- The Uganda Bank (E.A.) Ltd has only two-branches. The head office branch is in the center
of Kampala and the Kagera branch outside Kampala. The head...(Solved)
The Uganda Bank (E.A.) Ltd has only two-branches. The head office branch is in the center
of Kampala and the Kagera branch outside Kampala. The head office staff consists of the
managing director and finance manager. With minor exceptions, the branch managers are
permitted to conduct their affairs like the heads of two independent banks. The planning
and control system centers on branch income statements prepared by the Finance Manager.
The Kagera branch, on the other hand, is located outside Kampala in a large and growing
retirement community and as primary retail branch. Mr. Obok, the manager, is in his first
year with the Uganda Bank. In his attempts to sell the bank‟s services to the
Kagera residents, he has found that his only success is the area of foreign deposits. Loan
business, on the other hand, is both competitive and scarce.
The interest rate he can charge is constrained by the fact that the manager of the local
competing branch of the other bank while not actively soliciting loan business is apparently
charging rates below the prevailing Kampala prime rate. Additionally, there seems to be
fundamental resistance in the part of the Kagera residents to the idea of borrowing even at
the 12% rate Obok has been offering.
The Kampala branch located in the growing central business district, serves primarily
commercial customers. The manger, Mr. Kamau, has found in recent years that while he
faces a number of vigorous competitors the principal constraint on his ability to generate
new loan business is lack of supporting deposits. The only alternative source of lending
funds is the purchase of Euro currency, which are foreign deposits held in a bank outside
Africa.
This opinion is considered less than acceptable by Kamau, as the 22% interest he would
have to pay for such funds is higher than the rate he is able to charge loan customers
currently at 20%.
In spite of his frequent lectures on the merits of leverage, the best Obok has been able to do
is to generate a few goll-carat installment and social security cheque receivable loans. As a
result, he finds himself with substantial excess savings deposits, which he has to keep in the
vault to satisfy the government‟s 20% cash reserve requirement, the vault
additionally contains excess lendable funds equal to almost 70% of total savings deposits.
The finance manager has suggested that he lends these funds to Kamau at the Kampala
branch. This was acceptable to both managers, although some disagreement arose as to the
interest rate appropriate for such a loan. The argument was finally settled by the finance
manger, who indicated that the theoretically correct rate was the rate Obok was paying on
savings deposits, 10%. It has been further agreed that if Obok could find additional loans,
any or all of the funds lent to Kamau would be returned.
Required:
a) Evaluate the 10% interbranch loan rate and suggest appropriate changes in relation to
the following criteria:
i Motivating managers to act in a manner consistent with the best interests of the
bank as a whole.
ii Evaluating the performance of individual branches.
b) Would your answer change if the Kagera branch loan rate were to rise to 14%, while all
other rates as well as the level of loan demand at Kampala b ranch, remained the same?
c) Would your answer change if all rates were the same as in (a) above except that he cost
of Euro currency dropped to 18%.
d) Based on your answers to the above, what general statements can you make about the
interbranch loan rate appropriate for evaluation of individual managers?
Date posted: May 8, 2021. Answers (1)
- Siku Kuu Ltd. Manufactures and distributes a line of Christmas gifts. The company had
neglected to keep its gifts line current. As a result, sales have...(Solved)
Siku Kuu Ltd. Manufactures and distributes a line of Christmas gifts. The company had
neglected to keep its gifts line current. As a result, sales have decreased to approximately 25,000
units per year fro a previous high of 125,000 units. The gifts have been redesigned recently and
is considered by company officials to be comparable to its competitors‟ models.
The company plans to redesign the gifts each year in order to compete effectively. Kama
Kawaida, the Sales Manager, is not sure how many units can be sold next year, but she is willing
to place probabilities on her estimates. Kama Kawaida's estimates of the number of
units that can be sold during the next year and the related probabilities are as follows:
Required:
a) Prepare a payoff table for the different sizes of production runs required to meet the four
sales estimates prepared by Kama Kawaida for Siku Kuu Ltd.
