CPA INTERMEDIATE LEVEL

MANAGEMENT ACCOUNTING

TUESDAY: 20 August 2024. Morning 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) With reference to cost classification, distinguish between the following types of costs:

(i) “Semi-variable costs” and “semi-fixed costs”. (2 marks)

(ii) “Prime costs” and “marginal costs”. (2 marks)

(b) Cost Database Management System (DBMS) is a computer based software system that is used in management
accounting to manage costs.

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Required:

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Highlight FOUR benefits of implementing a cost database management system for inventory. (4 marks)

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(c) Medico Ltd. is a pharmaceutical company which manufactures three types of medicines namely; Alpha, Beta and
Zeta using absorption costing system.
The company has two grades of labour; skilled labour and semi-skilled labour.
The following profit statement relates to the operations of Medico Ltd.

Alpha Beta Zeta

Sh. Sh. Sh.
Selling price per unit 595 870 1,095
Cost per unit:
Direct material 115 140 220
Direct labour:
Skilled labour (Sh.80 per hour) 80 160 240
Semi-skilled (Sh.60 per hour) 60 120 110
Fixed overhead cost (see note 1) 100 100 100
Total cost per unit 355 520 670
Net profit per unit 240 350 425
Units Units Units
Expected maximum production and demand 3,000 5,000 6,500

Additional information:
1. Fixed overhead costs are Sh.1,450,000 per annum.
2. Variable overheads are absorbed into production at a rate of 100% for skilled labour and 50% of the semi-
skilled labour. These variable overheads have not been absorbed in the profit statement above.
3. There is a maximum of 28,000 skilled labour hours available.
4. Deficit units can be outsourced from chemist suppliers at the following prices:

Medicine Alpha Beta Zeta

Purchase price per unit Sh.425 Sh.650 Sh.895

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 Required:
(i) Compute the shortfall in skilled labour hours. (2 marks)

(ii) Determine the optimal production mix and the number of units to be outsourced from chemist suppliers.
(6 marks)

(iii) Maximum net profit achievable for the period based on quantities determined in (c) (ii) above. (4 marks)
(Total: 20 marks)

QUESTION TWO
(a) Identify FIVE challenges faced by a business in implementing a cost accounting system. (5 marks)

(b) Maziwa Ltd. is a small company that specialises in buying and selling of powdered milk. The milk tins are packaged
in boxes.
The company started its operations on February 2024 with a capital of Sh.4,000,000. During the past period of six
months, the following transactions have occurred:

Powdered milk purchases Sale of powdered milk

Date of receipt
Quantity (boxes) Total cost Date of dispatch Quantity (boxes) Total sales
Sh. Sh.
February 13 200 72,000 March 10 500 250,000
March 8 400 152,000 May 20 600 270,000
April 11 600 240,000 July 25 400 152,000
May 12 400 140,000
July 15 500 140,000

Additional information:
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1.
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The closing inventory counted on 31 July 2024 was 500 boxes.
2. General operating expenses paid during the period amounted to Sh.23,000.
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3. The company uses LIFO method of inventory valuation.
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Required:
Prepare:
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(i) A stores ledger account. (6 marks)

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(ii) Income statement for the company for the period ended 31 July 2024. (5 marks)

(c) Konya Ltd. had a weekly minimum and maximum consumption of material Q at 250 and 750 units respectively. The
re-order quantity as fixed by the company is 3,000 units. The material is received within a period of 4 to 6 weeks
from the date of issue of supply order.

Required:
Calculate the:

(i) Minimum stock level. (2 marks)

(ii) Maximum stock level. (2 marks)

(Total: 20 marks)

QUESTION THREE
(a) (i) Explain the term “budget committee”. (2 marks)

(ii) Outline FOUR roles of a budget committee. (4 marks)

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(b) The following cost data has been obtained from the records of Komputa Ltd., an IT company based in industrial
area. The firm specialises in assembly of computers.

Month Number of computers assembled Total cost incurred

Sh. ‘000’
January 1,600 164,000
February 900 112,000
March 1,100 100,000
April 820 96,000
May 1,160 120,000
June 1,200 124,000
July 1,300 128,000
August 1,360 130,000
September 1,400 140,000
October 1,500 148,000
November 1,700 180,000

Required:
(i) Using the high-low method, formulate an equation that can be used to estimate the future total cost in the
form of y = a + bx. (4 marks)

(ii) Using the least square method, formulate the cost function in the form of y = a + bx. (8 marks)

(iii) Using the equations obtained in (b)(i) and (b) (ii) above, estimate the total cost to be incurred in December
if 1,800 computers are expected to be assembled. (2 marks)
(Total: 20 marks)

QUESTION FOUR

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(a) Highlight FOUR arguments for the use of marginal costing. (4 marks)

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(b) Aquatiq Ltd. manufactures water dispensers for both domestic and office use using absorption costing system. There

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are three models branded “regular”, “medium” and “deluxe”.

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Selected data for the three products is as follows:

Model Regular Medium Deluxe

Direct material cost per unit Sh.2,500 Sh.3,250 Sh.5,500
Direct labour hours per unit 0.75hours 1.5 hours 1 hour
Machine hours per unit 1.5 hours 1 hour 3 hours
Production volume 800 units 1,200 units 4,800 units

Additional information:
1. The total cost per unit is loaded a profit markup of 20% to determine the selling price.
2. Direct labour cost is Sh.2,100 per labour hour.
3. Currently, production overheads are absorbed based on a blanket-wise machine hour absorption costing
basis. The rate for the period is Sh.1,500 per machine hour.
4. Budgeted annual production overheads for Aquatiq Ltd. amounted to Sh.25,200,000. Further analysis
shows that the production overheads can be apportioned according to activity based costing (ABC)
approach as follows:
Cost pools Apportionment Cost driver
Set-up costs 40% Number of set-ups
Machine costs 20% Number of machine hours
Material procurement cost 10% Number of orders
Quality control cost 30% Number of inspections
100%
5. The following cost drivers are associated with the models:

Model Regular Medium Deluxe

Number of set-ups 64 120 320
Number of orders 12 21 87
Number of inspections 120 180 456
Number of machine hours 1,200 1,200 14,400
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 Required:
Calculate for each model, the full cost and selling price per unit under:

(i) Blanket-wise absorption costing approach. (8 marks)

(ii) Activity based costing (ABC) approach. (8 marks)

(Total: 20 marks)
QUESTION FIVE
(a) The table below shows the type of cost classification base and an example of type of cost.
By giving one example in each, fill in the missing letters W, X, Y and Z.

Cost classification Example of cost

Example:
Functional classification Production cost, Administrative cost.

(i) On basis of time W (1 mark)

(ii) X Variable cost, fixed cost (1 mark)

(iii) By nature of elements Y (1 mark)

(iv) Z Opportunity cost, sunk cost (1 mark)

(b) Explain THREE benefits of standard costing and variance analysis to an organisation. (6 marks)

(c) Saruji Ltd. manufactures a product branded “GemLime”. The company operates several manufacturing processes. In

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the process I, joint products “Gem” and “Lime” are produced in the ratio of 5:3 by volume from the raw material
input.
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The following information relates to process I for the first week of the month of July 2024:
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Raw material input 60,000 kilograms at a cost of Sh.3,810,000

Abnormal gain 1,000 kilograms
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Other costs incurred upto the split off point:

Direct labour cost Sh.1,800,000
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Direct expenses Sh.540,000

Production overheads 110% of direct labour cost

Additional information:
1. Normal loss in process I of 5% of the raw material input is expected. Losses have a realisable value of
Sh.50 per kilogram.
2. The company holds no work-in-progress.
3. The joint costs are apportioned to the joint products using the physical volume measure basis at split off
point.

