ATD LEVEL III

FUNDAMENTALS OF MANAGEMENT ACCOUNTING

WEDNESDAY: 21 August 2024. Afternoon Paper. Time Allowed: 2 hours.

This paper consists of fifty (50) Multiple Choice Questions. Answer ALL questions by indicating the letter
(A, B, C or D) that represents the correct answer. Each question is allocated two (2) marks. Do NOT write anything on
this paper.

1. Agano Ltd. uses an overhead absorption rate of Sh.35 per machine hour based on 64,000 budgeted machine hours for
the period. During the same period, the actual total overhead expenditure amounted to Sh.1,088,750 and 60,000
machine hours were recorded as actual production. By how much was the total overhead under or over absorbed for
the period?
A. Sh.1,011,250 under absorbed
B. Sh.1,151,250 under absorbed
C. Sh.1,011,250 over absorbed
D. Sh.1,151,250 over absorbed (2 marks)

2. Which one of the following statements BEST describes a controllable cost?

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A. A specific cost of an activity or business which would be avoided if the activity or business did not exist

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B. A cost which arises from the decision already taken, which cannot, in the short run, be changed

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C. A cost which the behavior pattern can be easily analysed to facilitate valid budgetary control system

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D. A cost which can be influenced by its budget holder (2 marks)

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3. The management director of Annex Ltd., a manufacturing company has tasked the management accountant to

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coordinate the preparation of their functional budgets for the next financial year. The budgets were listed as follows:

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(1) Sales budget

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(2) Cash budget
(3) Material purchases budget
(4) Production budget
(5) Material usage budget

In what order should the above budgets be prepared?

A. (2), (3), (4), (5), (1)
B. (1), (5), (3), (4), (2)
C. (1), (4), (5), (3), (2)
D. (4), (5), (3), (1), (2) (2 marks)

4. An engineering firm operates a job costing system. Production overhead is absorbed at the rate of Sh.8.50 per
machine hour. In order to allow for non-production overhead costs and profit, a mark-up of 60 percent of prime cost
is added to the production cost when preparing price estimates.

The estimated requirements of job number 808 are as follows:

Direct materials Sh. 10,650
Direct labour Sh. 3,260
Machine hours 140
The estimated price notified to the customer for job number 808 will be_______________.
A. Sh.22,256
B. Sh.22,851
C. Sh.23,446
D. Sh.24,160 (2 marks)

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5. Kiwanja Ltd. has established a budgeted sales revenue amounting to Sh.5,000,000 with an associated contribution of
Sh.2,750,000. The fixed production costs amount to Sh.1,375,000 while fixed selling costs are Sh.275,000. Calculate
the break-even sales revenue.
A. Sh.756,250
B. Sh.907,500
C. Sh.2,500,000
D. Sh.3,000,000 (2 marks)

Use the information below to answer question 6, 7 and 8.

Mambo Enterprises produces three products; X, Y and Z which have the following details:

Product X Product Y Product Z

Per unit Per unit Per unit
Direct materials (at Sh. 5 per kg) 8 kgs 5 kgs 6 kgs
Contribution per unit Sh.35 Sh.25 Sh.48
Contribution per kg of material Sh.4.375 Sh.5 Sh.8
Demand in units (excluding special contract) 3,000 5,000 2,000

Mambo Enterprises must produce 1,000 units of product X for a special contract before meeting normal demand.
Unfortunately, there are only 35,000 kgs of materials available.

6. Calculate the total quantity of materials needed in (kgs) to meet all the demand.
A. 69,000 kgs
B. 61,000 kgs
C. 10,000 kgs
D. 35,000 kgs (2 marks)

7. Determine the order of priority in production considering that materials in kgs are in short supply.

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A. X, Z, Y

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B. Z, Y, X
C. Y, X, Z

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D. Z, X, Y (2 marks)

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8. What is the optimum production level (in units) based on the materials available that will give maximum profit if all

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conditions are fulfilled?

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Product X Product Y Product Z

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A. 1,000 4,600 2,000
B. 1,000 3,000 2,000
C. 2,875 - 2,000
D. 3,000 2,200 - (2 marks)

Use the following information to answer question 9 and 10.

A transport service company is running five buses between two towns which are 50 kilometres apart. The seating capacity of
each bus is 50 passengers. The following particulars were obtained from their books for the month of June 2024:

Wage of drivers, conductors and cleaners 480,000

Salaries of office staff 232,500
Diesel oil and other lubricants 700,000
Repairs and maintenance 160,000
Taxation and insurance 320,000
Depreciation 520,000
Interest and other expenses 400,000

During the month of June 2024, the passengers carried were 75% of seating capacity. All buses operated on all days of the
month. Each bus made one round trip per day.

9. What is the total passenger - kilometres?

A. 562,500
B. 750,000
C. 281,250
D. 775,000 (2 marks)
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10. What is the cost per passenger - kilometre?
A. Sh.3.70
B. Sh.9.90
C. Sh.5.00
D. Sh.2.50 (2 marks)

Use the following information to answer question 11 and 12.

A manufacturing enterprise uses process costing to value its output. The following information was recorded for the first week
of August 2024:
Input materials 20,000 unit at Sh.45 per unit
Conversion costs Sh. 133,400
Normal loss 5% of input valued at Sh.30 per unit
Actual loss 1,500 units
There was no opening inventories or closing inventories.

11. The abnormal loss/gain in units will be________________________________.

A. abnormal gain; 1,500 units
B. abnormal loss; 1,500 units
C. abnormal gain; 500 units
D. abnormal loss; 500 units (2 marks)

12. What is the valuation of one unit of output?

A. Sh.21.85
B. Sh.52.81
C. Sh.86.04
D. Sh.37.79 (2 marks)

Use the following information to answer question 13 and 14.

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Rahisi Ltd. makes plastic buckets. An analysis of their accounting records reveals the following:

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Variables cost per bucket Sh.200

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Fixed cost Sh.500,000 per year

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Capacity 2,000 buckets per year

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Selling price per bucket Sh.700

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13. What is the number of buckets to be sold in order to break-even?

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A. 2,000

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B. 3,200

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C. 1,600
D. 1,000 (2 marks)

14. The number of buckets to be sold to earn a profit of Sh.300,000 will be___________________________.
A. 2,000
B. 1,000
C. 1,600
D. 1,000 (2 marks)

15. Which one of the following differences between management accounting and financial accounting is FALSE?
A. Management accounting is for internal reporting while financial accounting is for external reporting
B. Management accounting is future oriented while financial accounting is historical
C. Management accounting is more detailed while financial accounting generates summarised reports
D. Management accounting reports are periodical while financial accounting reports are perpetual (2 marks)

16. Which one of the following classifications of cost is meant for distinction between direct cost and indirect costs?
A. By function
B. By nature of elements
C. By cost behavior
D. By controllability (2 marks)

17. Minimax Ltd. sells smart phones. The selling and distribution department of Minimax Ltd. is its __________.
A. profit centre
B. cost centre
C. revenue centre
D. investment centre (2 marks)
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18. The type of short-term decision making where capacity constraints exists is known as ___________.
A. make or buy decision
B. accept or reject decisions
C. break-even analysis
D. limiting factor analysis (2 marks)

19. Which one of the following methods of secondary apportionment is also referred to as “continuous” apportionment?
A. Step down method
B. Simultaneous method
C. Direct allocation method
D. Specified order method (2 marks)

Use the following information to answer questions 20 to question 22.

Spiro Ltd. makes superior vehicle leather seats. The management accountant of Spiro Ltd. intends to prepare a budgeted cost
statement. The following budgeted data is provided:
1. Budgeted output for the year is 24,500 units
2. Standard details for one unit of productions is as follows:
Direct materials 100 square metres at Sh.450 per square metre
Direct wages:
Fitting department 120 hours at Sh.150 per hour
Finishing department 80 hours at Sh.220 per hour
3. Budgeted overhead costs and hours per annum were as follows:

Variable overhead: Sh. Hours

Fitting department 2,000,000 25,000
Finishing department 1,440,000 12,000

Fixed overheads: Sh.

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Production overhead 196,000,000

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Selling and distribution overhead 122,500,000
Administration overhead 61,250,000

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4. Fixed overheads are absorbed based on budgeted output units.

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Calculate the following:

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20. Prime cost per unit.

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A. Sh.82,000
B. Sh.80,600
C. Sh.45,000
D. Sh.35,600 (2 marks)

21. Variable production cost per unit.

A. Sh.1,020
B. Sh.19,200
C. Sh.99,800
D. Sh.80,600 (2 marks)

22. Total cost per unit.

A. Sh.99,800
B. Sh.15,500
C. Sh.80,600
D. Sh.115,300 (2 marks)

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Use the following information to answer question 23 to question 26.
Masafa Enterprise is a sole motorcycle repair shop. The sole trader has decided to estimate the fixed and variable cost
components associated with the repair activity per day. The following data has been collected for the past six months:

Number of motorcycles repaired Total repair cost

Sh.
10 800
20 1,100
15 900
12 900
18 1,050
26 1,250

Using linear regression function in the form Y = a + bX:

23. What is the value of a?

A. Sh.27.84
B. Sh.531.39
C. Sh.25
D. Sh.920 (2 marks)

24. Estimate the value of b.

A. Sh.25
B. Sh.27.84
C. Sh.30
D. Sh. 31.39 (2 marks)

25. What is the value of ∑Y?

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A. Sh.6,000

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B. Sh.105,700
C. Sh.101,000

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D. Sh.1,869 (2 marks)

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26. What is the value of Y if 30 motorcycles were repaired?

