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- Two companies are considering their bid strategy for installation of a computer center in a
new university. Company A is considering four alternative courses of action;
A1-...(Solved)
Two companies are considering their bid strategy for installation of a computer center in a
new university. Company A is considering four alternative courses of action;
A1- bid on both the hardware and the software
A2- bid only on the hardware
A3- bid only on the software
A4- no bid.
Company B is considering three alternative courses of action:
B1- bid on both
B2- bid only on the hardware
B3- no bid.
If Company A bids a1 and Company B bids b1, then the expected payoff to Company A is
again of 2 (units of utility).
Company B is going to have a loss of 2. If company A bids a3 and Company B bids b2, then
thee expected payoff to company A is a loss of 3 (A gain of 3 to Company B). We estimate
thee payoffs in all other possible alternatives and summarize the information in the table
below.
Required:
Determine the solution of the game if:
a. Co-operation is not allowed.
b. The Company and the union can negotiate.
c. What are the limitations of a game theory in business applications.
Date posted: May 10, 2021. Answers (1)
- Tobil Limited produces two products namely Winfil and Bootfil. Both are components that
have a wide range of industrial applications. Tobil Limited share of the market...(Solved)
Tobil Limited produces two products namely Winfil and Bootfil. Both are components that
have a wide range of industrial applications. Tobil Limited share of the market for winfil is
insignificant but is one of a limited number of suppliers of bootfil. Winfil is a long established
product and Bootfil is a new product.
The market price off winfil is shs320 and that of Bootfil is Shs. 237.50. Tobil Limited is
unable to influence these prices.
The resource requirements for producing one unit of each of the two products are:
Materials cost Shs. 7.5 per Kg and labour costs Shs. 8 per hour. Other costs are constant.
During the coming year the company will have the following recoveries available to it; 3,000
process hours, 10,000 Kgs of material and 15,000 labour hours.
Required:
Advise the company of output combination of winfil and bootfil that will maximize its
profit in the coming year. (Support your advise with full financial analysis).
Draft a memorandum suitable for the circulation to Tobil limited board of directors
explaining the commercial limitations of the model you have used in your answer in part (a)
above.
Date posted: May 10, 2021. Answers (1)
- Kwaree Group limited has recently recruited you as the Accounts manager. You have been
contacted to help in preparing a report entitled “How to design an...(Solved)
Kwaree Group limited has recently recruited you as the Accounts manager. You have been
contacted to help in preparing a report entitled “How to design an effective management
accounting information system.” The report should incorporate references to specific
environments/organization type(s) and examples of the management accounting tools that
would be of use.
Required:
Prepare a draft report in a format that is presentable to the senior management team of
Kwaree Group limited.
Date posted: May 10, 2021. Answers (1)
- The management accountant may make use of opportunity cost in the following situations:
(i) Operation of a standard cost system;
(ii) Setting transfer prices from one division...(Solved)
The management accountant may make use of opportunity cost in the following situations:
(i) Operation of a standard cost system;
(ii) Setting transfer prices from one division to another;
(iii) Deciding whether or not to accept a contract.
Required:
Discuss the relevance of the use of opportunity cost in each of the above applications.
Date posted: May 10, 2021. Answers (1)
- Badi Division is part of the Dendi Group. Badi Division produces a single product for
which it has an external market, which utilizes 80% of its...(Solved)
Badi Division is part of the Dendi Group. Badi Division produces a single product for
which it has an external market, which utilizes 80% of its production capacity.
Lewi Division, which is part of the Dendi Group, requires units of the product available
from Badi Division as input to a product, which will be sold outside of the group. Lewi
Divisions requirements are equal to 40% of Badi Divisions production capacity.
Lewi Division has a potential source of supply from outside the Dendi Group. This
outside supplier can supply 75% of Lewi Divisions requirements. The outside source may
wish to quote a higher price of Lewi Division only intends to take up part of its product
availability.
Required:
Discuss aspects of transfer pricing principles and information availability, which will affect
the likely achievement of group profit maximization from the sourcing decisions made by
Lewi Division in the above situation.