If Siku Kuu Ltd. relied solely on the expected monetary value approach to make
decisions, what size of production run would be selected?
b) Identify the seven basic steps that are taken in any decision process. Explain each step by
reference to the situation presented by Siku Kuu Ltd. and your answer to requirement (a)
Date posted: May 8, 2021. Answers (1)
- A company makes a lotion that is manufactured through two processes, A and B. on the 1 November 1995, work in process consisted of the...(Solved)
A company makes a lotion that is manufactured through two processes, A and B. on the 1 November 1995, work in process consisted of the following:
Process B into finished goods while 4000 units remained in progress, 100% complete as to
direct materials and 50% complete as to direct labour and overheads.
All inventories are valued on the weighted average cost basis and transfers from process A
to Process B are treated as part of direct material cost.
Required:
The cost accounts for both processes for the month of November 1995.
Show all supporting computations including the inventory flow through each process.
Date posted: May 8, 2021. Answers (1)
- The Finance Director of Africa Problems Ltd. is considering developing a flexible-budget
formula for the manufacturing overhead costs.
The accounting staffs have suggested that simple linear regression...(Solved)
The Finance Director of Africa Problems Ltd. is considering developing a flexible-budget
formula for the manufacturing overhead costs.
The accounting staffs have suggested that simple linear regression be used to determine the
cost behaviour pattern of the overhead cost. They consider that this method would provide
a good and quick estimate of the costs that can be expected to be incurred each month. The
actual direct-labour hours and corresponding manufacturing overhead costs for each month
between 1996 and 1999 were used in the linear-regression analysis.
The following occurrences during the period are considered unusual:
1. Production was reduced in one month during 1997 due to wildcat strikes related to
political changes in one of the countries.
2. In 1998, production was reduced in one month because of material shortages and
materially increased (overtime scheduled) during two-months to meet the units
required for one-time sales order.
3. Employee benefits were raised significantly in December 1998 as a result of a labour
agreement.
4. Production during 1999 was not affected by any special circumstances.
The accounting staff raised the following issues:
Some members question whether historical data should be used at all to form the basis
for a flexible-budget formula.
Some members believe that he use of data from all 48 months would provide a more
accurate portrayal of the cost behaviour. While they recognized that any of the monthly
data could include efficiencies, they believed these would tend to balance out over a
long period of time.
Still other members felt that only the most recent 12 months should be used because
they were the most current.
Other members of the accounting staff suggested that only those months that were
considered normal should be used so that the regression would not be distorted.
The accounting department ran two regression analyses of the data, one using the data from
all 48 months and the other using only the data from the last 12 months.
The results were as follows:
a)
i Formulate the flexible-budget equation that can be employed to estimate monthly
manufacturing-overhead costs.
ii Calculate the estimate of overhead costs for a month when 37.500 direct labour
hours are worked.
b) Using only the results of the two regression analysis above, explain which of the two
results is more appropriate as a basis for the flexible-budget formula.
c) Evaluate and explain how each of the four issues raised by the accounting department
staff influence our willingness to use the results of the statistical analyses as the basis for
the flexible-budget formula.
Date posted: May 8, 2021. Answers (1)
- Samaki Ltd., a company based in Mombasa, exports vital fishing hooks to Madagascar.
The demand for the hooks is constant and Samaki Ltd., is able to...(Solved)
Samaki Ltd., a company based in Mombasa, exports vital fishing hooks to Madagascar.
The demand for the hooks is constant and Samaki Ltd., is able to predict the annual
demand with considerable accuracy. The predicted demand for the next couple of year is
200,000 hooks per year.
Samaki Ltd. purchases its hooks from a manufacturer in Mombasa at a price of Sh.400
per hook. In order to transport the purchases from Mombasa to Madagascar, Samaki Ltd.
must charter a ship. The charter services usually charge Sh.20,000 per trip plus Sh.40 per
hook (this includes the cost of loading the ship). The ships have a capacity of 10,000
hooks. The placing of each order including arranging for the ship requires 5 h ours of
employee time. It takes about a week for an order to arrive at the Samaki Ltd. warehouse
in Madagascar. The warehouse has a capacity of 15,000 hooks.
