Question 1

(a) (i) Distinguish between management accounting and financial

accounting. (4 marks)

(ii) Explain any two ethical challenges faced by management

accountants.

(2 marks)

(b) Discuss any two merits and two demerits of the following stores

management systems:

(i) Centralised stores. (4 marks)

(ii) Decentralised stores. (4 marks)

(c) Describe how the weighted average cost (WAC) method is used in

inventory valuation.

(2 marks)

(d) Explain any four principles of a good incentive scheme.

(4 marks)

(Total 20 marks)

Question 2

(a) Distinguish between the following costs:

(i) opportunity cost and replacement cost. (2 marks)

(ii) product cost and period cost. (2 marks)

(b) Explain any two merits of an integrated accounting system.

(2 marks)

(c) Fresh Bakery Ltd (FBL) produces and sells delicious cakes and bread at Shs

3,000 and Shs 4,500 per unit respectively. FBL's standard production cost

card for the month of September 2018 is as follows:

Item Cakes Bread

Shs '000' Shs '000'

Direct materials per unit 1,000 1,200

Direct labour (Shs 500 per hour) per unit 625 1,250

Variable overheads per unit 500 800

FBL has only 100,000 direct labour hours and expects to sell 30,000 units

of cakes and 30,000 units of bread during the month. Normally FBL incurs

monthly fixed costs of Shs 38,750,000 and does not maintain inventory.

Required:

Determine, for the month of September 2018, the:

(i) production mix. (10 marks)

(ii) expected net profit. (4 marks)

(Total 20 marks)

Question 4

(a) (i) Describe any four features of process costing. (4 marks)

(ii) Identify two industries that use process costing. (2 marks)

(b) Tubonge Furniture Workshop (TFW) was awarded a contract to supply 150

office chairs and 80 office tables. The following cost data relates to the

contract:

Tables Chairs

Shs '000' Shs '000'

Direct labor 20,000 32,000

Direct materials 35,000 68,000

Production overheads are charged at 30% on labour costs and information

relating to other overheads is given below:

Tables Chairs

Budgeted overheads (Shs '000') 6,000 7,500

Budgeted labour hours 2,000 3,000

Actual labour hours 2,000 1,800

The cost of adding special designs was 10% and 20% of the prime costs

for chairs and tables respectively. Selling expenses were Shs 60,000 per

chair and Shs 80,000 per table. TFW prices its products using full cost

plus mark-up and the mark-up on chairs was 5% and tables was 10%.

Required:

Determine the selling price for the chairs and tables.

(7 marks)

(c) Magala Enterprises Ltd (MEL) produces millet flour and has been using

absorption costing in the previous years. MEL's board recently resolved to

adopt the marginal costing method that it provides more analysed

information for decision making. The following data was extracted from

MEL's books of account for the 4th quarter ended 30 June, 2018:

Details kg

Sales 100,000

Opening inventory 300,000

Closing inventory 400,000

MEL produces a single product based on a normal activity level of 250,000

kg per quarter. During the quarter under review, total direct material

costs amounted to Shs 145 million and Shs 350 million related to direct

labour. Fixed administrative overheads amounted to Shs 20 million while

production overheads were Shs 330 million of which a third were fixed.

MEL sells the flour at Shs 4,500 per kg.

Required:

Prepare, for MEL for the quarter ended 30 June, 2018 a profit statement

using the marginal costing method.

(7 marks)

Question 5

(a) Explain any two advantages and two disadvantages of standard costing.

(4 marks)

(b) Axel Publishers Ltd (APL) publishes Chika Magazine which is released on a

monthly basis. APL planned to sell all the published copies of the

magazine at Shs 20,000 during the month of July 2018. The following

information relates to the month of July 2018:

Details Budgeted Actual

Copies of magazines 3,000 2,850

Costs Shs '000' Shs '000'

Direct materials 21,000 20,640

Direct wages 10,500 9,452

Indirect labour costs (60% variable) 5,500 6,350

Other Overheads (70%fixed) 2,620 2,540

Selling price per copy 20,000 19,600

Required:

(i) Prepare PL's flexed budget for the month of July 2018.

(11 marks)

(ii) Compute the sales "price" and "volume" variances.

(5 marks)

(Total 20 marks)

Question 6

(a) Explain the steps involved in the activity-based costing (ABC) system.

(4 marks)

(b) Gomba Farmers Ltd deals in livestock and has three service departments,

i.e. Dips, Feeds and Finance and three production departments i.e.

Breeding, Bull Fattening and Diary. Total overhead costs for the year

ended 30 June, 2018 was as follows:

Production departments Service departments

Breeding Bull Fattening Diary Dips Feeds Finance

Shs '000' Shs '000' Shs '000' Shs '000' Shs '000' Shs '000'

25,000 32,000 60,000 15,000 38,000 30,000

Overheads apportionment proposal was as follows:

Feeds Finance Breeding Bull Fattening Diary

Dips 20% 10% 20% 20% 30%

Feeds - 20% 30% 15% 35%

Finance - - 50% 25% 25%

Other information relating to these departments was:

Production departments Service departments

Breeding Bull

Fattening

Diary Dips Feeds Finance

No. of cows 100 150 150

No. of stores requisitions

for feeds 15 10 15 10

No. of dip visits 10 70 100 100 20

Required:

(i) Using the elimination method, apportion service department

overheads to production departments.

(9 marks)

(ii) Using the step method and appropriate bases of apportionment,

apportion service departments to production departments.

(7 marks)