit?
Date posted: May 8, 2021. Answers (1)
- Uganda Ltd. has the following standards for producing an alcoholic beverage:
Every 100 litres of input should yield 80 litres of Chovi, the finished product.
The production...(Solved)
Uganda Ltd. has the following standards for producing an alcoholic beverage:
Every 100 litres of input should yield 80 litres of Chovi, the finished product.
The production manager is supposed to make the largest possible amount of finished
product for the least cost. He has some leeway to alter the combination of materials within
certain wide limits, as long as the finished product meets specified quality standards. Actual
results showed that 400,000 litres of Chovi were produced during last week. The raw
materials used in this production were 280,000 litres of 590N and 240,000 litres of KAG. No
price variances were experienced during the period.
Required:
a) A presentation of yield and mix variances.
b) Comment on the performance of the manager.
Date posted: May 8, 2021. Answers (1)
- FMD Ltd, wishes to study the relationship between the total costs of operating one of its
divisions and to the physical output of that division. It...(Solved)
FMD Ltd, wishes to study the relationship between the total costs of operating one of its
divisions and to the physical output of that division. It decides to begin with a simple linear
probabilistic model relating monthly total operating cost to monthly output, as follows:
Y = K0 + K1 x + Z
Where y is monthly total operating cost, x is monthly unit production, and Z is a random
variable assumed to follow a normal probability distribution with mean U of zero and
standard deviation of o.
Required:
a) Give a precise interpretation of the parameters K0 and K1 of the model above, so that
an accountant would understand what they stand for.
b) Give a brief outline of the role of Z in the model. In a particular, indicate why it is
there.
c) FMD Ltd. obtains the following data on monthly production and costs:
Using these data, compute the coefficient K0 and K1 of the model.
d) Outline how you would go about deciding whether or not the model above fits the
data reasonably well and captures the underlying process generating the monthly
operating costs.
e) Use the model to predict next month‟s operating costs at a production level of 2,000 units.
Date posted: May 8, 2021. Answers (1)
- Computer Ltd., is in the process of deciding how to service a one-year warranty on the 1,000 computers sold to a large international company.
You have...(Solved)
Computer Ltd., is in the process of deciding how to service a one-year warranty on the 1,000 computers sold to a large international company.
You have been presented with three alternatives:
Alternative A
A reputable computer service firm has offered to service the computers, including all parts
and labour for a flat charge of Sh.27,000.
Alternative B
For Sh.22,500 another reputable service firm would provide all necessary parts and up to
1,000 service calls at no charge. Service calls in excess of that number would be Sh.6 each.
The number of calls is likely to be:
Required:
a) For each alternative, compute the standard deviation and the coefficient of variation.
b) Which alternative is most risky? Explain.
c) What alternative would be taken? Explain.
Date posted: May 8, 2021. Answers (1)
- Joy Musa is trying to decide between three capital projects of varying returns and risks as shown below:
Required:
a) What difficulties in the design of control...(Solved)
Joy Musa is trying to decide between three capital projects of varying returns and risks as shown below:
Required:
a) What difficulties in the design of control systems are demonstrated by the above
situation?
b) Compute Joy Musa's expected utility from each capital project.
Date posted: May 8, 2021. Answers (1)
- Kata Leo manages a factory that is currently processing a large order to make hundreds of
newly designed computers. Several serious production problems have been encountered.
Kata...(Solved)
Kata Leo manages a factory that is currently processing a large order to make hundreds of
newly designed computers. Several serious production problems have been encountered.
Kata Leo is concerned whether the units will be of acceptable quality. If they are acceptable,
the factory will have a net profit of Sh.1,000,000. If the units are of an unacceptable quality,
the legal problems, warranty claims and unfavourable publicity will result in a net loss of
Sh.625,000. However, Kata Leo could add an intricate inspection procedure so that all
defective computers could be discovered and repaired before they leave the factory. The cost
of his procedure would be Sh.1,307,500
Required:
a) Formulate Kat Leo‟s problem as a “decision table” or “pay off table showing
actions, events and outcomes.
b) Supposes that both events are equally likely and that Kata Leo bases his decision strictly
on expected monetary return, which action will the management prefer?
c) Suppose that Kata Leo could obtain a consultant‟s special accounting
analysis that would affect his assessments probabilities of acceptable or unacceptable
quality. The consultant is expected to produce one of three possible reports: neutral,
optimistic or pessimistic.
The neutral report would not change the original decision in (b) above. The optimistic
report would change Kata Leo‟s assessments of probabilities to 0.7 acceptable
and 0.3 unacceptable. The pessimistic report would have the reverse effect, changing
the probabilities to 0.3 acceptable and 0.7 unacceptable.
Kata Leo assesses probabilities of receiving the various reports as follows:
Neutral report - 0.3
Optimistic report - 0.3
Pessimistic report - 0.4
What is the highest price that Kata Leo should pay for the report?
Date posted: May 8, 2021. Answers (1)