Get premium membership and access questions with answers, video lessons as well as revision papers.

Questions and answers: CPA Advanced Management Accounting

Q&A Categories


Do you have Q&A pairs? Post them here

127 Questions  View: All | Solved | Unsolved



Search Results...
  • 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.  

  • 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: fig2985351.png 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.  

  • 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. fig2685347.png 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.  

  • 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: fig2485344.png 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.  

  • 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: fig2285341.png 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.  

  • 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: fig1885337.png fig1985337.png 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.  

  • 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: fig1685334.png 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.  

  • 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.  

  • Miujiza Co. Ltd. manufactures two industrial products: x-100, which sells for Sh.4,500 a unit, and Y-120 which sells for Sh.4,250 a unit. Each product is processed...(Solved)

    Miujiza Co. Ltd. manufactures two industrial products: x-100, which sells for Sh.4,500 a unit, and Y-120 which sells for Sh.4,250 a unit. Each product is processed through both of the company‟s manufacturing departments. The limited availability of labour, materials and equipment capacity has restricted the ability of the firm to meet the demand for its products. The production department believes that linear programming can be used to support and systematize the production schedule for the two products. The following data are available to the production department: fig1185251.png fig1285252.png a) Evaluate the accuracy and application of the L.P. equations prepared by the production department. b) Formulate and label equations for the L.P. statement of the production problem in line with your findings in (a) above. c) Explain how L.P. could help Miujiza Co. determine how large a change in the price of direct materials would have to be to change the optimum production Mix of X-100 and Y-120

    Date posted: May 8, 2021.  

  • The Uganda Bank (E.A.) Ltd has only two-branches. The head office branch is in the center of Kampala and the Kagera branch outside Kampala. The head...(Solved)

    The Uganda Bank (E.A.) Ltd has only two-branches. The head office branch is in the center of Kampala and the Kagera branch outside Kampala. The head office staff consists of the managing director and finance manager. With minor exceptions, the branch managers are permitted to conduct their affairs like the heads of two independent banks. The planning and control system centers on branch income statements prepared by the Finance Manager. The Kagera branch, on the other hand, is located outside Kampala in a large and growing retirement community and as primary retail branch. Mr. Obok, the manager, is in his first year with the Uganda Bank. In his attempts to sell the bank‟s services to the Kagera residents, he has found that his only success is the area of foreign deposits. Loan business, on the other hand, is both competitive and scarce. The interest rate he can charge is constrained by the fact that the manager of the local competing branch of the other bank while not actively soliciting loan business is apparently charging rates below the prevailing Kampala prime rate. Additionally, there seems to be fundamental resistance in the part of the Kagera residents to the idea of borrowing even at the 12% rate Obok has been offering. The Kampala branch located in the growing central business district, serves primarily commercial customers. The manger, Mr. Kamau, has found in recent years that while he faces a number of vigorous competitors the principal constraint on his ability to generate new loan business is lack of supporting deposits. The only alternative source of lending funds is the purchase of Euro currency, which are foreign deposits held in a bank outside Africa. This opinion is considered less than acceptable by Kamau, as the 22% interest he would have to pay for such funds is higher than the rate he is able to charge loan customers currently at 20%. In spite of his frequent lectures on the merits of leverage, the best Obok has been able to do is to generate a few goll-carat installment and social security cheque receivable loans. As a result, he finds himself with substantial excess savings deposits, which he has to keep in the vault to satisfy the government‟s 20% cash reserve requirement, the vault additionally contains excess lendable funds equal to almost 70% of total savings deposits. The finance manager has suggested that he lends these funds to Kamau at the Kampala branch. This was acceptable to both managers, although some disagreement arose as to the interest rate appropriate for such a loan. The argument was finally settled by the finance manger, who indicated that the theoretically correct rate was the rate Obok was paying on savings deposits, 10%. It has been further agreed that if Obok could find additional loans, any or all of the funds lent to Kamau would be returned. Required: a) Evaluate the 10% interbranch loan rate and suggest appropriate changes in relation to the following criteria: i Motivating managers to act in a manner consistent with the best interests of the bank as a whole. ii Evaluating the performance of individual branches. b) Would your answer change if the Kagera branch loan rate were to rise to 14%, while all other rates as well as the level of loan demand at Kampala b ranch, remained the same? c) Would your answer change if all rates were the same as in (a) above except that he cost of Euro currency dropped to 18%. d) Based on your answers to the above, what general statements can you make about the interbranch loan rate appropriate for evaluation of individual managers?

