FACULTY OF COMMERCE AND LAW

BACHELOR OF COMMERCE (HONOURS)

ACCOUNTING/BANKING AND FINANCE

BACC207: MANAGEMENT ACCOUNTING

November/December 2013

Time: 3 Hours

INSTRUCTIONS

Answer ALL Questions

Credit will be given to presentations that are neat, logical and

grammatically well constructed.

Answer all questions in Answer Books provided.

BACC207: MANAGEMENT ACCOUNTING

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QUESTIONS

1. Angwazi Ltd uses a standard costing system and the following information
relates to production and sales for its product for the month of May 2011.

Budget/Standard Actual
Sales 10 000 units 9 700 units
Sales price $25.00 $25.50
Materials used 1.5kg/unit 14.600kg
Labour hour ½ hour per unit 4 900 hours
Labour rate per hour $10.00 $11.00
Material cost per unit $8.00/unit $8.30/unit

Requirement

(a) Prepare a statement showing the budgeted and actual gross profit for the
month of May.

(b) Calculate each of the following variances:

(i) Sales price variance

(ii) Sales volume variance
(iii) Materials price variance
(iv) Materials usage variance
(v) Labour rate variance
(vi) Labour efficiency variance

(c) Outline the factors to be considered before investigating a variance. [25]

2. Makandiwa Ltd manufactures a single product. The trading results for the
financial year ended 30 June 2011 are as follows:

Sales (60 000 units @ $5) 300 000

Less cost of sales
Variables costs (Manufacturing) 152 400
Fixed costs (Manufacturing) 60 000 212 400
Gross profit/income 87 600
Less selling and admin expenses
Variable 27 600
Fixed 12 000
39 600
Net income before tax 48 000

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 Additional information

(i) The plant has a normal capacity of 187 500 hours per year
(ii) One product is produced in 2.5 hours
(iii) All products manufactured are sold

Required

By considering each of the following situations independently calculate:

(a) The break even quantity for 2011 [2]

(b) The break even value for 2011 by applying the marginal income ratio
[4]

(c) The percentage capacity utilisation during 2011 [2]

(d) The budgeted net income before tax for 2012 if the selling price and the
volume changes simultaneously as follows:

 A selling price reduction of 10%

 New capacity 85% of normal capacity

If there is an increase in sales volume, the fixed costs will increase by $1

000. [6]

(e) The budgeted selling price per unit for 2012 in order to maintain the existing
marginal income ratio if the variable costs increase by $3 240 and the sales
remain at 60 000 units. [6]

(f) The budgeted number of the units that must be sold during 2012 to earn a
profit of $48 000 before tax if the selling price per unit decrease by 8% and
the fixed costs remain the same. [5]

3. (a) Explain the meaning of each of the measures noted below, which may be
used for divisional performance measurement and investment decision
making. Discuss the advantages and problems associated with the use
of each.

(i) Return on Capital Employed

(ii) Residual Income
(iii) Discounted future earnings
(iv) Divisional contribution [20]

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 (b) Comment on the reasons why the measures listed in (a) above may give
conflicting investment decision responses when applied to the same set
of data. [5]

4. A manufacturer produces two products A and B. Each product is manufactured

by two step processes which involve machines 1 and 2. The process time for
the two products on the two machines is as follows:

Product A takes 5 hours on Machine 1 and 8 hours on Machine 2. Product B

takes 7 hours on Machine 1 and 6 hours on Machine 2.

For the period ahead, Machine 1 has available 124 hours and Machine 2 has
available 136 hours. The rate of contribution for the product A is $50 per unit
and B is $40 per unit.

The company faces a situation where it can sell as much as it can produce for
the immediate planning period ahead.

Required

(a) Formulate the objective function.

(b) Formulate a model for the maximisation of contribution.

(c) Solve the equations in the model to show the maximisation mix. [25]

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