Question 152pts

Kwale Ltd commenced operation in January 2019. The company produced 10,000 units of output, out of which 8,400 were sold The costs incurred were as below:

Shs

Direct material600,000

Direct Labour400,000

Variable production overheads300,000

Fixed Production overheads200,000

Variable admin & selling overheads150,000

Fixed admin & selling overheads100,000

Determine the value of closing stockbased on marginal costing principles

Group of answer choices

none of the choices given

240,0000

280,000

208.0000

SECTION B

Ukunda Ltd produces 3 products, P, Q and R. Given below are details on the three products for the last quarter of 2009.

PRODUCTS

P

Q

R

Budgeted production / sales

12,000

7,500

6,000

Prime cost (per unit)

50

24

64

Direct labour hours per unit

3

2

4

Machine hours per unit

2

2

2

Floor area Square [mtrs]

15

75

30

Percentage of advertising budget

20%

50%

30%

No. of sales orders

800

200

250

Machine set-ups

24

-

16

No. of suppliers' orders

400

1,600

500

The company currently uses absorption costing in determining the costs per unit, based on direct labour hours used in the assembling department. A uniform mark up of 40% is added to the production costs determined on this basis in determining the desirable selling price. This margin is added in order to cover for administrative, selling and distribution overheads. Production overheads for the quarter are budgeted at Shs 600 000. Admin overheads are budgeted at Shs 150 000 while selling and distribution costs were Shs 90 000.

Required

1.Compute the fixed production overheads absorption rate per direct labour hour and explain why the company may have selected that as the basis of absorbing overheads [4 marks]

2.Determine the desired selling price per unit for each of the products [6 marks]

3.You have ascertained the following with respect to the production overheads according to cost pools, together with the related cost drivers

Cost pool

Overheads [Shs. 000]

Cost driver

Assembly department

240

Assembling labour hours

Machining department

153

Machining hours

Sales order processing

50

No. of sales orders

Set-up costs

75

No of set-ups

Procurement costs

82

No. of suppliers' orders

In addition, admin expenses are to be allocated on the basis floor area used whereas selling and distribution costs will be allocated according to the proportion of the advertising budgets used by each of the products selling

Required

Determine the total cost per unit of each of the products using Activity Based Costing method

[10 marks]

1.Based on your answer in (c) above, advise the management of Ukunda Ltd on the prices set using absorption costing approach . Show relevant computations[5 marks]

SECTION C

Q1

Msambweni Ltd produces a single product, Alpha. The sales manager believes that the level of sales depends on the advertising made during the month. Given below are details on the level of advertising and sales for the months March - December 2020.

Month

Jan

Feb

Mar

Apr

May

June

July

Aug

Sept

Oct

Advertising (Shs000)

50

90

60

80

120

90

100

150

120

90

Sales (Shs 000)

800

1050

870

950

1250

1040

1150

1400

1200

1000

Required:

Determine the sales predicting equation using the high-low method

Determine the sales estimating equation on the basis of the least squares method

Evaluate the reliability of the sales estimating equation using the coefficient of determination and explain its meaning

Estimate the sales for November and December with expected advertising of Shs 75,000 & 105,000 r