INSTITUTE OF CHARTERED SECRETARIES I C S A

AND ADMINISTRATORS IN ZIMBABWE INTERNATIONAL

EXAMINATION QUESTION PAPER

SUBJECT: COST AND MANAGEMENT ACCOUNTING

PART: C (PROFESSIONAL PROGRAMME I)

DATE: MAY 2017 TIME: 13:15 to 16:30 HOURS

DURATION: 3 hours plus 15 minutes reading time

INSTRUCTIONS TO CANDIDATES:
Candidates must answer FOUR out of five questions.

SECTION A
Question 1 is COMPULSORY and carries 40 marks.

SECTION B
Answer any THREE questions from this section. Each question carries 20 marks.

Total – 100 marks

Assume that all the different requirements of a question are independent of each other
unless it is explicitly stated otherwise.
Show all your calculations in a clear and concise manner.

The examination script is the property of ICSAZ and is not to be removed from the examination
venue.
 SECTION A

(This question is COMPULSORY)

QUESTION 1

a) Regression analysis was used to find the line of best fit (𝑦 = 𝑎 + 𝑏𝑥) from
five pairs of data. The calculations have produced the following
information:
∑ 𝑥 = 129 ∑ 𝑦 = 890 ∑ 𝑥𝑦 = 23,091
∑𝑥2 = 3,433 ∑𝑦2 = 29,929

REQUIRED
Calculate ‘a’ in the equation for the line of best fit (to the nearest
number). (3 marks)

b) You are the management accountant of a company that suffers from

chronic stock-outs of its vital raw material. Detail for a particular raw
material was provided as follows:
Economic order quantity, 12 000 kilograms
Lead time, 10 to 14 working days
Average usage, 600 kilograms per day
Minimum usage, 400 kilograms per day
Maximum usage, 800 kilograms per day

REQUIRED
Calculate the following:
(i) Reorder level. (2 marks)
(ii) Minimum stock level. (2 marks)
(iii) Average stock level. (3 marks)

c) XYZ company recorded the following concerning a product:

Standard time allowed per unit = 32 minutes
Actual output in period = 720 units
Actual hours worked = 360
Budgeted hours = 370

REQUIRED:
(i) Calculate the labour efficiency ratio. (2 marks)
(ii) Calculate the labour capacity ratio. (2 marks)
(iii) Calculate the labour volume ratio. (2 marks)

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Cost & Management Accounting: May 2017 Page 2 of 6
d) You have been provided with the following data from Sulu Limited for
May:

Accounting method: Absorption Marginal

Variances:
Selling price 1 900 (A) 1 900 (A)
Sales Volume 4 500 (A) 7 500 (A)
Fixed overhead expenditure 2 500 (F) 2 500 (F)
Fixed overhead volume 1 800 (A) n/a

During May production and sales volumes were as follows:

Sales Production
Budget 10 000 10 000
Actual 9 500 9 700

Calculate:
(i) the standard contribution per unit.
(ii) the standard profit per unit.
(iii) the actual fixed overhead cost total.
(9 marks)
e) Explain the following terms:
(i) “activity based costing”. (1 mark)
(ii) “cost drivers” (giving examples to illustrate your point). (1 mark)
(iii) “activity based budgeting” (ABB) and state an advantage and disadvantage. (3 marks)

f) BB manufactures a range of electronic product. The supplier of

component Y has informed BB that it will offer a quantity discount of
0.75% if BB places an order of 8,000 components or more at any one time.
Details of component Y are as follows:

Cost per component before discount $2.00

Annual purchases 150 000 components
Ordering costs $360 per order
Holding costs $3.00 per component per annum

REQUIRED:
(i) Calculate the EOQ. (2 marks)
(ii) Calculate the total annual cost of holding and ordering inventory of
component Y using the economic order quantity and ignoring the
quantity discount. (4 marks)
(iii) Calculate whether there is a financial benefit to BB from increasing the
order size to 8,000 components in order to qualify for the 0.75%
quantity discount. (4 marks)
[Total: 40 marks]
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Cost & Management Accounting: May 2017 Page 3 of 6
 SECTION B

(Answer any THREE questions from this section)

QUESTION 2

A company produces and sells one product and its forecast for the next
financial year is as follows:

$000 $000
Sales 100,000 units at $8 800
Variable costs:
Material 300
Labour 200
500
Contribution ($3 per unit) 300
Fixed costs 150
Net Profit 150

In an attempt to increase net profit, two proposals have been put forward:
1. To launch an advertising campaign costing $14,000. This will increase the
sales to 150,000 units, although the price will have to be reduced to $7.
2. To produce some components at present purchased from suppliers. This
will reduce material costs by 20% but will increase fixed costs by $72,000.

REQUIRED:
Determine whether the two proposals will increase profits and should be
pursued. (20 marks)

QUESTION 3

A company has two profit centres, Centre A and Centre B. Centre A supplies
Centre B with a part-finished product. Centre B completes the production and
sells the finished units in the market at $35 per unit.

Budgeted data for the year:

Division A Division B
Number of units transferred/sold 10,000 10,000

$ per unit $ per unit

Material costs 8 2
Other variable costs 2 3

$ $
Annual fixed costs 60,000 30,000

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Cost & Management Accounting: May 2017 Page 4 of 6
REQUIRED:
Calculate the budgeted annual profit of each centre and the organisation as a
whole if the transfer price for components supplied by Division A to Division B
is:
a) $20. (5 marks)
b) $25. (5 marks)
c) Explain why it is necessary to set a transfer price. (5 marks)
d) If Division A can sell the part finished components to external customers
at $23 per unit, comment if this could be an optimum price. (5 marks)
[Total: 20 marks]

QUESTION 4

A company wishes to determine the minimum price it should charge a

customer for a special order. The customer has requested for a quotation for
10 machines, but might subsequently place an order for a further 10. Material
costs are $30 per machine. It is estimated that the first batch of 10 machines
will take 100 hours to manufacture and an 80% learning curve is expected to
apply. Labour plus variable overhead costs amount to $3 per hour. Setting-up
costs are $1,000 regardless of the number of machines made.

REQUIRED:

a) What is the minimum price the company should quote for the initial order
if there is no guarantee of further orders? (4 marks)
b) What is the minimum price for the follow-on (subsequent) order? (4 marks)
c) What would be the minimum price if both orders were placed together? (6 marks)
d) Having completed the initial orders for a total of 20 machines (price at the
minimum levels recommended in (a) and (b), the company thinks that
there would be a ready market for this type of machine if it brought the
unit selling price down to $45. At this price, what would be the profit on
the first 140 ‘mass-production’ models (i.e. after the first 20 machines)
assuming that marketing costs totalled $250? (6 marks)
[Total: 20 marks]

QUESTION 5

In a marginal costing system, only variable costs would be assigned to

products or services, in which case management may rely on a contribution
approach to decisions.

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Cost & Management Accounting: May 2017 Page 5 of 6
REQUIRED:
a) Explain and discuss the contribution approach to decisions giving brief
examples and drawing attention to any limitations. (5 marks)

b) In order to compete globally many companies have adopted World Class

Manufacturing (WCM), such as JIT and TQM. Consequently, they are
changing their performance measurement systems and are abandoning
standard costing systems as they think traditional standard costing and
variance analysis is of little use in the modern environment.

REQUIRED
Discuss the TQM and JIT concepts in the Zimbabwean context. (15 marks)
[Total: 20 marks]

“End of Examination Question Paper”

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