Management accounting Assignment due 10th nov 3rd trem 2022

Question one a)

In student case study on the impact of budgets on management Joseph reported the following comment by a financial controller on the practice of participation in setting budgets in his company: We bring in the supervisors of budget areas, we tell them that we want their frank opinion, but most of them just sit there and nod their heads. We know they are not coming out with exactly what they feel. I guess budget scares them. Explain why managers may be reluctant to participate fully in setting budgets, indicating the negative side effects, which may arise from the imposition of budgets by senior management. 15marks

Question two

The Didco corporation processes cooking oils from a type of nut grown in Western Kenya. The manufacturing process operates such that the nuts are initially processed into two products namely Mafuta and Karanga. The former is a high-grade cooking oil used for domestic purposes and also for specialised cooking. Karanga is subsequently processed into two final products, Chemsha, a low grade oil used for deep frying mainly in large scale establishments and Mlo, a low grade fat used in cattle feeds. During the month of May, the company processed 100,000 killogrammes of nuts into Mafuta and Karanga at a total cost comprising direct materialsShs 360,000, direct labourShs 216,000 and factory overheadsShs 144,000. Karanga was subsequently processed into Chemsha and Mlo at an additional cost of Shs 36,000 for direct materials, Shs 84,000 for direct labour and Shs 48,000 for factory overheads. In addition to the above costs each of the three products incurred entirely separate and variable costs of Shs 48,000 for Mafuta, Shs 384,000 for Chemsha and Shs 96,000 for Mlo up to final completion at which point 5,000 killogrammes of Mafuta, 10,000 kilogrammes of Chemsha and 25,000 killogrammes of Mlo were obtained. The final selling prices are Shs 192, Shs 48 and Shs 4.8 per kilogramme for Mafuta, Chemsha and Mlo respectively.

Required:

a. Prepare a statement to show the profitability of each product assuming that costs are allocated on the basis of net realisable value.

b. Management is considering further processing of Chemsha at an additional cost of Shs 9.60 per kilogramme. This would enable the company sell the product at a price of Shs 57.60 per kilogramme. The product mix however would change to 5,000 Kg., 9,000 kg. and 30,000 Kg. of Mafuta, Chemsha and Mlo respectively.

Advise management on the suitability of adopting the proposed action. 15mks