When a ship arrives at the Samaki warehouse, the hooks can be unloaded at a rate of 25
hooks per hour per employee. The unloading equipment used by each employee is rented
from a local supplier at a rate equivalent to Sh.100 per hour. Supervisory time for each
shipload is about 4 hours. The employees working in the warehouse have several tasks:
i Placing the hooks into storage, after they are unloaded which can be done at the
rate of about 40 per hour.
ii Checking, cleaning etc. of the hooks in inventory requires about one-half hour
per hook per year.
iii Removing a hook from inventory and preparing it for shipments to a customer
requires about one-eighth of an hour.
iv Security guards general maintenance, etc. require about 10,000 hours per year.
The average cost per hour of labour is equivalent to Sh.200 (including fringe benefits).
Samaki Ltd. has developed the following prediction equation for its general overhead
(excluding shipping materials, fringe benefits, and equipment rental):
Predicted overhead for the year = Sh.20,000,000 + (Sh.160 x Total labour hours)
The materials used to ship one hook to a customer costs Sh.20 and the delivery costs
average out to about Sh.40 per hook.
The company requires a before-tax rate of return of 20 per cent on its investment.
The ordering policy from the manufacturers by Samaki Ltd., is based on an EOQ. Model,
which is determined by the demand for hooks in Madagascar.
Required
a) Determine the quantity that should be ordered each time and the re-order level
b) If the true overhead prediction equation is:
Sh.16,000,000 + (Sh.240 x Total labour hours), what is the cost of the prediction error?
Date posted: May 8, 2021. Answers (1)
- Mwito Club is a charitable organization based in Nairobi. For the last 20 years, the
club has held an annual dinner and dance event with the...(Solved)
Mwito Club is a charitable organization based in Nairobi. For the last 20 years, the
club has held an annual dinner and dance event with the primary aim of raising
funds to help the less fortune members of the society.
This year, there is concern that an economic recession may adversely affect the
success of the event with a fall in the number of guests attending and sale of
advertising space in the published events programme.
A study of past experience, current prices and quotations shows that the following
costs and revenues will apply for the event:
Revenue
Dinner and dance
Required:
(i) The expected profit from the event. (Assume one raffle ticket and one
photograph per attendant).
(ii) Describe how cost-volume-profit (C-V-P) analysis can be applied in
absorption costing.
Date posted: May 7, 2021. Answers (1)
- Angels of Mercy Mission Hospital operates on charity basis. The hospital?s board
of directors has recently complained about the increasing size of the cost budget insisting...(Solved)
Angels of Mercy Mission Hospital operates on charity basis. The hospital‟s board
of directors has recently complained about the increasing size of the cost budget insisting that
the management should cut down on costs.
The major concern of the board is the cost of maintaining patients at the intensive care unit
(ICU).
The following information is available on the operations of the hospital:
1. The average cost of maintaining a patient at the ICU per week is Shs. 200,000 compared
to Shs. 100,000 per week incurred in maintaining a patient at the high dependency unit
(HDU) and Shs. 50,000 per week of maintaining a patient at the general ward (GW).
2. Past information on patients indicates that:
(i) 50% of the patients in ICU at the beginning of the week will remain in ICU
at the end of the week and 50% will be transferred to HDU by the end of the
week.
(ii) 10% of the patients in HDU at the beginning of the week will be transferred
to ICU, 50% will remain in HDU, and 40% will be transferred to GW.
(iii) 85% of the patients in the GW at the beginning of the week will remain in
GW at the end of the week, 10% will be transferred to HDU and 5% to ICU.
3. The board of directors believe that the criteria for maintaining patients in the ICU is too
strict and should be relaxed so that only 40% of the patients in ICU at the beginning of
the week remain there at the end of the week while 60% are transferred to HDU.