Required:
(i) Prepare process I account for the first week of the month of July 2024 in which both the output volumes
and values for each of the joint products are shown separately. (6 marks)

(ii) Saruji Ltd. can sell product Gem for Sh.20 per kilogram at the end of process I. It is considering a proposal
to further process Gem in process II in order to create product “GemLime”. The further processing in
process II would cost Sh.4 per kilogram input from process I. In process II, there would be a normal loss in
volume of 10% of the input to that process. This loss has no realisable value. Product “GemLime” could
then be sold for Sh.26 per kilogram.

Determine based on financial considerations only, whether product Gem should be further processed to
create product “GemLime”. (4 marks)
(Total: 20 marks)
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 CPA INTERMEDIATE LEVEL

MANAGEMENT ACCOUNTING

TUESDAY: 23 April 2024. Morning 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) Cost classification is essential for easier cost ascertainment and cost control.

With reference to the above statement, explain the following bases of cost classification citing one example in each
case:
(i) By time. (2 marks)

(ii) By behaviour. (2 marks)

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(iii) By function. (2 marks)

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(iv) By nature. (2 marks)

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(b) OJ Ltd. manufactures and sells mobile phones. The company’s budgeted statement of profit or loss for the month of
May 2024 is as follows:
Sh. Sh.
Sales (1,200 units at Sh.18,000 per unit) 21,600,000
Less: Cost of sales:
Production (1,800 units at Sh.10,000 per unit) 18,000,000
Less: Closing inventory (600 units at Sh.10,000 per unit) (6,000,000) (12,000,000)
Gross profit 9,600,000
Less: Variable selling expenses (10% of sales) (2,160,000)
Fixed selling and distribution costs (1,705,000)
Net profit 5,735,000

Additional information:
1. The budget was prepared using absorption costing principle.
2. If the budgeted production in May 2024 had been 2,000 units, then the total production cost would have
been Sh.18,800,000.

Required:
Using high-low method, calculate:

(i) The variable production cost per unit. (2 marks)

(ii) The total monthly fixed production cost. (2 marks)

(c) Assuming the budget of OJ Ltd. for the month of May 2024 had been prepared using marginal costing principle,
calculate:

(i) The net profit. (5 marks)

(ii) The break-even point (BEP) in sales value. (3 marks)

(Total: 20 marks)
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QUESTION TWO
(a) Describe THREE roles of management accounting in an organisation. (6 marks)
(b) Dynamok Ltd., manufactures bicycles. The company uses job costing to allocate costs to individual products
provided to its customers. The company has three production departments T, Q and M.
The company has commenced the preparation of its fixed production overhead cost budget for the next financial
year and has identified the following costs:
Overhead cost Sh.“million” Basis of apportionment
Depreciation 660 Net book value of equipment
Indirect labour 900 Direct labour hours
Repairs and maintenance 110 30% to T, 50% to Q and 20% to M
Heating and lightning 90 Floor area
Consumable supplies 30 Direct labour hours
General overheads 20% of direct wages cost of each department
The costs are apportioned to the individual production departments; T, Q and M as follows:
Production department T Q M
Direct labour hours 5,000 3,000 2,000
Direct wages cost (Sh. Million) 150 210 100
Number of employees 25 15 10
Floor area in square metres (M2) 5,000 4,000 1,000
Net book value of equipment (Sh. Million) 80 50 90

Required:
(i) The primary allocation of production overhead costs to the three departments. (6 marks)

(ii) Calculate the overhead absorption rate (OAR) for each department based on direct labour hours.

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(iii) A quotation for a job made as batch BQ23 has the following estimated information:
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Direct material cost Sh.140,000,000
Direct labour hours 550 hours in department T
890 hours in department Q
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160 hours in department M

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Required:
Using the OAR computed in (b) (ii) above, compute the total cost of job batch BQ23. (5 marks)
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(Total: 20 marks)

QUESTION THREE
(a) Management accounting is a discipline that communicates economic information to various parties known as
“end-users”.
With reference to the above statement, outline TWO user information needs of the following end-users:
(i) Executives. (2 marks)
(ii) Production managers. (2 marks)
(iii) Management accountants. (2 marks)

(b) Luxury Weekend County Park is an entertainment park that offers individual and family entry tickets. The tickets
include a meal, three types of beverages and unlimited use of the swimming pools. Luxury Weekend County Park
has the following ticket prices and variable costs for the year 2024:
Ticket class
Individual Family Total
Sh. Sh. Sh.
Selling price per ticket 2,400 3,000
Variable cost per ticket:
Cost of meal (740) (800)
Direct labour (600) (600)
Variable cost of beverages (240) (250)
Swimming cost (220) (250)
Contribution margin 600 1,100
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 Sh. Sh. Sh.
Apportioned annual fixed costs (Sh.) 3,375,000 4,125,000 7,500,000
Expected tickets to be sold 6,000 4,000 10,000

Additional information:
1. All the assumptions of cost volume profit (CVP) analysis are valid.
2. Total sales mix is currently generated by the two type of tickets in the following proportions:
• Individual 60%
• Family 40%

Required:
(i) Compute the weighted average contribution margin at the current sales mix assumed above. (2 marks)

(ii) Calculate the total number of tickets that Luxury Weekend County Park must sell to break-even. (2 marks)

(iii) The margin of safety in units for Luxury Weekend County Park. (2 marks)

(iv) Calculate the number of individual tickets and the number of family tickets that Luxury Weekend County
Park must sell to break-even. (2 marks)

(c) Ufanisi Enterprises outsource one of its raw materials branded “Oxla” externally. The annual sales demand for
material “Oxla” is 30,000 units. The company is planning to switch its purchasing system to a just-in-time (JIT)
purchasing system to improve efficiency.
The following information is provided:
Current system Proposed system
Purchase cost per unit (Sh.) 400 400
Ordering cost per order (Sh.) 80,000 28,000

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Additional information:

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1. Inventory holding cost per annum is given as a percentage of purchases cost per unit.

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2. Under the proposed JIT system, the company does not hold any inventory whatsoever.
3. The re-order quantity under the proposed JIT system is 4,000 units per order.

Required:
Advise the management of Ufanisi Enterprises on whether or not to switch to the proposed system. (6 marks)
(Total: 20 marks)

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

(b) Vuna Ltd. are the manufacturers of chemicals for use in agricultural farms. One of their products passes through two
processes; P and Q before it is completed and taken to a warehouse.

The following data relates to process Q for the month of march 2024:
1. Opening work-in-progress 4,000 units
Degree of completion and cost:
Sh.“000”
Materials 100% 240,000
Labour 60% 144,000
Overheads 60% 72,000
2. Units received from process P were 40,000 at a cost of Sh.1,700,550,000
3. Additional cost during the period in process Q:
Sh.“000”
Materials 759,000
Labour 1,355,760
Overheads 640,220
4. Closing work-in-progress was 3,000 units with the following degree of completion:
Materials 100%
Labour and overheads 50%

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 5. Units scrapped were 4,000 having the following degree of completion:
Materials 100%
Labour and overheads 80%
6. Normal process loss was 5% of the expected production.
7. Spoiled units realised Sh.15,000 for each unit.
8. The company uses FIFO method of valuation for the opening work-in-progress.

