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Hbc2113:Management Accounting Question Paper
Hbc2113:Management Accounting
Course:Bachelor Of Commerce
Institution: Meru University Of Science And Technology question papers
Exam Year:2013
QUESTION ONE – 30 MARKS
(a) Hart Tower Ltd is considering replacing its unkempt staircases with modern intelligent escalators (lifts). The escalators are smart, intelligent and comfortable and more efficient than the staircases, however they have a shorter life. The company uses the straight line method of depreciation. Revenue from the escalators (2.2M per year) is expected to be affected by the replacement decision. Summary data on existing staircases and the replacement escalators are shown below in sh.
Existing stairs New escalator
Original cost 2,00,000 1,200,000 Useful life (years ) 10 4 Current age (yrs) 6 0 Accumulated depreciation 1,200,000 Nil Current disposal price 80,000 not acquired Terminal disposal price (2 years from now) 0 0 Annual operating costs 1,600,000 920,000 Advice the management on whether to replace the staircases or not. (15 marks)
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(b) Discuss five objectives of performance appraisal systems. (5 marks)
(c) Explain the following new management costing techniques. (10 marks) a) Cost of quality b) Environmental cost management
QUESTION TWO –20 MARKS (a) Assume that Kagimbiri Ltd makes four components with the following information.(5 marks)
W X Y Z
Production (units) 1000 2000 4000 3000 Unit marginal costs Direct material 4 5 2 4 Direct labour 8 9 4 6 Variable O/H 2 3 1 2 14 17 7 12
Attribute Fixed Cost buying price Sh. Sh. TO W 1000 W 12 X 5000 X 21 Y 6000 Y 10 Z 8000 Z 14
Committed Fixed Costs are Sh.30,000 Required: Advice the company on the components to buy or make if any. (12 marks)
b) Discuss the historical development of management accounting (MA) highlighting the modern trends in MA. (8 marks)
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QUESTION THREE – 20MARKS (a) Consider the following income statement of Rutune ltd. RUTUNE LIMITED PROFIT AND LOSS STATEMENT FOR YEAR ENDED 31.12.19 A B C Total £ ‘000 £ ‘000 £ ‘000 £ ‘000 Direct materials 110 100 150 360 Direct labour 50 40 80 170 Variable overhead 65 60 100 225 Fixed overhead 45 120 220 385 Total costs 270 320 550 1,140 Profit/(loss) 45 65 (50) 60 SALES VALUE 315 385 500 1,200
The management decides to discontinue product C which is reporting a loss of sh.50,000. If fixed costs do not change, what would be your recommendation. (10 marks)
(b) Discuss any five limitations of the use of Management Accounting today. (10 marks) QUESTION FOUR – 20 MARKS Kanyaru Company manufactures leather products with various end uses. The company applies factory overheads to individual jobs on the basis of machine hours for department A, and on the basis of direct labour cost for department B. the following budget estimates were made by the company at the star of year two. Department A Department B Shs Shs Direct material cost 800,000 600,000 Direct labour cost 600,000 500,000 Factory overheads 600,000 400,000 Direct labour hours 40,000 50,000 Machine hours 120,000 7,500 Cost records kept by the company showed that Job No.99 consumed the following inputs during the year:
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Department A Department B Shs Shs Materials issued 5,000 Shs. 15,000 Direct labour cost 4,800 Shs. 4,000
Direct labour hours 400 500 Machine hours 1,500 100 Required: a) Determine the overhead application rate for both department A and B. b) Calculate the total cost of the Job c) Suppose the job consists of 50 items, what would be the cost per unit? d) At the end of the year 2, total factory overheads incurred amounted to shs.975,000. A total of 110,000 machine hours were worked in department A while the total labour cost for department B was shs.540,000 Required: Calculate the over-or under-applied for the company as a whole and indicate whether it is favourable or unfavourable. (20 marks) QUESTION FIVE – 20MARKS (a) Muthigi Limited is considering the purchase of a new machine. Two alternative machines, KM and KR, which will cost Sh. 6,000,000 and Sh.7, 000,000 respectively are available in the market. The cash flow after taxation of each machine are as follows: Cash flow Year KM KR Sh. Sh. 1 600,000 1,800,000 2 1,800,000 2,400,000 3 2,000,000 3,000,000 4 3,000,000 1,800,000 5 2,400,000 1,600,000 Required:
Compute the NPV and PI of each machine if the cost of capital is 12%. (10 marks) (b) Discuss the main limitations of Activity Based Costing methods. (10 marks)
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