    Date posted: May 8, 2021.  

  • Siku Kuu Ltd. Manufactures and distributes a line of Christmas gifts. The company had neglected to keep its gifts line current. As a result, sales have...(Solved)

    Siku Kuu Ltd. Manufactures and distributes a line of Christmas gifts. The company had neglected to keep its gifts line current. As a result, sales have decreased to approximately 25,000 units per year fro a previous high of 125,000 units. The gifts have been redesigned recently and is considered by company officials to be comparable to its competitors‟ models. The company plans to redesign the gifts each year in order to compete effectively. Kama Kawaida, the Sales Manager, is not sure how many units can be sold next year, but she is willing to place probabilities on her estimates. Kama Kawaida's estimates of the number of units that can be sold during the next year and the related probabilities are as follows: fig985245.png Required: a) Prepare a payoff table for the different sizes of production runs required to meet the four sales estimates prepared by Kama Kawaida for Siku Kuu Ltd. If Siku Kuu Ltd. relied solely on the expected monetary value approach to make decisions, what size of production run would be selected? b) Identify the seven basic steps that are taken in any decision process. Explain each step by reference to the situation presented by Siku Kuu Ltd. and your answer to requirement (a)

    Date posted: May 8, 2021.  

  • A company makes a lotion that is manufactured through two processes, A and B. on the 1 November 1995, work in process consisted of the...(Solved)

    A company makes a lotion that is manufactured through two processes, A and B. on the 1 November 1995, work in process consisted of the following: fig585242.png Process B into finished goods while 4000 units remained in progress, 100% complete as to direct materials and 50% complete as to direct labour and overheads. All inventories are valued on the weighted average cost basis and transfers from process A to Process B are treated as part of direct material cost. Required: The cost accounts for both processes for the month of November 1995. Show all supporting computations including the inventory flow through each process.

    Date posted: May 8, 2021.  

  • The Finance Director of Africa Problems Ltd. is considering developing a flexible-budget formula for the manufacturing overhead costs. The accounting staffs have suggested that simple linear regression...(Solved)

    The Finance Director of Africa Problems Ltd. is considering developing a flexible-budget formula for the manufacturing overhead costs. The accounting staffs have suggested that simple linear regression be used to determine the cost behaviour pattern of the overhead cost. They consider that this method would provide a good and quick estimate of the costs that can be expected to be incurred each month. The actual direct-labour hours and corresponding manufacturing overhead costs for each month between 1996 and 1999 were used in the linear-regression analysis. The following occurrences during the period are considered unusual: 1. Production was reduced in one month during 1997 due to wildcat strikes related to political changes in one of the countries. 2. In 1998, production was reduced in one month because of material shortages and materially increased (overtime scheduled) during two-months to meet the units required for one-time sales order. 3. Employee benefits were raised significantly in December 1998 as a result of a labour agreement. 4. Production during 1999 was not affected by any special circumstances. The accounting staff raised the following issues: Some members question whether historical data should be used at all to form the basis for a flexible-budget formula. Some members believe that he use of data from all 48 months would provide a more accurate portrayal of the cost behaviour. While they recognized that any of the monthly data could include efficiencies, they believed these would tend to balance out over a long period of time. Still other members felt that only the most recent 12 months should be used because they were the most current. Other members of the accounting staff suggested that only those months that were considered normal should be used so that the regression would not be distorted. The accounting department ran two regression analyses of the data, one using the data from all 48 months and the other using only the data from the last 12 months. The results were as follows: fig385238.png a) i Formulate the flexible-budget equation that can be employed to estimate monthly manufacturing-overhead costs. ii Calculate the estimate of overhead costs for a month when 37.500 direct labour hours are worked. b) Using only the results of the two regression analysis above, explain which of the two results is more appropriate as a basis for the flexible-budget formula. c) Evaluate and explain how each of the four issues raised by the accounting department staff influence our willingness to use the results of the statistical analyses as the basis for the flexible-budget formula.

