Trusted by millions of Kenyans
Study resources on Kenyaplex

Get ready-made curriculum aligned revision materials

Exam papers, notes, holiday assignments and topical questions – all aligned to the Kenyan curriculum.

Questions and answers: CPA Advanced Management Accounting

Ask, answer and revise exam-style questions across Kenyan subjects and professional courses.

Q&A Categories

Exams With Marking Schemes

115 Questions    View: All Solved Unsolved

Search Results...
  • The current thinking in Management Accounting contends that Activity-Based Costing (ABC) provides better information concerning products costs and decision making than traditional management accounting techniques. However, whereas ABC may give a different impression of product costs, it is not necessarily a good idea and it may be advisable to continue improving traditional cost accounting techniques before moving to ABC. Required: (i) Explain cost behaviour issues underlying the use of ABC. (ii) Explain why ABC might, be more suitable for modern manufacturing environment than traditional cost accounting techniques? (iii) Comment on the reported claim that ABC gives better information as a guide to decision making than the traditional product costing techniques.

    Date posted: May 6, 2021
  • Mwamba Development Group (MDG) plans to undertake a project consisting of eleven (11) tasks. The expected completion time of each task is uncertain and this makes the project completion time uncertain. MDG has approached a consultancy firm for advice on the expected project completion time. The consultancy firm intends to use simulation analysis to deal with the uncertainty of the project completion time. The following data were obtained by the consultancy firm, for the purpose of simulation analysis: fig3265114.png Required: (a) Explain the basic steps that can be used to solve this type of problem simulation technique. (b) Draw the network for the project and determine the critical path of the project. Use the activity‟s expected time to determine the expected completion time of the project. (c) Carry out four simulation runs for each activity and using the results of the simulation, determine the expected project completion time. (d) State two advantages and two disadvantages of the simulation technique. Use the following random numbers. 95, 30, 59, 93, 28, 72, 09, 54, 66, 95, 36, 98, 56, 23, 60, 79, 14, 50, 61, 81, 84, 14, 24, 75, 85, 49, 05, 09, 53, 45, 60, 98, 90, 86, 74, 55, 69, 09, 10, 96, 40, 27, 15, 83

    Date posted: May 6, 2021
  • Kenya Fashions Ltd. sells a wide range of high quality customized outfits. One particular outfit is bought at Sh.800 and sold at Sh.1,300. Mean holding costs per season per outfit amounts to Sh.50 and it costs Sh.8,000 to order and receive goods into stock. The manufacturers require orders in advance and once a batch has been made, it is not possible to place a repeat order. Further, it is not possible for delivery to be staggered over the fashion season. When a customer buys an outfit, she has a fitting, any alterations or adjustments are made, and then she collects the outfit a day or so later. Generally if an outfit is out of stock at one branch, it can be readily obtained from another branch, usually in a matter of hours. However, if the company as a whole runs out of an item, then the cost of the stock out is Shs. 200 per item. If the company over buys for a season, then it is expected that it will be able to dispose of the surplus outfits at Sh.500 each. The problem facing the management accountant of the company is to decide how many outfits to order for the season ahead in order to maximize expected profit, bearing in mind the penalties for over and under ordering. Required: (i) Determine the number of outfits to order to maximize expected profits. (ii) Compare and contrast the model that you have developed with the classical economic quantity model.

    Date posted: May 6, 2021
  • From past experience, a company operating a standard cost accounting system has accumulated the following information in relation to variances in its monthly management accounts: 1. Its variances fall into two categories: fig2765109.png 2. For the first category corrective action has eliminated 70% of the variances, but the remainder have continued unchanged. 3. The cost of an investigation averages Sh.3,500 and that of correcting variances averages sh.5,500. 4. The average cost of any variance not corrected is Sh.5,250 per month and the company's policy is to assess the present value of such costs at 2% per month for a period of five months. Required: (i) Two decision trees to represent the position if an investigation is carried out and the position when an investigation is not carried out. (ii) Recommend with supporting calculations, whether or not the company should follow a policy of investigating variances as a matter of routine. (iii) Explain briefly two types of circumstances that would give rise to variances in the first category and two types of circumstances that would give rise to variances in the second category.

    Date posted: May 6, 2021
  • State the factors to be taken into consideration when establishing the length of a budget period.

