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Each station's budget for the year ending 30 September. 2018 is as follows: GR1 GR2 GTV Budget 2017/18 Budget 2017/18 Budget 2017/18 Shs 'miIlion' Shs 'miIIion' Shs 'million' Statement of profit and loss extracts: Sales 2.750 3.000 3.750 Cost of Sales 2.170 2.250 3.000 Net Income 360 430 450 Statement of financial position extracts: Property 650 700 800 Equipment 1.000 1.000 1.500 Motor vehicle 80 75 100 Net current assets 200 210 250 Liabilities 500 550 800 GBC's required rate of return is 15%. Each GM has been earning a gross salary of Shs 7.5 million per month during the year ended 30 September 2017. GBC's sales variance analysis has consistently portrayed that the stations' actual sales exceed budgeted sales by 19.6%. 10% and 13.6% for (381. GR2 and GTV respectively. Management anticipates to maintain the trend for the foreseeable future. Required: (a) Evaluate the impact of the new remuneration policy to each general manager's gross salary for the year ending 30 September 2018 and suggest its likely effect on the group performance. (14 marks) (b) Advise management of BBC on the: (i) merits and demerits of decentralization. (4 marks) (ii) difference between divisional and functional organisational structures. (2 marks) (Total 20 marks) Question 4 Business Capital Bank (BCB) has a centralized store for deposit and withdraw slips which are packed in cartons. each of 1.000 slips. BCB has no stock policy and on average uses 768 cartons of withdraw slips in a year. The cost of holding one carton of withdraw slips in store for a year is Shs 4.000. The cost of placing and receiving an order for a carton of withdraw slips is Shs 20.000. MDL produced 32,300 kg of PY, 93,500 kg of VY and 60,700 kg of SY during the month of October 2017. Below are the material costs that were used to produce 93,500 kg of VY: Item Quantity (kg) Total cost (Shs) Fresh milk 97,000 87,300,000 Sugar 6, 150 23,985,000 Other ingredients 131 5,633,000 MDL budgeted to sell VY at Shs 4,570 per kg and make a sales margin of Shs 950 in October 2017. However VY was actually sold at Shs 5,000 per kg and sales margin of Shs 1,380 was realised during the month. Required: (a) Determine the following variances for VY: (i) Material mix and Material yield. (6 marks) (ii) Sales margin mix and sales margin quantity. (4 marks) (b) With any five reasons, justify the use of standard costing systems by MDL in decision making. (10 marks) (Total 20 marks) Question 3 Genesis Broadcasting Corporation (GBC) is a business group owned by Grace Church. GBC includes Genesis Radio 1 (GR1), Genesis Radio 2 (GR2) and Genesis Television (GTV). The three broadcasting stations are managed under a decentralized system. GBC has had a poor performance in the previous years. The Board of Directors (BOD) decided to restructure management by recruiting a new managing director and revise the remuneration policy for station general managers (GMs). Each GM is fully accountable for his/her station's performance. Consequently GMs' remuneration will be based on performance as follows: Each general manager will earn a monthly basic salary of Shs 6 million with a monthly increment of Shs 300,000. GBC will pay a commission of 2.5%, of the sales that exceed the budget, to station GM. In addition, general managers will be paid bonus basing on the station's residual income (RI) as follows; 3% of RI, if RI is Shs 200 million and above. 2% of RI, if RI is below Shs 200 million.In a recent management meeting, the managing director proposed that PCE should start using life cycle costing as a strategy to improve the company's financial performance. However, some members are of the view that Kaizen costing is better. Also during the same meeting members resolved that PCE leases the identified clay site at a cost of Shs 15 million for five years to close the materials gap. The owner of the clay site wants a full payment of the lease amount before signing the agreement. Required: (a) (i) With relevant computations, advise management on the possibility of acquiring the identified clay site by 01 April, 2018. (29 marks) (ii) Suggest any appropriate alternative course of action. (1 mark) (0) Discuss the distinguishing characteristics of life cycle costing and kaizen costing. (4 marks) (c) Describe any three stages involved in the budget process. (6 marks) (Total 40 marks) SECTION B Attempt any two of the four questions in this section Question 2 Mbarara Dairies Limited (MDL), budgeted to produce 54.500 kg of Plain Yoghurt (PY), 88,000 kg of Vanilla Yoghurt (W) and 77.000 kg of Strawberry Yoghurt (SY). Senior management is cautious about the performance of W due to increase in material prices which are anticipated to continue affecting sales. The standard cost card for the production of 100 kg of W in the month of October 2017 was as follows: m Quantity (kg) Unit Price (Shs) 104.00 1.000 _-m-'m_ Other intredients m]. 