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Required: Advise CLI management on: (a) (b) the estimated bonus amount likely to be paid to project managers of Buikwe and Lwengo districts during the financial year ending 30 September, 2019. (15 marks) (i) the meaning and effect of budget slack. (2 mark) (ii) why incremental budgeting approach maybe discouraged by decision makers today. (3 marks) (Total 20 marks) budgetary system to the extent that the budget is prepared solely by Finance & Administration department. Internal auditors indicated that other departments just spend cash without referring to the budget. Internal Audit recommended that CLI adopts activity-based budgeting (ABB) approach instead of incremental budgeting which allows creation of budget slacks. The Executive Secretary noted this issue seriously and wants all CLI's staff to be involved in preparation of the budget for the year ending 30 September, 2019 andmost importantly using the ABB approach.It is desired that departmental budgets fit well into project activities so that project teams whose projects contribute to rent are rewarded with a 13" cheque in case they exceed the set targets. The 13" cheque bonus is an equivalent of each year's last month's salary. During the year ending 30 September, 2019Social Development department in particular expects to get funds worth Shs 750,635,900 to fund 2 projects in the districts of Buikwe and Lwengo in the ratio of 1:1. The districts have 21 and 16 groups each respectivelywith each group comprising of 10 members. However, each department is required to contribute 25% of CLI's rent. Summarised projected expenditure for year ending 30 September, 2019: Project overheads Description Buikwe Lwengo Amount Shs '000' Training on group formation and stakeholder engagement No. of trainings 36 39 107,000 Training of beneficiaries in lobby and advocacy No. of trainings 12 18 239,000 Transport and perdiem for field visits No. of visits 108 132 48,715 Project staff salaries 87,000 Administration salaries 75,372.7 Project inputs Quantity description Buikwe Lwengo Rate (Shs) Goats Number 210 160 100,000 Kroilers Number 21,000 16,000 2,000 Maize seeds Weight(kg) 8,400 6,400 2,500 Bean seeds Weight(kg) 8,400 6,400 1,500 Project staff salaries and administration salaries are allocated according to the income sharing ratio and project membership respectively.During the month of July 2018, revenue of Shs 66.4 million was generated from the sale of 8,000 cakes and materials consumed during production were as follows: Item Quantity (kg) Cost per kg (Shs) Sugar 0.12 3.700 Wheat flour 0.20 6.000 Yeast 0.022 45,000 Required: (a) Determine the following variances and advise SBL's Board on their concerns on whether to retain the MD: (i) Materials price. (4 marks) (ii) Materials usage. (4 marks) (iii) Sales margin price. (2 marks) (iv) Sales margin volume. (2 marks) (b) Discuss: (i) the methods of setting cost standards. (2marks) (ii) any three reasons why standard costing and varianceanalysis are not popularly used by some companies. (6marks) (Total 20 marks) Question 3 Decca Limited (DL) is a government business entity dealing in printing and publication of government magazines. Due to its proven quality work,DL always gets contracts from private entities. 0f recent DL suffered a setback when its printing machine broke down beyond repair. The Operations Manager made a requisition to the Procurement Department for the purchase of a new printing machine. Two companies met the minimum requirements during the bidding process for the supply of the new machine. One company offered to supply the Dart model at Shs 128 million and the other company to supply Delta model at Shs 250 million. Both models have the same life span of 4 years with no residual value. DL depreciates its machines on a straight-line basis.DL's required rate of return is 20% per annum. The Operations Manager is obliged to inspect machines at supplier's premises before the final decision is taken by the Procurement Department. During his inspection visits, he inquired about the expected annual net income for each model and it was provided as follows: Question 1 Unique Transporters Limited (UTL) was incorporated in 2016 and commenced operations in January 2017. UTL operates from Monday to Saturday. providing special hire and bus transport services within Uganda. The Chief Executive Officer (CEO) promised to provide quality transport services to customers as envisaged in UTL's mission. UTL's vehicles are designed with state of the art technology making them highly comfortable to the passengers. UTL commenced business with 10 Special hire cars and 8 buses. Special hire cars operate within Kampala city at a standard rate per passenger of Shs 135,000per hire. Special hire car drivers are expected to report minimum daily cash collections of Shs 270.000.There were no reported mechanical breakdowns. Buses are registered to operate from Kampala to Arua, Kasese, Kisoro and Lira. Each bus is licensed to carry 48 passengers. UTL charges a uniform standard fare per passenger of Shs 35,000 for all buses irrespective of route or season. This uniform ratewas charged to ease UTL's market penetration since there is stiff competition in the tranSport sector. The Board of Directors was geared up by the financial performance