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A. Sh.834.9

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B. Sh.1,670
C. Sh.1,366.59

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D. Sh.1,754.9 (2 marks)

27. Economic order quantity is that quantity at which cost of holding and ordering inventory is____________.
A. maximum and equal
B. minimum and equal
C. maximum and unequal
D. minimum and unequal (2 marks)

28. You are provided with the following information:

Opening inventory:
 August 1: 50 units @ Sh.40
Receipts:
 August 5: 100 units@ Sh.50
 August 12: 200 units@ Sh.45
Issues:
 August 2: 30 units
 August 18: 150 units

Calculate the value of the closing inventory using first in first out (FIFO) method of inventory valuation:
A. Sh.7,650
B. Sh.8,050
C. Sh.7,860
D. Sh.14,800

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29. Which one of the following is an assumption of break-even analysis?
A. All costs are classified as fixed costs
B. The selling price per unit varies with level of output
C. At break-even point, the profit is maximised
D. A single product or a single salesmix (2 marks)

Use the following information to answer question 30 and 31.

Promo Products Ltd. is in the process of preparing its master budget. Promo Products Ltd. expects to have 10,000 units in
inventory as at 31 December 2024. The company has a policy of carrying 60% of the following month’s projected sales in
inventory. The following is the budgeted data for the year 2025:

January 2025 February 2025

Budgeted sales (units) 24,000 20,000
Sales price per unit Sh.750 Sh.950
Direct labour hours per unit 4 hours 5.5 hours
Direct labour hourly rate Sh.110 Sh.120
Direct material cost per unit Sh.150 Sh.150

For the month of January 2025:

30. Determine the production budget in units.

A. 24,000 units
B. 20,000 units
C. 26,000 units
D. 22,000 units (2 marks)

31. Determine the direct labour cost budget in shillings.

A. Sh.11,440,000

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B. Sh.140,000

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C. Sh.9,680,000
D. Sh.10,560,00 (2 marks)

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32. Factory overhead includes___________________________.

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A. all manufacturing costs

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B. all manufacturing costs except direct materials and direct labour

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C. indirect materials but not indirect labour
D. indirect labour but not indirect materials (2 marks)

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In order to identify costs that relate to specific product, an allocation base should be chosen that_________.
A. does not have cause and effect relationship
B. has a cause and effect relationship
C. considers variable costs and but not fixed costs
D. considers direct materials and direct labour but not factory overheads (2 marks)

34. In the absence of more realistic information, supervision overheads should be split up according
to_____________________.
A. Floor area occupied
B. The number of employees
C. Replacement value of plant and equipment
D. The number of kilowatt hours (2 marks)

35. A company has under absorbed fixed production overhead for the period by Sh.630,000. The fixed production
overhead absorption rate was Sh.490 per unit and is based on the normal level of activity of 35,000 units. Actual
production was 38,500 units. What was the actual fixed production overhead incurred?
A. Sh.16,520,000
B. Sh.18,235,000
C. Sh.17,780,000
D. Sh.19,495,000 (2 marks)

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36. The following information relates to a company’s cutting process for the month of July 2024:
Output to finished goods inventory 16,224 units valued at Sh.2,676,960
Normal loss. 828 units
Actual loss. 336 units
All losses have a scrap value of Sh.75 per unit and there was no opening or closing work in progress.
Compute the value of input during the period.
A. Sh.2,595,780
B. Sh.2,657,880
C. Sh.2,676,960
D. Sh.2,739,060 (2 marks)

37. Brown Ltd. uses standard absorption costing to value inventory. Its fixed overhead absorption rate is Sh.240 per
labour hour and each unit of production takes 4 hours. In a recent period where there was no opening inventory of
finished goods, 40,000 units were produced using 100,000 labour hours and 36,000 units were sold. The actual profit
was Sh.9,280,000.
Determine the amount of profit that would have been earned under a standard marginal costing system.
A. Sh.5,440,000
B. Sh.8,320,000
C. Sh.6,880,000
D. Sh.13,120,000 (2 marks)

38. One of the fundamental principles of ethical behavior that should be observed by a management accountant is
‘integrity’. Which one of the following statements BEST describes integrity in the context of management
accounting?
A. Maintaining the skills required to ensure a competent professional service
B. Compliance with relevant laws and regulations
C. Being straightforward and honest when dealing with clients or employing organisation
D. Not being biased or prejudiced (2 marks)

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39. The following graph represents the economic order quantity model:
Cost

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(sh.)

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Which point on the graph indicates the value of the Economic Order Quantity (E.O.Q)?
A. 0
B. D
C. B
D. C (2 marks)

40. Budgeted costs and revenues for an output level of 20,000 units are provided below:
Sh.Per unit
Selling price 1,500
Variable cost 900
Fixed cost 200
Profit 400

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 It is known that after an output level of 25,000 units, there is a step-up in fixed cost of Sh.50,000. What is the flexed
budget profit at an output level of 30,000 units?
A. Sh.11,950,000
B. Sh.12,000,000
C. Sh.13,950,000
D. Sh.14,000,000 (2 marks)

41. A sales man is paid a fixed monthly salary of Sh.45,000 plus an extra 2% commission of the monthly sales value.
How would this type of cost be classified?
A. Stepped labour cost
B. Fixed selling cost
C. Semi-variable labour cost
D. Variable distribution cost (2 marks)

42. The purchase price of an item of inventory is Sh.4, 400 per unit. In each six-month period, the usage of the item is
200,000 units. The annual holding cost associated with one unit equates to 3% of the purchase price. The cost of
placing an order for the item is Sh.600. What is the Economic Order Quantity (E.O.Q) for the inventory item to the
nearest whole number?
A. 1,348
B. 1,907
C. 3,303
D. 20,010 (2 marks)

43. Tim Company has two processes namely; cutting and finishing. There is an expected loss of 5% of input in cutting
process and 7% of input in finishing process. Activities during the month of June 2024 were as follows:
Cutting Finishing
Material input (kgs) 60,000 84,000
Output (kgs) 55,500 78,300

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For each process, is there an abnormal loss or gain?
Cutting Finishing

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A. Abnormal gain Abnormal gain

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B. Abnormal loss Abnormal gain

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C. Abnormal gain Abnormal loss

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D. Abnormal loss Abnormal loss

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(2 marks)

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44. The following data relates to work undertaken in the finishing department of a certain factory in your country:
Normal working day 7 hours
Basic rate of pay per hour Sh.1200
Standard time allowed to produce one unit 4 minutes
Premium bonus payable at the basic rate 70% of time saved

On a particular day, an employee finished 180 units. What was his gross pay for the day?
A. Sh.8,400
B. Sh.12,600
C. Sh.4,200
D. Sh.14,400 (2 marks)

45. Which one of the following statements about predetermined overhead absorption rates is TRUE?
A. Using predetermined overhead absorption rate offers the administrative convenience of recording
production cost sooner
B. Using a predetermined overhead absorption rate avoids problems of under or over absorption of overheads
because the overhead rate is constant
C. Using predetermined overhead absorption rate avoids the problems associated with choosing an appropriate
absorption base
D. Predetermined overhead absorption rates are more difficult to use in product costing as compared to actual
rates (2 marks)

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46. Which one of the following statements is TRUE about marginal and absorption costing profit in a period when sales
in units are greater than production units?
A. Marginal costing profit will be less than absorption costing profit
B. Marginal costing profit will be greater than absorption costing profit
C. Both marginal and absorption costing profits will be the same
D. There will be over absorption of overheads under absorption costing (2 marks)

47. Which one of the following cost categories is NOT a functional cost classification?
A. Administrative cost
B. Production cost
C. Direct cost
D. Selling cost (2 marks)

48. Sabuni Ltd. manufactures liquid soap for the local market. Which of the following costing methods is most likely to
be used by Sabuni Ltd.?
A. Batch costing
B. Job costing
C. Process costing
D. Service costing (2 marks)

49. A manufacturing organisation’s records shows that the cost of manufacturing batches of products in the last five
accounting periods has been as follows:

Period Number of batches Total cost “Sh.000”

1 1,300 34,250
2 1,880 35,600
3 2,520 37,300
4 1,980 35,960

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5 2,300 36,720

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Using high-low method and ignoring inflation, what is the estimated cost in period 6 if production is estimated to be

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1,700 batches?

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A. Sh.35,030,000

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B. Sh.35,140,000

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C. Sh.35,250,000

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D. Sh.35,360,000 (2 marks)

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50. Which of the following is the MAIN purpose for cost estimation?
A. Cost reduction
B. Cost prediction
C. Cost classification
D. Cost accumulation (2 marks)

……………………………………..……………………………………

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 ATD LEVEL III

FUNDAMENTALS OF MANAGEMENT ACCOUNTING

WEDNESDAY: 24 April 2024. Afternoon Paper. Time Allowed: 2 hours.

This paper is made up of fifty (50) Multiple Choice Questions. Answer ALL questions by indicating the letter
(A, B, C or D) that represents the correct answer. Each question is allocated two (2) marks. Do NOT write anything
on this paper.

1. Which one of the following statements describe margin of safety?

A. The total sales units up to the break-even sales volume
B. The difference in units between the expected sales volume and the break-even sales volume
C. The difference between the total cost and the fixed costs at break-even sales volume
D. The difference between fixed cost and variable cost at breakeven point (2 marks)

2. Which of the following elements is UNLIKELY to be found in a budget manual?

A. Selling overhead budget
B. Objectives of the budgetary process

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C. Administrative details of budget preparation

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D. Organisational structure (2 marks)

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Use the information below to answer question 3 to question 5.