    Date posted: May 6, 2021
  • In preparing the cash budget for the next year, Kericho Tea Farm Limited finds that it has limited surplus funds of Sh.70,000,000 which the managing directors wishes to spend on one of two schemes. Scheme A - Pay Sh.70,000,000 immediately to reputable sales promotion agency which would provide extensive advertising and planned „reminder‟ advertising over the next ten years. This is expected to increase the net operational cash flows by sh.200,000,000 per annum for the first five years and Sh.100,000,000 for the following five years. Thereafter, the effect would be zero. Scheme B - Buy immediately labour saving machinery at a cost of Sh.70,000,000 which would reduce the operating cash outflows by sh.150,000,000 per annum for the next ten years, at the end of which the equipment will have a salvage value of zero. Required (i) The average accounting rate of return (ARR) per annum for each scheme over 10 years. (ii) The net present value (NPV) for each scheme assuming the desired rate of return is 18%. (iii) The internal rate of return (IRR) for each alternative.

    Date posted: May 6, 2021
  • Marashi Company Ltd. is a merchandising company selling a 40ml bottle of perfume in four zones within Kenya. The variable cost per bottle is Sh.70 but the selling price is different in each of the four zones. The difference in the selling price is due to the transportation costs involved. The company has four salesmen available for an assignment in the four zones. The zones are not equally good in their sales potential. It is estimated that a typical salesman operating in each zone would bring the following annual sales: fig17651248.png The objective of Marashi Company Ltd. is to maximize contribution from each zone. Required: (a) Determine how the four salesmen can be assigned to the zones in order for the company to maximize the total contribution. (b) Calculate the total contribution of the company after the assignment.

    Date posted: May 6, 2021
  • Nzewani Electronic Ltd. manufactures and sells a brand of television sets called LD-TVs. The three closest competitor brands in the market are SUM-TVs, SON-TVs. Because of the custom manufacturing process and their inherent high costs, no other competitor has any effect on the current market. The year 2002 was an exceptionally good year in terms of gain loss trade offs. The year's activity is summarized in the following table: fig13651212.png Required: (a) Advise the management of Nzewani Electronic Ltd. on the expected market share for each brand at the end of December 2002. (b) Assuming the same pattern of switching persists, what would be the long run market share for each brand? (c) What are the assumptions of the technique you have used in (a) and (b) above?

    Date posted: May 6, 2021
  • Sanders Ltd is a manufacturing company producing two joint products P1 and P2 in the ratio of 3:1 at the split-off point. The two products are taken to the mixing plant for blending and refining after the split off point. The following information is also provided: fig8651206.png The joint process costs are 70% fixed and 30% variable whereas the mixing plant costs are 30% fixed and 70% variable. There are only 5000 hours available in the mixing plant. Usually 4000 hours are taken in processing of Product P1 and P2, 2000 hours for each product while the remaining 1000 hours are used for other work that generates a contribution of Sh.100,000 per hour. The company is now planning to change the production mix of the joint process to 3:2 for product P1 and P2 respectively. This change will result in an increase in the joint cost by Sh.500 for each additional litre of P2produced. Required: (a) Advise the company on whether to change the production mix. (b) Explain other qualitative factors that are important to consider before changing the production mix.

    Date posted: May 6, 2021
  • Aberdares Company Ltd. is a manufacturing company which produces and sells a single product known as T1 at a price of Sh.10 per unit. The company incurs a variable cost of Sh.6 per unit and fixed costs of Sh.400,000. Sales are normally distributed with a mean of 110,000 units and a standard deviation of 10,000 units. The company is considering producing a second product, T2 to sell at Sh.8 per unit and incur a variable cost of Sh.5 per unit with additional fixed costs of Sh.50,000. The demand for T2 is also normally distributed with a mean of 50,000 units and standard deviation of 5,000 units. If T2 is added to the production schedule, sales of T 1 will shift downwards to a mean of 85,000 units and standard deviation of 8,000 units. The correlation coefficient between sales of T1 and T2 is – 0.9. Required: i The company‟s break-even point for the current and proposed production schedules. ii The coefficient of variation for the two proposals. iii Based on your computation‟s in (i) and (ii) above advise the company on whether to add T2 to its production schedule.