Required:
(i) Determine units abnormally lost in process Q. (2 marks)
(ii) Prepare a statement of equivalent units of production. (4 marks)
(iii) Prepare a statement of cost. (4 marks)
(iv) Prepare process Q account. (4 marks)
(v) Prepare abnormal loss account. (2 marks)
(Total: 20 marks)
QUESTION FIVE
(a) Hawk Ltd. uses a standard absorption costing in its operations.
The following information is provided by the cost accountant:
Actual Budgeted
Selling price per unit (Sh.) 2,600 3,100
Variable cost per unit (Sh.) 1,000 1,000
Output and sales (units) 8,200 8,700
Total fixed overheads (Sh.) 4,510,000 5,220,000

Required:
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(i) Sales price variance.
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(ii) Sales volume profit variance. (2 marks)
(iii) Fixed overhead volume variance. (2 marks)
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(b) A flexible budget is known to be more appropriate for control purposes than a fixed budget.
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Required:
(i) By distinguishing between a “fixed budget” and a “flexible budget”, explain whether you agree or disagree
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with the above statement. (3 marks)

(ii) Outline THREE benefits of budgetary control system in an organisation. (3 marks)

(c) The following information relates to the projected activities of Detrix Ltd., a local manufacturing company for the
year 2024:
Wages Materials purchased Overhead cost Sales
Sh.“000” Sh.“000” Sh.“000” Sh.“000”
January 18,000 60,000 30,000 90,000
February 24,000 90,000 36,000 120,000
March 30,000 75,000 48,000 180,000
April 27,000 105,000 42,000 150,000
May 36,000 90,000 54,000 210,000
June 30,000 75,000 48,000 180,000
July 27,000 75,000 42,000 150,000
August 27,000 90,000 42,000 150,000
Additional information:
1. It is expected that cash balance on 30 April 2024 will be Sh.66,000,000.
2. Wages are paid within the month they are incurred.
3. Creditors for raw materials are paid three months after receipt.
4. Debtors are expected to pay two months after delivery.
5. Included in the overhead figure is Sh.6,000,000 per month which represents depreciation.
6. There is a one-month delay in paying the overhead expenses.
7. 20% of the monthly sales are on cash basis.
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8. A commission of 5% is paid to agents on all the sales on credit, but this is not paid until the month
following the sales to which it relates. This expense is not included in the overhead figure.
9. The company intends to repay a loan of Sh.75,000,000 on 31 May 2024.
10. A delivery is expected in the month of June 2024 of a new machine costing Sh.135,000,000 of which
Sh.45,000,000 will be paid in each of the following months.
11. The company has an overdraft facility with banks.

Required:
A cash budget for the months of May, June and July 2024. (8 marks)
(Total: 20 marks)
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 CPA INTERMEDIATE LEVEL

MANAGEMENT ACCOUNTING

TUESDAY: 5 December 2023. Morning 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) Discuss THREE essential features of a budget. (6 marks)

(b) Godoro Ltd. supplies high quality mattresses. The company outsources these mattresses from a supplier in
town. Godoro Ltd. estimates that the total inventory holding cost of one mattress per annum is as follows:

Cost Percentage of purchase price per unit per annum (%)

Opportunity cost 5
Obsolescence cost 4
Storage charges 3
Handling cost 2
Insurance cost e 1
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Additional information:
1. The annual sales demand of the mattresses is 480 mattresses.
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2. Each mattress costs Sh.4,000 to purchase from the supplier.

3. The ordering cost is Sh.6,250 per order.
4. The supplier offers a 3% discount for orders of 120 mattresses and a discount of 5% for orders of 180
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mattresses.
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Required:
(i) The economic order quantity (EOQ) of the mattresses. (2 marks)
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(ii) The cost minimising order size from the supplier. (4 marks)

(c) Jeffy Ltd. has been manufacturing and selling three textile products. The following details are available for
each of the three products:

Product Cotton Linen Polyester

Sh. per unit Sh. per unit Sh. per unit
Direct material 350 365 255
Direct labour 480 240 210
Variable production overheads 150 115 205
Fixed production overheads 300 300 300
Total cost per unit 1,280 1,020 970
Selling price 1,600 1,340 1,300
Net profit 320 320 330

Budgeted annual demand (units) 1,600 2,400 3,000

Additional information:
1. Each direct labour hour is charged at Sh.120 for cotton, Sh.120 for linen and Sh.70 for polyester.
2. The direct labour force is threatening to go on strike for two weeks. This means that only 10,100
hours will be available for production rather than the expected 20,200 hours.

Required:
If the strike goes ahead as planned, advise the management of Jeffy Ltd. on the product(s) that should be
produced if profits are to be maximised. (8 marks)
(Total: 20 marks)

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QUESTION TWO
(a) The Management Accountant of Almah Ltd. provided the following profit statement for the year ended
31 October 2023:

Sh.“million”
Revenue 60
Total costs (48)
Net profit 12

The contribution sales ratio is 50%.

Required:
(i) Calculate the break-even sales. (2 marks)

(ii) Calculate the margin of safety. (2 marks)

(b) The management of Almah Ltd. in (a) above is considering two options with a view to increase sales in the
year 2024.

These options are:

Option one: Increase sales by 30% and incur a sales promotion campaign worth Sh.5 million.

Option two: Increase sales by 20% and reduce the selling price by 10%.

Required:
Advise the management of Almah Ltd. on the better option to implement. (4 marks)

(c) Dimax College has been using their own van to transport students to and from college. The new principal feels
this may be too expensive for the school. He suggests that the college could lease transport services from Gari
Ltd. at a cost of Sh.308,000 per month.

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The college accountant revealed the following information:

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Sh.

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Cost of the van 7,000,000
Annual insurance 790,000
Annual repairs 440,000
Driver’s monthly salary 90,000
Annual road licence 100,000
Transport levy per annum 154,000
Scrap value of the van 1,000,000
Tyres and tubes annual cost 126,000
Inspection cost per year 10,000
Petrol cost per kilometre 154

Additional information:
1. The van is estimated to cover 40,000 km per year. It has an estimated useful life of six years.
2. A new traffic rule has been issued requiring all passenger vehicles including college vans to be fitted
with speed governors and seat belts. This will cost Sh.40,000 per annum.
3. Gari Ltd.’s monthly cost of Sh.308,000 is attributed as follows:

Sh.
Van hire 220,000
Driver’s salary 50,000
Maintenance fee 38,000
308,000
Required:
(i) Compute the cost per kilometre if the college:
• Uses its own transport. (6 marks)

• Hires transport services. (3 marks)

(ii) Outline THREE other factors that the college might consider in choosing the best alternative.
(3 marks)
(Total: 20 marks)

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QUESTION THREE
(a) Differentiate between “overhead allocation” and “overhead absorption”. (4 marks)

(b) Maono Ltd. has a budgetary activity level of 50,000 direct hours and budgeted production overheads of
Sh.10,000,000. The following information was obtained from its three departments namely; A, B and C.

