QUESTION ONE Lanexo Products Ltd who manufactures and retail products A, B and C employ sixty direct workers who work under a group of bonus scheme. The company engages three grades of workers who are paid a bonus of the excess of time allowed over time taken. The bonus paid is 75% of the workers' base rate and is shared by the workers in proportion to the time spent on the work. The following production data has been extracted from the company's records for April 2020. Product Units produced Time allowed per unit A 320 63 B 640 120 1200 100 Grade of worker Number of Base rate per Hours worked direct hour (sh) per worker workers 1 20 30 30 2 8 27 64 32 24 50 Required: a) Percentage of hours saved to hours taken (6 Marks) b) Bonus due to the group (7 Marks) c) Gross earnings due to the group. (7 Marks) (Total: 20 Marks) QUESTION TWO Kalati Manufacturing Company Ltd. is located at the industrial area in Nairobi. The company uses four different machine groups A, B, C and Din its manufacturing process. The overhead costs budget for the year ending 31 December 2020 is as follows: Sh."000" Indirect wages 12,000 Holiday pay and national insurance 10,200 Supervision 16,680 Machine maintenance (wages) 14,000 Supplies 2,600 Power 4,200 Tooling costs 13,300 Insurance of machinery 2,520 Insurance of buildings 1,600 Depreciation 10,500 2 000 Rent and rates 12400 100.000 At present, overheads are absorbed into the cost of the company's products by means of a single direct wages percentage of 70 percent. The company wishes to change to machine hour overhead absorption rate for each of its four different machine groups. The following data is available for each of the four machine groups: Machine groups B C D Total Sh.000 Sh. Sh. Sh. Sh. 6000 000 *000 Tooling costs 5,400 4,100 2,600 1,200 13.300 Supervision 5,170 4,720 3,630 3.160 16,680 Supplies 1,200 800 200 400 2600 Cost of machines 32.000 24,000 10,000 18,000 84.000 Machine maintenance hours 3.000 2.000 4.000 1,000 10.000 Number of direct workers 6 6 2 2 16 Total number of workers 26 34 15 10 85 Floor space (square feet) 3.000 2.400 1,600 1,000 8.000 Machine running hours 30 60 25 10 125 Machine power rating 55.000 27,000 8.000 15,000 105,000 (kilowatts) Required: Machine hour overhead absorption rate for each of the four groups of machines (9 Marks) The overhead cost to be absorbed by product Lati it It utilizes the following time resources of the indicated machine groups: Hours Machine group 8 3 B 1 (3 Marks) Direct labour cost is Sh. 22,000,000 and the direct wages percentage method is used (3 Marks) (Total: 15 Marks) ASSIGNMENT TWO QUESTION ONE a) State and briefly explain three assumptions underlying the break-even theory. (6 marks) b) Jamii Company Ltd manufactures and sells a single product. The following information regarding the company's operations for the year ended 30 September 2020 was presented to you. Profit and loss account for the year ended 30 September 2020 Sh000 Sh'000 Sales 30,000 Less: Production costs Direct material 6,500 Direct labour 5,400 Production overhead variable 2.000 Prime costs 18.900 11.100 Other expenses: Selling - Variable 2.600 - Cost 1,997 Administration 2.100 6.697 Net profit 4.403 The following changes are expected to occur during the year ending 30 September 2019: 1. Selling price will be adjusted downward by 3% in order to attract more customers. 2. Material prices will rise by 2% due to inflation 3. There will be a reduction in labour cost of 4%. 4. Production overheads will increase by 3% 5. Increase in the efficiency of sales persons will reduce direct selling costs by 5% All other factors are expected to remain constant. Required: a) Break-even point in sales value (4 marks) b) The margin of safety in sales value (2 marks) c) The sales value at which profit of Sh 4.5 million will be achieved (2 marks) A summary operating statement that shows the net proft of Sh 4.5 million in (c) above. (Emarks) (Total: 15 Marks) QUESTION TWO (a) Explain the concept of "equivalent units' as used in process costing (4 marks) (6) Distinguish between absorption costing and marginal costing systems (4 marks) (c) Explain the factors that should be taken into account in deciding the most suitable method of remuneration of labour (7 marks) (d) Explain circumstances under which marginal costing techniques are used (5 marks) (Total: 20 marks) ASSIGNMENT THREE QUESTION ONE Sana Ltd are retailers who sell ceramic tiles. During the months of July to September 2020, there were price fuctuations. Due to the above problem the company had to adjust is selling prices The following transactions took place during the period. 