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Tundra Ltd. uses job-order costing system. The company has two departments through which most jobs go through.
Selected budgeted and actual data for the year ended 31 December 2023 is as follows:

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Cost Centre Mixing Blending

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Budgeted overhead Sh.1,000,000 Sh.5,000,000

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Actual overhead Sh.1,100,000 Sh.5,200,000
Budgeted direct labour hours 50,000 hours 10,000 hours
Budgeted machine hours 10,000 hours 50,000 hours
Actual direct labour hours 51,000 hours 9,000 hours
Actual machine hours 10,500 hours 52,000 hours

During the year, several jobs were completed. Data pertaining to job number JFC is as follows:
Sh.
Direct materials 2,000,000
Direct labour cost:
Mixing cost centre (5,000 hours at Sh.600 per hour) 3,000,000
Blending cost centre (1,000 hours at Sh.600 per hour) 600,000
Machine hours used:
Mixing cost centre
Blending cost centre 100
1,200
Units produced
10,000
3. Determine the overhead absorption rate (OAR) of mixing department using direct labour hours basis.
A. Sh.0.5
B. Sh.22
C. Sh.20
D. Sh.2 (2 marks)

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 4. Determine the overhead absorption rate (OAR) of blending department using machine hour basis.
A. Sh.500
B. Sh.100
C. Sh.520
D. Sh.200 (2 marks)

5. Compute the overhead over/(under) absorbed for mixing department.

A. Sh.100,000 over-absorbed
B. Sh.80,000 over-absorbed
C. Sh.80,000 under-absorbed
D. Sh.100,000 under-absorbed (2 marks)

6. A management consultancy recovers overheads on chargeable consulting hours. Budgeted overheads were
Sh.2,460,000 and actual consulting hours were 32,150. Overheads were under-recovered by Sh.140,000. If the
actual overheads were Sh.2,776,300, compute the budgeted overhead absorption rate per hour.
A. Sh.76.52
B. Sh.82.00
C. Sh.86.35
D. Sh.90.71 (2 marks)

7. Which one of the following statements define cost classification?

A. The use by several companies of the same costing method
B. The sum of all cost incurred
C. The allotment of items of cost to cost centers
D. The grouping of costs according to their common characteristics (2 marks)

8. Digo Ltd. uses batch costing and has an order of 900 units which will be made in a single batch, batch number

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68B. The following information is available for batch number 68B.

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Direct materials Sh. 60,000

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Direct labour 450 hours at Sh.80 per hour

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Digo Ltd.’s budgeted fixed overhead costs for the year 2024 amount to Sh.1,200,000 based on 60,000 labour

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hours. Overhead is absorbed based on labour hours. Determine the cost per unit of the product.

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A. Sh.116.67
B. Sh.109.46

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C. Sh.103.71
D. Sh.129.63 (2 marks)

9. An organisation has four types of cost identified as W, X, Y and Z. The total cost for each type of two different
production levels have been analysed by the cost accountant as follows:
Cost type Total cost for 250,000 units (Sh.) Total cost for 360,000 units (Sh.)
W 12,500,000 18,000,000
X 18,750,000 24,800,000
Y 11,250,000 16,200,000
Z 14,250,000 20,520,000
Which cost type would be classified as semi-variable?
A. X
B. Z
C. W
D. Y (2 marks)

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10. A company manufactures a single product whose unit cost is as follows:
Cost per unit (Sh.)
Variable production cost 295
Fixed production cost 162
Variable selling cost 48
Fixed selling cost 107

400,000 units of the product were manufactured in a period, during which 394,000 units were sold. There was no
inventory of the product at the beginning of the period.
Using marginal costing, what is the total value of the finished goods inventory at the end of the period?
A. Sh.2,742,000
B. Sh.2,058,000
C. Sh.1,770,000
D. Sh.3,672,000 (2 marks)

11. Which one of the following statements is a feature of job costing?

A. It is associated with continuous production of large volumes of low-cost items
B. Production is carried out in accordance with the wishes of the customer
C. It takes a longer period (more than one accounting year)
D. It establishes the cost of the services rendered (2 marks)

Use the information below to answer question 12 to question 15.

Lengo Ltd. makes three products; X – 6,000 units, Y – 4,000 units and Z – 2,000 units.
The cost per unit and selling price of each product is as follows:

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Product X Y Z

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Sh. Sh. Sh.

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Raw material 3 4 5

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Direct wages 3 5 4

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Variable overhead 5 5 7

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Fixed cost 5 5 7
Total cost 15 17 18

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Selling Price 20 25 22

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12. Calculate the contribution per unit of each product.
A. X: Sh.5 Y: Sh.8 Z: Sh.4
B. X: Sh.35 Y: Sh.42 Z: Sh.40
C. X: Sh.10 Y: Sh.13 Z: Sh.11
D. X: Sh.10 Y: Sh.12 Z: Sh.11 (2 marks)

13. Calculate the total net profit of each product.

A. X: Sh.30,000 Y: Sh.32,000 Z: Sh.8,000
B. X: Sh.210,000 Y: Sh.168,000 Z: Sh.80,000
C. X: Sh.66,000 Y: Sh.52,000 Z: Sh.22,000
D. X: Sh.54,000 Y: Sh.48,000 Z: Sh.22,000 (2 marks)

14. Which of the above products should be discontinued based on profitability?

A. X
B. Y
C. Z
D. None (2 marks)

15. Determine the break-even point in units of product X.

A. 6,000 units
B. 36,000 units
C. 3,000 units
D. 2,400 units (2 marks)

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Use the information below to answer question 16 to question 18.

Jomvu Factory incurred the following types of cost which were classified according to cost behaviour.
Sh. “000”
Direct materials l90,000
Direct labour 150,000
Electricity (variable cost Sh.35,000,000) 60,000
Rent (fixed) 80,000
Transport (1/3 variable) 45,000
Warehouse (variable) 20,000
Depreciation 10,000

The total number of kilograms produced was 20,000 kilograms.

16. Compute the total fixed costs.

A. Sh.145,000,000
B. Sh.310,000,000
C. Sh.350,000,000
D. Sh.135,000,000 (2 marks)

17. Calculate the variable cost per kilogram.

A. Sh.75,000
B. Sh.15,500
C. Sh.7,250
D. Sh.17,500 (2 marks)

18. Using cost estimation equation in the form Y = a + bx, estimate the total cost if 10,000 kilograms were produced.

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A. Sh.160,500,000

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B. Sh.300,000,000
C. Sh.310,000,000

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D. Sh.455,000,000 (2 marks)

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19. Which one of the following is NOT an inventory cost?

eb
A. Carrying cost

sn
B. Out of pocket cost
C. Set-up costs

Ka
D. Sunk cost (2 marks)

20. Which one of the following is an advantage of centralised material purchasing and storage?
A. Close control is possible on inventory
B. Less risk of duplication
C. Stock taking is easier
D. Better understanding of local knowledge of suppliers (2 marks)

Use the following information to answer question 21 to question 23.

Victoria Garments Ltd. makes ladies wedding gowns. The company outsources the fabric material from Golden Cotton
Factory. The following data is provided:

• Annual demand 22,500 metres

• The cost of placing an order Sh.200,000
• The purchase price of the raw material Sh.5,000 per metre
• The re-order period 3 to 5 weeks
• Minimum consumption per week 100 metres
• Maximum consumption per week 800 metres
• Average consumption per week 450 metres
• The carrying cost of inventory is 20% of the purchase price per unit per annum
Assume 50 weeks in a year

AD32 Page 4
Out of 10
21. What is the optimal economic order quantity (EOQ) in metres?
A. 800
B. 5,000
C. 3,000
D. 450 (2 marks)

22. What is the re-order level in metres?

A. 3,000
B. 4,000
C. 2,250
D. 22,500 (2 marks)

23. Calculate the maximum inventory level in metres.

A. 5,650
B. 7,000
C. 800
D. 6,700 (2 marks)

Use the following information to answer question 24 to question 26.

Marsha Hospital is in the process of estimating its inpatient cost for the month of May 2024. Past data for the Admitting
Department’s costs and the number of patients admitted during the immediately preceding eight months are given in the
following table:
Month Number of patients admitted Inpatient cost
Sh.“000”
September 2023 1,150 7,150

e
October 2023 1,400 7,950

.k
November 2023 1,280 8,350

co
December 2023 1,250 7,425

s.
January 2024 890 5,730

te
February 2024 900 5,800

no
March 2024 700 5,150

eb
April 2024 1,060 5,450

sn
Ka
Using High-Low method:

24. Calculate the inpatient variable cost per patient.

A. Sh.4
B. Sh.40
C. Sh.400
D. Sh.4,000 (2 marks)

25. Estimate the fixed inpatient cost per month.

A. Sh.2,350,000
B. Sh.235,000
C. Sh.23,500
D. Sh.2,350 (2 marks)

26. Estimate the total inpatient cost of admitting 1,010 patients in May 2024.
A. Sh.4,040,000
B. Sh.9,200,000
C. Sh.2,350,000
D. Sh.6,390,000 (2 marks)

27. Which of the following managers is responsible for revenues and expenses?
A. Investment centre manager
B. Profit centre manager
C. Cost centre manager
D. Revenue centre manager (2 marks)

AD32 Page 5
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28. The type of process loss that arises due to difference between “expected output” and “actual output” is known as
___________________.
A. Normal loss
B. Actual loss
C. Standard loss
D. Abnormal loss (2 marks)

29. Which of the following costs is NOT CORRECTLY classified to its type of cost?
Type of cost Example of cost
A. Cost behaviour Direct material
B. Nature classification Historical cost
C. Decision making Opportunity cost
D. Inventory cost Holding cost (2 marks)

Use the following information to answer question 30 and question 31.