1. Department A: 50,000 direct hours are worked and the actual overheads were Sh.9,400,000.

2. Department B: 43,000 direct hours are worked and the actual overheads were Sh.10,000,000.

3. Department C: 45,000 direct hours are worked and the actual overheads were Sh.9,600,000.

Required:
Determine over or under absorption of overheads of each department. (6 marks)

(c) Tamu Ltd. is a company located in the Eastern part of the country and manufactures juices. The company plans
to establish a subsidiary in western part of the country to produce mineral water. Tamu Ltd. estimates that the
subsidiary can produce 40,000,000 bottles of water in the next one year.

The cost analysis for the subsidiary yielded the following estimates:
Sh.“000” Percentage of total annual cost that is variable (%)
Material cost 1,936,000 100
Labour cost 900,000 70
Overhead cost 800,000 64
Administrative cost 300,000 30

Additional information:
1. The bottled water produced by the subsidiary will be sold by sales representatives who will receive a
commission of 8% of the sales price.
2. The subsidiary will operate independently in terms of costs and revenue.
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Required:
(i) Compute the sales price per bottle to enable management realise an estimated 10% profits on sales
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proceeds in the subsidiary. (6 marks)

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(ii) Calculate the break-even point in value for the subsidiary on the assumption that the sales price is
Sh.110 per bottle. (4 marks)
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(Total: 20 marks)

QUESTION FOUR
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(a) Melta Ltd. has just completed its first year in operation. The unit costs and selling price based on absorption
costing basis are as follows:

Standard cost and selling price: Sh.

Direct material (2 kilograms at 350 per kilogram) 700
Direct labour (0.5 hours at Sh.1,600 per hour) 800
Production overhead:
Variable overheads (0.5 hours at Sh.600 per hour) 300
Fixed overheads (0.5 hours at Sh.900 per hour) 450
Standard production cost 2,250
Standard profit margin 2,750
Standard selling price 5,000

Additional information:
1. Other budgeted costs during the period in relation to selling and distribution and administration were
as follows:
Variable costs Fixed costs (Sh.)
Selling and distribution 10% of sales 9,000,000
Administration 12,300,000
2. During the year, the company had the following activity levels:
• Actual production was 24,000 units.
• Units sold were 21,300 units.
3. Actual fixed production overheads was Sh.300,000 less than absorbed fixed production overheads.
4. Budgeted fixed selling and distribution overheads were Sh.50,000 less than the actual fixed
overheads.
5. Melta Ltd. used an expected activity level of 24,000 direct labour hours to compute the predetermined
overhead rates.
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 Required:
Prepare the following operating statements:

(i) Absorption costing profit or loss statement. (6 marks)

(ii) Marginal costing profit or loss statement. (6 marks)

(iii) A reconciliation statement for absorption and marginal profits. (2 marks)

(b) Motomoto Ltd. operates standard costing system. The following budgeted information relates to its only
product:

Quantity Unit price (Sh.) Standard cost per unit (Sh.)

Direct material A 3 kilograms 140 420
Direct material B 2 kilograms 250 500
Direct labour 2 hours 105 110
Fixed overheads 270
Standard cost per unit 1,300

Budgeted production amounted to 800 units at a unit price of Sh.1,300.

Actual production data for the month of November 2023:

Quantity Sh.
Sales revenue 850 units 1,326,000
Direct material A 2,410 kilograms (325,350)
Direct material B 1,000 kilograms (270,000)
Direct labour 890 hours (97,900)
Fixed overheads (229,500)
Net profit 403,250
Actual output amounted to 850 units.

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Additional information:

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1. Budgeted fixed overheads for its product is based on budgeted output of 800 units per month.

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2. Standard selling price was budgeted as Sh.1,600 per unit.

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3. There was no opening or closing inventory of direct material.

Required:
Flexible budget profit statement. (6 marks)
(Total: 20 marks)

QUESTION FIVE
(a) Major policy decisions in business are based on cost factor and it is important to distinguish between
controllable and non-controllable costs in decision making. However, the classification of cost as controllable
and non-controllable depends on the point of reference.

Required:
(i) With reference to the above statement, explain TWO possible uses of cost information to the
management. (2 marks)

(ii) By distinguishing between “controllable costs” and “non-controllable costs”, discuss how the
classification of cost as controllable and non-controllable depends on a point of reference. (4 marks)

(b) Activity Based Costing (ABC) attempts to relate the incidence of costs to the level of activities undertaken.

Required:
In relation to the above statement, explain the following hierarchy of activities that are used in activity based
costing system:

(i) Unit level activities. (2 marks)

(ii) Batch level activities. (2 marks)

(iii) Product level activities. (2 marks)

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(c) ABC Ltd. produces and sells a single product Zed whose standard cost is as follows:

Sh.
Direct material (15kgs at Sh.260 per kg) 3,900
Direct wages (5 hours at Sh.60 per hour) 300
Fixed production overheads 500
4,700
Additional information:
1. The fixed overheads included in the standard cost is based on an expected monthly output of 1,000
units.
2. Fixed production overheads are absorbed on the basis of direct labour hours.
3. During the month of November 2023, the actual results were as follows:
Production 890 units
Material 12,100 units costing Sh.1,835,500
Direct wages 4,200 hours worked for Sh.241,500
Fixed production overheads Sh.470,000

Required:
(i) Material price variance and material wage variance. (4 marks)

(ii) Labour rate variance and labour efficiency variance. (4 marks)

(Total: 20 marks)
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 CPA INTERMEDIATE LEVEL

MANAGEMENT ACCOUNTING

TUESDAY: 22 August 2023. Morning 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 limitations of financial accounting which are addressed by management accounting. (6 marks)

(b) Distinguish between a “cost centre” and a “profit centre” as used in responsibility accounting. (4 marks)

(c) The Management Accountant of Unga Safi Millers has presented the following data on machine hour and
electricity consumption for the last 6 months:
Month Machine Hours (“000”) Electricity expense (Sh.“000”)
June 78 1,800
July 78 1,500
August 93 1,590
September 105 1,650
October 129 1,740

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November 144 2,040

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Required:

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(i) Using High-Low method of cost estimation, develop a predictor equation in the form of Y=a+bx.

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(4 marks)

(ii) Determine the total electricity expense at 120,000 machine hours. (2 marks)

(iii) Explain TWO limitations of adopting High-low method in cost estimation. (4 marks)
(Total: 20 marks)

QUESTION TWO
(a) Explain FOUR reasons for budgeting in a business. (4 marks)

(b) Tazam Ltd. is developing a cost accounting system. Initially it has been decided to create four centres:
Accommodation deals with guests, Kitchen prepares meals while Tours and Entertainment are internal service
recreation centres.
The following overheads details have been estimated for the month of August 2023:
Type of overhead Sh.“000”
Rent and taxes 75,000
General lighting 30,000
Indirect wages 150,000
Petrol and engine oil 88,500
Depreciation on tour buses 500,000
843,500
The following information is also available:
Total Accommodation Kitchen Tours Entertainment
Direct wages (Sh.“000”) 500,000 150,000 100,000 150,000 100,000
Floor area (m2) 100,000 30,000 25,000 20,000 25,000
Value of tour buses (Sh.“000”) 1,250,000 350,000 650,000 150,000 100,000
Lighting points 60 20 15 10 15
Number of petrol fillings 150 40 50 60 -

