NUMBER ONE A processing company, Jamaa Co. Ltd., is extremely busy. It has increased its output and sales from 12,900 kg in 1" quarter of the year to 17,300 kg in the 2nd quarter. Although demand is still rising, it cannot increase its output more than an additional 5% from its existing labour force, which is now at its maximum. Data for its four products in 2nd quarter were: Product Product Product Product P R S Output (Kg) 4560 6960 3480 2300 Selling price (Sh. Per kg) 162 116.40 99.20 136.80 Costs (Sh. Per kg) Direct labour @Sh.60 per 19.60 13.00 9.90 17.00 hour) Direct materials 65.20 49.00 41.00 54.20 Direct packaging 8.40 7.40 5.60 7.00 Fixed overhead (Absorbed on basis of direct labour cost) 39.20 26.00 19.80 34.00 132.40 95.40 76.30 112.20 The Kimbo Company has offered to supply 2000 kg of product Q at a delivered price of 90% of Jamaa's Co. Ltd. Selling price.Jamaa Co. Ltd., will then be able to produce extra of product P instead of product Q to the plant's total capacity. Required: a) State with supporting calculations, whether Jamaa Co. Ltd should accept the Kimbo Company's offer. (15 marks) b) Which would be the most profitable combination of subcontracting 2000kg of one product at a price of 90% of its selling price and producing extra quantities of another product up to the plant total capacity? Assume that the market can absorb the extra output. marks) (5 (Total: 20 marks) NUMBER TWO "Control theory offers valuable insights into the design and operation of management accounting information systems, but only under circumstances where an organization's environment is stable and predictable and outcomes are clearly measurable." Required: 20 Comment on the relevance and validity of this statement within the analysis or established control theory systems within a business organization. marks) NUMBER THREE a) (Total: The M division of KLM Ltd., produces a component which it sells externally, and can also be transferred to other divisions within the organization. The division has set a performance target for the coming financial year of residual income of Shs. 5,000,000. The following budgeted information relating to M division has been prepared for the coming financial year. 1. Maximum production/sales capacity 800,000 units. 2. Sales to external customers: 500,000 units at Sh.37. 3. Variable cost per component Sh.25. 4. Fixed costs directly attributable to the division Sh.1,400,000. 5. Capital employed: Sh.20,000,000 with cost of capital of 13% The M division of KLM Ltd has asked M division to quote a transfer price for units of the component. Required: iCalculate the transfer price per component which M division should quote to K division so that its residual income target is achieved. marks) (6 ii Explain why the transfer price calculated in (i) above may lead to sub-optimal decision making from the point of view of KLM Ltd taken as a whole. marks) (4 b) A manufacturer produces and sells two products, X and Y. The unit variable cost is sh.12 and sh.8 for X and Y respectively. A review of selling prices is in progress and it has been estimated that, for each product and increase in the selling price would result in a fall in demand of Sh.500 units per every Sh.1 increase in price and similarly a decrease of Sh.1 in price would result in an increase in demand of 500 units. The current sales prices and sales demand are:- Price (Sh.) 30 Demand (Units) 15,000 B 58 21,000 Required: Calculate the profit-maximizing price for reach product. (10 marks)