QUESTION TWO 15 MARKS

1. The following information relates to investment opportunities available to Tumaini Ltd

Investment Opportunity	Annual profit Sh.	Cost of investment Sh.
A	300,000	900,000
B	300,000	1,600,000
C	240,000	1,200,000
D	280,000	800,000
E	260,000	1,000,000

Additional Information

1. The company currently has profits of Sh.1, 250,000 and investments of Sh.5, 000,000
2. The minimum required rate of return of the company is 20%
3. The Company will only invest in projects that will improve on the current performance

Required

1. The return on investment (ROI) and the residual Income (RI) for each of the investment opportunities
2. Based on the performance measures above, rank the investment opportunities in their order of preference. Comment on the project(s) that the company should invest in (Hint: select the project(s) that will maximize the final profitability)

1. Global Chain Ltd,. Has supermarkets located in most towns and cities across the East African region. Over the past few years profits have fallen prompting the top management to seek technical advice from CP ltd...a consulting firm that specializes in business turn-around

CP Ltd has managed to obtain relevant information from the management of the company and has organized it as follows

		2016	2017	2018
Percentage of staff promoted	Actual Budget	6% 30%	5% 30%	8% 30%
Average lead time for re-stocking	Actual Target	3days 3days	3.25days 3days	4.1 days 3days
Sales/Turnover (Sh Billion)	Actual Target	200 208	192 210	169 215
Loyalty Points awarded to customers (percentage of sales value)	Actual Target	1.4% 1.5%	1.3% 1.5%	1.2% 1.5%
Total number of staff grievances lodged in a year	Actual Target	47 Nil	101 Nil	123 Nil
Operating expenses (Sh Billion)	Actual Target	190 180	196 182	199 185
Customer satisfaction index	Actual Target	78% 95%	63% 95%	59% 95%
Processing time for goods returned on warranties (Replacements)	Actual Target	2weeks 1week	3weeks I week	3 weeks 1 week

Required

Explaining the current status of Global Chain Ltd, prepare a balanced scorecard report covering the four perspectives, using the above information

QUESTION THREE 10 MARKS

AZK Ltd, a manufacturing company is planning to launch a new product model whose lifecycle is three year

The following estimated data has been provided

Details	1 Jan 2018	31 Dec 2018	31 Dec 2019	31 Dec 2020
Research and development cost (Sh)	850,400	200,000	-	-
Production Cost:
Variable cost per unit(Sh)	-	100	80	90
Total fixed cost(Sh)	-	500,000	500,000	500,000
Marketing Cost:
Variable cost per unit(Sh)	-	12	8	10
Total fixed cost(Sh)	-	200,000	150,000	100,000
Distribution Cost:
Total fixed cost(Sh)	-	120,000	120,000	120,000
Disposal of special equipment(Sh)	-	-	-	300,000
Present value factor	1	0.89	0.80	0.71
Production (units)	-	20,000	20,000	20,000

The Marketing Director believes that customers could only pay Sh. 120 per unit but the Finance Director believes this will not cover all projected costs throughout the product's lifecycle

Required

1. Evaluate the lifecycle cost per unit
2. Comment on the target price by the marketing director and suggest ways of reducing any cost gap

QUESTION FOUR (30MARKS)

1. "Accounting profit related performance measures have been criticized as being short term focused and thus conflicting with the primary objective of maximizing shareholders' wealth" Discuss alternative approaches that could be used to overcome the short term orientation that could arise from using accounting profit related measures in evaluating divisional performance (6marks)
2. The following information has been provided relating to the performance of XYZ Company

Division	Head office	Total
	A Sh. "million"	B Sh. "million"	C Sh. "million"	Sh. "million"	Sh. "million"
Sales	408.5	316	1,159	-	1,883.5
Profit before tax interest	28.5	28	29	(9.5)	76.0
Total assets less current liabilities	135.5	119.5	116	16.0	387.0

Additional information

1. Division A spent Sh.10, 500,000 on research and development
2. Goodwill amounting to Sh.90, 000,000 and Sh.113, 500,000 was amortized during the year from divisions B and C reserves respectively
3. Advertising expenditure amounting to Sh.11, 500,000 was spent by division B
4. Head office liabilities and net assets are to be shared equally between all the divisions
5. A summary of the borrowings, interest received and interest paid on borrowings is as follows

