b5 Special Solving Set 5

SPECIAL PROBLEM SOLVING SESSION
PERFOMANCE MANAGEMENT (B5)
FOR MAY 2019 EXAMS
[SET 5]
Prepared By: MKARO, Goodhope: MBA (Finance), PGD-Tax Mgt, B.com Accounting (Hons), CPB, CISI (UK), CPA (T),
Mshana Ally A.: MFA- (OG), B.Com Accounting (Hons), CPA (T), ATEC (II) |Phone1: +255 717 / 769 348 616 | Phone1:
+255 714 965 564 | Email: info@covenantfinco.com |Website: www.covenantfinco.com
COVENANT FINANCIAL CONSULTANTS SPECIAL PROBLEM SOLVING SESSION [SET 2]
QUESTION ONE [1]

Mtoni Kijichi Co. operates an activity based costing system and has forecast the following
for the next year:
Cost Pool Cost (Tshs.) Cost driver Number of

drivers
Production set-ups 105,000,000 Set-ups 300
Production testing 300,000,000 Tests 1,500
Component supply 25,000,000 Component 500

and storage orders
Customer orders and 112,500,000 Customer 1,000

delivery orders
General fixed overheads such as lighting and heating, which cannot be linked to any
specific activity are expected to be Tshs.900, 000,000 and these overheads are absorbed
on the basis of direct labour hours. Total direct labour hours for the next year are
expected to be 300,000 hours.
Mtoni Kijichi Co. specializes in production of product WEYE and expects orders for
product WEYE next year to be 100 orders of 60 units per order and 60 orders of 50 units
per order. The company holds no inventories of product WEYE and will need to produce
the order requirements in the production runs of 900 units. One order for components is
placed prior to each production run. Four tests are made during each production run to
ensure that quality standards are maintained.
The following additional cost and profit information relates to product WEYE:
Component cost Tshs.1,000 per unit
Direct labour: 10 minutes per unit at Tshs.7,800 per hr
Profit mark-up 40% of total unit cost
Prepared By: Godson Mkaro (Jr): MSc Finance & Investment, BSc. Computer Science, ATEC II, CPBE, CPA (T),
+255 714 965 564 | Email: info@covenantfinco.com |Website: www.covenantfinco.com Page | 1
REQUIRED:
(a) Calculate the activity-based recovery rates for each cost pool. (4 marks)
(b) Calculate the total unit cost and selling price of product WEYE. (8 marks)
(c) Discuss the reasons why activity based costing may be preferred to traditional
absorption costing in the modern manufacturing environment. (8 marks)
QUESTION TWO [2]

The factory cost record of Mwangaza Plc in its first 10 months of its production operation
included the following information:
MONTH OF DIRECT FACTORY
OPERATION LABOUR OVERHEAD
HOURS TSHS.
January 3000 5,500,000
February 3100 5,550,000
March 3400 5,700,000
April 3500 5,750,000
May 3690 5,845,000
June 3760 5,880,000
July 3850 5,925,000
August 3900 5,950,000
September 4000 6,000,000
October 4040 6,020,000
Based on this and other factory cost information, the company intends to get a rough
forecast of the effect of its desired profit equal to Tshs.12,000,000 for the first half of the
coming operating year on factory costs before a formal plan is prepared.
Each unit require ½ an hour of direct labour paid at an average rate of Tshs.2,400. It also
requires 2 kilograms of raw material, which will be purchased at Tshs.500 per kilogram.
The Company will continue to apply overhead based on direct labour hours.
In the course of setting up the price at which the Company will sell its product, it has to
consider the expected industrial output. The most recent survey conducted by the
Marketing Department suggests the following possibilities:-
PROJECTED SELLING PRICE

INDUSTRY PRICE PROBABILITY
OUTPUT TSHS.
4,000,000 units 5,000 0.16
6,000,000 units 3,000 0.50
9,000,000 units 2,000 0.34
The company intends to attain 10% market share in the coming year.
REQUIRED:
(a) Determine the company’s cost structure in the first six months (8 marks)
(b) Determine the possible gross profit in the next six months assuming factory fixed
costs do not fluctuate significantly in each month.
QUESTION THREE [3]