Amani Ltd. sells tinned fish at a selling price of Sh.750 per tin. The sales budget for the first four months of the year 2024
is presented below:

Units sold Sales budget

Sh.
January 200,000 150,000,000
February 240,000 180,000,000
March 220,000 165,000,000
200,000 150,000,000
April

e
.k
The company policy requires that ending inventories for each month be 35% of next month’s sales. At the beginning of

co
January 2024, the inventory of tinned fish amounted to 38,000 tins.

s.
30. Which one of the following shows the production budget in units for the month of January 2024?

te
A. 200,000

no
B. 284,000

eb
C. 246,000

sn
D. 154,000 (2 marks)

Ka
31. Which one of the following shows the production budget in units for February 2024?
A. 240,000
B. 277,000
C. 233,000
D. 247,000 (2 marks)

32. The process of distributing common overhead costs to cost centres on the basis of benefit received is called
overhead ________________.
A. Accumulation
B. Absorption
C. Apportionment
D. Allocation (2 marks)

33. Maria Mueni is employed as a chief chef at Mlo Cafeteria. Maria earns Sh.150 per hour up to 400 units of
production per day. If she produces more than 400 units per day, she will receive additional piece-rate of Sh.25 per
unit. In the last week of March 2024, she worked the following hours and produced the following units:

Day Hours worked Units produced

Monday 8 400
Tuesday 8 380
Wednesday 8 440
Thursday 8 450
Friday 8 360

AD32 Page 6
Out of 10
 Calculate the total earnings received by Maria Mueni at the end of the week.
A. Sh.6,000
B. Sh.2,250
C. Sh.20,000
D. Sh.8,250 (2 marks)

34. The term labour turnover as used in labour costing refers to _______________.
A. Total sales in labour costing
B. Rate at which employees join or leave employment
C. The total labour cost per revenue received
D. The rate of promoting employees from low level to high level (2 marks)

35. In which of the following methods of material pricing and issues do costs lag behind the current economic values?
A. Weighted average price method
B. Replacement price method
C. First in first out price method
D. Last in first out price method (2 marks)

36. Which one of the following is NOT a salient feature of process costing?
A. The output of preceding process is the input of the succeeding process
B. The goods produced per process are in uniform batches
C. The goods produced per process are homogeneous
D. Normal loss is calculated as a percentage of input material of each process (2 marks)

37. A company has the following budget for the next month:

Finished product:
Sales units 7,000 units

e
.k
Production units 7,200 units

co
Materials:

s.
Usage per unit 3 kgs

te
Opening stock 400 kgs

no
Closing stock 500 kgs

eb
What is the material purchases budget for the month?

sn
A. 20,900 kgs
B. 21,100 kgs

Ka
C. 21,500 kgs
D. 21,700 kgs (2 marks)

38. Which one of the following statements is NOT a major assumption of break-even analysis?
A. Production level is equal to sales level
B. Sales prices vary in line with levels of activity
C. Fixed costs are the same in total and unit variable costs are the same at all levels of output
D. It can only apply to one product or a constant sales mix (2 marks)

39. Which of the following statements about management accounts is/are true?
(i) The format of management accounts is largely determined by law
(ii) Management accounting serves as a future planning tool and are not used as a historical record
(iii) There is a legal requirement to prepare management accounts
(iv) Management accounts are used internally by the managers in planning, control and decision making

A. (i) and (iii)

B. (ii) and (iii)
C. (iv) only
D. (ii) and (iv) (2 marks)

AD32 Page 7
Out of 10
40. Which one of the following costs could NOT be classified as a production overhead cost in a food processing
company?
A. The salary of the factory manager
B. The cost of factory rent
C. Depreciation of cooking equipment
D. The cost of ingredients (2 marks)

41. Which one of the following statements is FALSE?

A. Management accounting cannot substitute financial accounting
B. Financial accounting information can be used for internal reporting purpose
C. Cost accounting can only be used to provide inventory valuations for internal reporting
D. Management accounting provides information relevant to decision making, planning, control and
evaluation of performance (2 marks)

42. Which one of the following statements BEST describe a flexible budget?
A. A monthly budget which is changed to reflect the number of days in the month
B. A budget which shows variable production costs only
C. A budget that is updated halfway through the year to incorporate the actual results for the first half of the
year
D. A budget which shows sales revenues and costs at different levels of activity (2 marks)

43. Which of the following costing methods would be most suitable for an accounting firm?
A. Batch costing and uniform costing
B. Job costing and service costing
C. Process costing and service costing
D. Job costing and batch costing (2 marks)

e
44. The branch of accounting that is concerned with providing special purpose reports within the organisation for the

.k
top management to make informed decision is called ________________.

co
A. Management accounting

s.
B. Cost accounting

te
C. Financial accounting

no
D. Forensic accounting (2 marks)

eb
45. Fixed costs are conventionally deemed to be__________________________.

sn
A. Irrelevant costs

Ka
B. Variable in the short-run
C. Constant per unit of output
D. Outside the control of management (2 marks)

46. Which of the following statements is NOT an argument in favour of marginal costing?
A. It is simple to operate
B. Closing inventory is valued in accordance with International Accounting Standard (IAS 2)
C. There is no under or over absorption of overheads
D. The information from this costing method can be used in decision making (2 marks)

47. In make or buy decision, it is profitable to buy from outside only when the supplier’s price is below the firm’s own
__________________.
A. Fixed cost
B. Variable cost
C. Total cost
D. Prime cost (2 marks)

48. Which one of the following statements is NOT an assumption of cost- volume- profit (CVP) analysis?
A. Total cost and total revenue are linear functions of output
B. The cost behaviour applies to a relevant range only
C. All costs are classified into variable and fixed costs
D. The company produces more than one product (2 marks)

AD32 Page 8
Out of 10
49. Under marginal costing principles, the opening inventory, production units and closing inventory are valued
at_____________.
A. Full cost per unit
B. Variable production cost per unit only
C. Variable production and variable selling cost per unit
D. Fixed cost only (2 marks)

50. Which one of the following statements CORRECTLY describe a direct cost?
A. A cost that cannot be clearly associated with specific activities or products
B. A cost that can be clearly associated with specific activities or products
C. A cost that is past and should not be considered for future decisions
D. A cost that will change as a result of a decision under consideration (2 marks)

……………………………………..……………………………………

e
.k
co
s.
te
no
eb
sn
Ka

AD32 Page 9
Out of 10
 ATD LEVEL III

FUNDAMENTALS OF MANAGEMENT ACCOUNTING

MONDAY: 4 December 2023. Afternoon Paper. Time Allowed: 3 hours

Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your
workings. Do NOT write anything on this paper.

QUESTION ONE
(a) Highlight FOUR arguments against introduction of a management accounting system in a business organisation.
(4 marks)

(b) Sauti Electronics is a popular car radio retailer. The following information was obtained from one of its outlets:

Average sales 750 units per day

Maximum sales 950 units per day
Minimum sales 500 units per day
Lead time 12 - 18 days

e
Re-order quantity 17,500 units

.k
co
Required:

s.
Determine the following:

te
no
(i) The level of stock that a replenishment order will be required. (2 marks)

eb
(ii) The minimum level of stock possible. (2 marks)

sn
Ka
(iii) The maximum level of stock possible. (2 marks)

(iv) The average level of stock. (2 marks)

(c) Rolly Motors Ltd. is a manufacturer of quality trucks which they sell at Sh.3,500,000 each. The cost of the company
can be separated into fixed and variable costs.

The following is a budgeted data for the first six months of the year 2024:

Months Sales (Trucks) Costs (Sh.)

January 9 23,500,000
February 10 25,000,000
March 15 32,500,000
April 11 26,500,000
May 12 28,000,000
June 8 22,000,000

Fixed costs for the six months have been spread evenly over the period under review to arrive at the monthly
projections.

Required:
(i) Calculate the total fixed costs for the period using high-low method. (4 marks)
(ii) Determine break-even-point (BEP) in units and sales revenue. (4 marks)
(Total: 20 marks)
AD32 Page 1
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QUESTION TWO
(a) Chanzo Ltd. operates a factory which has four operators working in department RPM400. The company uses time-
rate system of labour remuneration to compensate its workers.

The data about the four employees for the month of November 2023 is as follows:

Employee Name PIN No. Basic salary Salary advance Loan repayment
Sh. Sh. Sh.
Angel Chebet A08522F 50,000 6,000 10,000
Bob Munene A086538K 45,000 5,000 12,000
Chris Lemayan A106587J 30,000 0 0
Diana Nina A258850H 48,000 9,000 15,000

Additional information:
1. Affordable housing levy (AHL) tax of 1.5% is charged on gross income per month.
2. NSSF is deducted at a rate of 5% of the gross income
3. NHIF is deducted at a rate of 3% of the basic pay.
4. PAYE is charged at a rate of 30% of gross income.
5. Housing allowance is provided at a rate of 15% of the basic pay.
6. Gross income is the total of basic pay plus house allowance but before any deductions.

Required:
Prepare a payroll to show the take-home net pay for the month of November 2023 for the four operators. (8 marks)

(b) Dodoma Ltd. has submitted the following data relating to component “T” that it currently manufactures:

Total cost of making 10,000 units of component “T”

e
Sh.

.k
Direct material 100,000

co
Direct labour 80,000

s.
Indirect labour 40,000

te
Depreciation 60,000

no
Repairs and maintenance 50,000
Total cost 330,000

eb
sn
Additional information:

Ka
1. The Management Accountant of Dodoma Ltd. analysed each item of the expense according to cost
behaviour pattern into variable and fixed elements. The analysis is as follows:

Unit variable cost Total fixed cost

Sh. Sh.
Direct material 10
Direct labour 8
Indirect labour 40,000
Depreciation 60,000
Repairs and maintenance 2.50 25,000
Total cost 20.50 125,000

2. Dodoma Ltd. has determined that Sh.30,000 of fixed indirect labour cost is an unavoidable cost even if
component “T” is outsourced.
3. RVD Ltd. has offered to supply 10,000 units of component “T” to Dodoma Ltd. for Sh.16 per unit.
4. All variables costs are avoidable costs if component “T” is bought from RVD Ltd.

Required:
(i) Advise Dodoma Ltd. whether to make or buy component “T” from RVD Ltd. (8 marks)

(ii) Summarise FOUR overriding considerations to be met before accepting “make” or “buy” decision.
(4 marks)
(Total: 20 marks)

AD32 Page 2
Out of 4
QUESTION THREE
(a) Explain FOUR features of service costing. (8 marks)

(b) The following information relates to the books of Digital Watches Ltd. that produced watches in batches during the
three months of September, October and November 2023:

Month Batch output (Units) Material cost (Sh.) Labour cost (Sh.)
September 2023 2,500 937,500 250,000
October 2023 3,000 1,275,000 300,000
November 2023 2,000 750,000 200,000

Additional information:
1. Each watch retails at Sh.1,500.
2. Labour is paid at a rate of Sh.200 per hour.
3. Overheads are charged at a rate per labour hour.
4. Budgeted overheads and labour hours were as follows:

Month Overheads (Sh.) Total labour hours

September 2023 1,200,000 4,000
October 2023 900,000 4,500
November 2023 1,500,000 5,000

Required:
(i) Total profit per batch for each month. (6 marks)

(ii) Cost per watch. (3 marks)

e
(iii) Profit per watch. (3 marks)

.k
(Total: 20 marks)

co
s.
QUESTION FOUR

te
(a) Identify SIX types of costs classified by function. (6 marks)

no
eb
(b) Dawa Ltd. is a pharmaceutical company which manufactures antibiotic drugs. Dawa Ltd. has two production
departments namely; factory plant and assembly department. The company has also two service departments

sn
namely; laboratory that deals with efficacy and chemist that is concerned with stocking of the drugs.