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 Additional information:
1. In August 2023, it is estimated that there will be 20 guest-nights in Accommodation and 480 meals will
be served in the Kitchen.
2. Secondary allocation of overheads is as follows:
Cost centre Accommodation Kitchen Tours Entertainment
Tours 60% 30% - 10%
Entertainment 50% 30% 20%

Required:
(i) Prepare an overhead analysis statement (OAS) showing primary allocation to each centre. (10 marks)

(ii) Secondary allocation of the internal service recreation centre costs to production departments using
simultaneous method. (4 marks)

(iii) Calculate the appropriate overhead absorption rates for Accommodation and Kitchen. (2 marks)
(Total: 20 marks)

QUESTION THREE
(a) Urembo Lifestyles offers three different types of body grooming and fitness services. These are: salon, gym and
barber shop using the same staff. Various estimates for the next year have been made as follows:
Service Salon Gym Barber shop
Sh. per client Sh. per client Sh. per client
Service fee 300 390 200
Variable material costs 140 180 100
Variable labour costs 60 100 50
Fixed overhead costs 90 120 40

Labour hours per client 2 hours 3 hours 1.5 hours

Additional information:
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1. Total fixed cost for the next year is expected to be Sh.400,000.
2. The budgeted maximum demand of clients for the next year for the services is estimated as follows:
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• Salon 3,000 clients

• Gym 1,000 clients
• Barber shop
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1,500 clients
3. Urembo Lifestyles has a maximum of 9,900 labour hours available next year.
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Required:
(i) If the business were to offer salon services only, calculate the break-even number of clients.
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(3 marks)

(ii) Prepare the limiting factor mix schedule to show the number of clients per service that maximises
profitability. (6 marks)

(iii) The maximum net profit achievable based on service mix determined in (a) (ii) above. (3 marks)

(b) Sigma Ltd. operates a standard marginal costing system. The following data has been collected for the month of
July 2023 for its main product branded “SGM”:
Actual costs incurred: Sh.“000”
Direct material (1,188 kilograms) 11,286
Direct labour (5,760 hours) 41,760
Variable production overheads 12,096
Fixed production overheads 48,600

Variances: Sh.“000”
Direct material price variance 594 Favourable
Direct material usage variance 1,080 Adverse
Direct labour rate variance 1,440 Adverse
Direct labour efficiency variance 2,520 Adverse
Variable overhead expenditure variance 576 Adverse
Variable overhead efficiency variance 720 Adverse
Fixed overhead expenditure variance 900 Favourable
Fixed overhead volume variance 4,500 Favourable

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 Additional information:
1. Variable production overheads are absorbed based on actual hours worked.
2. There was no significant difference in opening and closing work in progress.
3. Actual production of product SGM was 1,080 units in the month of July 2023.

Required:
Prepare a standard product cost sheet for one unit of product SGM. (8 marks)
(Total: 20 marks)

QUESTION FOUR
(a) Explain THREE factors that might be considered before choosing a suitable method for labour remuneration.
(6 marks)

(b) Mars Bottlers Ltd manufactures and sells four products. Details of the four products and relevant information are
given below for the month of August 2023:

Product A01 B02 C03 D04 Total

Output units 1,200 units 1,000 units 800 units 1,200 units 4,200 units
Machine hours per unit 4 hours 3 hours 2 hours 3 hours 12 hours
Production runs 6 5 4 6 21
Requisitions raised 20 20 20 20 80
Orders executed 12 10 8 12 42

Cost per unit: Sh. Sh. Sh. Sh.

Direct material 3,300 4,125 2,475 4,950
Direct labour 2,310 1,980 1,155 1,815

Additional information:
1. Currently production overheads are absorbed based on conventional machine hour basis although the
management is proposing the adoption of activity-based costing (ABC) technique.

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2. The production overheads for the period have been analysed as follows together with ABC cost drivers:

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Cost element Sh. “000” Cost driver

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Machinery cost centre 10,430 Total machine hours

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Set-up costs 5,250 Number of production runs
Stores receiving costs 3,600 Requisitions raised
Inspection costs 2,100 Number of production runs
Material handling costs 4,620 Orders executed
26,000
Required:
Compute a budgeted unit cost and total cost using:

(i) Conventional technique. (6 marks)

(ii) Activity based costing (ABC) technique. (8 marks)

(Total: 20 marks)

QUESTION FIVE
(a) The analysis of total cost into its behavioural elements is essential for effective cost and management accounting.

With reference to the above statement, enumerate FOUR cost behaviour patterns. (4 marks)

(b) Hard Board Ltd. produces a product that passes through three processes. The data about refining process is as
follows:

1. Opening work in progress was 900 units at a total cost of Sh.45,000,000. The degree of completion is as
follows:
• Direct material 100%
• Direct labour 40%
• Production overheads 60%
2. Data about refining process is as follows:
• Input of raw materials is 9,100 units for Sh.273,000,000
• Direct labour is Sh.125,700,000
• Production overheads is Sh.81,000,000

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3. Finished units transferred to finished stores were 7,800 units.
4. Normal scrap loss was 10% of input units and the scrapped units realised Sh.30,000 per unit.
5. Units scrapped were 1,200 units with the following degrees of completion:
• Direct material 100%
• Direct labour 70%
• Production overheads 70%
6. Closing work in progress was 1,000 units with the following degrees of completion:
• Direct material 100%
• Direct labour 80%
• Production overheads 70%
7. Hard Board Ltd. uses first in first out (FIFO) method.

Required:
Prepare the following:

(i) Statement of equivalent units of production. (6 marks)

(ii) Statement of cost. (4 marks)

(iii) Statement of valuation. (3 marks)

(iv) Refining process account. (3 marks)

(Total: 20 marks)
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 CPA INTERMEDIATE LEVEL

MANAGEMENT ACCOUNTING

TUESDAY: 25 April 2023. Morning 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 benefits of maintaining a cost database. (6 marks)

(b) ABC Ltd. applies joint process costing in the production process of two joint products; AX and AY. The following
information was gathered for the two joint products:

Joint Production Selling price Separation cost if Separation costs if

Products at split-off point sold at split-off processed further
Kgs (Sh. per kg) (Sh. per kg) (Sh. per kg)
AX 322,000 435.90 125.90 42
AY 600,000 350.90 44.90 28
ABC Ltd. incurred the following joint costs: Sh.“000”
Conversion costs 125,000

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Curing cost 80,000

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Fermentation cost 120,000

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Total joint cost 325,000

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Required:
Calculate the total profit or loss per product if joint costs are allocated to product AX and AY on the basis of:
(i) Sales value at split-off point. (4 marks)
(ii) Net realisable value at split-off point. (4 marks)
(c) Digital Television Ltd. manufactures digital televisions. The main component used in making digital televisions is
the fluorescent bulbs. For each digital television manufactured, 12 bulbs are required. The company manufactures
15,000 digital televisions per year. It costs Sh.200 each time the bulbs are ordered and the carrying cost are Sh.8 per
bulb per year.

Required:
(i) Determine the economic order quantity of bulbs. (3 marks)

(ii) Calculate the number of times per year the bulbs will be ordered assuming 360 days in a year. (3 marks)
(Total: 20 marks)

QUESTION TWO
(a) In the context of labour remuneration, highlight FOUR causes of labour turnover. (4 marks)

(b) Ezekiel Mutinda, a sole trader, prepares three types of cakes branded HBL1, HBL2 and HBL3 in two production cost
centres and two service centres. The production centres are mixing cost centre and baking cost centre while the
service centres are distribution department and canteen department.

