Below is HFS' information extract relating to the year ended 31 December, 2020: Branch Arua Tororo Kasese Masaka Sales revenue (Shs 'million') 200 160 320 250 Total assets (Shs 'million') 120 310 440 340 Current liabilities (Shs 'million') 18 30 20 19 Variable costs as a percentage of sales revenue 38% 38% 38% 38% Fixed costs as a percentage of sales revenue 50% 30% 40% 35% The finance director is seeking your input as the management accountant. Required: (a) Evaluate the finance director's assertions that: (i) Arua branch performed better than other branches (Use return on investment technique). (7 marks) (ii) the branch with high profit contribution is not eligible for bonus for the year ended 31 December, 2020. (7 marks) (b) Discuss the roles of any three responsibility centres that can exist in an organisation like HFS. (6 marks) (Total 20 marks) Question 4 A group of women in Kasubi ward, pooled funds and started a liquid soap manufacturing business and made one year of operation on 30 September 2020. Their financial year begins 1 October. Nakato who is in charge of inventory storage recently attended a training organised by Kwekamba Women Entrepreneurs (KWE), a non-governmental organisation. During the training she learnt how inventory management techniques and benchmarking could be applied in manufacturing enterprises. On return to office, she started analysing the quarterly inventory information for nitrosol and caustic soda raw materials. She gathered the following information for the first two quarters of the year ended 30 September, 2021 1 She established that for the first quarter ended 31 December, 2020: (i) Storage of 1,200 kg of nitrosol required 12.8m of space whereas storage of 1,200 kg of caustic soda required 16m of space. (ii) 1m2 of space is rented at Shs 30,000.(iii) Placement of any raw material order required communication charge of Shs 2,000; stationery and printing charge of Shs 4,000 and delivery charge of Shs 14,000. (iv) Minimisation of inventory costs requires making orders in batches of 500,000 grams for nitrosol and 400.000 grams for caustic soda. 2 She established that for the second quarter ending 31 March 2021. The ordering costs per order had been budgeted to increase by Shs 31,200 but the demand and holding costs have remained the same as in the first quaneL Nakato has approached you as a consultant on management accounting Required: Advise Nakato on: (a) the demand for the first quarter for both raw materials. (6 marks) (b) the percentage of the cost of the prediction error on nitrosol. raw material. during the second quarter ending 31 March 2021. (6 marks) (c) any four inventory management techniques that can be used by the factory (4 marks) (d) any four areas, she can consider for benchmarking in the business. (4 marks) (Total 20 marks) Question 5 Seraph Uganda Limited (SUL) is a profit making company owned by three sisters; Kash, Muni. and Kabs. SUL deals in the Real Estate Industry which is seen to be a volatile industry. Experts classify real estate industry into three seasons that is; boom. static and decline. The probability of the industry going into decline is 0.1 while the probability for it to remain static is 0.2. SUL has three construction project proposals to consider as detailed below: 1 Storied apartments with net income of Shs 300 million. However. when the industry declines, the net income will reduce by 50% whereas when it goes into boom, the net income will increase by 300%. 2 Bungalows with net income of Shs 400 million. However, when the industry declines. the net income will reduce by Shs 350 million whereas when it goes into boom. the net income will increase by 25%. All direct labour is paid at Shs 15,000 per hour. Other overhead costs will be absorbed to products using direct labour hours. You are the Accountant at EUL. Required: Advise the MD of EUL on: (a) whether to adopt ABC system. (14 marks) (b) the process of implementing business process re-engineering. (6 marks) (Total 20 marks) Question 3 Haven Funeral Services (HFS) was incorporated in Uganda in 2006 to provide funeral services within Kampala and the surrounding areas. After 10 years of operation. HFS decided to extend its services to other municipalities within Uganda. Branches were opened in municipalities of Arua, Tororo, Kasese and Masaka. The branches operate as investment centres and HFS has a bonus plan for these branches based on residual income (RI). The bonus policy indicates that half of BI is offered as bonus to the branch. HFS set the required rate of return at 15% in the year 2016 but this rate was increased by 4% effective 1 January, 2020. During top management review meeting for the year ended 2020 at the headquarters in Kampala. the branch manager of Arua was reprimanded by the Chief Executive Officer (CEO) for contributing the lowest profit for the year. His defence was that his branch has the least capital employed and limited resources compared to the rest which affected its turnover. He further indicated that sometimes business opportunities were given to fellow service providers due to lack of capacity. He said \"I bet Mr. 0E0. if Arua is given more capital. its profits would triple immediately.