    Date posted: May 6, 2021
  • High-tex Engineering Company Limited wishes to set flexible budgets for each of its operating departments. A separate maintenance department performs all routine and major repair works on the company‟s equipment and facilities. The company has determined that maintenance department performs all routine and major repair works on the company's equipment and facilities. The company has determined that maintenance cost is primarily a function of machine hours worked in the various production departments. The maintenance cost incurred and the actual machine hours worked during the months of January, February, March and April 2003 were as follows: fig2651158.png Required: a) Determine the cost estimation function using: i High-low method. ii Regression analysis b) Using the regression function estimate: i The maintenance costs that would have been incurred if the machine hours were expected to be 900 in the month of May 2003. ii The maximum machine hours that would have been worked If the maintenance cost incurred had been limited to Sh.400,000 for the month of May 2003. c) Assuming that in the month of May 2003 machine hours were 900, establish a 95% confidence interval for this point estimate. (Assume tc = 2.7764 and standard error of estimate, se = 63.25).

    Date posted: May 6, 2021
  • Joan Odero, an independent movie producer, is negotiating with Roadshow Productions Limited on a contract for the production and marketing of her next film, titled “The rise and fall of a cock”. The budget for the film is, Sh.100 million. Roadshow Productions Limited is offering Joan Odero a choice of one of the three contracts. Contract A 1. Roadshow Productions Limited will pay all the production and marketing costs. 2. Joan Odero will receive a fixed fee of Sh.10 million. 3. Joan Odero will receive 10% of gross revenue from the film in excess of Sh.1 billion (no payment is made for gross revenue up to Sh.1 billion). Contract B 1. Roadshow Productions Limited will pay 80% of all the production and marketing costs up to Sh.100 million and 30% of production and marketing costs in excess of Sh.100 million 2. Joan Odero will receive 10% of all gross revenue for the film. Contract C 1. Roadshow Productions Limited will pay 50% of production and marketing costs up to Sh.100 million. 2. Joan Odero will receive 30% of all gross revenue from the film. Joan Odero estimates the following probabilities for the gross revenues: P(high demand of Sh.2 billion) 0.1 P(medium demand of Sh.500 million) 0.3 P(low demand of Sh.100 million) 0.6 She estimates the following probabilities for the cost of production: P(budgeted cost of Sh.100 million) 0.6 P(high cost of Sh.200 million) 0.4 Required: a) The expected monetary value for Joan Odero under each contract for each of the six possible events. (Hint: The possible events are high demand – budgeted costs, high demand – high costs, medium demand – budgeted costs, medium demand – high costs, low demand – budgeted costs, and low demand – high costs). b) Joan Odero will choose the contract that maximizes her expected monetary value from the film. Which contract should she choose? (Show calculations). c) What information might Joan Odero use in assessing the probability distribution for the production and marketing costs of “The rise an fall of cock” film?

    Date posted: May 6, 2021
  • Traditional budgeting systems are incremental in nature and tend to focus on cost centers. Activity based budgeting (ABB) links strategic planning to the overall performance measurement aimed at continuous improvement. Required: i Explain the weakness of traditional incremental budgeting systems. ii Describe the main feature of activity based budgeting system and comment on its advantages.

    Date posted: May 6, 2021
  • “It is now fairly and widely accepted that conventional cost accounting, distorts management's view of business through unrepresentative overhead allocation and inappropriate product costing. This is because the traditional approach usually absorbs overhead costs across products solely on the basis of the direct labour involved in their manufacture. As direct labour cost expressed as a proportion of total manufacturing cost continues to fall, this leads to more an more distortion and misrepresentation of the impact of particular products on total overhead costs (from Financial Times) Required: Briefly discuss the above statement and state what approaches are being adopted by management accountants to overcome such criticism.

    Date posted: May 6, 2021
  • Briefly explain three methods that can be used to analyze uncertainty in cost-volume-profit (C-V-P) analysis.

