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NUMBER ONE Shortly explain three methods that can be used to analyze uncertainty in cost-volume- profit (C-V-P) analysis. (3 marks) Kandali Company Lid. is a manufacturing company which produces and sells a single product known as T, at a price of Sh.10 per unit. The company incurs a variable cost of Sh.6 per unit and fixed costs of Sh.400,000. Sales are normally distributed with a mean of 110,000 units and a standard deviation of 10,000 units. The company is considering producing a second product, T, to sell at Sh.8 per unit and incur a variable cost of Sh.5 per unit with additional fixed costs of Sh.50,000. The demand for T, is also normally distributed with a mean of 50,000 units and standard deviation of 5,000 units. If T, is added to the production schedule, sales of T, will shift downwards to a mean of 85,000 units and standard deviation of 8,000 units. The correlation coefficient between sales of T, and T, is -0.9. Required: i The company's break-even point for the current and proposed production schedules. (7 marks) ii The coefficient of variation for the two proposals. (8 marks) iii Based on your computation's in (1) and (ai) above advise the company on whether to add Tz to its production schedule. (2 marks) (Total: 20 marks) NUMBER TWO "It is now fairly and widely accepted that conventional cost accounting, distorts management's view of business through unrepresentative overhead allocation and inappropriate product costing. This is because the traditional approach usually absorbs overhead costs across products solely on the basis of the direct labour involved in their manufacture. As direct labour cost expressed as a proportion of total manufacturing cost continues to fall, this leads to more an more distortion and misrepresentation of the impact of particular products on total overhead costs" (from Financial Times)Required: a) Briefly discuss the above statement and state what approaches are being adopted by management accountants to overcome such criticism. (8 marks) b) Traditional budgeting systems are incremental in nature and tend to focus on cost centers. Activity based budgeting (ABB) links strategic planning to the overall performance measurement aimed at continuous improvement. Required: i Explain the weakness of traditional incremental budgeting systems. (4 marks) ii Describe the main feature of activity based budgeting system and comment on its advantages. (8 marks) (Total: 20 marks) NUMBER THREE Cin Noah, an independent movie producer, is negotiating with Jivah Productions Limited on a contract for the production and marketing of her next film, titled "The rise and fall of a cock". The budget for the film is, Sh. 100 million. Jivah Productions Limited is offering Cin Noah a choice of one of the three contracts. Contract A Jivah Productions Limited will pay all the production and marketing costs. Cin Noah will receive a fixed fee of Sh.10 million. Cin Noah will receive 10% of gross revenue from the film in excess of Sh.1 billion (no payment is made for gross revenue up to Sh.1 billion). Contract B 1. Jivah Productions Limited will pay 80% of all the production and marketing costs up to Sh.100 million and 30% of production and marketing costs in excess of Sh.100 million 2. Cin Noah will receive 10% of all gross revenue for the film. Contract C 1. Jivah Productions Limited will pay 50% of production and marketing costs up to Sh.100 million. 2. Cin Noah will receive 30% of all gross revenue from the film.Cin Noah estimates the following probabilities for the gross revenues: P(high demand of Sh.2 billion) 0.1 P(medium demand of Sh.500 million) 0.3 P(low demand of Sh.100 million) 0.6 She estimates the following probabilities for the cost of production: P(budgeted cost of Sh.100 million) 0.6 P(high cost of Sh.200 million) 0.4 Required: a) The expected monetary value for Cin Noah under each contract for each of the six possible events. (Hint: The possible events are high demand - budgeted costs, high demand - high costs, medium demand - budgeted costs, medium demand - high costs, low demand - budgeted costs, and low demand - high costs). (15 marks) b) Cin Noah will choose the contract that maximizes her expected monetary value from the film. Which contract should she choose? (Show calculations). (2 marks) c) What information might Cin Noah use in assessing the probability distribution for the production and marketing costs of "The rise an fall of cock" film? (3 marks) (Total: 20 marks)