3 July Opening stock was 5.000 tiles valued at Sh 825,000 10 July Orders placed with the company increased, so extra ties had to be obtained from Mombasa. Therefore 22,000 tiles were purchased at a cost Sh 140 each but in addition, there was a freight and insurance charge of Sh 5 per tile. 31 July During the month 20,000 sles were sold at a price of Sh 220 each. 4 August A new batch of 14,000 tiles was purchased at a cost of Sh 175 per tile. 30 August The sales for the month of August were 14,000 sies at a seling price of Sh 230 each 1 September A further 24.000 tiles were purchased at a cost of Sh 195 each 30 September 270,000 tiles were sold during September at price of Sh 240 each. The cost accountant of Sana Lid decided he would apply first-in-first-out basis and weighted average methods of material pricing for purposes of comparison Required: 0 A stores ledger account using the two methods and showing stock values at 30 September 2020 (14 marks) The trading accounts using each of the above methods. (6 marks) (Total: 20 marks) QUESTION TWO (a) Explain the advantages and disadvantages of the high-low method of cost estimation.(5 marks) (b) Eastem Lid. is preparing its budget for the year ending 30 June 2020. For the fuel expenses consumption it is decided to estimate an equation of the form, y = a + bx, where y is the total expense at an activity level x, a is the fixed expense and b is the rate of variable cost. The following information relate to the year ended 30 June 2019: Month Machine Fuel Oil Month Machine Fuel oil hours expense hours expense 2019 (Sh. 000) (Sh.'000') 2020 (Sh. '000(Sh. 000) July 34 640 January 26 500 August 30 620 February 26 500 September 34 620 March 31 530 October 39 590 April 35 550 November 42 500 May 43 580 December 32 530 June 680 48 6.840 The annual total and monthly average figures for the year ended 30 June 2019 were as follows: Machine hours Fuel oll expense (000") (Sh. 1000) Annual total 420 Monthly average 35 570 Required: Using the high-low method, estimate and interpret the fixed and variable cost elements of the fuel oil expense. 16 marks) Using the results in () above, predict the fuel oil expense for November 2020 if experience indicates that 41,000 machine hours will be used. (3 marks) Brielly explain any two limitations of High-low method of cost estimation that may be overcome by using simple linear regression analysis. (5 marks) (Total: 20 marks) QUESTION ONE Lanexo Products Ltd who manufactures and retail products A, B and C employ sixty direct workers who work under a group of bonus scheme. The company engages three grades of workers who are paid a bonus of the excess of time allowed over time taken. The bonus paid is 75% of the workers' base rate and is shared by the workers in proportion to the time spent on the work. The following production data has been extracted from the company's records for April 2020. Product Units produced Time allowed per unit A 320 63 B 640 120 1200 100 Grade of worker Number of Base rate per Hours worked direct hour (sh) per worker workers 1 20 30 30 2 8 27 64 32 24 50 Required: a) Percentage of hours saved to hours taken (6 Marks) b) Bonus due to the group (7 Marks) c) Gross earnings due to the group. (7 Marks) (Total: 20 Marks) QUESTION TWO Kalati Manufacturing Company Ltd. is located at the industrial area in Nairobi. The company uses four different machine groups A, B, C and Din its manufacturing process. The overhead costs budget for the year ending 31 December 2020 is as follows: Sh."000" Indirect wages 12,000 Holiday pay and national insurance 10,200 Supervision 16,680 Machine maintenance (wages) 14,000 Supplies 2,600 Power 4,200 Tooling costs 13,300 Insurance of machinery 2,520 Insurance of buildings 1,600 Depreciation 10,500 2 000 Rent and rates 12400 100.000 At present, overheads are absorbed into the cost of the company's products by means of a single direct wages percentage of 70 percent. The company wishes to change to machine hour overhead absorption rate for each of its four different machine groups. The following data is available for each of the four machine groups: Machine groups B C D Total Sh.000 Sh. Sh. Sh. Sh. 6000 000 *000 Tooling costs 5,400 4,100 2,600 1,200 13.300 Supervision 5,170 4,720 3,630 3.160 16,680 Supplies 1,200 800 200 400 2600 Cost of machines 32.000 24,000 10,000 18,000 84.000 Machine maintenance hours 3.000 2.000 4.000 1,000 10.000 Number of direct workers 6 6 2 2 16 Total number of workers 26 34 15 10 85 Floor space (square feet) 3.000 2.400 1,600 1,000 8.000 Machine running hours 30 60 25 10 125 Machine power rating 55.000 27,000 8.000 15,000 105,000 (kilowatts) Required: Machine hour overhead absorption rate for each of the four groups of machines (9 Marks) The overhead cost to be absorbed by