KIMATHI UNIVERSITY LIBRARY

DEDAN KIMATHI UNIVERSITY OF TECHNOLOGY

UNIVERSITY EXAMINATION ACADEMIC YEAR 2014/2015

FOURTH YEAR FIRST SEMESTER EXAMINATION FOR THE DEGREE OF

BACHELOR OF COMMERCE/PURCHASING AND SUPPLIES MANAGEMENT

HBC 2213/HPS 2408: MANAGEMENT ACCOUNTING

DATE: 19TH AUGUST 2014 TIME: 11.00AM – 1.00PM

Instructions:
Answer question ONE and any other TWO questions

QUESTION ONE Total 30 marks

a) You have been employed as the management accountant of XYZ Company, the
Finance manager does not seem to appreciate the need for quality information. He has
requested you to explain the attributes of a good information for decision making
(5 marks)
b) Discuss the role of Management Accounting in the management process (5 marks)
c) Explain Five pricing strategies you would use as a management accountant to
determine the prices to be charged for your organization’s product ( 10 marks)
d) The production manager of Kariuki and sons Company is concerned about the
apparent fluctuation in efficiency and wants to determine how labor costs (in Sh) are
related to volume. The following data presents results of the 12 most recent weeks.
Week No. Units Produced(X) Labour Costs(Y)
1 34 340
2 44 346
3 24 287
4 36 262
5 30 220
6 49 416
7 39 337
8 21 180
9 41 376
10 47 295
11 34 215
12 24 275
Required:
Estimate the cost function using;
1) High low method (5 marks)
2) Regression analysis ( 5 marks)

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QUESTION TWO (TOTAL 20 MARKS)

(a) State four objectives of a transfer pricing system. (4 marks)

(b) Transfer pricing methods are concerned with the alternative means by which a transfer
price can be set and its impact on organizations gauged. Discuss four transfer pricing
methods highlighting their benefits and limitations to the organization. (16 marks)

QUESTION THREE (TOTAL 20 MARKS)

a) The following standard costs apply in a business that manufactures a single product.

Standard weight to produce one unit 12kgs

Standard price per kg Sh.9
Standard hours to produce one unit 10
Standard rate per hour Sh.4
Actual production and costs for one accounting period were as follows.
Materials used 3,770kgs
Materials costs Sh.35,815
Hours actually worked 2,755
Hours paid for 2,900
Wages paid Sh.11,571
The actual output was 290 units.

Required ,

Calculate;
1) Material cost variance
2) Material usage variance
3) Labor rate variance
4) Labor efficiency variance
5) Idle time variance ( 10 marks)

b). Explain the responsibility Accounting and discuss the three responsibility centers used in
responsibility Accounting (10 marks)

QUESTION FOUR (TOTAL 20 MARKS)

a) Briefly explain the following terms as used in process costing:

Normal loss. (2 marks)
Abnormal loss. (2 marks)
Abnormal Gain (2 marks)

A company makes a lotion that is manufactured through two processes, A and B. on the 1
November 2013, work in process consisted of the following:

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Sh.
Process 2000 units
A:
Direct materials 1,000,000
Direct labour 400,000
Overheads 600,000

Process B: 6000 units

Direct materials 3,400,000
Direct labour 760,000
Overheads 1,200,000

In both processes the goods were 100% complete as to direct materials and 75% complete as
to direct labour and overheads. In the month of November, the following additional costs
were incurred.

Process A Process B
Sh Sh.
Direct materials 1,940,000 560,000
Direct labour 728,000 2,240,000
Overheads 1,080,000 4,200,000

On 30th November 2013, 4000 units were completed and passed form Process A to Process B
while 1600 units remained in progress, 100% complete as to direct materials and 50%
complete as to direct labour an overheads. On the same date, 10,000 units were passed from
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 2013.
Show all supporting computations including the inventory flow through each process.
(14 marks)

QUESTION FIVE (TOTAL 20 MARKS)

a) State six assumptions that underlie the cost-volume-profit analysis.

(3 marks)
b) Explain the meaning and significance of the following terms in the context of the cost-
volume –profit analysis:
Margin of safety. (1 mark)
Contribution margin (1 mark)
Contribution sales ratio. (1 mark)

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ABC Company produces and sells a certain product at Shs.800 with a variable manufacturing
cost of Shs 380 per unit and fixed manufacturing costs of Shs.1, 000,000 per year.
In addition, the company incurs selling and administrative costs of 2.5% of sales revenue and
a fixed selling cost of Shs. 200,000 per year.
Required
I. Determine the B.E.P in units and shillings (4 marks)
II. Determine the units that should be sold to earn a net income of Shs.500,000
(2 marks)
III. If the company was in the 35% tax bracket, how many units would have to be sold to
earn the Shs500, 000 targeted? (2 marks)
IV. Management in considering a policy which would increase the fixed manufacturing
costs by Shs 400,000 but cut down on the variable manufacturing cost by 20%
a) What is the B.E.P in units and in revenue under this policy?
b) Taking into account the 35% tax level, how many units have to be sold to earn
the target income of Shs.500, 000 under this policy? (4 marks)
V. At what sales level would management be indifferent among the two policies
(2 marks)

(Total 20 marks)

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