report forthe first year of operation that ended on 31 December, 2017. UTL recorded a profit margin of 5.8% which the Board Chairman termed exceptional performance for a starting business. The Accountant further reported the following extracts of the financial performance for 2017. UTL operated for 314 days during the year and served 6,354 special hire passengers and 119,685 bus passengers. Special hire vehicles and buses in a day used 580 litres of petrol at an average price of Shs 3,600 per litre and 2,902.8 litres of diesel at an average price of Shs 3.100 per litre respectively. Special hire drivers' salary was 10% of revenue generated and each bus driver was earning a monthly salary of Shs 1,000,000. All drivers' remuneration was subiected to all applicable statutory deductions. UTL pays a 10% contribution to National Social Security Fund (NSSF) for its drivers and administrative staff. UTL employs casual workers for buses only as conductors and ticket clerks. During the year 2017. 384 bus tickets were issued in a day at a cost of Shs 750 per ticket and 3 conductors were deployed to each bus on a daily basis. Each conductor was earning Shs 20,000 per day. UTL incurred a cost of Shs 3.162.000 per special hire vehicle and Shs 34,465.000 per bus for repairs and maintenance during the year. Also Shs 20,370.960 was PUL received a quotation of Shs 265 million from a logistics company for delivering the chicks to the beneciaries per quarter. The budgeted mobilization expenses for the first quarter are estimated to be She 50 million and will reduce by 20% in each subsequent quarter. PUL anticipates increasing its normal demand from the open market by 112,800 layer chicks during the year 2018/19 irrespective of chick typeon order received. The quarterly extracts from the financial year ended 30 June, 2018 records, relating to number of chicks produced and the total production cost.are provided as below: Quarter Output '000' CostShs'000' 1 200 400.000 2 500 900,000 3 600 1,000,000 4 700 1,200,000 PUL's management is contemplating on signing the contract but has limited experience in handling such proiects.You have been approached for advice. Required: () Determine the total contract profit using the high-low method, and advise on whether management should go ahead to sign the contract. (12 marks) (b) Discuss the factors to be considered when using past data in cost estimation. (4 marks) (c) Assess the impact of the experience curveon business efficiencies. (4 marks) (Total 20 marks) Question 5 Changing Lives International (CLI) was founded in the 19503 to improve the livelihood of vulnerable people worldwide. CLI has ahead office in Ntinda. Kampala. where it rents a building at Shs 8.5 million per month and operates in a number of districts in Uganda. GLi runs five departments with three focusing on the main organisational business that is:Hea|th.Social Development and Education CLI budget is majorly donor fundedby international agencies and the three focal departments are required to make annual budgetary savings to cater for rent and other sustainable development activities. CLI still struggles to pay non- proiect costs. Themid-year internal audit report for the year ending 30 September, 2018 revealed poor utilization of project funds under social development department. It further highlighted weaknesses existing in GLl's (b) Analyse UTL's margin of safety using break-even chart, after considering effects of cost-plus pricing method and finance manager's salary. (4 marks) (c) Prepare a memo to UTL Board on the meaning and relevance of: (i) customer profitability analysis. (2 marks) (ii) price skimming. (2 marks) (iii) pricing penetration. (2 marks) (Total 40 marks) SECTION B Attempt any three questions from this section Question 2 Sanyuka Bakery Limited. (SBL). makes and sells cakes which are on high demand within and outside Uganda. Despite the high demand, SBL has continued to report losses and the Board is considering firing the Managing Director (MD) if the situation does not change. To save his job. the MD made extensive analysis of management accounts for the last 12 months ended30 June, 2018 and established that a lot of material losses were incurred during production process. He consulted his colleague. a cost accountant in one of the big bakeries in Kampala, and was advised to introduce a standard costing system for easy analysis of monthly variances. The MD proposed to the Board to recruit a cost and management accountant to handle the standard costing system. Also an expert was engaged who developed a standard cost card for the production of a cake as follows: Item Quantity Unit cost (Shs) Amount (Shs) Direct materials: Sugar 0.10 kg 3.200 320 Wheat flour 0.30 kg 5.000 1500 Yeast 20 g 35 700 Direct wages 2hours 1.000 2,000 Fixed overheads 800 Standard cost 5,320 Standard selling price 7,500 Standard profit 2,180 The budgeted output for the month ofJuly 2018 was 10.000 cakes. Year Net income before depreciation Dart model Delta model Shs '000' Shs '000' 1 97,800 121,000 2 56,652 120,060 3 43,880 88,750 4 33,510 59,125 DL gives bonuses to investment centre managers who exceed the targeted annual return on investment (ROI). The bonus is computed as a percentage of annual net income after depreciation basing on the criteria below: R0|,x(%) Bonus (%) 05 x