Division	Head office	Total
	A Sh. "million"	B Sh. "million"	C Sh. "million"	Sh."million"	Sh. "million"
Borrowings	-	33.0	34.5	7.5	75.0
Interest received	2.0	-	-	-	2.0
Interest paid	-	3.5	4.5	2.0	10.0

1. Cost of capital of the company is 12%

Required

Using the economic value added (EVA) approach, evaluate the divisional performance of the company (14marks)

1. Global Chain Ltd,. Has supermarkets located in most towns and cities across the East African region. Over the past few years profits have fallen prompting the top management to seek technical advice from CP ltd...a consulting firm that specializes in business turn-around

CP Ltd has managed to obtain relevant information from the management of the company and has organized it as follows

		2016	2017	2018
Percentage of staff promoted	Actual Budget	6% 30%	5% 30%	8% 30%
Average lead time for re-stocking	Actual Target	3days 3days	3.25days 3days	4.1 days 3days
Sales/Turnover (Sh Billion)	Actual Target	200 208	192 210	169 215
Loyalty Points awarded to customers (percentage of sales value)	Actual Target	1.4% 1.5%	1.3% 1.5%	1.2% 1.5%
Total number of staff grievances lodged in a year	Actual Target	47 Nil	101 Nil	123 Nil
Operating expenses (Sh Billion)	Actual Target	190 180	196 182	199 185
Customer satisfaction index	Actual Target	78% 95%	63% 95%	59% 95%
Processing time for goods returned on warranties (Replacements)	Actual Target	2weeks 1week	3weeks I week	3 weeks 1 week

Required

Explaining the current status of Global Chain Ltd, prepare a balanced scorecard report covering the four perspectives, using the above information (10 marks)

QUESTION FIVE (20MARKS)

1. Stating two examples in each case, distinguish between 'Internalized environmental costs" and "externalized environmental impacts" (6 marks)
2. Delcom Ltd. is planning to introduce a new product. Market research information suggests that the product should sell 100,000 units over its life cycle at a price of sh. 420 per unit. The company seeks to make a mark-up of 40% of product cost. Life cycle costs of the product will be as follows

	Sh	Sh
Design and development costs		10,000,000
Marketing and distribution costs		5,000,000
Manufacturing costs per unit
Direct materials	50
Direct labour	60
Variable production overheads	60
Fixed production overheads	30	200
End of life costs		4,000,000

Required

1. The lifecycle cost per unit (3marks)
2. The product's cost gap (2marks)
3. The management accountant estimates that if the company spends additional Sh.1, 000,000 on design, manufacturing cost per unit could be introduced. Compute the maximum manufacturing cost per unit that will be tolerated if the company was to earn the required mark-up (5marks)
4. To manage cost effectively the Company should emphasis on cost management at the planning and design stage-Explain decisions that can be made at the planning and design stage which can affect the cost of product and reduce the cost gap. (4marks)

QUESTION SIX (20MARKS)

1. Evaluate any three perspectives which the balanced scorecard focuses on (6marks)
2. Triple C Ltd. manufactures a single product branded "ZL". Product "ZL" requires three types of raw materials namely F. G. and H.

The standard cost for one unit of "ZL" is as follows

Materials	Quantity (kgs)	Price per kg (Sh.)	Total Cost (Sh.)
F	15	400	6,000
G	12	300	3,600
H	8	600	4,800
Standard Loss	(3)
Standard Yield	32
Labour
	Hours	Rate per hour (Sh.)	Total cost (Sh.)
Department X	4	1,000	4,000
Y	2	600	1,200

Additional Information

1. During the month of April 2015, the budgeted production and sales were 4096 Kgs of product "ZL" at Sh. 1,600 per Kg
2. The actual quantities of materials and labour used in the month of April 2015 for 120 batches of product "ZL" were as follows

Materials	Quantity (kgs)	Price per kg (Sh.)	Total Cost (Sh.)
F	1,680	425	714,000
G	1,650	280	462,000
H	870	640	556,800
Labour
	Hours	Rate per hour (Sh.)	Total cost (Sh.)
Department X	600	1,060	636,000
Y	270	560	151,200

1. The actual yield was 3,648

Required

1. Materials price variance (3marks)
2. Materials usage variance (3marks)
3. Materials mix variance (3marks)
4. Materials yield variance (3marks)
5. Labour cost variance (2marks)