Ka
The overhead analysis sheet showing primary allocation of overheads analysed to production and service
departments are as follows:

Production departments Service departments

Factory plant Assembly Laboratory Chemist
Sh. Sh. Sh. Sh.
Indirect labour 1,080,000 2,500,000 1,500,000 1,000,000
Indirect material 300,000 720,000 200,000 200,000
Lighting and heating 350,000 550,000 200,000 100,000
Property taxes 280,000 470,000 300,000 200,000
Salary to factory manager 380,000 670,000 400,000 300,000
Total overheads 2,390,000 4,910,000 2,600,000 1,800,000

Additional information:
1. Budgeted direct labour hours were 23,780 hours for factory plant department and 15,050 hours for assembly
department.
2. The budgeted direct labour rate per hour is Sh.300 in factory plant department and Sh.510 in the assembly
department.

AD32 Page 3
Out of 4
 3. The total overheads of the service departments are to be apportioned to production departments as follows:
Laboratory: 50% to Factory plant department
30% to Assembly department
20% to Chemistry department
Chemist: 60% to Factory plant department
30% to Assembly department
10% to Laboratory department

Required:
(i) Secondary apportionment of service department total overheads using stepwise method. (8 marks)
(ii) Compute the overhead absorption rate (OAR) for each production department. (2 marks)

(iii) A special order of antibiotics capsules has been received from a customer. The management accountant
has estimated the costs as follows:

Direct material Sh. 225,000

Direct labour: Factory plant 300 direct labour hours

Assembly 160 direct labour hours
Required:
Calculate the total cost of the special order. (4 marks)
(Total: 20 marks)

QUESTION FIVE
(a) Describe the following types of functional budgets:

e
(i) Sales budget. (2 marks)

.k
(ii) Production budget. (2 marks)

co
s.
(iii) Material purchases budget. (2 marks)

te
(iv) Cash budget. (2 marks)

no
eb
(b) Summarise FOUR applications of marginal costing. (4 marks)

sn
(c) AMA Ltd. is a company that concentrates wholly on the production of refined vegetable oils for exports and domestic

Ka
markets. In the year ended 31 August 2023, the company produced 100,000 tonnes of oil out of which 90,000 tonnes
were sold.

The balance was returned to store. The production cost was as follows:

Sh.“000”
Direct materials 3,200,000
Direct labour 1,480,000
Production overheads 800,000
5,480,000

Additional information:
1. 60% of the production overheads are fixed.
2. The average selling price for each tonne of oil was Sh.80,000.
3. Selling and administration expenses for the year amounted to Sh.1,200,000,000 of which Sh.300,000,000
were fixed.
4. There was no opening or closing stock of work-in-progress.

Required:
(i) Statement of profit or loss for the year ended 31 August 2023 under direct costing method. (6 marks)

(ii) Minimum number of tonnes of oil that must be produced and sold in order to breakeven. (2 marks)
(Total: 20 marks)
……………………………………………….……………………………………

AD32 Page 4
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 ATD LEVEL III

FUNDAMENTALS OF MANAGEMENT ACCOUNTING

MONDAY: 21 August 2023. Afternoon Paper. Time Allowed: 3 hours

Answer ALL questions. Marks Allocated to each question are shown at the end of the question. Show ALL your
workings. Do not write anything on this paper.

QUESTION ONE
(a) List FOUR examples of costs that are relevant for decision making process. (4 marks)

(b) A product is manufactured by passing it through three processes namely: Process I, II and III respectively. For the
first week of July 2023, the actual data included the following:

Process Process I Process II Process III

Normal loss of output 5% 10% 5%
Scrap value per unit (Sh.) 1.50 2.00 4.00
Output (units) 5,760 5,100 4,880

e
.k
co
Direct costs: Sh.“000” Sh.“000” Sh.“000”
Direct material (6,000 units) 12,000 - -

s.
Direct material added in process 5,000 9,000 4,220

te
Direct labour 4,000 6,000 2,200

no
Direct expenses 1,000 1,800 2,411

eb
sn
Additional information:
1. Budgeted production overhead for the week is Sh.30,500,000 and are absorbed based on direct labour cost.

Ka
2. Budgeted direct wages for the week amounted to Sh.12,200,000.

Required:
(i) Process I account. (5 marks)

(ii) Process II account. (5 marks)

(iii) Process III account. (6 marks)

(Total: 20 marks)

QUESTION TWO
(a) Rindo Ltd. is considering the type of remuneration scheme to adopt for its employees. The following information
is availed to you for your analysis:

Employees A B C
Actual hours worked 38 36 40
Hourly rate of pay (Sh.) 200 150 230

Output (units) : Product X 50 150 -

Y 80 80 80
Z 100 - 80

AD32 Page 1
Out of 4
 Additional information:
1. The standard time allowed per unit is 10 minutes for product X, 20 minutes for product Y and 30 minutes
for product Z respectively.
2. For the calculation of piece-rates system, the company values each minute at the rate of Sh.8.

Required:
Calculate the earnings for each employee using:

(i) Basic guaranteed time rates. (3 marks)

(ii) Piecework rates. (6 marks)

(b) The following information has been extracted from the books of Delta Ltd. for the year to 31 July 2023:
Production 30,000 units
Sales 24,000 units
Production cost incurred: Sh.‘000’
Direct materials 7,200
Direct labour 1,800
Variable overheads 1,500
Fixed overheads 2,700
Selling and administrations costs:
Salaries of sales staff 450
Variable sales commission 300
Promotion and advertising 480
Administration costs 720
The company’s unit selling price is Sh. 550.

e
.k
Required:

co
Prepare statement of profit or loss using the following costing techniques:

s.
te
(i) Marginal costing. (5 marks)

no
(ii) Absorption costing. (6 marks)

eb
(Total: 20 marks)

sn
Ka
QUESTION THREE
(a) Describe FOUR distinguishing features between “financial accounting” and “management accounting”. (4 marks)

(a) Mwangaza Factory Ltd. manufactures fluorescent bulbs. The factory has taken a sample of eight employees from
its production department for quality assurance.
The following data relate to the number of weeks of experience in the wiring of components and the number of
components which were rejected as unsatisfactory last year:
Employee A B C D E F G H
Weeks of experience (X) 4 5 7 9 10 11 12 14
Number of rejects (Y) 21 22 15 18 14 14 11 13

Additional information:
ΣX = 72
ΣY = 128
ΣXY = 1,069
ΣX2 = 732
Required:
(i) The least squares regression equation of rejects on experience in the form of Y = a + bx. (4 marks)

(ii) Predict the number of rejects you would expect from employee K with one week of experience. (2 marks)

(iii) If each rejected unit costs the factory Sh.55, compute the total rejection cost of employee K with one week
of experience. (2 marks)

AD32 Page 2
Out of 4
(c) Fashion Dressmakers Ltd. makes ladies dresses using job costing method. Two jobs namely “ABC” and “XYZ” use
predetermined overhead rates to apply manufacturing overhead to production departments. Job ABC is based on
machine hours while job XYZ is based on percentage of materials cost.

Budgeted production and cost data for the two jobs are as follows:

Job ABC Job XYZ

Production overhead Sh.304,000 Sh.220,000
Units produced 10,000 20,000
Machine hours 16,000 7,500
Materials cost Sh.150,000 Sh.400,000

Additional information:
1. At the end of the year 2022, Job ABC had incurred production overhead cost amounting to Sh.305,000 and
had produced 9,800 units using 15,990 machine hours and materials costing Sh.147,000.
2. Job XYZ had incurred production overhead cost amounting to Sh.216,000 and had produced 20,500 units
using 7,550 machine hours and materials costing Sh.395,000.

Required:
(i) Compute the predetermined overhead absorption rates (OAR) for Job ABC and Job XYZ. (4 marks)

(ii) Determine the extent of over/under absorption of overhead for each job. (4 marks)
(Total: 20 marks)

QUESTION FOUR
(a) Evaluate FOUR advantages of centralised material purchasing by an organisation. (8 marks)

e
(b) Shauri Moyo Bakery Ltd. planned production and sales for the next seven months for the financial year 2023/2024

.k
is as follows:

co
s.
Month Production (units) Sales demand (units)

te
November 2023 1,000 800

no
December 2023 1,200 1,000
January 2024 1,200 1,200

eb
February 2024 1,400 1,300

sn
March 2024 1,500 1,400

Ka
April 2024 1,500 1,600
May 2024 1,600 1,500

Additional information:
1. The selling price per unit will be Sh.30,000 throughout the period. 40% of the sales are normally made on
one month’s credit. The other 60% are settled in cash within the month of sale.
2. Purchases of raw materials are Sh.10,000 per unit of production and will be paid after one month delay.
3. Direct wages is Sh.6,000 per unit of production. Time lag in payment of wages is 50% in the month of sale
and the balance in the month following month of sale.
4. During the period, the business plans to advertise its products. Payment for advertisement of Sh.10,000,000
and Sh.15,000,000 will be made in January and March 2024 respectively.
5. Production overheads during the period to 31 December 2023 had been at Sh.18,000,000 a month and are
expected to rise by Sh.2,000,000 per month.
6. A new baking oven machine will be bought and delivered in December 2023. The machine will cost
Sh.66,000,000. This will be paid in three equal installments in January, February and March 2024.
7. A loan of Sh.100,000,000 is being issued in December 2023 and the amount is expected to be received in
early February 2024. Interest on loan at a rate of 1% per month shall be charged from February 2024.
8. An outstanding tax liability of Sh.16,000,000 is due in March 2024. In the same month the company intends
to dispose of surplus baking ovens with a net book value of Sh.11,000,000 for Sh.6,000,000.
9. A depreciation expense is expected to be 5% of actual sales per month.
10. The bank balance as at 1 January 2024 is expected to be Sh.15,000,000 deficit.