4. The staff at the hospital insist that if the proposed criterion is adopted:
(i) 20% of patients in HDU at the beginning of the week will be transferred to
ICU, 50% will remain in HDU while only 30% will be transferred to GW.
(ii) No changes will be expected in the GW.
5. Past hospital records indicate that the hospital serves an average of 4,000 patients
weekly.
Required:
(a) The steady state weekly costs under the current policy.
(b) The steady state weekly costs under the proposed policy.
(c) Advise the board on the best policy.
(d) State the assumptions of the quantitative technique used in solving problems (a) and
(b) above.
Date posted: May 7, 2021. Answers (1)
- Pwani Marine Ltd., a boat construction company, has developed a new type
of speed boat called “Speed Surf.”
The following information has been availed to you:
1. Boat...(Solved)
Pwani Marine Ltd., a boat construction company, has developed a new type
of speed boat called “Speed Surf.”
The following information has been availed to you:
1. Boat construction is a continuous assembling process carried out at
the company‟s yard.
2. Boat assembling is labour intensive involving the use of two classes of
labour namely:
Skilled labour at a standard rate of Shs. 1,250 per hour.
Semi-skilled labour at a standard rate of Shs. 950 per hour.
3. Experience on boat construction from other models indicates that the use of
skilled labour is associated with an 80% learning curve effect whereas use of
semi-skilled labour is associated with a 90% learning curve effect.
4. Labour usage for the first speed boat assembled was as follows:
Skilled labour – 952 hours.
Semi-skilled labour – 650 hours.
5. In October 2005, the sixth and the seventh speed boats were assembled
from start to finish. During the month, the following labour usage and costs
were recorded:
Skilled labour – 680 hours at a total cost of Shs. 800,400.
Semi-skilled labour – 1,256 hours at a total cost of Shs. 1,281,200.
The management of Pwani Marine Ltd. is concerned about the cost variances and
would like to learn more on the composition of the variances.
Required:
(i) Calculate the standard labour cost of the month of October 2005.
(ii) Reconcile the standard cost with the actual cost for the month of October
2005 showing the labour rate and labour efficiency variances.
(iii) Express the labour efficiency variance in terms of labour mix and labour
output variances. (Value the labour mix variances using standard rates).
Date posted: May 7, 2021. Answers (1)
- Explain the applications of the learning curve.(Solved)
Explain the applications of the learning curve.
Date posted: May 7, 2021. Answers (1)
- Kutwa Ltd. is a manufacturing company with two divisions; A and B. Division A
manufactures a single standard product K, some of which is sold externally...(Solved)
Kutwa Ltd. is a manufacturing company with two divisions; A and B. Division A
manufactures a single standard product K, some of which is sold externally and the
remainder used as an input in division B in the manufacture of product M.
The unit production costs of product K are given below:
The manager of division B suggests that based on the above results, a transfer price of Shs.
120 would offer division A a reasonable contribution towards its fixed cost and earn
division B a reasonable profit. This would lead to an increase in the output and overall
profitability of the company.
Required:
( a) Calculate the effect of the existing transfer pricing system on the company‟s profits.
( b) Calculate the effect of adopting the transfer price of Shs. 120 on the company‟s
profits.
Date posted: May 7, 2021. Answers (1)
- Nairobi Manufacturers Ltd. produces component X on machine Y at a rate of 4,000
units per month. Machine Z uses component X at the rate of...(Solved)
Nairobi Manufacturers Ltd. produces component X on machine Y at a rate of 4,000
units per month. Machine Z uses component X at the rate of 1,000 units per month,
the remainder being put into stock. It costs Shs. 2,000 to set up machine Y while the
stock holding cost is estimated at Shs. 2.50 per unit per annum plus a 20% opportunity
cost of capital per annum. Each component costs Shs. 25 to produce.
Required:
(i) Compute the optimal batch size that should be produced using machine Y.
(ii) Assume that the actual set-up cost of machine Y is Shs. 1,000 instead of
Shs. 2,000. Calculate the cost of prediction error.
