Free Management Accounting Revision

1. Highlight five (5) reasons why cost and financial accounting profits/losses differ.

2. In reference to cost classifications,(a)________-costs refer to costs that a company incurs irrespective of the operational decisions it makes, whereas (b)______ costs refer to costs that can be excluded due to stoppage of conducting a business activity.

3. The______cost calculates the direct costs of raw materials and labor that are involved in the production of a good.

4. The following information relates to the output levels and corresponding overhead costs for Clover Limited for the last four months:

Required
Using the high-low method:
a. Formulate the cost function for the above relationship.
b. Estimate the total overhead costs associated with 225,000 units of output.

5. A model that figures out the relationship between one independent variable and one dependent variable using a straight line is referred to as:

Dhalia, an automobile mechanic, has been operating a welding garage in Kitui for the past one year, making and selling metal doors and windows.
The costs of the welding job assignment are as follows:

6.

Required
Formulate an equation to estimate the total cost of the welding shop and compute the cost of undertaking 1,507 job assignment using:
a. High-low method.
b. Simple linear regression method.

7. The following information relates to the activities of the production departments of Kutoka liMITED for the month of September 2020:

The total overheads incurred by the production department during the period amounted to kshs 1.320,000.
Job number X210 was produced in the department during the same period. The following relevant data is available:

Required
Calculate the total cost of job number X210 using the following methods of overhead absorption:
a. Direct labor hours
b. Direct machine hours
c. Percentage of direct material cost
d. Percentage of direct labor cost
e. Percentage of prime cost

8. Explain five(5) reasons for the differences in profit or loss between cost accounts and financial accounts in an integrated system of accounts.

9. Nahumi Enterprises operates an integrated cost and financial accounting system. The following information has been extracted from the company’s cost and financial accounts as of 30 September 2020:

Required
A statement reconciling Nahumi Ltd cost and financial net profits as of 30 September 2020.

10. Outline five(5) differences between cost accounting and Management accounting.

11. TRUE or FALSE: Abnormal loss has no impact on the value of stock, whereas stock is inflated to cover the normal loss.

12. _________costing refers to a costing system whereby all manufacturing costs, including variable and fixed costs, are classified as part of product costs.

13. Dongo ltd manufactures and sells a single product. The following information relates to the company for the year ended 31 December 2021:

The following changes are expected to occur during the year ending 31 December 2021:
i. Variable selling and distribution expenses will be reduced by 7.5% due to the increased efficiency of salespersons.
ii. Variable overheads will increase by 4%.
iii. Labor costs will be reduced by 5%.
iv. Material cost will increase by 3% due to inflation.
v. The selling price will be reduced by 4.5 % to attract customers.
vi. No closing stock is expected at the end of the period.

Required
a. Expected break-even sales revenue for the year ending 31 December 2021
b. Expected margin of safety in sales for the year ending 31 December 2021.
c. Expected sales values at which a profit of KES 4 million will be achieved.
d. A summary of the operating statement showing the expected net profit in ( c )  above.

14. TRUE OR FALSE: The production budget forecasts the production of the business and gives the targets to employees of the company for achieving the desired output efficiently and incurring minimum expense.

15. Outline three(3) functions of a raw material budget.

16. Highlight four(4) challenges that might result from the installation of a cost accounting system.

17. Lotus Safaris operates a garment-making company based in Nakuru. The following information was extracted from the company’s books of accounts for the year ended 31 December 2019:

Required
Prepare a costs statement showing:
a. Prime cost of uniforms manufactured
b. Total cost of uniforms manufactured

18. Outline three(3)factors that influence the choice of cost centers.

19. Highlight four(4) benefits and limitations of break-even analysis for a start-up business.

20. Highlight five(5) functions of a budget committee.

21. Peter is organizing a fundraising concert for his non-charitable organization. He plans to sell tickets to an event at USD 16.80 per ticket. He has agreed with a catering firm to supply meals at USD 10.80 per person. The cost of renting premises for the event is USD 160 while the cost of hiring an orchestra is USD 200.

Required: Calculate the break-even point.

22. Use the information below to calculate the contribution sales(C/S) ratio.

23. TRUE or FALSE: :A company must pay overhead costs regardless of whether it is selling goods or not

24. The amount of any given volume of output by which aggregate costs are changed, if the volume of output is increased or decreased by one unit is:

25. Outline the different types of normal losses

26. Amix Limited manufactures a single product. The following data relates to the product for the year ended 30 September 2024:

Additional information
i. The normal level of activity per year is USD 400,000 units.
ii. Fixed costs are incurred evenly throughout the year.
iii. The fixed costs during the year were the same as budgeted costs.
iv. There were no stocks of the product at the beginning of the financial year
v. In the first quarter, 110,000 units were produced and 80,000 units sold.

Required
Prepare statements for the financial year ended 30 September 2024 using:
a. Marginal costing technique
b. Absorption costing technique.
c. Reconcile the marginal costing profit to the absorption costing profit.

27. Tavo Manufacturing Limited is currently working at 40% capacity and produces 40,000 units of aluminum roofing sheets, the unit cost of which is USD 440 compromised as follows:

Additional information
i. The selling price per unit is USD 500.
ii. If the capacity is increased to 55% the raw material cost will increase by 3% and selling price falls by 1%.
iii. If the capacity is increased to 75%, the raw material cost increases by 5% and the selling price falls by 2%

Required
Prepare a flexible budget for three capacity levels (40%, 55%, and 75%) and advise the management on the best capacity option to implement.

28. Outline four(4) advantages and disadvantages of Zero-Based Budgeting(ZBB).