The following is an operating statement for Big Zet Company for the financial year 2009.
Tshs.
‘000’
Budgeted profit 102,000
VARIANCES Favourable Adverse
Tshs. ‘000’ Tshs. ‘000’
Sales variances
Sales volume variance 20,400
Sales price variance 96,000
Cost variances
Material price variance 24,000
Material usage variance 3,600
Direct labour rate variance 4,800
Direct labour efficiency variance 3,600
Variable overhead efficiency variance 1,800
Variable overhead expenditure variance
14,400
Fixed overhead expenditure variance 60,000
Fixed overhead volume variance 3,600
Total variances 87,600 144,600 57,000
Actual Profit 45,000
The budgeted data for the year 2009 has the following:
Tshs. ‘000’ Quantity
Sales volume in units 36,000
Production volume in units 36,000
Direct materials purchases in kilograms 18,000
Direct material consumed in kilograms 18,000
Direct labour in hours 27,000
Sales revenue 480,000
Material costs 108,000
Direct labour costs 108,000
Variable overheads costs 54,000
Fixed overhead costs 108,000
The following additional information is also available:
The actual sales revenue was Tshs.288, 000,000
Direct materials purchased were 24,000 kilograms
It is assumed that inventory of raw materials and finished goods are valued at standard costs.
Actual production volume in units was 37,200 units.
REQUIRED:
Calculate the following
i. The actual sales volume in units (2 marks)

ii. The actual quantity of materials consumed (2 marks)
iii. The actual price of direct material (2 marks)
iv. The actual direct labour cost (2 marks)
v. The actual variable overhead rate per hour (2 marks)
vi. The actual fixed overhead costs (2 marks)
vii. The fixed overhead capacity and (2 marks)
viii. Fixed overhead efficiency variances (2 marks)
(b) Explain briefly the factors that are to be considered before deciding to investigate
variances. (4 marks)

b5 Special Solving Set 5

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SPECIAL PROBLEM SOLVING SESSION

PERFOMANCE MANAGEMENT (B5)

FOR MAY 2019 EXAMS

QUESTION ONE [1]

Cost Pool Cost (Tshs.) Cost driver Number of

Production set-ups 105,000,000 Set-ups 300

Production testing 300,000,000 Tests 1,500

Component supply 25,000,000 Component 500

Customer orders and 112,500,000 Customer 1,000

Component cost Tshs.1,000 per unit

Direct labour: 10 minutes per unit at Tshs.7,800 per hr

Profit mark-up 40% of total unit cost

QUESTION TWO [2]

PROJECTED SELLING PRICE

9,000,000 units 2,000 0.34

QUESTION THREE [3]

Budgeted profit 102,000

VARIANCES Favourable Adverse

Tshs. ‘000’ Tshs. ‘000’

Sales volume variance 20,400

Sales price variance 96,000

Material price variance 24,000

Material usage variance 3,600

Direct labour rate variance 4,800

Direct labour efficiency variance 3,600

Variable overhead efficiency variance 1,800

Variable overhead expenditure variance

Fixed overhead expenditure variance 60,000

Fixed overhead volume variance 3,600

Total variances 87,600 144,600 57,000

Actual Profit 45,000

Tshs. ‘000’ Quantity

Sales volume in units 36,000

Production volume in units 36,000

Direct materials purchases in kilograms 18,000

Direct material consumed in kilograms 18,000

Direct labour in hours 27,000

Sales revenue 480,000

Material costs 108,000

Direct labour costs 108,000

Variable overheads costs 54,000

Fixed overhead costs 108,000

The following additional information is also available:

The actual sales revenue was Tshs.288, 000,000

Direct materials purchased were 24,000 kilograms

Actual production volume in units was 37,200 units.

Calculate the following

i. The actual sales volume in units (2 marks)

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