KIMATHI UNIVERSITY LIBRARY

KIMATHI UNIVERSITY COLLEGE OF TECHNOLOGY

UNIVERSITY EXAMINATION
FOURTH YEAR SUPPLEMENTARY EXAMINATION FOR THE DEGREE IN
BACHELOR OF COMMERCE

HBC 2213: MANAGERIAL ACCOUNTING

DATE: 27TH FEBRUARY 2012 TIME: 8.30 AM – 10.30AM

INSTRUCTIONS: Answer question ONE and any other TWO questions

QUESTION ONE

a) Explain the significance of forecasting to management (4 marks)

b) The following information was obtained from the books of a manufacturing
company
Year Output Total Output
Sh (000)
2007 550 1350
2008 500 1400
2009 900 2400
2010 850 2450
Using high-low method, determine
i. Variable cost per unit
ii. Fixed costs per unit
iii. Total cost function
iv. Total cost when production is 1000 units (6 marks)
c) PQR Ltd intends to introduce a new product in the market. The company has
carried out a survey whose results suggest a selling price of sh 180 or sh 190 per
unit. The variable cost per unit of the product is expected to be sh 50 or sh 60. The
probability of the variable cost per unit being sh 50 is 0.6 while the probability of
the variable cost per unit being sh 60 is 0.4. The marketing department has
produced the following estimates of sales for each of the two selling prices:
Expected sales at sh 180 Expected sales at sh 190
Units Probability Units Probability
70000 0.3 60,000 0.2
80,000 0.7 80,000 0.8

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Required
i. Present the above information on a decision tree (6 marks)
ii. Determine the expected contribution at each of the termination points of the
decision tree (12 marks)
iii. Recommend the selling price to be adopted (2 marks)

QUESTION TWO
a) A company incurred the following costs on a batch no. M5
Department A 400 labour hours at sh 4.50
Department B 700 labour hours at sh 3.00
Direct materials sh 4,500
Factory overheads are absorbed on labour hours at the rate of sh 7 per hour for
Dept A and sh 4 per hour for Dept B.
Administration overheads are absorbed at 10% of factory costs.
Required:
Assuming that 1000 units were produced, calculate the cost per unit. (10 marks)
b) Discuss the differences between financial accounting information and management
accounting information. (4 marks)
c) Jane has started a business buying and selling plates. Each plate is purchased at sh
400 and sold for sh 800. The rent of the business premises is sh 12,000 per month.
Required:

i. Break even point in units and in shillings

ii. Determine the number of plates that must be sold to make a profit of sh
10,000.
iii. Calculate the margin of safety in (ii) above. (6 marks)

QUESTION THREE

a) In a given period the production data and costs for a process were

2100 fully completed units

700 partly completed units.

The degree of completion of the partly complete units was:

Materials 70% complete
Labour 50% complete
Overheads40% complete

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The costs for the period were

Materials sh 44,800
Labour sh 36,750
Overheads sh 56,200
Calculate the equivalent units of production, the costs per unit complete unit and the value
of the work in progress. (10 marks)

b) Discuss how you would deal with uncertainties in cost profit volume analysis (4 marks)
c) Assume that ABC Ltd produces two products, product A and B and the following
budget has been prepared.

A B
Sales in units 120,000 40,000
Sh. Sh.

Sales @5/-, 10/- 600,000 400,000

Variable cost @ 4/-, 3/- 480,000 120,000
Contribution @ 1/- 7/- 120,000 280,000
Total fixed cost 300,000

Required:
a) Compute the break-even point in total and for each of the products.
b) The company proposes to change the sales mix in units to 1:1 for products A and B.
Advice the Company on whether this change is desirable. (6 marks)

QUESTION FOUR
a) Discuss three main types of standards (6 marks)
b) the following information were extracted from the standard cost card of a product
manufactured by Ujuzi ltd.
Standard cost
Raw materials 2.82 kgs @ sh 4.80 /kg
Direct labour
Type I 6.5 hrs@ sh 3.75/hour
Type II 3.85 hrs@ sh 4.25 / hour
Actual results
Production 1,100 units
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Direct material purchased and used

3200 kgs at a cost of sh 15,100
Wages paid
Type I (7120 hrs) sh 27,056
Type II (4235) sh 18, 210
Required
Calculate the material and labour variances (14 marks)

QUESTION FIVE
a) Outline four benefits of having a management accountant to an organization
(4 marks)
b) Discuss how transfer prices are set in organizations (12 marks)
c) List any four disadvantages of decentralization to an organization (4 marks)

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