Faculty of Business and Management

BBA/DBA 211 Managerial Accounting

Open Book Exam
Issue Date: Monday, May, 16th, 2022
Due Date: Sunday, May, 29th, 2022
Instructions to Candidates:
i) Attempt All questions (all questions are compulsory)
ii) Use a maximum of 16 pages for this exam
iii) All answers should be typed within the answer booklet provided for on your claned
boards
iv) Do not use PDF, images, photos or jpeg to save your work, as it is supposed to be
reviewed and marked.
Q.1
Walk-Toki Manufacturing Company is a producer of music compact discs (CDs) and tapes. The
following account balances are for the year ended December 31, 2021
Administrative expenses $ 60,000
Depreciation expense – Manufacturing equipment $50,000
Direct labor $468,000
Manufacturing supplies expense $40,000
Indirect labor $36,000
Beginning inventories, January 1:
Direct materials $14,000
Work in process $20,000
Finished goods $128,000
Ending inventories, December 31:
Direct materials $44,000
Work in process $56,000
Finished goods $92,000

Direct materials purchases $216,000

Rent expense – Factory $28,000
Sales $1,400,000
Selling expense $72,000
Other manufacturing overhead $126,000
Required;
(i) Prepare a cost of goods manufactured statement for the year ended December 31. (08 marks)
(ii) Prepare an income statement for the year ended December 31, 2021. (06 marks)
 (iii) Assume Walk-Toki Company is considering offering a new product, Cassio. Why would
it matter if Walk-Toki Company knows how much it costs to produce and deliver each
Cassio? (05 marks)
(iv)Compare and contrast an income statement of a manufacturing concern and that of a service
provision concern. (06 marks)
Total, 25 marks
Q.2
Standard costs and Variance analysis
Kasule was hired as a budget analyst at a large manufacturing business. His boss has asked that
he reviews last year's master budget, actual results, and planned numbers, and calculate the
variances for each category. The data table Kasule was given follows;
Actual Results Standard
Units Sold $20,000 $24,000 Required;
Revenues $2,500,000 $2,880,000 a) Create
Total Variable Costs $1,900,200 $2,112,000 a table
Contribution Margin $599,800 $768,000 that
Fixed Costs $570,000 $552,000
shows
Operating Income $29,800 $216,000
the
variances for each category that indicates whether favorable or unfavorable. (06 marks)
b) Explain why there were such variances in each category in (a) above? (07 marks)
c) Halifax Company produces several products in its factory, including a karate robe. The
company uses a standard cost system to assist in the control of costs. According to the
standards that have been set for the robes, the factory should work 780 direct labor-hours
each month and produce 1,950 robes. The standard costs associated with this level of
production are as follows:
Total Per Unit of Product
Direct materials $35,490 $18.20
Direct labor $7,020 3.60
Variable manufacturing overhead (based on direct labor-hours) $2,340 1.20
$23.00

During April, the factory worked only 760 direct labor-hours and produced 2,000 robes. The
following actual costs were recorded during the month:
Total Per Unit of Product
Direct materials (6,000 yards) $36,000 $20
Direct labor $8,000 $4
Variable manufacturing overhead $3,800 $2
$26
At standard, each robe should require 2.8 yards of material. All of the materials purchased during
the month were used in production.
Compute the following variances for April:
i) The materials price variance (04 marks)
ii) The quantity variance (04 marks)
iii) The labor rate variance (04 marks)
Total, 25 marks
Q.3
Relevant costs for decision making
Cipla Uganda pharmaceutical company, buys a chemical for $10,000, which it breaks down into
two components:
Component Sales value ($) Allocated costs ($)
A 8,000 7,000
B 4,000 5,000
Component A can be converted into Product A if $6,000 is spent on further processing. Product
A would sell for $12,000.
Component B can be converted into Product B if $10,000 is spent on further processing. Product
B would sell for $17,000.
Required;
a) What processing decision should Cipla make in order to maximize profits? Show all the
working (13 marks)
b) Illustrate the production plan to show the contribution margin. (08 marks)
c) Is the project viable or not? Suggest reasons. (04 marks)
Total; 25 marks

Q.4
Application of Activity-Based Costing
Nina Audrey started Nina Interiors, a niche furniture brand, 10 years ago. She ran the business as a sole
proprietorship. While she has 50 skilled carpenters and 5 sales people on her payroll, she has been taking
care of the accounting by herself. Now, she intends to offer 40% of the ownership to public in next couple
years and is willing to make changes and has hired Tracy as a management accountant to organize and
improve the accounting systems.
Nina Interior's total budgeted manufacturing overheads cost for the current year is Ugx 81,240,000 and
budgeted total labor hours are 20,000. Alison the financial accountant has been applying traditional
costing method during the whole 10 years period.
Nina Interior's sofas includes the 2-set, 3-set and 6-set options. State House recently placed an order for
150 units of the 6-set type. The order is expected to be delivered in one-month time. Since it is a
customized order, State House will be billed at cost plus 25%.
Tracy is not a fan of traditional costing system. She believes that the benefits of activity-based costing
system exceeds its costs, so Tracy has sat down with Aaron Mason, the chief engineer, to identify the
activities which the firm undertakes in its sofa division.
Next, Tracy calculated the total cost that goes into each activity, identified the cost driver that is most
relevant to each activity and calculated the activity rates.
The results are summarized below:
Activity Amount (Ugx) Relevant Cost Driver Activity level
Production of
20,310,000 Machine hours 25,000
components
Assembly of components 15,200,000 Number of labor hours 20,000
Packaging 2,130,000 Units 5,000
Shipping 6,000,000 Units 5,000
Setup costs 3,4000,000 Number of setups 240
Designing 1,200,000 Designer hours 1,000
Product testing 2,400,000 Testing hours 500

Once the order was ready for packaging, Alison gave you a summary of total cost incurred, and a
statement of activities performed (also called the bill of activities) as shown below:
Order No: 1502021
Customer: State House
Units: 150
Type: 6 Set
Amounts in $
Cost of direct materials Ugx 5,000,000
Cost of purchased components Ugx 3,500,000
Labor cost Ugx 15,60,000

Activity Relevant Cost Driver Activity Usage

Production of components Machine hours 320
Assembly of components Number of labor hours 250
Packaging Units 150
Shipping Units 150
Setup costs Number of setups 15
Designing Designer hours 70
Product testing Testing hours 22
Required;
a) Help management of Nina interiors to calculate the total costs using activity-based costing.
(16 marks)
b) Why would Tracy prefer Activity-based costing rather than the Traditional costing method?
(05 marks)
c) Are there limitations to the traditional costing method? (04 marks )
Total, 25 marks

End