Date posted: May 10, 2021. Answers (1)
- A summary of additional information relating to the above points is as follows:
Required:
Prepare a summary which shows the total budgeted contribution earned by Botton
Limited from...(Solved)
A summary of additional information relating to the above points is as follows:
Required:
Prepare a summary which shows the total budgeted contribution earned by Botton
Limited from the new product for the coming year for each of the nine possible
outcomes which may result from the above data.
i. Using figures from your answer to (a) as relevant, indicate the advance level order size
which should be chosen for special ingredient B and comment on the management
attitude to risk where decision is based on each of the following criteria:
i. Maximizing expected value
ii. Maximax
iii. Maximum
Date posted: May 10, 2021. Answers (1)
- Coordination between operational and strategic planning is very essential in any
organization, but lack of it may results in unrealistic plans, inconsistent goals. Poor
communication and inadequate...(Solved)
Coordination between operational and strategic planning is very essential in any
organization, but lack of it may results in unrealistic plans, inconsistent goals. Poor
communication and inadequate performance measurement.
Required
i. State key features or characteristics, which should be incorporated in each of
strategic planning and operational planning.
ii. List and comment briefly on examples of the cost implications of each of the
factors underlined in the above statement which may occur from lack of relevant
and appropriate operational planning. Your answers should be in the context of
strategic planning goal of sustaining competitive advantage at minimum cost
through speedy delivery of quality products to clients.
Date posted: May 10, 2021. Answers (1)
- Decision-making situations under short-term conditions require consideration of;
i. The cost classifications which the management accountant should use or ignore,
and
ii. Factors which may affect the behavior...(Solved)
Decision-making situations under short-term conditions require consideration of;
i. The cost classifications which the management accountant should use or ignore,
and
ii. Factors which may affect the behavior of costs and hence the accuracy of the
cost analysis and the relevance of the decision making.
Required
In the context of the above statement, discuss whether a company should make
quantities of a component used in a manufacture of a product or buy in the component
from an outside supplier or out source.
Date posted: May 10, 2021. Answers (1)
- Kenya Charity Organization has been holding annual dinner and dance for the last 100 years
with the primary intention of raising funds.
This year, there is a...(Solved)
Kenya Charity Organization has been holding annual dinner and dance for the last 100 years
with the primary intention of raising funds.
This year, there is a concern that an economic recession may adversely affect both the
number of persons attending the function and advertising space that will be sold in the
programme published for thee occasion.
Based on past experience and current prices and quotations, it is expected that the following
costs and revenues will apply for the function:
Required:
(a) Calculate the expected value of the profit to be earned from the dinner and dance this year.
(b) Recommend, with relevant supporting financial and cost date, whether or not the
Kenya Charity should spend Shs 500 on the market research enquiry and indicate the
possible benefits the enquiry could provide.
Date posted: May 10, 2021. Answers (1)
- It has been established that the reasons for the variances for the period ended 31
December 2002 are as follows;
i.80% of the extra material used is...(Solved)
It has been established that the reasons for the variances for the period ended 31
December 2002 are as follows;
i.80% of the extra material used is due to purchasing from the cheaper
source. The balance off extra material usage is due to the amended
processing method, which was introduced.
ii.60% of the extra hours used is due to the amended processing method, the
balance of extra hours id due to the change to a cheaper material source.
Required
i. Prepare a schedule of costs for the four alternative strategies, which incorporate
different combinations of existing and amended material sources and conversion
process methods and hence determine the profit maximizing strategy.
ii. Prepare a report which discusses ways in which the alternative decision making
focus in each off sections (a) and (b) of the question has contributed to a change in
decision making strategy by the company.
Date posted: May 10, 2021. Answers (1)
- Tumbo Limited makes and sells executive towels to which the following standard
information relates:
i. Raw material is purchased at Shs 5.00 per square metre on a...(Solved)
Tumbo Limited makes and sells executive towels to which the following standard
information relates:
i. Raw material is purchased at Shs 5.00 per square metre on a just-in- time basis. The
purchasing manager has the responsibility for the servicing of raw material.
ii. The executive towel is made in a conversion process in which the variable conversion
cost per product unit of output is estimated at Shs 12.50 (a half hour at Shs 25.00 per
hour). The conversion process manager is deemed responsible for material usage and
conversion process efficiency and expenditure variances.