Required:
A cash budget for the four months ending 30 April 2024. (12 marks)
(Total: 20 marks)
AD32 Page 3
Out of 4
QUESTION FIVE
(a) Explain the relevance of the following terms as used in management accounting:

(i) Break-even analysis. (2 marks)

(ii) Responsibility centre. (2 marks)

(iii) Batch costing. (2 marks)

(b) Analyse FOUR limitations that a firm would encounter when operating a marginal costing system. (8 marks)

(c) Tausi Tours Ltd. is a transport service company that runs five buses between two towns which are 50 kilometres
apart. Seating capacity of each bus is 50 passengers. The following particulars were obtained from the books of the
company for the month of March 2023:

Particulars Fixed cost Variable cost

Sh. “000” Sh. “000”
Wages of drivers and conductors 24,000
Salaries of office staff 10,000
Diesel and other oils 35,000
Repairs and maintenance 8,000
Taxation and insurance 12,000
Depreciation 30,000
Interest expense on loan 20,000 .
Total cost 72,000 67,000

Additional information:

e
1. Actual passengers were 75% of seating capacity.

.k
2. All buses operated on all 30 days of the month.

co
3. Each bus made one round trip per day.

s.
te
Required:

no
Calculate the cost per passenger per kilometre per day. (6 marks)
(Total: 20 marks)

eb
sn
Ka

AD32 Page 4
Out of 4
 ATD LEVEL III

FUNDAMENTALS OF MANAGEMENT ACCOUNTING

MONDAY: 24 April 2023. Afternoon Paper. Time Allowed: 3 hours.

Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings.
Do NOT write anything on this paper.

QUESTION ONE
(a) Distinguish between “process costing” and “batch costing”. (4 marks)

(b) Tegemeo Battery Ltd. manufactures long lasting batteries for both domestic and commercial vehicles. The following
information is provided for the year ended 31 December 2022:

Sh.“000”
Fixed cost 4,500,000
Total variable cost 7,500,000
Total sales 15,000,000

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Target profit 6,000,000

co
Required:

s.
(i) The contribution to sales (C/S) ratio. (2 marks)

te
no
(ii) The break-even point (BEP) in sales value. (2 marks)

eb
(iii) Amount of sales required to achieve the target profit. (2 marks)

sn
Ka
(iv) Sales value to cover extra Sh.1.5 million advertising expenditure. (2 marks)

(c) Bongo Ltd.’s budgeted overheads for the forthcoming period applicable to its production departments; A and B are
as follows:

Production department Sh.“000”

A 240,000
B 180,000

The budgeted total costs for the same period for the service departments C and D are as follows:

Service department Sh.“000”

C 86,000
D 44,000

Additional information:
1. The proportionate use of the services has been estimated as follows:

Production department Service department

A B C D
50% 35% - 15%
40% 40% 20% -
2. Overheads are absorbed based on the following bases and hours:
Production department Absorption basis Budget hours
A Direct labour hours 1,952 labour hours
B Machine hours 1,362 machine hours
AD32 Page 1
Out of 4
 Required:
(i) Reapportion the service departments cost to production departments using simultaneous equation method.
(6 marks)

(ii) The overhead absorption rate (OAR) of each production department. (2 marks)
(Total: 20 marks)

QUESTION TWO
(a) In the context of budgetary control:

(i) Outline FOUR objectives of budgeting. (4 marks)

(ii) Highlight FOUR criticisms of budgeting. (4 marks)

(b) Pamoja Enterprises Ltd. makes and sells a single product branded “PMJ” using a single type of raw materials and
two types of labour.

The firm is now preparing its budget for the first quarter of the year 2023. The following information has been
identified for product “PMJ”.

Month January 2023 February 2023 March 2023 April 2023

Sales demand (units) 1,000 1,500 2,500 3,200

Additional information:
1. Selling price per unit will be Sh.2,500 in January 2023. It will increase by 10% per month.
2. The various cost elements for production are as follows:
Raw material: Sh.

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X: (5 kgs per unit at Sh.100 per kg) 500

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Labour:

s.
Skilled (6 hours per unit at Sh.150 per hour) 900

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Semi-skilled (6 hours per unit at Sh.190 per hour) 1,140

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Total cost 2,540

eb
3. Closing inventory of finished goods is 30% of the monthly sales demand. The closing inventory for

sn
December 2022 was 450 units.
4. Closing inventory of raw material is 20% of the next month’s requirement. The closing inventory for

Ka
December 2022 was 850 units.

Required:
(i) Production budget in units. (4 marks)

(ii) Material purchase budget in shillings. (4 marks)

(iii) Direct labour budget for skilled labour only. (4 marks)

(Total: 20 marks)

QUESTION THREE
(a) The following information relates to several tasks at Ayub Ltd. for the month of March 2023:

1. The company received four tasks and incurred the following costs on them:

Details Task 1 Task 2 Task 3 Task 4

Sh.“000” Sh.“000” Sh.“000” Sh.“000”
Direct material issued 8,000 5,000 3,000 2,000
Direct material transferred (1,000) (500) 1,300 200
Direct labour cost 3,000 2,500 1,500 1,000
2. Factory production overheads are absorbed at the rate of 50% of prime cost.
3. On completion of a task, the company charges administration, selling and distribution cost at the rate of
30% of total factory cost.
4. During the month, Tasks 1, 2 and 3 were completed.
5. The company’s policy is to earn a profit margin of 20% on every task completed.

AD32 Page 2
Out of 4
 Required:
(i) Compute the total factory cost for each task done in the month of March 2023. (8 marks)

(ii) Determine the invoice price for each of the completed task. (3 marks)

(b) Malimali Ltd. is considering the possibility of outsourcing component “Zed” which it currently makes from
Topdown Suppliers. Topdown Suppliers will supply the component which has the following requirements of an
economic order quantity model:

• Annual requirement 20,000 units

• Ordering cost Sh.1,000 per order
• Purchase price per unit Sh.40
• Carrying cost per annum per unit 16% of the purchase price

Additional information:
1. If Malimali Ltd. continues to make 20,000 units per annum of component Zed, its cost budget will be as
follows:
Cost per unit
Sh.
Direct material 25
Direct labour 20
Production overheads (60% variable) 25
Distribution overheads (50% fixed) 40
110
2. The fixed overheads above are absorbed based on a budgeted production and sales capacity of 25,000 units.
3. If Malimali Ltd. continues to make product “Zed”, then the cost of direct material will rise by 2% but direct
labour cost will fall by 2%.

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4. Fixed distribution overheads are unavoidable costs if Malimali Ltd. outsource the component but fixed

.k
production overheads will go down by 30%

co
s.
Required:

te
Advise Malimali Ltd. whether to make or buy component “Zed” from Topdown suppliers. (9 marks)

no
(Total: 20 marks)

eb
QUESTION FOUR

sn
(a) Highlight FOUR advantages of time rate system over piece rate system of labour remuneration. (4 marks)

Ka
(b) Vendit Ltd. obtains component “K” from a specialist supplier. The daily usage for the component and the time
between placing and receiving an order can vary as follows:
Economic order quantity 12,000 kgs
Average usage 600 kgs per day
Minimum usage 400 kgs per day
Maximum usage 800 kgs per day
Maximum lead time 14 days
Normal lead time 12 days
Minimum lead time 10 days

Required:
(i) Reorder level. (2 marks)
(ii) The maximum inventory level. (2 marks)
(iii) The minimum inventory level. (2 marks)

(c) A company currently remunerates its factory workers on time basis and is now considering the introduction of
alternative methods of remuneration.

The following information relates to two employees for one week:

Ali Baba
Hours worked 44 40
Rate of pay per hour Sh.1,200 Sh.1,400
Units of output achieved 480 390
AD32 Page 3
Out of 4
 Additional information:
1. The time allowed for each unit of output is seven standard minutes.
2. For purposes of piecework calculations each minute is valued at Sh.16.

Required:
Compute the earnings of the employees using:

(i) Piecework rates with earnings guaranteed at 80% of pay calculated on an hourly basis. (4 marks)

(ii) Premium bonus scheme in which bonus is based on 75% of time saved and added to pay calculated on an
hourly basis. (6 marks)
(Total: 20 marks)

QUESTION FIVE
(a) Summarise FOUR salient features of process costing systems. (4 marks)

(b) Explain TWO costs that could be classified under the time bases of cost classification. (2 marks)

(c) Highlight FOUR benefits that a firm would derive from establishing a good cost accounting system. (4 marks)

(d) Roma Ltd. is preparing its budgets for the year ending 31 December 2024. It makes and sells a single product, which
has budgeted costs and selling price as follows:

Sh. Per unit

Selling price 45
Direct materials 11
Direct labour 8

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Production overheads:

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Variable 4
Fixed 3

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Selling overhead:

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Variable 5

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Fixed 2

eb
Administrative overhead:

sn
Fixed 4

Ka
Additional information:
1. Fixed overhead costs per unit are based on a normal annual activity level of 96,000,000 units.
2. These costs are expected to be incurred at a constant rate throughout the year.
3. Activity levels during the months of January 2024 and February 2024 were expected to be:
January February
(units) (units)
Sales 7,000,000 8,750,000
Production 8,500,000 7,750,000
4. Assume that there will be no stock held on 1 January 2024.

Required:
Prepare in columnar format, profit statements for each of the two months of January 2024 and February 2024 using:

(i) Direct costing method. (5 marks)

(ii) Indirect costing method. (5 marks)

(Total: 20 marks)
……………………………………..…………………………………..

AD32 Page 4
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 ATD LEVEL III

FUNDAMENTALS OF MANAGEMENT ACCOUNTING

MONDAY: 5 December 2022. Afternoon Paper. Time Allowed: 3 hours.

Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings.
Do NOT write anything on this paper.

