CPA INTERMEDIATE LEVEL
PILOT PAPER
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) Distinguish between a cost centre and a cost unit. (4 marks)
(b) Explain the salient features of Economic Order Quantity approach. (4 marks)
(c) Sanitize Company Ltd. manufactures a product from raw materials which are purchased at Sh.54 per kg. The company incurs a handling cost of Sh.350 and transport cost of Sh.400 per order.
The carrying cost is Sh.0.50 per kg per month. The investment cost in the raw material is Sh.8. per kg. The annual production of the product is 94,500 units and each kilogramme of raw materials produces two (2) units of the final product.
Required:
(i) Calculate the economic order quantity. (5 marks)
(ii) Advise how frequently orders should be placed for procurement. (3 marks)
(iii) If the procurement manager proposes to order on quarterly basis, what discount should be negotiated if the company is not willing to incur extra costs. (4 marks)
(Total: 20 marks)
QUESTION TWO
(a) Explain the following terms:
(i) Material variances. (3 marks)
(ii) Labour variances. (3 marks)
(iii) Standard costing. (2 marks)
(b) To produce a litre of a product, 24 units of materials are required at a standard price of Sh.75 per litre. The actual production for the period is 75,000 units. Records proved that 80,000 units of materials were used at a price of Sh.73 per unit.
Required: Calculate:
(i) Material cost variance. (4 marks)
(ii) Material price variance. (4 marks)
(iii) Material usage variance. (4 marks)
(Total: 20 marks)
QUESTION THREE
(a) Countries have development blue prints while other organisations have strategic plans.
Citing challenges in achieving the objectives, explain why it is important for every organisation to have a long- term plan. (6 marks)
(b) Kasap Ltd. manufactures plastic bottles mixing materials. The following information was obtained from their management accountant during the month of October 2021:
1. Materials used were 12,000 kg at Sh.13 per kg.
2. 12 employees worked 120 hours each at a rate of Sh.25 per hour.
3. Fixed overheads were absorbed at a rate of 100% of direct labour cost.
4. Actual output was 10,000 units.
5. There was no opening or closing work in progress.
6. The company expects a normal 10% of materials input. There is no waste or scrap in the process.
Required:
(i) Calculate the expected cost per unit. (4 marks)
(ii) Process account. (3 marks)
(iii) If the normal loss is sold at Sh.10.00/kg what would be the revised cost of produced units. (3 marks)
(c) Explain the various risks associated with stock and inventory management in manufacturing during the COVID-19 pandemic. (6 marks)
(Total: 20 marks)
QUESTION FOUR
(a) Explain the advantages of linear regression analysis in cost estimation. (4 marks)
(b) Kalu Ltd. produces masks for sale. The following information was provided for the last 8 months in masks production:
Month No. of masks (000) Total cost (Sh.”000”)
1 5 50
2 6 53
3 6.5 55
4 6.7 59
5 7 62
6 7.5 64
7 8 66
8 9 72
Required:
Formulate the cost estimation for the cost of producing 10,000 masks using:
(i) High low method. (3 marks)
(ii) Simple linear regression method. (3 marks)
(c) Highlight features of process costing. (2 marks)
(d) Bibi Ltd. produces food which passes through two processes A and B then to finished products.
Normal loss is estimated at 590 for each process and 10% scrap which realises Sh.80.00 for process A and Sh.200.00 for process B per unit.
The following information is obtained
A B
Materials (units) 1,000 70
Cost of materials per unit (Sh.) 125 200
Wages (Sh.) 28,000 10,000
Other direct expenses (Sh.) 8,000 5,250
Output in units 830 780
Required:
Process accounts for the two processes assuming there was no stock or work in progress in the two processes.
(8 marks)
QUESTION FIVE
(a) Short Ltd. maintains separate cost and financial ledgers. The accountant has provided the following information from the trial balance.
Cost ledger opening trial balance:
Sh. Sh.
Financial ledger control account 250,000
Work in progress control account 120,000
Finished goods control account 110,000
Stores ledger control account 20,000 ______
250,000 250,000
Additional information:
1. Total sales during the period amounted to Sh.430,000.
2. Total purchases and other handling costs amounted to Sh.280,000.
3. The work in progress and stores ledger had the same values at the closing of the period.
4. The closing financial ledger balance was Sh.245,000.
Required:
(i) Profit for the period. (5 marks)
(ii) Closing trial balance for the period. (5 marks)
(b) The management of Kalu Ltd. has produced the following projections for the year 2022:
Sh.
Selling price per unit 200
Variable cost per unit 120
Fixed costs 4,000,000
Number of units produced and sold 70,000
Additional information:
The management is considering the following options:
1. Reducing selling price 10% to increase sales 15%.
2. Reducing selling price 20% to increase sales 20%.
Required:
(i) Worksheet showing effects of each consideration. (2 marks)
(ii) The best option from the analysis. (8 marks)
(Total: 20 marks)