product Lati it It utilizes the following time resources of the indicated machine groups: Hours Machine group 8 3 B 1 (3 Marks) Direct labour cost is Sh. 22,000,000 and the direct wages percentage method is used (3 Marks) (Total: 15 Marks) ASSIGNMENT TWO QUESTION ONE a) State and briefly explain three assumptions underlying the break-even theory. (6 marks) b) Jamii Company Ltd manufactures and sells a single product. The following information regarding the company's operations for the year ended 30 September 2020 was presented to you. Profit and loss account for the year ended 30 September 2020 Sh000 Sh'000 Sales 30,000 Less: Production costs Direct material 6,500 Direct labour 5,400 Production overhead variable 2.000 Prime costs 18.900 11.100 Other expenses: Selling - Variable 2.600 - Cost 1,997 Administration 2.100 6.697 Net profit 4.403 The following changes are expected to occur during the year ending 30 September 2019: 1. Selling price will be adjusted downward by 3% in order to attract more customers. 2. Material prices will rise by 2% due to inflation 3. There will be a reduction in labour cost of 4%. 4. Production overheads will increase by 3% 5. Increase in the efficiency of sales persons will reduce direct selling costs by 5% All other factors are expected to remain constant. Required: a) Break-even point in sales value (4 marks) b) The margin of safety in sales value (2 marks) c) The sales value at which profit of Sh 4.5 million will be achieved (2 marks) A summary operating statement that shows the net proft of Sh 4.5 million in (c) above. (Emarks) (Total: 15 Marks) QUESTION TWO (a) Explain the concept of "equivalent units' as used in process costing (4 marks) (6) Distinguish between absorption costing and marginal costing systems (4 marks) (c) Explain the factors that should be taken into account in deciding the most suitable method of remuneration of labour (7 marks) (d) Explain circumstances under which marginal costing techniques are used (5 marks) (Total: 20 marks) ASSIGNMENT THREE QUESTION ONE Sana Ltd are retailers who sell ceramic tiles. During the months of July to September 2020, there were price fuctuations. Due to the above problem the company had to adjust is selling prices The following transactions took place during the period. 3 July Opening stock was 5.000 tiles valued at Sh 825,000 10 July Orders placed with the company increased, so extra ties had to be obtained from Mombasa. Therefore 22,000 tiles were purchased at a cost Sh 140 each but in addition, there was a freight and insurance charge of Sh 5 per tile. 31 July During the month 20,000 sles were sold at a price of Sh 220 each. 4 August A new batch of 14,000 tiles was purchased at a cost of Sh 175 per tile. 30 August The sales for the month of August were 14,000 sies at a seling price of Sh 230 each 1 September A further 24.000 tiles were purchased at a cost of Sh 195 each 30 September 270,000 tiles were sold during September at price of Sh 240 each. The cost accountant of Sana Lid decided he would apply first-in-first-out basis and weighted average methods of material pricing for purposes of comparison Required: 0 A stores ledger account using the two methods and showing stock values at 30 September 2020 (14 marks) The trading accounts using each of the above methods. (6 marks) (Total: 20 marks) QUESTION TWO (a) Explain the advantages and disadvantages of the high-low method of cost estimation.(5 marks) (b) Eastem Lid. is preparing its budget for the year ending 30 June 2020. For the fuel expenses consumption it is decided to estimate an equation of the form, y = a + bx, where y is the total expense at an activity level x, a is the fixed expense and b is the rate of variable cost. The following information relate to the year ended 30 June 2019: Month Machine Fuel Oil Month Machine Fuel oil hours expense hours expense 2019 (Sh. 000) (Sh.'000') 2020 (Sh. '000(Sh. 000) July 34 640 January 26 500 August 30 620 February 26 500 September 34 620 March 31 530 October 39 590 April 35 550 November 42 500 May 43 580 December 32 530 June 680 48 6.840 The annual total and monthly average figures for the year ended 30 June 2019 were as follows: Machine hours Fuel oll expense (000") (Sh. 1000) Annual total 420 Monthly average 35 570 Required: Using the high-low method, estimate and interpret the fixed and variable cost elements of the fuel oil expense. 16 marks) Using the results in () above, predict the fuel oil expense for November 2020 if experience indicates that 41,000 machine hours will be used. (3 marks) Brielly explain any two limitations of High-low method of cost estimation that may be overcome by using simple linear regression analysis. (5 marks) (Total: 20 marks)