QUESTION ONE
(a) Outline FOUR disadvantages of using the scatter graph as a method of cost estimation. (4 marks)

(b) Remah Ltd has established the following information for the costs and revenues for the month of October 2022 at an
activity level of 500 units:
Sh.“000”
Direct materials 16,250
Direct labour 32,500
Production overheads 6,500

e
Selling costs 8,125

.k
Total costs 63,375

co
Sales revenue 113,750

s.
Profits 50,375

te
no
Additional information:

eb
1. All direct costs are variable costs.

sn
2. 20% of selling costs and 50% of the production overheads are fixed over all levels of activity respectively.

Ka
Required:
(i) Determine cost estimation equation in the form Y = a + bx using the account analysis method. (4 marks)
(ii) Calculate the total profit at an activity level of 1,000 units. (3 marks)

(c) Moyalematt supermarket maintains a variety of inventory.

The following information is given for stock item “Z”:

1. Consumption in kilograms per month:

Month Kilograms
January 15,000
February 6,000
March 22,000
April 20,000
May 10,000
June 15,000
July 17,000
August 12,000
September 9,000
October 8,000
November 6,000
December 10,000
2. Lead time is 5 - 8 days.

AD32 Page 1
Out of 5
 3. Annual holding cost per unit per annum is Sh.26.60.
4. The purchase price is Sh.200 and discounts are not allowed.
5. The ordering cost per order is Sh.798.
6. The annual demand is the accumulated monthly consumption.

Required:
(i) The optimal economic order quantity (EOQ). (3 marks)

(ii) Frequency of placing orders. (2 marks)

(iii) Reorder level. (2 marks)

(iv) Maximum inventory level. (2 marks)

(Total: 20 marks)

QUESTION TWO
(a) Outline FOUR assumptions of cost volume profit (CVP) analysis. (4 marks)

(b) Highlight FOUR factors influencing wage rate determination. (4 marks)

(c) Toto enterprise manufactures dolly kits for children. It is currently considering various techniques of overhead
absorption that are more efficient to apply to job costing:

Cost centre P Q
Sh. Sh.
Direct material cost 800,000 600,000

e
Direct labour cost 600,000 500,000

.k
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s.
Factory overheads 600,000 400,000

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Direct labour hours 40,000 50,000

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Machine hours 120,000 7,500

eb
Required:

sn
Calculate the overhead absorption rate (OAR) on the following basis:

(i) Percentage of direct material cost basis for cost centre P.

Ka (2 marks)

(ii) Direct labour hours basis for cost centre Q. (2 marks)

(iii) A particular job marked as Job number JB22 consumed the following inputs during the year:

Cost centre P Q
Sh. Sh.
Materials issued 5,000 15,000
Direct labour cost 4,800 4,000

Direct labour hours 400 500

Machine hours 1,500 100

Additional information:
1. Administration overheads are absorbed at the rate of 20% on factory costs.
2. Profit mark-up is 331/3 % on cost.

Required:
Calculate the total cost and total sales for Job number JB22. (6 marks)

(iv) Assuming the job number JB22 consists of 50 items, calculate the selling price per unit. (2 marks)
(Total: 20 marks)
AD32 Page 2
Out of 5
QUESTION THREE
(a) Explain FOUR functions of management accounting in decision making. (8 marks)

(b) Identify FOUR sources of loss in process costing. (4 marks)

(b) Oilivya Ltd. manufactures an industrial lubricant, which is formed by subjecting certain crude oil chemicals to two
successive processes namely; P and Q. The output of process P is passed to process Q where it is blended with other
chemicals.

The process costs for period 3 were as follows:

Process P:
Material 3,000 kg at Sh.25 per kg
Labour Sh.12,000
Process plant time: 12 hours at Sh.2,000 per hour

Process Q:
Material 2,000 kg at Sh.40 per kg
Labour Sh.13,840
Process plant time 20 hours at Sh.1,350 per hour

Additional information:
1. General overhead cost for the period amounted to Sh.27,200 and is absorbed into process costs on a process
labour basis.
2. The normal output of process P is 80% of input, while that of process Q is 90% of input.
3. Waste matter scrapped from process P is sold for Sh.2 per kg, while that from process Q is sold for Sh.3 per kg.
4. The output for period 3 were as follows:

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• Process P 2,300 kg

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• Process Q 4,000 kg

co
5. There was no stock or work in progress at either the beginning or the end of the period, and it may be assumed

s.
that all available waste matter had been sold at the prices indicated.

te
no
Required:

eb
Prepare the following process accounts:

sn
(i) Process P. (4 marks)

Ka
(ii) Process Q. (4 marks)
(Total: 20 marks)

QUESTION FOUR
(a) Kandogo guest house operates service costing system.

The following costs were incurred during a 30-week year:

1. Weekly cost incurred per guest was as follows:

Sh.
Food 25,000
Electricity for heating and cooking 3,000
Laundry and cleaning expenses 5,000
Transport expenses 10,000
2. The hotel operates for 30 weeks a year.
3. Fifteen guests are received per week.
4. Each guest is charged Sh.100,000 per week.
5. Fixed salary and supervision expenses are Sh.11,000,000 per annum.
6. Rent and rates for the property per annum is Sh.4,000,000.
7. Recreation and accommodation fixed costs are Sh.1,000,000 per annum.

AD32 Page 3
Out of 5
 Required:
(i) Total cost per annum. (4 marks)

(ii) Cost per guest per week. (3 marks)

(iii) Hotel profit/(loss) per guest per week. (3 marks)

(b) Furahia Ltd. operates in the entertainment and event organising industry and one of its activities is to promote
concerts at locations through-out the county.

The company is examining the viability of a concert in Raha County.

Selling price, fixed costs and variable costs will comprise of the following cost structure:

Sh.
1. Selling price per ticket 1,160
2. Variable cost:
Per ticket 340
Sales commission 58
3. Estimated fixed costs comprise:
Fixed hiring costs 19,815,000
Fixed administrative expenses 43,050,000
4. Expected sales were 90,000 tickets.

Required:

e
(i) The number of tickets that must be sold to break-even. (4 marks)

.k
co
(ii) The number of tickets to be sold to earn Sh.5,715,000 target profit. (2 marks)

s.
te
(iii) The profit, assuming 85,000 tickets are sold. (2 marks)

no
(iv) The number of additional tickets that must be sold to cover extra cost of television advertising of

eb
Sh.13,335,000. (2 marks)

sn
(Total: 20 marks)

Ka
QUESTION FIVE
(a) By citing ONE example for each, define the following types of costs:

(i) Avoidable costs. (2 marks)

(ii) Prime costs. (2 marks)

(iii) Marginal costs. (2 marks)

(b) Derap Enterprise wishes to prepare a master budget for the forthcoming period. Information regarding products, costs
and sales levels is as follows:

Q M
Product
Materials required:
T (kilograms) 5 7.5
Z (litres) 2.5 10
Labour hours required
Skilled (hours) 10 5
Semi-skilled (hours) 5 12.5
Sales level (units) 8,000 6,000
Opening inventory (units) 1,200 1,400

AD32 Page 4
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Additional information:
1. Opening inventory of material T was 14,075 kilograms and for material Z was 15,750 litres.
2. Closing inventory of finished goods will be sufficient to meet 20% of sales demand.
3. Closing inventory of materials will be sufficient to meet 25% of production requirements.
4. Material prices are Sh.15 per kilogram for material T and Sh.12 per litre for material Z.
5. Labour costs are Sh.120 per hour for the skilled workers and Sh.80 per hour for the semi-skilled workers.

Required:
Prepare the following functional budgets:

(i) Production budgets in units only. (3 marks)

(ii) Material usage budget in kilograms and litres. (3 marks)

(iii) Material purchases budget in kilograms, litres and shillings. (4 marks)

(iv) Labour budget in hours and shillings. (4 marks)

(Total: 20 marks)
……………………………………..…………………………………..

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AD32 Page 5
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 ATD LEVEL III

PILOT PAPER

FUNDAMENTALS OF MANAGEMENT ACCOUNTING

December 2021. Time Allowed: 3 hours.

Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings.

QUESTION ONE
(a) Define “management accounting” and give reasons why it is important to study the subject as an accounting
student.
(4 marks)

(b) Define the following terms:

(i) Direct costs. (2 marks)

(ii) Indirect costs. (2 marks)

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(iii) Break-even point. (2 marks)

co
(c) Bagasse company produces a liquid with the following direct costs:

s.
te
1. Materials Sh. 42.

no
2. Labour Sh.18.

eb
3. The company has capacity to produce 40,000 units of the liquid product. The fixed costs are
Sh.1,500,000.

sn
4. The product selling price is Sh.100.

Required:
(i) The break-even point for the product.
Ka (4 marks)

(ii) The company receives an order of 40,000 units but the customer is requesting for a discount of 10%.
should the company accept or reject the order? Justify your answer. (6 marks)
(Total: 20 marks)

QUESTION TWO
(a) (i) Define break-even analysis. (2 marks)

(ii) List the limitations of break-even analysis. (4 marks)

(b) The following information was obtained from a company producing Product Zed:
Sh.
Fixed factory overhead costs 6,000,000
Fixed selling overhead costs 120,000
Variable manufacturing cost/unit 120
Variable selling cost/unit 30
Selling price per unit 240

Required:
(i) Calculate the break-even point for the product. (4 marks)

AD32 Page 1
Out of 3
 (ii) Calculate the number of units required to produce a profit of Sh.280,000.00 (4 marks)

(c) Drake Ltd. has provided projected sales and costs for the next financial year as follows:

Fixed costs (Sh.) 100,000,000

Variable costs (Sh.) 75,000,000
Production units 37,500
Selling price per unit (Sh.) 5,000

Required:
(i) The projected profit for the year. (3 marks)

(ii) The management wishes to lower the selling price by 20% to increase sales by 20%.
Advise whether it is prudent. (3 marks)
(Total: 20 marks)

QUESTION THREE
(a) Describe thevfeatures of a budget. (4 marks)

(b) Omran produces two products. The following estimates relate to the financial year ending December 2022:

Product X Y

Selling price per unit (Sh.) 240 350

Direct materials (kgs) 5 4
Direct labour required (hours) 4 3

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Sales units 38,000 46,000

.k
Finished products:

co
01.01.2022 year beginning (units) 3,200 1,000

s.
31.12.2022 year ending (units) 2,000 1,500

te
no
Additional information:

eb
1. Direct material cost/kg = Sh 12.00
2. Labour cost/hour = Sh 20.00

sn
3. The stock of direct material at the beginning and closing of the year are expected to be 10,000 kgs and

Ka
500 kgs respectively.

