KENYA METHODIST UNIVERSITY

END OF 3RD TRIMESTER 2016 (PT) EXAMINATION

SCHOOL : BUSINESS AND ECONOMICS

DEPARTMENT : ACCOUNTING, FINANCE AND INVESTMENTS
UNIT CODE : ACCT 321
UNIT TITLE : MANAGERIAL ACCOUNTING
TIME : 2 HOURS

Instructions: Answer question one and any other two questions.

Question One
The budget of ABC Ltd provides for the manufacture and sale of 10,000 units
per month. The unit standard cost being Ksh. 60 made up as follows:
Ksh
Direct materials 30
Direct labour 10
Fixed overhead 20
60
The selling price of each unit is ksh. 80. Production and sales quantities for
the first and second quarters were as follows:
1st Quarter 2nd Quarter
Production 12,000 12,000
Sales 10,000 14,000
Required:
(a) Operating statement for each of the two periods assuming the company
uses:

Page 1 of 5
 (i) Marginal costing methods (10 Mks)
(ii) Absorption costing method (10 Mks)
(b) Reconcile the profits for each quarter. (5 Mks)
(c) Distinguish between a flexible and fixed budget, giving a characteristic of
each type. (5 Mks)

Question Two
a. State and explain five differences between management and financial
accounting (10 marks)
b. Abiola ltd produces product T. The projected income statement for the year
2013 is as follows:
Sh. Sh.
Sales (50,000 units) 3,000,000
Variable cost
Direct materials 700,000
Direct labor 400,000
Direct expenses 300,000
Variable overheads 160,000 (1,560,000)
Contribution Margin 1,440,000
Less fixed costs 800,000
Net profit 640 000
Required:
i) Break-even point in units and revenue (4 Marks)
ii) How many units to be sold to earn a profit of sh.150,000 (4 marks)
iii) For the projected level of sales, compute the margin of safety in units
(2
marks)

Question Three

a) The XYZ tool manufacturing co. shows the following factory O/H costs at
various levels of direct labour hrs. for the last four months.

Page 2 of 5
 Direct labour Factory
Month Hours Overheads
July 3000 9000
August 1700 6000
September 2200 8000
October 4000 12000

Determine the monthly fixed O/H and variable O/H rate per hour and total
cost formula using.

 High-low method.
(4mks)
 Least-squares method.
(6mks)

b) The total cost of component Z is as below:

Per unit (ksh) Units 20,000

Labour 8 160,000
Direct materials 1 20,000
variable overheads 4 80,000
Fixed overheads applied 5 100,000
Total manufacturing
cost 18 360

The same component can be bought at sh. 16 per unit.

Required:

Should the company buy or make the component if the fixed costs are
assumed to be consumed whether the company buys or makes the
components. (10mks)

Question Four

Page 3 of 5
Joho Ltd. Manufactures and sells one brand of washing soap. The sale price
per one dozen packet is Sh.52. The standard production cost is Sh.40 per
dozen arrived at as follows:

Shs
Direct materials: Material A – 2 Kg. @Sh.6 12.00
Material B – 2 litres @ Sh.4 8.00
Direct labour: ½ hour @ Sh.18 9.00
Overheads:
Variable 6.40
Fixed 4.60
40

Factory overheads are allocated on the basis of machine hours at the rate of
sh.12 per hour. During the last financial year the company had budgeted to
produce 70,000 dozen packets. However, material shortages limited production
to 62,000 dozen packets for which the following costs were incurred:

Shs
Material A 194,000 Kg. 780,800
B 130,000 litres 625,000
Direct labour 35,000 hours 684,000
Variable overheads 384,000
Fixed overheads 250,000

The company utilized 60,000 machine hours

Required

1. Calculate the following variances:

2. Material price and usage variance

3. Labour rate and efficiency variances

4. Variable overhead spending and efficiency variances.

(20mks)

Page 4 of 5
Question Five
a. Discuss the types of budgets (5 Marks)
b. Elaborate on the importance of budgeting (10 marks)
c. Enumerate five limitations of budgeting (5 marks)

Page 5 of 5