    Date posted: May 5, 2021
  • A university offers a range of degree courses. The university's organization structure consists of three faculties each with a number of teaching departments. In addition, there is a university administrative/management function and a central services function. The following cost information is available for the year ended 30 June 2002 a) Occupancy costs total Sh.15,000,000. Such costs are apportioned on the basis of area used which is: fig655917.png 2. Administration/management costs: Direct costs: Shs.17,750,000 Indirect costs: an apportionment of occupancy costs. Direct and indirect costs are charged to degree courses on a percentage basis. 3. Faculty costs: Direct costs: Shs. 7,000,000. Indirect costs: an apportionment of occupancy and central services costs. Direct and indirect costs are charged to teaching departments. 4. Teaching departments: Direct costs: Shs. 55,250,000. Indirect cost: an apportionment of occupancy costs and central services costs plus all faculty costs. Direct and indirect costs are charged to degree courses on a percentage basis. 5. Central services: Direct costs: Sh.10,000,000 Indirect costs: an apportionment of occupancy costs. 6. Direct and indirect costs of central services have in previous years been charged to users on a percentage basis. A study has now been completed which has estimated what user areas would have paid external suppliers for the same services on an individual basis. For the year ended 30 June 2002, the apportionment of central services costs is to be recalculated in a manner which recognizes the cost/savings achieved by using the central services facilities instead of using external service companies. This is to be done by apportioning the overall savings to user areas in proportion to their share of the estimated external costs. 7. The estimated external cost of service provision are as follows: fig755917.png Central services are apportioned as detailed in (5) above. The total number of graduates from the university in the year to 30 June 2002 was 2,500. Required: a) Prepare a flow diagram which shows the apportionment of costs to user areas. (No value needs to be shown). b) Calculate the average cost per graduate for the year ended 30 June 2002, for the university and for each of the degree courses in business studies, mechanical engineering and catering studies (round your values to the nearest Sh.1,000) c) Suggests reasons for any differences in the average cost per graduate from one degree course to another, and discuss briefly the relevance of such information to the university's management.

    Date posted: May 5, 2021
  • Large service organizations such as banks and hospitals used to be noted for their lack of standard costing systems and their relatively unsophisticated budgeting and control systems compared to the practice in large manufacturing organizations. But this is changing any many large service organizations are now reversing their use of management accounting techniques. Required: a) Explain which features of large service organizations encourage the application of activity-based approaches to the analysis of cost information. b) Explain which features of service organizations may create problems for the application of activity-based costing. c) Explain the uses of activity-based cost information in service industries.

    Date posted: May 5, 2021
  • Tritech Ltd. has semi-automatic machine process in which a number of tasks are performed. A system of standard costing and budgetary control is in operation. The process is controlled by machine attendants who are paid a fixed rate per hour of process time. The process has recently been reorganized as part of an ongoing total quality management programme in the company. The nature of the process is such that the machines incur variable costs even during nonproductive (idle time) hours. Non-productive hours include time spent on the rework of products. (Note: Gross machine hours = productive hours + non-productive hours) The standard data for the machine process are as follows: 1. Standard non-productive (idle time) hours as a percentage of gross machine hour is 10%. 2. Standard variable machine cost per gross hour is Sh.270. 3. Standard output productivity is 100% that is one standard hour of work is expected in each productive machine hour. 4. Machine costs are charged to production output at a rate per standard hour sufficient to absorb the cost of the standard level of non-productive time. Actual data for the period August to November 2002 have been summarized below: fig155907.png fig255908.png Required: a) Calculate the machine variances for productivity, excess idle time and expenditure for each of the two months of September and October. b) In order to highlight the trend of variances in the months from August to November 2002, express each as a percentage term as follows: i Productivity variance as a percentage of standard cost of production achieved. ii Excess idle time variance as a percentage of expected idle time. iii Expenditure variance as a percentage of hours paid for all standard machine cost. c) Comment on the trend of variances in the August to November period and possible inter-relationships. Particularly in the context of the total quality management programme which is being implemented.

    Date posted: May 5, 2021
  • A company has determined that the EOQ for its only raw material is 2000 units every 30 days. The company knows with certainty that a four-day lead time is required for ordering. The following is the probability distribution of estimated usage of the raw material for the month of December 2002. fig14451051.png Stock-outs will cost the company Sh.100 per unit and the average monthly holding cost will be Sh.10 per unit Required i Determine the optimal safety stock ii Compute the probability of being out of stock.

    Date posted: May 4, 2021
  • Explain the advantages and disadvantages of the Just-In-Tie (JIT) inventory system.