Required:
(i) Sales budget.

(ii) Production budget.

(iii) Labour cost budget.

(iv) Material usage budget.

(v) Material purchase budget.

(16 marks)
(Total: 20 marks)

QUESTION FOUR
(a) Highlight the advantages of perpetual stores management system. (4 marks)

(b) The following information was obtained from a stores card for four months as follows:

Month Units purchased Cost (Sh per unit)

January 60,000 72
February 70,000 74
March 80,000 78
AD32 Page 2
Out of 3
 April 60,000 81
Month Sales Price (Sh per unit)
January 70,000 82
February 60,000 84
March 70,000 88
April 65,000 91

Additional information:
1. The operating costs for the year was Sh.6,000,000.00 which was evenly distributed throughout the year.
2. The opening stock was 30,000 units which had been purchased at a price of Sh.70 per unit.
3. The organisation used FIFO method in stock management.

Required:
(i) Outline the advantages of FIFO method in stores management. (2 marks)

(ii) Calculate the closing stock for the above organisation. (3 marks)

(iii) Prepare a store card for the organisation using FIFO method. (6 marks)

(iv) Calculate the profit for the company during the 4 months. (5 marks)
(Total: 20 marks)

QUESTION FIVE
(a) Explain some of the challenges that have affected manufacturing businesses due to the COVID-19 pandemic.
(6 marks)

(b) Biafra Ltd. provided the following information for machine maintenance for the past eight months:

e
.k
Period Machine hours Maintenance cost

co
1 10 24
2 6 22

s.
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3 2 12

no
4 9 28
5 8 20

eb
6 7 19

sn
7 4 14
8 12 30
Required:
(i)
Ka
Estimate the cost of a machine that can be repaired for 25 hours using thevhigh low method. (4 marks)

(ii) Highlight the advantages of using graphs in management accounting. (3 marks)

(c) Explain the importance of the following to a management accountant:

(i) Internet. (4 marks)

(ii) Tax expert. (3 marks)

(Total: 20 marks)
……………………………………………………………………………

AD32 Page 3
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 ATD LEVEL III

FUNDAMENTALS OF MANAGEMENT ACCOUNTING

MONDAY: 1 August 2022. Afternoon paper. Time Allowed: 3 hours.

Answer ALL questions. Marks allocated to each question are shown at the end of the question. Show ALL your workings.
Do NOT write anything on this paper.

QUESTION ONE
(a) Explain three users of management accounting information. (6 marks)

(b) Unik Ltd. a leading manufacturer of ceramic tiles is preparing its cost estimation for the master budget. A cost
accountant has derived the following data on a weekly output of standard size tiles from a factory:

Week Output Total overheads

Units “000” Sh. “000”

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1 20 60

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2 2 25

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3 4 26

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4 23 66

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5 18 49

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6 14 48

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7 10 35
8 8 18

sn
9 13 40

Ka
10 8 33

Where;
ƩX = 120 ƩY = 400 ƩX2 = 1,866 ƩY2 = 18,200
ƩXY = 5,704

Required:
(i) Using the least squares regression method, formulate a predictor equation in the form y = a + bx.
(6 marks)
(ii) In week 11, the factory planned to produce 25,000 standard size tiles. Estimate the total cost of producing
this quantity. (2 marks)

(c) Jikaze Ltd. is currently operating at full capacity and it manufactures and sells brooms for local market. Currently,
the production volume is 100,000 brooms per annum with the following cost structure:

Sh. “000” Sh. “000”

Sales 20,000
Marginal cost : Labour 8,000
Material 5,000 13,000
Contribution 7,000
Fixed costs (3,000)
Net profit 4,000

AD32 Page 1
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 Additional information:
1. Each broom is currently sold at Sh.200.
2. An opportunity has arisen to supply 30,000 brooms per annum at Sh.180 each.
3. Acceptance of this special order will incur extra fixed costs of Sh.800,000 per annum for the hire of
additional machinery.
4. Jikaze Ltd. will pay an overtime premium of 20% for the extra direct labour.

Required:
Advise Jikaze Ltd. on whether the offer should be accepted or rejected. (6 marks)
(Total: 20 marks)

QUESTION TWO
(a) Highlight four causes of labour turnover in an organisation. (4 marks)

(b) Zara Ltd. produces two products namely; Z and R. The following information relates to the budget for the year ended
30 June 2022:
Product Z Product R
Sh. Sh.
Selling price per unit 6 12
Variable cost per unit 2 4
Contribution margin per unit 4 8
Fixed costs apportioned 100,000 200,000
Units sold (kgs) 70,000 30,000

Required:
(i) Calculate the break-even points of each product. (4 marks)

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(ii) The break-even point of product Z to achieve a target profit of Sh.60,000. (2 marks)

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(iii) The margin of safety of product R. (2 marks)

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(iv) The product to produce based on the break-even point calculated in (b) (i) above. (2 marks)

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(c) Malipo Ltd. pays its employees using time-rate system. The following information is available with respect to

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employee number EMP003 for the month of March 2022:

1. Monthly salary:
• Basic Salary Sh.20,000
• Commuter allowance 25% of basic salary
2. House rent allowance Sh.6,500 per month
3. Leave salary allowance earned Sh.15,000
4. Non-cash benefits received from place of work was worth Sh.6,500 per month.
5. Number of working hours in the month of March 2022 was 200 hours.

Required:
Calculate the cost of labour per day of 8 working hours. (6 marks)
(Total: 20 marks)
QUESTION THREE
(a) Explain the following types of costs:
(i) Product costs. (2 marks)

(ii) Opportunity cost. (2 marks)

(iii) Conversion costs. (2 marks)

(b) Outline four limitations of process costing. (4 marks)

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(c) Maridadi Ltd. produces a product that passes through two distinct processes. The following information was obtained
from the accounts of the company for the month of July 2022:

Particulars Process A Process B

Sh. Sh.
Direct materials 78,000 59,400
Direct wages 60,000 90,000
Production overheads 60,000 90,000

At the beginning of the month of July 2022, 3,000 units of Sh.30 each were introduced to process A. There were no
stock of materials or work-in-progress.
The output of each process passes directly to the next process and finally to the finished stock account.

The following additional data was obtained:

Process Output Percentage of normal loss to Scrap value of normal

input loss per unit
(Sh.)
Process A 2,850 5% 20
Process B 2,520 10% 40

Required:
(i) Process A account. (5 marks)

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(ii) Process B account. (5 marks)

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(Total: 20 marks)

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QUESTION FOUR

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(a) RH Ltd. manufactures and sells a single product branded “Zed”. Currently it uses absorption costing to determine

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profits and inventory values. The budgeted production cost per unit is as follows:

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Sh.

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Direct labour 3 hours at Sh.6 per hour 18
Direct materials 4 Kgs at Sh.7 per Kg 28
Fixed production overhead 20
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Additional information:
1. Normal output volume is 16,000 units per year and the volume is used to establish the fixed overhead
absorption rate for each year.
2. The costs relating to sales, distribution and administration are as follows:
Variable 20 % of sales value
Fixed Sh.180,000 per year
3. There were no units of finished goods inventory at 1 October 2021. Fixed overhead expenditure is spread
evenly throughout the year.
4. The selling price per unit is Sh.140.
5. For the two six-monthly periods, the number of units to be produced and sold were budgeted as follows:

Six months ending Six months ending

31 March 2022 30 September 2022
Units Units
Production 8,500 7,000
Sales 7,000 8,000

6. RH Ltd. is considering whether to abandon absorption costing and use marginal costing instead for profit
reporting and inventory valuation.
AD32 Page 3
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Required:
(a) Statement of profit or loss for each of the six-month periods using:

(i) Marginal costing. (8 marks)

(ii) Absorption costing. (8 marks)

(b) A statement reconciling the profits as per the marginal costing and absorption costing in (a) above. (4 marks)
(Total: 20 marks)

QUESTION FIVE
(a) Distinguish between the following terms as used in management accounting:

(i) “Avoidable costs” and “unavoidable costs”. (4 marks)

(ii) “Cost control” and “cost reduction”. (4 marks)

(b) The following information relates to Erica Ltd:

1. The company had a cash balance of Sh.540,000 at the beginning of the month of October 2021.
2. Creditors give a credit period of one month.
3. Salaries are paid in the current month.
4. Fixed cost are paid one month in arrears and include a charge of Sh.100,000 per month with respect to
depreciation.
5. Credit sales are settled as follows:

• 40% in the month of sale.

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• 45% one month after the month of sale.

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• 12% two months after the month of sale.

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The balance represents bad debts.

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6. The actual sales, purchases and expenses for the month of August 2021 and September 2021 were as

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follows:

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Month Cash sales Credit sales Purchases Salaries Fixed overheads
Sh. Sh. Sh. Sh. Sh.

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August - 1,480,000 1,104,000 180,000 600,000

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September - 1,640,000 1,224,000 180,000 600,000

7. The budgeted sales, purchases and expenses per month from October 2021 to December 2021 were as
follows:

Month Cash sales Credit sales Purchases Salaries Fixed overheads

Sh. Sh. Sh. Sh. Sh.

October 400,000 1,600,000 1,200,000 190,000 600,000
November 440,000 1,800,000 1,380,000 190,000 620,000
December 500,000 1,000,000 1,750,000 200,000 640,000

Required:
A cash budget for the months of October 2021 to December 2021. (12 marks)
(Total: 20 marks)
……………………………………..…………………………………..

AD32 Page 4
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