Date posted: May 7, 2021. Answers (1)
- Manukato Ltd. produces a designer perfume called “Hint of Elegance.”
Production of the perfume involves the use of two ingredients, X1 and X2
represented by the production...(Solved)
Manukato Ltd. produces a designer perfume called “Hint of Elegance.”
Production of the perfume involves the use of two ingredients, X1 and X2
represented by the production function given below:
Required:
(i) Calculate the daily expected profit of the company.
(ii) Simulate the company‟s profit for 10 days using the following
random numbers:
58, 71, 96, 30, 24, 18, 46, 23, 34, 27, 85, 13, 99, 24, 44, 49,
18, 09, 79, 49, 74, 16, 32, 23, 02, 56, 88, 87, 59, 41, 06
Date posted: May 7, 2021. Answers (1)
- Shadow prices may be used in the setting of transfer prices between divisions in a
company, where the intermediate products being transferred are in short supply.
Required:
Explain...(Solved)
Shadow prices may be used in the setting of transfer prices between divisions in a
company, where the intermediate products being transferred are in short supply.
Required:
Explain why the transfer prices thus calculated are more likely to be favoured by the
management of the divisions supplying the intermediate products rather than the
management of the divisions receiving the intermediate products.
Date posted: May 7, 2021. Answers (1)
- Transfer pricing of products between processes in a manufacturing company can be done at:
1. Cost or
2. Sales value at the point of transfer.
Required:
Discuss how each...(Solved)
Transfer pricing of products between processes in a manufacturing company can be done at:
1. Cost or
2. Sales value at the point of transfer.
Required:
Discuss how each of the above methods could be used effectively in the operations
of a responsibility accounting system.
Date posted: May 7, 2021. Answers (1)
- State four objectives of a transfer pricing system.(Solved)
State four objectives of a transfer pricing system.
Date posted: May 7, 2021. Answers (1)
- State the limitations of the use of fame theory in decision making.(Solved)
State the limitations of the use of fame theory in decision making.
Date posted: May 7, 2021. Answers (1)
- Topcom Kenya International Limited (TKIL) is a telecommunications company
situated in Nakuru. Recently, the company was faced with a workers strike which
necessitated a renegotiation of the...(Solved)
Topcom Kenya International Limited (TKIL) is a telecommunications company
situated in Nakuru. Recently, the company was faced with a workers strike which
necessitated a renegotiation of the workers‟ salaries through their union.
The management with the help of a consultant, has prepared the pay-off matrix
shown below:
A positive sign represents a wage increase while a negative sign represents a wage decrease.
Required:
(i) Advise the management on the best strategies.
(ii) The value of the game
Date posted: May 7, 2021. Answers (1)
- Makazi Ltd. manufactures a hedge-trimming tool which has been selling at Shs.
1,600 per unit for a number of years. The selling price is to be...(Solved)
Makazi Ltd. manufactures a hedge-trimming tool which has been selling at Shs.
1,600 per unit for a number of years. The selling price is to be reviewed and the
following information is available on costs and the likely demand:
1. The standard variable cost of manufacturing the tool is Shs. 1,000 per unit and
an analysis of the cost variances in the past 20 months shows the following
pattern which the production manager expects to continue in the future.
Adverse variances of 10% of the standard variables cost occurred in ten
of the twenty months.
Nil variances occurred in six of the twenty months.
Required:
(i) Based on the information given above, advise the management of Makazi Ltd.
on whether they should change the selling price. Indicate the price you would
recommend.
(ii) The expected profit at the price you have recommended in (i) above and the
resulting margin of safety expressed as a percentage of expected sales
(iii) Comment on the method of analysis you have used to deal with the
probabilities given in the question.
(iv) Explain briefly how the use of a computer program would improve your
analysis.
