a) Outline and briefly explain the essential factors for continuous improvement under the kaizen

principle and discuss their relevance to the modern day organizations. (10 Marks)

b) Discuss the following techniques as used in the contemporary management accounting theory and assess their practical usefulness in modern organizations:

i. Life cycle costing (5 Marks)

question 2

Andere Media Group has three major divisions:

Newspapers.

Television.

Film studios.

Summary financial data (in millions of shillings) for years 2009 and 2010 is given as follows:

Operating income Revenue Total assets

Year 2009 20102009201020092010

Sh. Sh. Sh.Sh. Sh. Sh.

Newspapers900 1,1004,5004,6004,4004,900

Television130160 6,0006,4002,7003,000

Film studios 220 2001,6001,6502,5002,600

The manager of each division has an annual bonus plan based on his division's return on investment

(ROI). The company defines ROI as operating income divided by total assets. Senior executives from divisions reporting increases in the division's ROI from the prior year are automatically eligible for a bonus. Senior executives of division reporting a decline in ROI have to provide persuasive explanations for the decline. In order to be eligible for any bonus and they are limited to 50% of the bonus paid to the division managers reporting an increase in ROI.

J. Kandie, manager of the newspapers division is considering a proposal to invest Sh. 200 million in a fast speed printing process with colour options. The estimated increment to year 2011 operating income would be Sh. 30 million. The media group has a 12% required rate of return for investments in all three divisions.

Required:

i) Use the Dupont Method to explain differences among the three divisions in their 2010 ROI.(Use 2010 total assets as the denominator).

[8 Marks]

ii) Explain whether J Kandie should undertake the fast-speed printing press investments proposal.

[2 Marks]

iii) T. J. Andere the Chairman of the media group, has received a proposal to base senor executive

compensation in each division on Residual Income (RI) defined as operating income less imputed interest charge. Compute the residual income (RI) of each division in the year 2010

[4 Marks]

iv) Would adoption of the residual income (RI) basis change J. Kandie's decision on the acceptance of the fast-speed printing press investment proposal?

[6 Marks]

question 3

a) Outline the steps for the implementing Activity -Based Costing System in a University.

(6 Marks)

b) Bay Area Ltd manufactures four products A, B, C, and D using the same plant and processes. The following information relates to a production period:

MaterialDirect laborMachineLabor

Cost per unit Per unitTime percost

ProductVolume(sh) Hoursunit hrs unit (sh)

A 500 5 0.5 0.25 3

B 5000 5 0.5 0.25 3

C600 16 2 1.00 12

D 7000 17 1.5 1.50 9

Total production overhead is analyzed as follows:-

Factory overhead applicable to machine oriented activity is sh 37,424

Set up costs are sh 4,355

The cost of ordering materials sh 1,920

Handling materials sh 7,580

Administration for spare parts sh 8,600

These overhead costs are absorbed by products on a machine hour rate of sh 4.8 per hour, giving an overhead cost per product of:-

A= sh 1.2 B= sh 1.2 C= sh 4.80 D= sh 7.2

However, investigation into production overhead activities for the period reveals the following totals:

No of No of times Number of timesNo of spare

Product Setup material order material was handled parts

A 1 1 2 2

B 6 4 10 5

C2 1 3 1

D 8 4 12 4

Required:

i. Compute an overhead cost per product using Activity -Based costing, tracing overheads to production units by means of cost drivers.

(10 Marks)

ii. Comment briefly on the difference disclosed between overhead traced by the present system and those traced by ABC system. (4 Marks)

QUESTION 4

(a) Discuss any FOUR causes of corporate failure giving examples where possible from the local or foreign market. (8 Marks)

(b) State any FOUR ways of averting corporate failure (4 Marks)

(c) Define environmental management accounting (2 Marks)

(d) Explain any TWO processes by which environmental management accounting can be used to reduce costs (6 Marks)

QUESTION 5

a) Division Y has reported annual operating profits of sh 402 million. This was after charging sh 6 million for the full cost of launching a new product that is expected to last three years. Division Y has a risk adjusted cost of capital of 11% and is paying interest on a substantial bank loan at 8%(not charged as an expense in the operating income above) . The historical cost of the assets in Division Y, as shown on its balance sheet, is sh 100 million, and the replacement cost has been estimated at sh 172 million. The prevailing tax rate is 30%.

Required:

i) The Economic Value Added for Division Y (12 marks)

ii) Calculate the company's residual income(8 marks)