The following is the budgeted production data and production cost for the year ending 31 December 2023:
Product
HBL1 HBL2 HBL3
Production 3,300 units 7,100 units 1,650 units
Sh. per unit Sh. per unit Sh. per unit
Direct material cost 130 150 160
Direct labour:
Mixing cost centre 75 60 50
Baking cost centre 90 50 180
Mixing machine hours per unit 6 3 4
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 The budgeted overheads for the year are as follows:

Department Mixing Baking Distribution Canteen Total

Sh.
Allocated overheads (Sh.) 376,975 243,925 166,000 266,500 1,053,400
Rent and rates 170,000
Depreciation of machine 300,000

Additional information:
1. The budgeted overheads for the year are to be allocated on the following basis:

Department Mixing Baking Distribution Canteen

Net book value of machine (Sh.) 1,500,000 750,000 300,000 450,000
Floor space occupied (square metre) 3,600 1,400 1,000 800
2. Secondary reapportionment is allocated using step-wise method on the following basis:

Service department Mixing Baking Distribution Canteen

Distribution 70% 30% - -
Canteen 55% 45% - -

Required:
(i) An overhead analysis sheet (OAS) showing both primary and secondary apportionment. (4 marks)

(ii) Total machine hours for mixing cost centre. (2 marks)

(iii) A machine hour overhead absorption rate (OAR) for mixing cost centre. (2 marks)

(iv) A rate expressed as a percentage of direct labour cost for the baking cost centre. (4 marks)

(v) Calculate the budgeted total cost per unit of product HBL1 (4 marks)
(Total: 20 marks)
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QUESTION THREE
(a) Outline FOUR factors influencing stock levels in inventory management. (4 marks)
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(b) Highlight FOUR purposes of cost estimation to a service company such as a hospital. (4 marks)
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(c) Relei Ltd. is currently following a centralised material storage system. The company is in the process of preparing its
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cash budget for the second-quarter of the year 2023 and has availed the following data:

Month Sales Material Production Selling Salaries and

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purchases overheads overheads wages

Sh.“000” Sh.“000” Sh.“000’’ Sh.“000” Sh.“000”
January 144,000 50,000 12,000 11,000 20,000
February 200,000 62,000 12,300 12,400 24,000
March 180,000 50,500 13,000 15,500 20,000
April 150,000 60,600 17,500 18,900 36,000
May 205,000 74,000 17,700 22,000 40,000
June 208,000 76,800 16,400 23,200 48,000

Additional information:
1. Cash sales are 60% of the total sales. The remaining sales are collected equally during the following two
months.
2. Assets are to be acquired in the month of April 2023 and May 2023. Therefore, provisions should be made
for payment of Sh.16,000,000 and Sh.65,000,000 for the same.
3. An application has been made to the bank for the grant of a loan of Sh.45,000,000 and it is hoped that the
loan will be received in the month of May 2023.
4. Creditors for materials purchased are granted one-month credit after month of purchase.
5. Monthly production overheads include depreciation of Sh.5,000,000 per month.
6. Selling overheads are paid one month after the month in which the overhead occurred.
7. Salaries commission at 3% on sales is paid to the salesmen each month.
8. Salaries and wages are paid monthly at the end of the month.
9. An advance tax of Sh.20,000,000 is due in April 2023.
10. The cash balance as at 1 April 2023 is estimated as Sh.144,500,000.

Required:
A cash budget for the second quarter of the year commencing 1 April 2022 to 30 June 2023. (12 marks)
(Total: 20 marks)
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QUESTION FOUR
(a) Discuss FOUR limitations that a firm might encounter when operating a marginal costing system. (8 marks)

(b) Grate Ltd. manufactures and sells a single product branded “GL”. The cost data for the product is as follows:

Variable cost per unit: Sh.

Direct materials 60
Direct labour 120
Variable production overhead 40
Fixed production overhead 80
Variable selling overhead 30
330
Fixed cost per month: Sh.
Fixed production overhead 2,400,000
Fixed selling overhead 1,800,000
4,200,000

Additional information:
1. The product is sold for Sh.400 per unit.
2. Grate Ltd. budgeted to produce and sell 30,000 units per month.
3. Actual production and sales units for the months of January 2023 and February 2023 are as follows:
Production Sales
(units) (units)
January 30,000 26,000
February 30,000 34,000
4. There was no opening inventory or work-in-progress as at the start of January 2023.

Required:
Prepare profit or loss statements based on:

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(i) Marginal costing technique. (6 marks)

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(ii) Absorption costing technique. (6 marks)

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(Total: 20 marks)

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QUESTION FIVE
(a) Quivo Ltd. manufactures and sells a single product branded “QV”. The following information relates to product
“QV” for the month of March 2023:

Sh. per unit

Materials 800
Conversion costs (variable) 600
Selling price 2,000

Additional information:
1. The dealer’s margin is equivalent to 10% of the selling price.
2. The total fixed cost during the period was Sh.25,000,000.
3. The sales department indicates that the current sales during the period amounted to 90,000 units.
4. The production capacity utilisation is at 60%.

The company has in the recent past faced an acute competition that has negatively affected the sales targets.
The Marketing Manager has presented the following two options for increasing sales:

Option A: Reducing sales price by 5%.

Option B: Increasing dealers’ margin by 25% over the existing rate.

Required:
Recommended the option the company should adopt if the company desires to maintain the present profit. (8 marks)

(b) Dex Ltd. manufactures a single product branded “XV”. The company operates a standard marginal costing system.

The following information for the month of March 2023 is availed to you:

1. The budgeted production and sales for the month amounted to 6,000 units.
2. The standard selling price of product “XV” per unit is Sh.13,200.
3. The variable standard manufacturing costs per unit are as follows:
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 Sh.
Direct materials (2.5 kgs at Sh.1,690 per kg) 4,225
Direct labour (1.25 hours at Sh.1,880 per hour) 2,350
Variable production overhead (1.25 direct labour hours at Sh.1,340 per hour) 1,675
4. The actual results for the month of March 2023 were as follows:
Production in units 6,380
Sh.“000”
Sales (5,640 units) 81,075
Direct materials purchased and used (14,730 kgs) 27,987
Direct labour (8,535 hours) 15,363
Variable production overheads 8,974
5. The variable production overheads are absorbed on the basis of direct labour hours.
6. The opening and closing inventories of finished goods are valued at the standard variable manufacturing
cost per unit.

Required:
Compute the following variances:

(i) Sales price. (2 marks)

(ii) Sales volume contribution. (2 marks)

(iii) Direct material price. (2 marks)

(iv) Direct material usage. (2 marks)

(v) Direct labour rate. (2 marks)

(vi) Direct labour efficiency. (2 marks)

(Total: 20 marks)
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 CPA INTERMEDIATE LEVEL

MANAGEMENT ACCOUNTING

TUESDAY: 6 December 2022. Morning 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 SIX benefits that would accrue to an organisation that encourages employees to participate in budget
preparation. (6 marks)

(b) Highlight FOUR benefits of continuous stock taking to a company. (4 marks)

(c) Babu Ltd. places orders for one of the components used in its manufacturing process. The price of the component
has been fluctuating thus affecting the production of the final product and hence eroding market confidence of the
company’s clients. The company’s accountant has presented the following quantity ranges and respective price of
the component which he believes would result in a cost saving to the company:

Range number Quantity range Prices per unit of the component

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11 6,001 – 10,000 380

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111 10,001 – 14,000 340
IV 14,001 – 18,000 310
V 18,001 and above 260
Additional information:
1. The company’s annual demand is 60,000 units.
2. The ordering cost per order is Sh.50,000.
3. The holding cost is 20% of the purchase price
4. The company practices continuous stock taking throughout the year.