45 000 However, on average. a standard loss of 10% for input material is expected to occur during the production process. The following information relates to the available investment options on the capital market provided by different fund managers: I Investment Annual yield Investment 'Weighted risk ' Period Portfolio type (Shs 'million') (Shs 'million') factor (9/0) (years) weights (%) 1322"\" 20 3 2 .1 5 EELE'Qlfs'j\" 1o 2 _' _' 2 s 1 a 4 Members also resolved to contract a financial analyst for advice on the best investment plan that would give a higher yield to achieve their set target. A financial analyst used an automated system that produced a final simplex linear programming tableau as shown below: X1 X2 X3 81 _ 82 83 84 X3 0 _ 0 1 0.2 _-0.8 0 _ 0.2 _ 1.6 _ X2 0 1 0 0.6 2.6 0 -1.4_ 20.8 s3 0 0 0 -0.8 0.2 1 0.2 2.6 X1 1 0 0 -0.4 _ -0.4 0 0.8 _ 1.8 . Y 0 0 0 1 8 0 1 268 _ Where: (ii) Y represents objective function. (iii) X1. x2 and X3 represent treasury notes, corporate deposits and speculative stocks respectively. (iv) 81. 82, 33 and s4 represent slack variables for investment, weighted risk factor. period and portfolio weights respectively. Members have called for an extra ordinary meeting in which the financial analyst is going to present the optimal investment plan and how he arrived at it. Required: (a) Formulate the linear programming model and construct the initial simplex tableau. (7 marks) (b) Interpret the final simplex tableau to the members. (5 marks) (o) Justify to the members of LRBS the relevance of linear programming during short term planning. (8 marks) (Total 20 marks) Question 1 Paraka Clays Enterprises (POE) was established by two young accountants after attending an entrepreneurship training in 2016. PCE manufactures ordinary bricks. ventilators and half bricks using the same materials. PCE is preparing its quarterly budget for the period ending 31 March, 2018. it is anticipated that 2.000 ordinary bricks. 500 ventilators. 200 half bricks and a cash balance of Shs 1.000.000 will be available at the beginning of the quarter and thereafter closing inventory for every month will be maintained at 25% of the next month's sales volume. The products are sold to GM Distributors Limited. a sister company which is in charge of selling and distribution to customers. An ordinary brick is sold at Shs 300. a ventilator at Shs 800 and a halt brick at Shs 2.000. Always 80% of the monthly sales are by cash and the balance paid in the following month. Below is the expected sales output for the five months period: Month Ordinary Bricks Ventilators Half bricks December 2017 12.000 1.800 800 January 2018 10.000 2.000 1.000 February 2018 16.000 2.400 1.500 March 2018 20.000 3.000 2.500 April 2018 22.500 3.500 3.000 There is 10% wastage during the process of production and product handling. PCE uses clay as the main raw material in making the three products and each kilogram of clay is bought at Shs 35 irom a supplier. An ordinary brick. a ventilator and a half brick takes 5 kg. 2 kg and 1 kg of clay respectively to make. Clay is mixed with soil which is free at site. The supplier of clay has notified PCE that in the month oi March 2018. he will only be in position to supply 120.000 kg of clay since its lease period for some clay sites will have elapsed. There are 4 production workers who are paid a fixed monthly retainer wage of Shs 75.000 each and Shs 25 per production hour. Making an ordinary brick, a ventilator and half brick requires 0.5 hours. 1 hour and 1.5 hours of production respectively. Monthly operational expenses are expected to be Shs 750.000. However, management is not certain of the usage of deposit slips and the monthly economic order quantity of deposits slips is 4,000 cartons. BBB is certain that a four days' lead time is required for an order of deposit slips. The following is the monthly probability distribution of estimated usage of deposit slips. Usage (cartons) Probability 3.800 0.06 3.900 0.14 4,000 0.30 4.100 0.16 4.200 0.13 4,300 0.10 4.400 0.07 4.500 0.04 Stock outs for deposit slips are estimated to cost the bank Shs 50,000 per carton and the monthly holding cost for deposit slips is estimated to be Shs 2,500 per carton. Required: (a) Advise 303 on the amount of funds required to maintain inventory of withdraw slips in a year. (4 marks) (b) Determine BCB's optimal safety stock for deposit slips. (12 marks) (c) Describe any two inventory management techniques that can be employed by 303 to optimize stock. (4 marks) (Total 20 marks) Question 5 Lana Retirement Benefit Scheme (LRBS) has accumulated Shs 80 million for investment in diversified portfolio. LRBS targets to increase its returns from the fund by 5% annually. During the last annual general meeting, members agreed to invest only 68.75% of the accumulated fund for a period not exceeding 30 years. They further agreed not to venture into investments with portfolio weights exceeding 57% and weighted average risk factor exceeding 26%