QUESTION ONE

JUMBO 1 limited produces a range of products and product costs are currently calculated using absorption costing, with overheads being absorbed on a machine hour basis. As part of the process of introducing Activity Based Costing(ABC), management wish to assess the profitability of individual products, with the possibility that the product range may be reduced. You are the Management Accountant and you have obtained the following information:

Product DD VV YY

(ZMW) (ZMW) (ZMW)

Selling price per unit 300.00 530.00 435.00

Costs per Unit

Direct material per unit 55.00 67.00 98.00

Direct labour per unit 41.00 54.00 57.00

Additional information

Machine hours per unit 0.6 1.5 0.6

Production runs in period 32 40 25

Number of sales orders 19 5 15

Number of deliveries of material 8 2 16

The budgeted overheads of the site for the period are:

Machine running costs ZMW 85,800

Set up costs ZMW 62,300

Material handling costs ZMW 48,050

You have also been informed that Machine hours are limited to 1,140 hours per period and the budgeted production volume is 600 units of DD,400 units of VV and 200 units of YY.

Required

i)Calculate the Unit Cost of each product using ABC method.(12 marks)

ii)Draft a memo to the Managing Director which will indicate which product(s) should no longer be manufactured and justifies your recommendation if there is limiting factor of machine hours.(9 Marks)

iiiDiscusses the other factors that should be considered before a final decision is made by management(4 Marks)

[Total 25 Marks]

QUESTION TWO

Environmental Accounting- Case Study

UMCILis a Zambian Steel company based in Kafue and its operations are in mining and steel manufacturing. The Universal Mining and Chemical Industries Ltd's environmental motto of "A Better Today for A Better Tomorrow" clearly spells out the vision, goals and ways the company intends to address environmental issues pertaining to its operations as to uphold not only the Kafue environment but also its surrounding areas. The company logo tells it all.

Universal Mining & Chemical Industries Ltd aims to a "Zero Waste Discharge" to mitigate any pollution it emits from the steel not only as to comply with the Environmental regulations and standards but alsoto promote, protect and conserve a clean environment for future generation.

For this UMCIL Ltd will institute the Four R's environmental regime:

Reductionin the discharge of pollutants through continued improvement in technologies as a way to comply with local and international environmental standards

Reuseof recovered by-products into other production applications.

Recyclingof by-products. Restoring the environment, through rehabilitation and land reclamation as to contribute to saving both energy and natural resources.

Restoringthe environment; through rehabilitation and land reclamation as to contribute to saving both

energy and natural resources.

UMCIL Ltd commits itself to an "Open Door" policy to ensure the participation of not only the company's employeesbut also of the Kafue community and other stakeholders at large in assisting the company meet itsenvironment target and in preserving Zambia environment.

This policy forms the basis of the Company Code of Environmental Management. All personnel who shall work for Universal Mining and Chemical Industries Ltd or its affiliated companies regardless of whether they are staff, contractors and/or consultants are obliged to follow this policy at all times.

Any meaningful breach of this policy or significant damage to the environment will have serious consequences,which could include immediate expulsion from the relevant UMCIL operational sites and probable dismissal from employment of the offending personnel irrespective of whether the breach was due to deliberate act, negligence or ignorance.

You have just been engaged by UMCIL as its new management accountant and your director requires your input with regards to the implementation and monitoring of its environmental performance.

Required

i) Advise the company on the systems and accounting methods that could be deployed in this process.(12 Marks)

ii)Outline the Conventional Costs that UMCIL should monitor through its environmental management system.(6Marks)

iii)Identify the likely Environmental Contingency Costs that may arise from its operations.(7 Marks)

[Total 25 Marks]

QUESTION THREE

A)Explain with examples theBusiness Strategies outlined the diagram below:

1. supply chain
2. vertical integration
3. concentration
4. distribution channels
5. concentric diversification
6. conglomerate diversification

[Total 25 Marks

QUESTION FOUR

Mulundu camping site is a recreational business and has set up a mini play park in Chisamba. The following relates to different ticket pricing plans of visiting the park and costs of running the park. The park will have THREE (03) offerings for the targeted market. Management has been granted a 10 years' operating permit.

The company's budgeted Total Fixed Costs comprise:

Administrative CostZMW 120,000

Maintenance CostZMW 200, 050

Subscription CostsZMW 100,000

The Company is in the 20% tax rate bracket after being offered some tax incentives.

Pricing Plan Entry Fee per Variable Cost as Sales Mix%

Customer percentage % of

(ZMW) Selling Price

Ordinary Pack 50 56.7 60

LimitedPack 25 45 30

SpecialPack 15 32.5 10

Required

i.Using multiple product method, calculate the number of tickets (and sales revenue) required to achieve breakeven point.(5 marks)

ii.How many tickets must be sold on each plan to make an after tax target profit of ZMW 120, 800 if there was an increase in fixed costs only

of 30%?(8 marks)

iii.Suggest and discuss any specific measures the business can employ to maximize return over the lifecycle of 10 years.(12 Marks)