Required:
Advise the company on the quantity range that would yield the highest cost savings. (10 marks)
(Total: 20 marks)

QUESTION TWO
(a) Explain the meaning of the following types of inventory costs:

(i) Out of pocket costs. (2 marks)

(ii) Set-up costs. (2 marks)

(iii) Opportunity costs. (2 marks)

(b) Lengo Ltd. manufactures and sells two products L and G to a number of customers. The company is currently
preparing its budget for the year ending 31 December 2023.

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 The cost, selling prices and demand units details for its two products are as follows:

Product L G
Sh. Sh.
Selling price per unit 2,000 2,100
Variable costs per unit:
Direct material Q (Sh.25 per litre) 200 250
Direct material T (Sh.40 per litre) 400 200
Direct labour (Sh.140 per hour) 280 350
Overhead (Sh.40 per hour) 160 200
Fixed production cost per unit 400 500
Units Units
Maximum sales demand for the month 1,000 3,000

Additional information:
1. The fixed production cost per unit is based upon an absorption rate of Sh.200 per direct labour hour and
total annual production activity is 90,000 direct labour hours. One-twelfth (1/12) of the annual fixed
production cost will be incurred.
2. In addition to the above costs, non-production overhead costs are expected to be Sh.577,500.
3. During the period, the availability of material Q is expected to be limited to 31,250 litres.
4. It is the policy of Lengo Ltd not to hold inventory of finished goods

Required:
(i) Compute the shortfall in litres for material Q. (3 marks)

(ii) The optimal production mix based on priority ranking. (7 marks)

(iii) The net profit at optimal production mix. (4 marks)

(Total: 20 marks)
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QUESTION THREE
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(a) TQM Ltd. is a manufacturing company that makes three products namely; T, Q, and M. The data for the period
ended 30 November 2022 is given as follows:
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T Q M
Units produced and sold 12,000 16,000 8,000
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Sales price per unit 50 70 60

Direct material cost per unit 16 24 20
Direct labour cost per unit 8 12 8

Production overheads costs Total Cost drivers

Sh.
Machining costs 102,000 Machine hours
Production scheduling 84,000 Number of production runs
Set-up costs 54,000 Number of production runs
Quality control 49,200 Number of production runs
Receiving materials 64,800 Number of component receipts
Packing materials 36,000 Number of customer orders
390,000

Information on the cost driver is given as follows:

T Q M
Direct labour hours per unit 1 1½ 1
Machine hours per unit ½ 1 1½
Number of components per unit 3 5 8
Number of component receipts 18 80 64
Number of customer orders 6 20 10
Number of production runs 6 16 8

Required:
Using activity-based costing (ABC), determine the cost and gross profit per unit for each product during
the period. (10 marks)
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(b) Bingwa Ltd. operates a premium bonus system where workers receive a guaranteed basic hourly minimum rate of
pay plus a bonus of 50% of the time saved.

The following data is provided for the last week of November 2022:

Particulars Bella Chali Dan

Time rate (Sh. per hour) 300 280 320
Units produced 2,500 units 2,200 units 2,600 units
Time allowed for 100 units 2 hours 36 minutes 2 hours 30 minutes 2 hour 30 minutes
Time taken 55 hours 58 hours 54 hours
Rejected units 100 units 40 units 200 units

Additional information:
1. No payment is made beyond the time allowed.
2. The bonus which is paid at the basic hourly rate is applicable to the accepted output only.
3. No penalty is imposed on rejected output.

Required:
From the above information, calculate for each employee:

(i) Bonus hours and amount of bonus earned. (6 marks)

(ii) Labour cost for each good unit produced. (4 marks)

(Total: 20 marks)

QUESTION FOUR
(a) Explain FOUR arguments in favour of marginal costing system. (8 marks)

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(b) Quota Ltd manufactures and sells a single product branded “TT” with a standard cost of Sh.1,100 made up as

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follows:

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Sh.
Direct materials (15 square metres at Sh.30 per square metre) 450
Direct labour (5 hours at Sh.100 per hour) 500
Variable overheads (5 hours at Sh.20 per hour) 100
Fixed overheads (5 hours at Sh.10 per hour) 50

The standard selling price per unit is Sh.1,300. The monthly budget projects production and sales of 1,000 units.

Actual figures for the month of November 2022 are as follows:

• Sales 1,200 units at Sh.1,320 per unit.

• Actual production 1,400 units.
• Direct materials 22,000 square metres at Sh.40 per square metre.
• Direct wages 6,800 hours at Sh.110.
• Variable overheads was Sh.110,000.
• Fixed overheads was Sh.60,000.

Required:
(i) Material price variance and material usage variance. (4 marks)

(ii) Labour rate variance and labour efficiency variance. (4 marks)

(iii) Fixed overhead capacity variance and fixed overhead efficiency variance. (4 marks)
(Total: 20 marks)

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

(b) Highlight SIX benefits that a firm would derive from establishing a good cost accounting system. (6 marks)

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(c) Ocean Ltd. is preparing its budget for the year ending 30 June 2023.

It is decided to estimate an equation of the form, Y = a + bx,

Where;
Y is the total maintenance expense at an activity level x.
a is the fixed maintenance expense.

The following information relate to the year ending 30 June 2023:

Machine Maintenance Machine Maintenance

Month hours Cost (Sh.“000”) Month hours Cost (Sh.“000”)
September 2022 400 960 February 2023 240 640
October 2022 240 880 March 2023 160 560
November 2022 80 280 April 2023 480 1,350
December 2022 400 1,200 May 2023 320 660
January 2023 320 800 June 2023 160 440

Required:
(i) Estimate the total cost function using the ordinary least squares method. (8 marks)

(ii) Determine the total cost if 1,050 machine hours were applied. (2 marks)
(Total: 20 marks)
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 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.
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Required:
(i) Calculate the economic order quantity. (5 marks)
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(ii) Advise how frequently orders should be placed for procurement. (3 marks)
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(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)
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(Total: 20 marks)
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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)

CA25 Page 1
Out of 3
(b) Kasap Ltd. manufactures plastic bottles by 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

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3 6.5 55

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4 6.7 59

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5 7 62

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6 7.5 64

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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)

CA25 Page 2
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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 e
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Number of units produced and sold 70,000
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Additional information:
The management is considering the following options:
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1. Reducing selling price by 10% to increase sales by 15%.

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2. Reducing selling price by 20% to increase sales by 20%.

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Required:
(i) Worksheet showing effects of each consideration. (2 marks)

(ii) The best option from the analysis. (8 marks)

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

CA25 Page 3
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 CPA INTERMEDIATE LEVEL

MANAGEMENT ACCOUNTING

THURSDAY: 4 August 2022. Morning 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 the following terms as used in inventory management system:

(i) Perpetual inventory system. (2 marks)

(ii) Periodic inventory system. (2 marks)

(b) The following information relates to store receipts and issue of material R in a small manufacturing enterprise for
the month of April 2022:

April: 1 Opening inventory 4,000 units at Sh100 per unit.

