MASENO UNIVERSITY

BAF 422.
Management Accounting II
Jan-Apr 2024 Year 4 Semester 2
Continuous Assessment Test
Question One

Maynard Manufacturing Company allocates overhead in the Machining Department on the basis
of machine hours, while in the Assembly Department overhead is allocated on the basis of direct
labor cost. The following budget data are provided:

Machining Assembly
Manufacturing overhead Sh.500,000.00 Sh.1,075,000.00
Direct labor 350,000.00 500,000.00
Machine hours 100,000.00 10,000.00
Direct labor hours 50,000.00 150,000.00

The following information is provided for a job (Job No. 510) recently completed by the
company:

Machining Assembly
Manufacturing overhead Sh.25,000.00 Sh.37,500.00
Direct labor Sh.10,000 Sh.12,500
Machine hours 5,000 1,000
Direct labor hours 2,000 3,000
Required:

a) Compute the two departmental overhead rates.

b) Compute the cost of Job No. 510.
c) Assume that the company decides to use a single overhead rate for the two departments,
calculated by adding their overhead costs and using direct labor hours as the allocation
base. What would the overhead rate be, and how much manufacturing overhead cost
would be assigned to Job No. 510?

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 Question Two

The following are the profit and Loss accounts of H Ltd, and S. Ltd. for the year ended 31 st
March, 2020.
Particulars H Ltd S Ltd Particulars H Ltd S Ltd
Shs Shs. Shs Shs.
To Opening Stock 200,000 - By Sales 1,600,000 1,300,000
To Purchases 1,000,000 800,000 By Closing Stock 300,000 200,000
To Productive Wages 300,000 200,000
To Gross Profit c/d 400,000 500,000
1,900,000 1,500,000 1,900,000 1,500,000
To Sundry Expenses 150,000 200,000 By Gross Profit b/d 400,000 500,000
To Debentures Interest - 12,000 By Debenture Interest 6,000 -
To Provision for Taxation 120,000 140,000
To Profit c/d 136,000 148,000
406,000 500,000 406,000 500,000
To Preference Dividend - 6,000 By Profit b/s 136,000 148,000
To Proposed Dividend 40,000 20,000
To Corporate Dividend Tax 4,000 4,600
To Balance c/d 92,000 97,400
136,000 148,000 136,000 148,000

You are also given the following additional information:

1. H. Ltd. holds 1,500 Equity shares of Shs. 200 each in S. Ltd, whose capital consists of
2,000 Equity shares of Shs. 200 each and 6% 500 cumulative Preference shares of Shs.
200 each. S. Ltd. has also issued 6% Debentures of Shs. 200,000 out of which H. Ltd.
holds Shs. 100,000.
2. The shares in S. Ltd. were acquired by H. Ltd. on 1 st July 2019 but the debentures were
acquired on 1st April 2019 S. Ltd. was incorporated on 1st 2019.
3. During the year S. Ltd. sold H. Ltd. goods costing Shs. 100,000 at the selling price of Shs.
150,000. One fourth of the goods manufactured remained unsold on 31 st March 2020. The
goods were valued at cost to the holding company for closing stock purpose.
Required
Prepare a consolidated profit and loss account.

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Question Three
An asset will cost Khs. 3,500,000 when purchased this year (2024). It’s expected salvage value
is KES. 500,000 at the end of its six-year depreciable life.

Required:

Calculate complete depreciation schedules giving the depreciation charge, D(n), and end-of-year
book value, B(n), for straight-line (SL), sum of the years digits (SOYD), double declining balance
(DDB), and modified accelerated cost recovery (MACRS) depreciation methods. Assume a
MACRS recovery period of 6 years.
Question Four
E&F use a range of metrics to assess the performance of the company. The following information
has been extracted from the accounts for the last two years. Income Statement ($000)

Estate Planning, a new service,

incurred $600,000 in
development costs and
employee
training.
Estate Planning, a new service,
incurred $600,000 in
development costs and
employee
training.
2021 2022

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 Profit before Interest and Tax 360 380
Interest (40) (40)

Profit before Tax 320 360

Tax @ 25% p.a. (80) (85)

Profit After Tax 240 255

Dividends (120) (155)
Retained Earnings 120 100

Balance Sheet (000)

None Current Asset 2050 2000
Current Asset 470 350
2520 2530

Total Equity 1770 1780

Long term Debt 750 750
2520 2530

Additional information is as follows:

(i) Capital employed at the end of 2020 was Shs 2,480,000. This included Shs 2,100,000
of Non-Current Assets.
(ii) The pre-tax cost of debt for 2021 and 2022 was 5%.
(iii) E&F had non-capitalised leases of Shs 100,000 in both years. The leases were not
subject to amortisation.
(iv) Amortised goodwill was Shs 120,000 in 2021 and Shs 130,000 on 2022. The annual
amortisation charge was Shs 10,000.
(v) The cost of equity was estimated at 8% for both years.
(vi) The economic depreciation for both years was the same as the depreciation used for
accounting and tax purposes. However, the replacement cost of Non-Current Assets is
10%higher than stated in the accounts.
(vii) The target capital structure was 40% debt and 60% equity for both years.
(viii) The company uses a cost of capital of 8% to assess the viability of any new projects
being considered.

Required:

a. Calculate the following performance metrics for both years and comment on the
company's performance.

 Return on Investment.
 Residual Income.
 Economic Value Added.

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All calculations should use a capital employed figure at the beginning of the year.

b. Discuss the similarities and differences between the three metrics used in part (a).