    Date posted: May 4, 2021
  • In all the Republic of Ramuka there are five coal mines, which have the following outputs and production costs: fig11451038.png Required: a) Determine how the output of each mine should be allocated to the three preparation plants. b) Following the installation of a new equipment at coal mine No.3, the production cost is expected to fall to Sh.3,000 per tonne. What effect, if any, will have on the allocation of coal to the preparation plant? c) It is planned to increase the output of coal mine No.5 to 180 tonnes per day, which can be achieved without any increase in production cost per tonne. How will this affect the allocation of coal to the preparation plants?

    Date posted: May 4, 2021
  • Zimco Media Group has three major divisions: Newspapers. Television. Film studios. The manager of each division has an annual bonus plan based on his division's fig8451023.png return on investment (ROI). The company defines ROI as operating income divided by total assets. Senior executives from divisions reporting increases in the division's ROI from the prior year are automatically eligible for a bonus. Senior executives of division reporting a decline in ROI have to provide persuasive explanations for the decline. In order to be eligible for any bonus, and they are limited to 50% of the bonus paid to the division managers reporting an increase in ROI. J. Kanyama, manager of the newspapers division is considering a proposal to invest Sh. 200 million in a fast speed printing process with colour options. The estimated increment to year 2002 operating income would be Sh. 30 million. The media group has a 12% required rate of return for investments in all three divisions. Required: a. Use the Dupont Method to explain differences among the three divisions in their 2001 ROI. (Use 2001 total assets as the denominator). b. Explain whether J Kanyama should undertake the fast-speed printing press investments proposal. c. T. J. Zimco the Chairman of the media group, has received a proposal to base senor executive compensation in each division on Residual Income (RI) defined as operating income less imputed interest charge. Compute the residual income (RI) of each division in the year 2001 d. Would adoption of the residual income (RI) basis change J. Kanyama's decision on the acceptance of the fast-speed printing press investment proposal?

    Date posted: May 4, 2021
  • Computer Games Ltd. (CGL) makes and sells three types of computer games for which the following budget/standard and actual information is available for a week period: fig6451019.png Required: a) Prepare a summary of sales variances for quantity, mix and volume for each model and in total, where individual product standard contribution per unit is used as the variance valuation base. b) Prepare an alternative summary giving the same range of variances as in (a) above, but using the budgeted weighted averaged contribution per unit as the variance valuation base. c) Prepare a report to the management which specifically comments on each of the following points: i. Similarities between the variances calculated in (a) as compared with those calculated in (b) above. ii. The arguments which may be put in favour of the individual product quantity and mix variances as calculated in (b) above. iii. The relevance of the individual product, quantity and mix variances to management.

    Date posted: May 4, 2021
  • “If a manager searches for a system that will provide the „true costs‟ of each service produced by his firm he is attempting the impossible”. Discuss.

    Date posted: May 4, 2021
  • State the major characteristics of modern businesses that necessitate the introduction of a strategic cost management system

    Date posted: May 4, 2021
  • Discuss the three main elements of strategic costs management.

    Date posted: May 4, 2021
  • Kisumu Municipal council operates a mini-bus service to take shoppers and tourist from the bus and the railway stations to various locations in the Municipality. The following data have been collected for the arrival of passengers at the bus stop outside the railway station: Time between successive arrivals 0 1 2 3 4 5 6 (minutes) Probability 0.04 0.16 0.24 0.28 0.16 0.10 0.02 The mini-buses are scheduled to run every 10 minutes but variation in traffic conditions results in the following distribution. Time between successive buses 8 10 12 14 16 (minutes) Probability 0.10 0.38 0.28 0.15 0.09 The number of empty seats on the bus is found to follow the distribution below: Number of empty seats 0 1 2 3 4 5 6 Probability 0.06 0.18 0.27 0.34 0.11 0.03 0.01 Required: i. Simulate the arrival of to passengers at the bus stop assuming that the simulation clock begins at time zero. Use the following random numbers: 18262318624207384092976446757444417165809 i i. Estimate the average time a passenger must wait for a bus and the average length of queue

    Date posted: May 4, 2021
  • Describe the advantages and disadvantages of using simulation to investigate queuing situations compared with the use of queuing formulae.