4 Issued 3,000 units.
5 Purchased 9,000 units at Sh.120 per unit.

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12 Returned to stores 2,000 units (from the issue of 4 April 2022).

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15 Purchased 4,800 units at Sh.130 per unit.

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18 Returned to supplier 400 units out of the quantity received on 5 April 2022.

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25 Purchased 2,000 units at Sh.140 each.
28 Issued 4,200 units.
29 Purchased 2,400 units at Sh.150 per unit.
30 Issued 5,600 units.
It is the company’s policy to use the weighted average method when valuing the materials issued.

Required:
Store ledger account for the month of April 2022. (10 marks)

(c) Turkwes Ltd. manufactures men suits for local market. Jobs are allocated to two operators; Njogu and Mabili
with bonus paid for hours saved.

In the month of July 2022, Njogu made 100 units while Mabili made 105 units for which the time allowed of 60
standard minutes and 50 standard minutes per unit respectively was credited.

Additional information:
1. The basic wage rate was Sh.360 per hour for both employees.
2. For every hour saved, a bonus was paid at the rate of 25% of the basic wage rate.
3. Hours worked in excess were paid at the basic wage rate plus two thirds.
4. Njogu completed his job in 88 hours while Mabili completed his job in 78 hours.
5. A basic working week has 80 hours.

Required:
For each operator, determine:

(i) Amount of bonus payable. (2 marks)

(ii) Total gross wage payable. (2 marks)

(iii) Wage cost per unit. (2 marks)

(Total: 20 marks)
CA25 Page 1
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QUESTION TWO
(a) Distinguish between “flexible budget” and “activity based costing” as used in management accounting. (4 marks)
(b) Betacare Enterprise produces several products which pass through two production departments in its factory. These
two departments are concerned with filling and sealing operations. There are two service departments; canteen and
boiler house in the factory.
Additional information:
1. Predetermined overheard absorptions rate, based on direct labour hours are established for the two
production departments.
2. The budgeted expenditure for these two departments for the period just ended, including the
appointments of service department overheads was as follows:
• Filling centre Sh.110,040
• Sealing centre Sh.53,300
3. Budgeted direct labour hours were 13,100 hours for filling cost centre and 10,250 hours for sealing cost
centre.
4. Service department overheads are apportioned as follows:
Canteen Boiler house
% %
Production department: Filling centre 40 50
Sealing centre 50 30
Canteen Boiler house
% %
Service department: Canteen - 20
Boiler house 10 -
Total 100 100
5. During the period just ended, actual overhead costs and activity were as follows:
Sh. Direct labour hours
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Filling centre 74,260 12,820
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Sealing centre 38,115 10,075
Canteen 25,050
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Boiler House 24,375

Required:
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Reapportion and calculate the overheads absorption rates in each production cost centre using:
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(i) Stepwise technique. (7 marks)

(ii) Simultaneous technique. (7 marks)
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(iii) Compute over or under absorption of overheads under (b) (ii) above for filling and sealing production
departments. (2 marks)
(Total: 20 marks)

QUESTION THREE
(a) Discuss six benefits that would accrue to a firm that uses break-even charts in making managerial decisions in its
operations. (6 marks)

(b) NIE Social Academy conducts an entrance test for every new student whereby a final selection of 100 students is
made. The entrance test consists of four key areas and is spread over four days, one examination per day.
Being a community based institution, each student is charged a fee of Sh.500 for taking up the test.
The following data relates to the two months in the previous holiday:
Statement of net revenue from the entrance tests
April May
Sh. Sh.
Gross revenue (fees collected) 100,000 150,000
Costs:
Evaluation 40,000 60,000
Question booklets 20,000 30,000
Hire of hall at Sh.2,000 per day 8,000 8,000
Honoraria to chief invigilator 6,000 6,000
Supervision charges (on supervision of every 100
candidates at the rate of Sh.500 per day) 4,000 6,000
General administrative expenses 6,000 6,000
Total cost 84,000 116,000
Net Revenue 16,000 34,000

CA25 Page 2
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Required:
(i) Budgeted net revenue for 4,000 students. (8 marks)

(ii) Break-even number of candidates. (4 marks)

(iii) Number of candidates to be enrolled if the net income desired is Sh.200,000 in the following month. (2 marks)
(Total: 20 marks)

QUESTION FOUR
(a) (i) Explain the term “industrial engineering technique” as used in cost estimation. (2 marks)

(ii) Highlight three advantages of the industrial engineering technique. (3 marks)

(b) Zigzag Line Coaches Ltd. operates a fleet of executive coaches across the country.

The following information is provided:

30 seater coaches 50 seater coaches
Number of coaches 5 10
Number of drivers 5 10
Weekly wage cost per driver Sh.12,000 Sh.12,500
Cost of each coach Sh.6,000,000 Sh.9,200,000
Fuel consumption-kilometres per litre 12.5 8.0
Annual licence per coach Sh.35,000 Sh.50,000
Annual insurance per coach Sh.34,000 Sh.40,000

Additional information:
1. Annual repairs and maintenance were budgeted at Sh.6,500,000 and are to be apportioned between the
coaches in the ratio of their total mileage in kilometres covered.
2. Administrative expenses are budgeted at Sh.9,620,000 annually and are to be apportioned to each coach
in the ratio of driver’s wage costs.

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3. Each 30 seater coach is kept for 6 years at which it will have a resale value of Sh.2,400,000 while every

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50 seater coach will be replaced after 7 years and have a resale value of Sh.2,900,000.

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4. It is the policy of the company to depreciate the coaches on a straight line basis. Depreciation expense is

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charged annually.
5. It is envisaged that each 30 seater coach will travel 1,000 kilometres per week and each 50 seater coach
will travel 800 kilometres per week.
6. The cost of the fuel is budgeted at Sh.120 per litre.
7. It is budgeted that each coach will be in operation for 50 weeks per year and the drivers will be paid for
52 weeks.

Required:
Cost per kilometer per passenger for:

(i) 30 seater coach. (8 marks)

(ii) 50 seater coach. (7 marks)

(Total: 20 marks)

QUESTION FIVE
(a) Describe four uses of management accounting information to a business entity. (8 marks)

(b) The following information relates to actual output costs and variances for the month of May 2022 for a single
product branded “T” manufactured by KK Ltd.:

Actual production 36,000 units

Actual cost incurred: Sh.
Direct material (300,000 kgs) 8,400,000
Direct labour (64,000 hours) 5,440,000
Variable production overheads 1,520,000
Variances
Direct materials price 300,000 (Favourable)
Direct materials usage 180,000 (Adverse)
Direct labour rate 160,000 (Adverse)
Direct labour efficiency 320,000 (Favourable)
Variable production overhead expenditure 120,000 (Adverse)
Variable production overhead efficiency 80,000 (Favourable)
CA25 Page 3
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Additional information:
1. There was no opening or closing work-in-progress during the period.
2. Variable production overhead varies with labour hours worked.
3. The company operates the standard marginal costing system.

Required:
Standard cost card for product “T” for the month of May 2022. (12 marks)
(Total: 20 marks)
...............................................................................................................

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