The actual events for the period ending 31 December 2002, which may be considered as a
representative
of future periods, are as follows:
i. 27,000 square metres of raw material purchased at Shs 4.50 per square metre is used to
produce 8,000 units of the executive towels. The purchasing manager has made the
decision to0 buy from a cheaper source.
ii. 4800 hours of conversion process time at a variable cost of Kshs 20.00 per hour is
used to a achieve the output of Shs 8, 000 units of the executive towels. A charge in
the processing method was implemented at the start of the period.
Production capacity is available in order to produce in excess of 5,000 units of the executive
towels if the demand dictates.
Required:
i. Calculate standard cost variances for material usage and price and for
conversion process efficiency and expenditure for the period ended 31 December 2002.
ii. Suggest, giving your reasons, whether decisions should be based on:
1. The variances over which each manager has control or
2. The effect of each material cost variance and conversion cost variance
Date posted: May 10, 2021. Answers (1)
- Chemex limited manufactures three garden furniture products A B and C. The budgeted unit cost and resource requirements of each of these items are detailed...(Solved)
Chemex limited manufactures three garden furniture products A B and C. The budgeted unit cost and resource requirements of each of these items are detailed below.
These volumes are believed to equal the market demand for these products. The fixed
overhead costs are attributed to the three products on the basis of direct labour hours. The
labour rate is Shs 40 per hour. The cost of the timber is Shs 20 per square metre. The
products are made from a specialist timber.
A memo from the procurement manager advises you that because of a problem with the
supplier it is to be assumed that this specialist timber is limited in supply to 20,000 square
metres per annum.
The sales director has already accepted an order for 5,000 A, 1,000B and 1,500C, which if
not supplied would incur a financial penalty of Shs 20,000. These quantities are included in
the market demand estimates above.
The selling prices of the three products are:
A = Shs 200
B = Shs 500
C = Shs 400
Required
a) Determine the optimum production plan and state the net profit that this should
yield per annum.
b) Calculate and explain the maximum prices, which should be paid per square metre in
order to obtain extra supplies of the timber.
Date posted: May 10, 2021. Answers (1)
- SIMTON Limited has been operating a standard cost system and has accumulated the following information in relation to variances in its monthly management accounts:
ii. Out...(Solved)
SIMTON Limited has been operating a standard cost system and has accumulated the following information in relation to variances in its monthly management accounts:
ii. Out of category B, connective action has eliminated 70% of variances, but the
remainder has continued.
iii. The cost of investigating averages is Shs 3,500 and that of connecting variances
averages Shs 5,500.
iv. The average size of any variance not connected is Shs 5,250 per month and the
company‟s policy is to assess the present value of such costs at 24% per
annum for a period of five months.
Required
(a) Prepare two decision trees, to present the position if an investigation is;
(i) Carried Out
(ii) Not carried
(b) Recommend, with supporting calculations, whether or not the company
should follow a policy of investigating variances as a matter of routine.
(c) Explain briefly two types of circumstances that will give rise to variances in category A
and two to those of category B.
(d) Mention any one variation in the information used that you feel would be beneficial to
the company of you wised to improve the quality of the decision making rule
recommended in (b) above. Explain briefly why you have suggested it.
Date posted: May 10, 2021. Answers (1)
- SPL Agencies specializes in the distribution of pharmaceutical products. They buy from pharmaceutical companies and resells to each of three different markets.
Required:
(a) Compute the August...(Solved)
SPL Agencies specializes in the distribution of pharmaceutical products. They buy from pharmaceutical companies and resells to each of three different markets.
Required:
(a) Compute the August 2003 gross – margin percentage for each of its three distribution
markets and SPL Agencies operating income.
(b) Compute the August 2003 rate per unit of the cost allocation base for each of the five
activity areas.
(c) Compute the operating income of each distribution market in August 2003 using the
activity based costing information. Comment on the results.
Date posted: May 8, 2021. Answers (1)
- 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)