Date posted: May 7, 2021. Answers (1)
- Nyali Ltd. is a distributor of an industrial chemical in the South Coast. The chemical is
supplied in drums which have to be stored at a...(Solved)
Nyali Ltd. is a distributor of an industrial chemical in the South Coast. The chemical is
supplied in drums which have to be stored at a controlled temperature. The
company‟s objective is to maximize profits, however the management team disagrees on
the stock control policy and holds the following different views:
The Managing Director's view:
The company's managing director (MD) wishes to improve the stock holding
policy by applying the economic order quantity (EOQ) model. Each drum of the chemical
costs Shs. 5,000 from a supplier and is sold for Shs. 6,000. The annual demand is estimated
to be 10,000 drums which the MD assumes to be evenly distributed over the 300 working
days in a year. The cost of delivery is estimated at Shs. 2,500 per order and the annual
variable holding cost per drum at Shs. 4,500 plus 10% of the purchase price.
Using these data, the MD calculated the EOQ and proposes that it should be used as the
basis for future purchasing decisions of the industrial chemical.
The Purchasing Manager‟s view:
Provided in the employment contract of the company‟s purchasing manager (PM), is a
clause stating that he will receive a bonus (rounded at the nearest Shs. 100) calculate as follows:
b = [1,000,000 – (OC + HC)] x 0.1
where: b is the annual bonus.
OC is the annual ordering cost.
HC is the annual holding cost.
Using the same assumption as the MD, the PM points out that in making his calculation, the
MD has not only ignored the bonus but also the fact that suppliers offer quantity discounts
on purchase orders, where if the order size is 200 drums or above, the price per drum for an
entire consignment is only Shs. 4,990 compared to Shs. 5,000 when the order is between 100
and 199 drums and Shs. 5,010 when an order is between 50 and 99 drums.
The Finance Director's view:
The company's finance director (FD) accepts the need to consider quantity
discounts and pay a bonus, but he also holds the view that the MD‟s approach is too
simplistic. He points out that there is a three days lead time for an order and that demand has
not been entirely even over the past year. Moreover, if the company has no drums of the
chemical in stock, it will lose specific orders as potential customers will source the chemical from
competitors. He gives the frequency of lead time demand over the last year as follows:
Under the circumstances, the MD decided that he would seek further advice on the
course of action to be taken by the company.
Required:
(a) The EOQ as originally determined by the company‟s managing director.
(b) Determine the optimum order quantity, taking into consideration the MD‟s
assumptions and after allowing for the purchasing manager‟s bonus and
supplier quantity discount.
(c) The safety stock the company should maintain after applying the finance director‟s
assumptions and assuming further that the supplier‟s contract requires
that the order quantity be constant for all the orders in a year.
(d) As a consultant, write a brief report to the managing director on the
company‟s stock ordering and stock holding policies, referring where necessary to
your answers in (a) to (c) above. The report should refer to other factors that should be
considered when making the final decisions on stock ordering and holding policies.
Date posted: May 7, 2021. Answers (1)
- Tony Kichumi, a financial analyst at Green City Bus Company Ltd. is examining the
behaviour of the company?s monthly transportation costs for budgeting purposes.
The transportation costs...(Solved)
Tony Kichumi, a financial analyst at Green City Bus Company Ltd. is examining the
behaviour of the company‟s monthly transportation costs for budgeting purposes.
The transportation costs are a sum of a two types of costs:
1) Operating costs, such as fuel and labour.
2) Maintenance costs, such as overhaul of engines and spraying.
Kichumi collects monthly data on items 1 and 2 above and the distance covered by the
buses. Monthly observations for the year ended 31 December 2004 were as follows:
Required:
(a) Evaluate the three linear regression equations using:
(i) Economic plausibility.
(ii) Goodness of fit
(iii) Significance of independent variables.
(iv) Specifications analysis criteria
(Use a 95% confidence level where applicable).
(b) List three variables, other than distance covered, that could be important drivers of
the company's operating costs.
(c) Suggest an alternative database that Kichumi could have used to examine the drivers
of the company‟s maintenance costs.
(d) Explain three limitations of the linear regression analysis used by the company.
Date posted: May 7, 2021. Answers (1)