\" The finance director supported the branch manager of Arua by informing the CEO that despite his branch contributing low profits, financial analysis indicatedthat Arua performed better than the rest in using its employed capital. The finance director further revealed that the branch with high profit contribution did not qualify for bonus for the year 2020. The CEO instructed the finance director to share the financial analysis with all members of top management and demonstrate clearly how Arua branch performed better than the rest. He also learnt from the Expo that cage fish farming is going to be introduced on Lake George and trainers indicated that it is more efficient and profitable than keeping tiSh in the ponds. Fisheries department at the Ministry Of Agriculture. Animal Industry and Fisheries is willing to allocate him a maximum 0t 180,000 square meters or lake George to carry out cage tiSh farming. The department provided him With the tOIIOWihQ data: Tilapia Nile Perch Cat Fish Area required to produce 1,000 kg (in?) 2,000 1.600 1.200 . Expected annual sales volume (kg) 80.000 . 50.000 50.000 He plans to engage in cage fish farming during the year ending 31 December 2022 and he anticipates maintaining the contribution to sales ratio. However fixed costs will increase by Shs 3.72 million due to additional demand for secury. He targets to earn a profit after tax of She 230.3 million during the year ending 31 December 2022 and corporation tax rate is 30%. As the newly recruited management accountant. you have been asked to analyse the available information to help Rwaks make viable decisions. Required: Advise Rwaks on the: (a) most profitable customer group during the year ending 31 December 2020 (13 marks) (b) quantity of fish in kg needed to breakeven if he engages in cage fish farming during the year ending 31 December 2022. (15 marks) (c) benefits of using Pareto analysis. (4 marks) (d) role of Management Accounting in management decision process. (8 marks) (Total 40 marks) Question1 Rwaks as commonly known in Kigoto village of Kitagwenda district is a renowned farmer practicing mixed farming since 2013. He practices fish farming using ponds for production of Tilapia. Nile perch and Cat fish which are sold on both local and foreign markets. He has no formal management systems in place despite having sales turnover in billions of shillings. This has started causing him losses due to making uninformed decisions. He however attended Harvest Expo. last year in Jinja, where he keenly noted establishment of management information systems (MIS) and creating value for customers as key aspects for business growth. He decided to recruit an accountant who will set up M15 and he indeed wondered how customers can be classified. The following information was extracted from Rwaks' records for the year ended 31 December 2020: 1. Sales and contribution: Tilapia Nile perch Catfish Sales volume (kg) 80,000 30,000 _ 30.000 Selling price per kg (Shs) 15,000 30,000 25,000 Contribution to sales (CIS) ratio 0.25 0.15 0.14 All Nile perch and 80% of Tilapia produced are sold to industries for processing whereas all Cat fish is sold to individuals. _ 2. Fixed costs: Amount (Shs 'ooo) Sales commission _ 50.000 Delivery costs 138.000 Warehouse rent 42,000 Staff salaries 26,280 3. Activity descriptions: Industries _ Individuals _ Sales orders 150 . 100 Delivery trips 42 18 Warehouse space in square meters 1,200 300 Man hours worked 5,840 2,920 Question 2 Enterprise Uganda Ltd (EUL) was established in 2014 by a group of farmers in Kyegegwa district to engage in agro-processing for value addition and high protability. EUL produces a range of products among which is; cassava flour. starch and dairy feeds. EUL's managing director (MD) attended a workshop organised by the Institute of Certified Public Accountants of Uganda (ECPAU) in February 2021 where facilitators explained the relevance of business process re-engineering (BPR) and activity-based-costing (ABC) system in improving performance. The facilitators indicated the pitfalls of traditional costing system in regard to determination of product profitability. The MD shared with the accountant about the above concepts and both agreed to adjust from traditional costing system to ABC system immediately so as to see how product profitability would change. The accountant decided to perform a pilot using the accounting information for the year ended 31 December. 2020. All overhead costs under traditional costing system were charged to products using direct labour hours. Below is the accounting information extract relating to the three products for the year ended 31 December. 2020: Cassava flour Starch Dairy feeds Output (kg) 850.000 100.000 800.000 Direct labour hours (hours) 850 1.000 400 Selling price per kg (Shs) 1.500 16.000 500 Material cost per kg (Shs) 960 11.050 155 Material purchase orders 30 20 70 Sales orders 500 300 200 Machine maintenance frequency 100 250 50 Net profit as per traditional costing 63.750 30.000 90.000 system (Shs '000') Overhead costs Shs '000' Material handling costs 101.250 Machinery repairs and maintenance costs 202.500 Selling and distribution costs 303.750 Other overhead costs 405.000 3 Semi-detached houses with net income of Shs 600 million. However, when the industry declines, the net income will reduce by two thirds whereas when it goes into boom, the net income will increase by a third. SUL's management is aware that if the industry remains static the expected net income will be realised. However the owners have failed to make a decision on whether to take up all the projects or any of them. Kabs suggested to her colleagues to use maximin. maximax and regret decision criteria to reach a viable decision. Muni responded \"I didn't know that decision making is complex like this. " Required: Advise SUL management on the: (a) meaning of each of the maximin. maximax and regret criteria and the decision to be taken under each criterion given the above circumstances. (12 marks) (b) process to be taken for making a viable decision (8 marks) (Total 20 marks)