SCHOOL OF BUSINESS, ECONOMICS AND MANAGEMENT

COURSE CODES: AFIN317

COURSE NAME: ADVANCED MANAGEMENT ACCOUNTING

ASSIGNMENT
ALL MODES: FULL-TIME/PART-TIME/DISTANCE STUDENTS

DUE DATE: 24th SEPTEMBER 2020

Instructions to Candidates:

1. Answer all the questions in this assignment

2. Show your workings and neatly present your work.
3. Answers should be typed or written by hand neatly scanned and emailed.
4. The assignment must be submitted by the due date otherwise marks will be
deducted for late submission.
Lecturer’s Details:
Name: Mr. Kawanga Kapalayi
Phone: 0979 261585 (Available during working hours only)

Submit Assignment to: kkapalayi@unilus.ac.zm

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QUESTION ONE

A company manufactures a single product which has the following cost structure based
on a production budget of 10,000 units.

Material 4kg@ZMW3/kg ZMW 12

Direct labour 5 hours@ZMW7/Hr ZMW 35

Variable production overheads are recovered at a rate of ZMW8per direct labour hour.
Other costs incurred by the company are:

ZMW

Factory fixed overheads 120,000

Selling and distribution overheads 160,000
Fixed administration overheads 80,000

The selling and distribution overheads include a variable element due to a distribution
cost of ZMW2 per unit.
The fixed selling price of each unit is ZMW129

Required:
a) Calculate how many units have to be sold for the company to break even.
(5 Marks)
b) Calculate the sales revenue which would give a net profit of ZMW40, 000.
( 5 Marks)
c) If the company could buy in the units instead of manufacturing them ,calculate
how much it would be prepared to pay if both:
i. Estimated sales for next year are 9,500 units sold at ZMW129 each; and
ii. ZMW 197,500 of fixed selling, distribution and administrative overheads
would still be incurred even if there is no production (all other fixed
overheads would be saved). (10 Marks)

[Total 20 Marks]

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QUESTION TWO

Electronic Limited assembles and sells many types of radio. It is considering extending
its Product range to include digital radios. These radios produce a better sound quality
than traditional radios and have a large number of potential additional features not
possible with the previous technologies (station scanning, more choice, one touch
tuning, station identification text and song identification text etc.)
A radio is produced by assembly workers assembling a variety of components.
Production overheads are currently absorbed into product costs on an assembly labour
hour basis. The company is considering a target costing approach for its new digital
radio product.

A selling price of ZMW44 has been set in order to compete with a similar radio on the
market that has comparable features to the intended product. The board have agreed
that the acceptable margin (after allowing for all production costs) should be 20%.
Cost information for the new radio is as follows:
Component 1 (Circuit board) – these are bought in and cost ZMW4·10 each. They are
bought in batches of 4,000 and additional delivery costs are ZMW2, 400 per batch.
Component 2 (Wiring) – in an ideal situation 25 cm of wiring is needed for each
completed radio.
However, there is some waste involved in the process as wire is occasionally cut to the
wrong length or is damaged in the assembly process. The company estimates that 2% of
the purchased wire is lost in the assembly process. Wire costs ZMW0·50 per metre to
buy.
Other material – other materials cost ZMW8·10 per radio.
Assembly labour – these are skilled people who are difficult to recruit and retain. The
company has more staff of this type than needed but is prepared to carry this extra cost
in return for the security it gives the business. It takes 30 minutes to assemble a radio
and the assembly workers are paid ZMW12·60 per hour. It is estimated that 10% of
hours paid to the assembly workers is for idle time.
Production Overheads – recent historic cost analysis has revealed the following
production overhead data:

Total production overhead (ZMW)

Month 1 ZMW 620,000 Month 2 ZMW 700,000

Total assembly labour hours

Month 1 19,000 hours Month 2 23,000 hours

Fixed production overheads are absorbed on an assembly hour basis based on normal
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annual activity levels. In a typical year 240,000 assembly hours will be worked at the
company.
Required:
i) Briefly describe the target costing process that Electronic limited should
undertake. (4 Marks)
ii) Explain the benefits of adopting a target costing approach at such an early stage
in the product development process. (4 marks)
iii) Assuming a cost gap was identified in the process, outline possible steps
the company could take to reduce this gap. (6 marks)

iv) Explain how Value Analysis could be applied and why it useful.
(6
marks)
[Total 20 Marks]

QUESTION FOUR

A. Kalambo limited manufacture three products X, Y and Z.The Company is facing a

restriction in its machining section of the Assembly plant. The machine has a
capacity of 1,200 units of X, 1,500 units of Y and 600 units of Z per hour. The
machine currently operates for 8 hours in a day. Information about each product is
given below:

Product X Y Z

Daily output achieved (units) 6,000 4,500 1,200

Unit Selling price(ZMW) 150 120 300

Unit material cost(ZMW) 80 40 100

The company’s conversion cost per day is given as ZMW720, 000.

Required:
i) Calculate the Throughput Accounting Ratio (TA) for each product. (6 Marks)
ii) Explain the Value of Throughput Accounting to industry. (4 Marks)

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B. The cost structure of a firm has an impact on its ability to be viable. Capital Intensive
production setups such Mines and Manufacturing Industries must keep an eye on
operating leverage.
Required:
Discuss how managing Cost Structure and Operating leverage can affect breaking
even and operational sustainability of a production company. (10 Marks)
[Total 20 Marks]

QUESTION FOUR

A. It is important that organization undertake strategic planning as part of the process

of improving performance and overall competitiveness. Some of the activities
include the following:
1. Defining clear Organizational Vision, Mission, and Core Values;
2. Undertaking an Environmental Analysis;
3. Developing Strategic Goals and Objectives; and
4. Developing organisational Strategies
Required

Discuss the significance of the each of the mentioned activities and what is involved.

(12 Marks)

B. Mining in Zambia is important economic activities which earns the country foreign
exchange. However in the era of high alertness to the environmental consequences
of industrial activities, it is imperative that companies in the extractive sector take
precaution of the environmental costs emanating from such activities may have a
long lasting negative effect on the environment and its inhabitants. The United
Nations Sustainable Development Goals (SDGs) enshrine the importance of
protecting the environment especially that climate change has become a huge
concern. Environmental Accounting is an areas of accounting that seeks to manage

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 such costs using systems and accounting methods that provide information on
environmental costs.

Required:
i. Briefly explain these three types of Environmental Costs. (3 Marks)
a) Conventional Costs
b) Image Costs
c) Contingency Costs
ii. Discuss three functions of Environmental Management Systems. (5 Marks)

[Total 20 Marks]

QUESTION FIVE

The accountant of bicyclelands manufacturing collected the following information:

Activity Overhead costs Cost driver Product X1 Product X2

Machining Dept:
Setup $200,000 Number of setups 200 50
Machining 700,000 Machine hours 20,000 15,000

Packaging Dept:
Assembly 300,000 Direct labor hours 40,000 60,000
Inspection 180,000 Number of inspections 120 60

Required:

i) If bicyclelands manufacturing uses a plant wide rate based on direct labor hours to
allocate overhead costs, calculate product X1’s share of overhead.

ii) If the department allocation method is used, determine the overhead rate for the
Machining department with machine hours as the allocation base?

iii) When activity-based costing is used, compute product X2’s share of the Packaging
department overhead costs.

iv) When activity-based costing is used, calculate how much of the overhead cost is
allocated to product X1.

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v) Distinguish the cost structures of a manufacturing firm with low operating leverage
and one with high operating leverage.

[Total 20 Marks]

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