Techro HTML5 template
QUESTION ONE

Your friend Majimoto, a ticket agent, wants to benefit from your competencies on performance management to maximize returns from his business. He has an arrangement with Ngoma Kali Hall that holds Bongo flavour music concerts for 60 nights a year whereby he receives discounts per concert as follows:

For purchase of: Receives a discount of:
200 tickets 20%
300 tickets 25%
400 tickets 30%
500 tickets 40%

You are able to establish that:

  1. Purchases must be made in full hundreds and the average price per ticket is TZS.3,000.
  2. Majimoto must decide in advance each year the number of tickets he will purchase. If he has any tickets unsold by the afternoon of the concert he must return them to the super-agent. If the super-agent sells any of these, Majimoto receives 60% of their price.
  3. Majimoto’s sales records for a few years show that for a concert with extremely popular Bongo artists he can be confident of selling 500 tickets, for one with lesser-known artists 350 tickets, and for one with relatively unknown artists 200 tickets.
  4. His records also show that 10% of tickets he returns are sold by the super-agent.
  5. His administration costs incurred in selling tickets are the same per concert irrespective of the popularity of the artists.

The frequencies of concerts are estimated to be:

Type of concert Frequency
With popular artists 45%
With lesser known artists 30%
With unknown artists 25%

REQUIRED:

  1. Calculate:
    1. The expected demand for tickets per concert. (4 marks)
    2. The level of his purchases per concert that will give him the largest profit over a long period of time. (9 marks)
    3. The profit per concert that the level of purchases in (ii) above will yield (1 mark)
  2. Advise Majimoto on the maximum sum per annum that he should pay to a Bongo flavour entertainment specialist for 100% correct predictions as to the likely success of each concert. (6 marks)
  • Updated: 18 Jul 20
  • |
  • Attempts: 2
  • |
  • Correct: 1

Confirm answers here Play

(i) The total expected demand for tickets:
QUESTION TWO

The Selefa Ltd is a Company specializing in the provision of CCTV Camera systems for commercial clients. There are two parts of the business: installing CCTV Camera systems in businesses, either first time installations or replacement installations and supporting the CCTV Camera systems with annually renewable maintenance contracts. Selefa Ltd has been approached by a potential customer, Mwangaza Co. who wants to install a CCTV camera system in its new offices. Although the work will not earn a big profit, Selefa Ltd is hopeful of future business in the form of replacement systems and support contracts for Mwangaza Co. Selefa Ltd, is therefore keen to quote a competitive price for the job. The following information should be considered:

  1. One of the Company’s salesmen has already visited Mwangaza Co. to give them a demonstration of the new system together with a complementary lunch, the costs of which totaled TZS.400,000.
  2. The installation is expected to take one week to be completed and would require three technicians, each of whom is paid a monthly salary of TZS.4,000,000. The technicians have just had their annually renewable contract renewed with Selefa Ltd. One of the three technicians has spare capacity to complete the work, but the other two would have to be moved from contract X (in order to complete this one). Contract X generates a contribution of TZS.5,000 per technician hour. There are no other technicians available to continue with contract X if these two technicians are taken off the job. It would mean that Selefa Ltd. would miss its contractual completion deadline on contract X by one week. As a result, Selefa Ltd. Would have to pay a one-off penalty of TZS.500,000. Since there is no other work scheduled for their Technicians in one week’s time, it will not be a problem for them to complete contract X at this point.
  3. Selefa Ltd’s technical advisor would also need to dedicate eight hours of his time to the job. He is working at full capacity, so he would have to work overtime in order to do this. He is paid an hourly rate of TZS. 40,000 and is paid for all overtime period at a premium of 50 per cent above his usual hourly rate.
  4. Two visits would need to be made by the site inspector to approve the completed work. He is an independent inspector who is not employed by Selefa Ltd, and charges Mwangaza Co. directly for the work. His cost is TZS.200,000 for each visit made.
  5. Selefa’s system trainer would need to spend one day at Mwangaza Co. delivering training. He is paid a monthly salary of TZS.1,500,000 but also receives commission of TZS.125,000 for each day spent delivering training at a client’s site.
  6. 120 cameras would need to be supplied to Mwangaza Co. The current cost of these is TZS.18,200 each, although Selefa Ltd already has 80 Camera in inventory. These were bought at a price of TZS.16,800 each. The handsets are the most popular model on the market and frequently requested by Selefa Ltd’s customers.
  7. Mwangaza Co. would also need a computerized control system called ‘Catch 2’. The current market price of Catch 2 is TZS.10,800,000, although Selefa Ltd. has an older version of the system, ‘Catch 1’ in inventory, which could be modified at a cost of TZS.4,600,000. Selefa Ltd. paid TZS.5,400,000 for Catch 1 when it ordered it in error two months ago and has no other use for it. The current market price of Catch 1 is TZS.5,450,000, although if Selefa Ltd, tried to sell the one they have, it would be deemed to be ‘used’ and therefore only worth TZS.3,000,000.
  8. 1000 metres of cable would be required to wire up the system. The cable is used frequently by Selefa Ltd, and it has 200 metres in inventory, which cost TZS.1,200 per metre. The current market price for the cable is TZS.1,300 per metre.
  9. You should assume that there are four weeks in each month and that the standard working week is 40 hours long.