    Date posted: May 8, 2021.  

  • Samaki Ltd., a company based in Mombasa, exports vital fishing hooks to Madagascar. The demand for the hooks is constant and Samaki Ltd., is able to...(Solved)

    Samaki Ltd., a company based in Mombasa, exports vital fishing hooks to Madagascar. The demand for the hooks is constant and Samaki Ltd., is able to predict the annual demand with considerable accuracy. The predicted demand for the next couple of year is 200,000 hooks per year. Samaki Ltd. purchases its hooks from a manufacturer in Mombasa at a price of Sh.400 per hook. In order to transport the purchases from Mombasa to Madagascar, Samaki Ltd. must charter a ship. The charter services usually charge Sh.20,000 per trip plus Sh.40 per hook (this includes the cost of loading the ship). The ships have a capacity of 10,000 hooks. The placing of each order including arranging for the ship requires 5 h ours of employee time. It takes about a week for an order to arrive at the Samaki Ltd. warehouse in Madagascar. The warehouse has a capacity of 15,000 hooks. When a ship arrives at the Samaki warehouse, the hooks can be unloaded at a rate of 25 hooks per hour per employee. The unloading equipment used by each employee is rented from a local supplier at a rate equivalent to Sh.100 per hour. Supervisory time for each shipload is about 4 hours. The employees working in the warehouse have several tasks: i Placing the hooks into storage, after they are unloaded which can be done at the rate of about 40 per hour. ii Checking, cleaning etc. of the hooks in inventory requires about one-half hour per hook per year. iii Removing a hook from inventory and preparing it for shipments to a customer requires about one-eighth of an hour. iv Security guards general maintenance, etc. require about 10,000 hours per year. The average cost per hour of labour is equivalent to Sh.200 (including fringe benefits). Samaki Ltd. has developed the following prediction equation for its general overhead (excluding shipping materials, fringe benefits, and equipment rental): Predicted overhead for the year = Sh.20,000,000 + (Sh.160 x Total labour hours) The materials used to ship one hook to a customer costs Sh.20 and the delivery costs average out to about Sh.40 per hook. The company requires a before-tax rate of return of 20 per cent on its investment. The ordering policy from the manufacturers by Samaki Ltd., is based on an EOQ. Model, which is determined by the demand for hooks in Madagascar. Required a) Determine the quantity that should be ordered each time and the re-order level b) If the true overhead prediction equation is: Sh.16,000,000 + (Sh.240 x Total labour hours), what is the cost of the prediction error?

    Date posted: May 8, 2021.  

  • 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 fig37751014.png 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.  

  • 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.  

  • 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.  

  • Explain the applications of the learning curve.(Solved)

    Explain the applications of the learning curve.

    Date posted: May 7, 2021.  

  • 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: fig2875944.png 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.  

  • 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.  

  • 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: fig2275928.png 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.  

  • 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.  

  • 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.  

  • State four objectives of a transfer pricing system.(Solved)

    State four objectives of a transfer pricing system.

    Date posted: May 7, 2021.  

  • 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.  

  • 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: fig1975913.png 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.  

  • 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. fig1775910.png 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.  

  • 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: fig1475906.png 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.  

  • 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: fig1175853.png fig1275856.png 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.  

  • 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.