    Date posted: May 4, 2021
  • New Books Publishers (NBP) Ltd. are planning to introduce a new management accounting text book. The company's management accountant estimates that the initial distribution for likely sales is normal with a mean of 20,000 books. In addition, it has been determined that there is a probability of 0.5 that the likely sales will lie between 16,000 and 24,000 books. The textbooks will sell for Sh.1,000 per copy but the publishing company pays the author 10% of revenue in royalties while the fixed costs of printing and marketing the book are calculated at Sh.2.5 million. Using current printing facilities, the variable production costs are Sh.400 per book, however the NBP Ltd. Has the option of hiring a special machine for Sh.1.4 million which will reduce the variable production costs to Sh.250 per book. Required: a) Show the standard deviation of likely sales is approximately 6,000. b) Using standard deviation = 6000, determine the probability that the company will at least break even if: i Existing printing facilities are used. ii The special machine is hired. c) By comparing expected profits, decide whether or not the publishing company should hire the special machine. d) By using the normal distribution, it can be shown that he following probability distribution may be applied to the book sales. Sales Sh „000‟ 0 – 10 10 - 16 16 – 20 20 – 24 24 – 30 30 - 40 Probability 0.05 0.20 0.25 0.25 0.20 0.05 By assuming that the actual can only take the mid-points of theses classes, determine the expected value of perfect information and interpret it.

    Date posted: May 4, 2021
  • Madoadoa Limited is a multi-division manufacturing company. The manufacture of M101. One of the company‟s finished products involves two divisions; Mwanzo and Mwisho.Mwanzo division manufactures the chassis for M101 and transfers it to Mwisho division where it is reworked, fitted and assembled into the finished product. The two divisions are housed in the same building whose lease is due to expire in two years‟ time. Data on the operations of the two divisions for the year just ended is as follows: fig2345200.png Mr. Makini, the general manager of Mwisho division, has been considering the possibility of sourcing the chassis from outside suppliers. He has received a quotation from Samawati Ltd., a competitor of Mwanzo division offering to supply a minimum of 30,000 and a maximum of 40,000 units of chassis per year for two years with adequate guarantees as to quality and continuity of suppliers. The unit price would be Sh.22,000. Mr.Makini is of the opinion that his division should be allowed to take all its requirement (30,000 units per year) of chassis from Samawati Ltd., unless Mwanzo division agrees to cut the unit transfer price to Sh.22,000. He suggests that if Mwanzo division cannot reduce the price it would be better for it to cease operations and the space it now occupies be taken up by Mwisho division, which is currently seeking extra warehouse space. The summarized profit and loss accounts of the divisions for the past year ended 31 October 2001 is as follows: fig2445200.png You have been asked to investigate and advise on Makini‟s proposal. You have gathered the following additional information: The limitation of the proposed contract with Samawati Ltd. To a two-year period would be agreeable to Madoadoa Ltd. As the lease for the factory is unlikely to be renewed in two years‟ time and there is no wish to enter into firm commitments beyond that date. If Mwanzo division is closed, most of the work force could be productively absorbed by other divisions of Madoadoa Ltd., which operate in the vicinity at no additional cost to those divisions. The manager of Mwanzo division complains that his division has to bear exceptionally heavy depreciation charges and fixed overheads (including central office charges) which are beyond his control. Without these expenses, he believes that Mwanzo division could match price quoted by Samawati Ltd., and still make a reasonable profit. He also believes that with a price of Sh.22,000, it should be possible to operate at full capacity, selling 25% of the output in the open market. The additional output would increase the direct materials cost and variable overhead proportionately but he estimates that the total direct labour cost would only increase by 10%. The plant used by Mwanzo division has a book value of Sh.150,000,000. Its current resale is probably Sh.50,000,000. in two years it is estimated that it will have negligible value. The storage space required by Mwisho division will probably cost Sh.10,000,000 per annum if rented. Mwanzo division has in stock sufficient raw material for nine months‟ production if production is continued at the same level as he has achieved last year. If this raw material is sold off (following the decision to close Mwanzo division), it would probably fetch 25% of its cost. Required: a) Mwanzo division‟s combined profit and loss account for the ensuring two-year period on the assumption that the division continues to operate after reducing its transfer price to Sh.22,000 and operating at full capacity as expected. b) A statement of costs and benefits to Madoadoa Ltd. If a decision to adopt the proposal made by Mr. Makini rather than the plan put forward by the manager of Mwanzo division is taken.

    Date posted: May 4, 2021