QUESTION 1

a) A plus limited manufacture three products A, B and C.The Company is facing a

restriction in its machinining section of the Assembly plant. The machine has a
capacity of 1,200 units of A, 1,500 units of B and 600 units of C per hour. The
machine currently operates for 8 hours in a day.
Information about each product is given below:

Product A B C

Unit Selling price(K) 150 120 300

Unit material cost(K) 80 40 100

Unit throughput Contribution (K) 70 80 200

Daily output achieved (units) 6,000 4,500 1,200

The company’s conversion cost per day is given as K720,000.

Required:

i. Calculate the daily profit achieved by the company.

ii. Calculate the Throughput Accounting Ratio (TA) for each product.
iii. In the absence of demand restriction for the three products advise the
company on the optimal production plan.
iv. Explain the objective and assumptions underlying the Theory of Constraints
(TOC).

QUESTION 2

A) Spectrum products limited is planning to introduce a new product. Development and

production costs over the life of the product have been detailed below:

Year 1 Year 2 Year 3 Year 4

Units manufactured and sold 5,000 12,000 20,000 5,000

K K K K

R&D costs 2,000,000 100,000 - -

Sales promotion costs 100,000 75,000 50,000 10,000

Production cost per unit 500 450 400 450

Customer service costs per unit 50 40 40 40

Investment in special equipment 1,500,000

Licence charges for product 300,000

The Marketing Director believes that customers will be prepared to pay K500 for a solar
panel but the Financial Director believes this will not cover all of the costs throughout
the lifecycle. The investment in special equipment will be depreciated over the four (4)
year period.

Required

i. Calculate the cost per unit looking at the whole life cycle and comment on the
suggested price.

ii. Explain any THREE (3) benefits of lifecycle costing.

iii. Briefly explain the THREE (3) characteristics that make target costing a
challenge to implement in Service Industries.

B) You have been given the following cost estimates which have been prepared based
on the proposed product specification.

Manufacturing cost K

Direct material 321

Direct Labour 240

Direct machinery costs 112

Quality assurance 483

Non-manufacturing costs

Marketing 815

Distribution 325

After-sales service 130

Market Selling Price 2,500

The target profit margin for the game is 25% of the proposed selling price

Required
 i. Calculate the target cost of the new game and the target cost gap.

ii. Suggest TWO ways of how a company can close the target cost gap.

QUESTION 3

Discuss the benefits of an organisation implementing environmental accounting and

describe the systems that are used in environmental accounting.

QUESTION 4

The operating statement relating to the latest financial year of Hercules Manufacturing
limited is as follows:

K’000

Sales (22,000 units) 3,300

Direct materials (726)

Direct labour (374)

Production overheads (798)

Fixed Selling Overheads (1,042)

The variable production overheads component for the current output was K20 per unit.
The has a company’s full production capacity is 30,000 units available.

Required:

a) Calculate the contribution per unit and the margin of safety in units for the latest
financial year.

b) Draw and label a simple Break-Even graph to reflect the current status of
operations at the company.

c) The general manager considered that full capacity could be reached if the selling
price were cut by 10%.In addition; the direct material cost would be reduced by
5% following a minor modification of specification of the product and has asked
you to prepare an operating statement to show the contribution and profit.

QUESTION 5
The following analysis of factors of production and related costs and resources
requirement has been provided relating two products Q and T.

Product Q T
Product
Demand in Units
Q
100,000
T
200,000

Resources Usage/Unit
Selling Price/unit (K) 10 20

Labour Hours
Contribution/unit(K) 0.5 3 0.25

Machine Hours 0.1 0.1

Company Available Resources:

Labour Hours = 50,000 hours

Machine Hours = 80,000 hours

Required:
i. Identify the limiting factor for the company
ii. Calculate the maximum total contribution due to the limiting resource.
iii. Explain how this approach is beneficial to managers.

QUESTION 6

DC direct Limited is a manufacturing firm and produces four unique products. The
budgeted production output and costs for a given period is tabulated below for your
analysis.
Products A B C D

Units of Output 10 10 100 100

Materials Cost per Unit K20 K80 K20 K80

Direct labour hours per Unit 1 3 1 3

Machine hour per Unit 2 4 2 4

Number of production runs 2 2 5 5

Additional information:

Overheads are absorbed on the basis of machine hours. Direct labour cost per hour is
K5, and information on the TOTAL overhead costs is as follows:

Overhead Costs Cost Drivers K

Materials Handling Costs Production Runs 7,500

Set-Up Costs Machine Hours 12,000

Production and Scheduling Costs Production runs 8,500

Total 28,000

Required:

i. Calculate the product costs using Absorption costing and Activity Based Costing.