REQUIRED:

  1. Prepare a cost statement using relevant costing principles showing the minimum cost that Selefa Ltd. should charge for the contract. Make detailed notes showing how each cost has been arrived at and explaining why each of the costs above has been included or excluded from your cost statement. (14 marks)
  2. Explain the relevant costing principles used in part (a) and explain the implications of the minimum price that has been calculated in relations to the final price agreed with Mwangaza Co. (6 marks)
  • Updated: 18 Jul 20
  • |
  • Attempts: 0
  • |
  • Correct: 0

Confirm answers here Play

Relevant minimum cost that SELEFA Ltd should Charge:
QUESTION THREE

Filoo Makeki Ltd, a premium baker, is reviewing operations for a three-month period. The company operates a standard marginal costing system and manufactures one type of shortcake, TAMU, for which the following standard revenue and cost data per unit of product is available:

Selling price TZS 1,200
Direct material A 2.5 kg at TZS 170 per kg
Direct material B 1.5 kg at TZS 120 per kg
Direct labour 0.45 hrs at TZS 600 per hour

Fixed production overheads for the three-month period were expected to be TZS 6,250,000

Actual data for the three-month period was as follows:

Sales and production 48,000 units of TAMU were produced and sold for TZS 58,080,000
Direct material A 121,951 kg were used at a cost of TZS 20,000,000
Direct material B 67,200 kg were used at a cost of TZS 8,400,000
Direct labour Employees worked for 18,900 hours, but 19,200 hours were paid at a cost of TZS 11,712,000
Fixed production overheads TZS 6,400,000

Budgeted sales for the three-month period were 50,000 units of TAMU.

Required:

  1. Calculate the following variances:
    1. Sales volume contribution and sales price variances.     (2 marks)
    2. Price, mix and yield variances for each material.     (6 marks)
    3. Labour rate, labour efficiency and idle time variances     (3 marks)
  2. Prepare an operating statement that reconciles budgeted gross profit to actual gross profit with each variance clearly shown.     (4 Marks)
  3. Suggest possible explanations for the following variances:
    1. Labour rate variance     (2 marks)
    2. Labour efficiency variance     (2 marks)
    3. Labour idle time variance     (1 marks)

  • Updated: 18 Jul 20
  • |
  • Attempts: 0
  • |
  • Correct: 0

Confirm answers here Play

Total Labour Hours:
QUESTION FOUR

ResZone manufacturers three components. These components pass through two of the company’s departments P and Q. The machine hour capacity of each department is limited to 6,000 hours in a month. The monthly demand for components and cost data are shown below:

Component A B C
Demand in units 900 900 1,350
Direct material cost per unit (T.shs) 45 56 14
Direct labour cost per unit (T.shs) 36 38 24
Variable overhead cost per unit (T.shs) 18 20 12
Fixed overheads:
P at T.shs 8 per hour (T.shs) 16 16 12
Q at T.shs 10 per hour (T.shs) 30 30 10
Total (T.shs) 145 160 72

Components A and C can be purchased from market at T.shs 129 each and T.shs 70 each respectively.

REQUIREMENT:
Prepare a statement to show which of the components in what quantities should be purchased to minimize the cost.

  • Updated: 18 Jul 20
  • |
  • Attempts: 4
  • |
  • Correct: 2

Confirm answers here Play

Total machine hours in department P:
QUESTION FIVE

You work for the accounting firm of Lennon and Morris and have recently been approached by Ms Julie Day, a client, for advice regarding some aspects of budgeting. Last week, Julie attended a networking business event and when discussing the annual budgeting process, some of the attendees mentioned incremental budgeting and zero-base budgeting. The behavioural effects of the budgeting process were also mentioned. As Julie has only recently been involved with the annual budgeting process, she is unsure about what these terms mean and has asked you for information.

Required:
Prepare a memorandum for Ms Julie Day that:

  1. Outlines incremental budgeting including advantages and disadvantages.     (4 marks)
  2. Explains zero base budgeting including advantages and disadvantages.     (5 marks)
  3. Discusses behavioural issues that may arise as part of the annual budgeting process.     (5 marks)

  • Updated: 18 Jul 20
  • |
  • Attempts: 0
  • |
  • Correct: 0

Confirm answers here Play

(i) Transfer Price:
(a) Total overhead of cost centre A:
Unique visitors
counter free
Page views
counter free