Preparation paper 11

ZETU Ltd. manufactures three standard products — Product A, Product B, and Product C — which it sells to several large wholesale chains. Production is highly automated and takes place in large batches. Finished goods are then shipped in smaller batches to customers.

The following data relates to a typical month’s operations:

Production and Shipping Volumes

Two types of indirect labour are employed, namely, 4 quality control inspectors (at a cost of TZS 4,000,000 each per month) and 9 administrators (at a monthly cost of TZS 3,500,000 each). Each employee works a standard 180 hours per month. The role of the quality control staff is to inspect a sample from each batch of output produced; this takes a standard 3 hours inspection time per batch produced. The administrators perform two tasks, namely, shipment processing work (which takes 2 hours per batch shipped) and monitoring of production (at the rate of one hour of administrator time for every 600 units of output).

ZETU also uses two types of specialized automated machinery. The machinery usage and costs information are shown below:

The main production machinery is used per unit as noted above. It has a monthly capacity of 225,000 machine hours and incurs a total monthly cost of TZS 450,000,000, which should be allocated based on machine hours used.

Required:

Using Activity-Based Costing (ABC), calculate the total monthly cost allocated to each product (A, B, and C).

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1. Moja Mbili Limited is a newly started company that wishes to start operations in September 2025. The financial manager has supplied the following data such that you can help organizing a cash budget for the first six months of operations:

   Months	Sales	Materials	Wages	Production overheads	Selling and distribution overheads
   September 2025	20,000,000	20,000,000	4,000,000	3,200,000	800,000
   October 2025	22,000,000	14,000,000	4,400,000	3,300,000	900,000
   November 2025	28,000,000	14,000,000	4,600,000	3,400,000	900,000
   December 2025	36,000,000	22,000,000	4,600,000	3,500,000	1,000,000
   January 2026	30,000,000	20,000,000	4,000,000	3,200,000	900,000
   February 2026	40,000,000	25,000,000	5,000,000	3,600,000	1,200,000

   
   

   Additional information:

   1. Cash balance on 1^st September 2025 is expected to be TZS 10,000,000.
   2. A new machinery is to be installed at TZS 20,000,000, on credit, to be paid in two equal installments scheduled for November and December 2025.
   3. Sales commission of 5% is to be paid in the calendar month following the month of sales.
   4. TZS 10,000,000 being nominal amount of the second call money on Moja Mbili Limited subscribed ordinary shares will be received in November 2025, alongside share premium of TZS 2,000,000.
   5. Period of credit allowed by suppliers is 2 months.
   6. Moja Mbili Ltd allows its customers one-month credit on its credit customers. Cash sales make 50% of total sales.
   7. Delay in payment for overheads and wages is one month and half a month respectively.

   REQUIRED:

   Prepare a columnar monthly cash budget for the six months beginning from September 2025 to February 2026.

2. In a recent professional seminar on budgeting essentials for manufacturing firms, Maarifa Kifai, the production manager of Kabadi Manufacturing claimed that preparation of sales and production budget is already a detailed and time consuming process. He therefore, argued that, once these two are in place, there is no need to spend additional resource in preparing a cash budget. After all business report their financial affairs on accrual basis, he argued.

   REQUIRED:

   Enumerate any six (6) roles of cash budget to counter the Maarifa’s argument.

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Tuzo Ltd manufacturers medals for winners of athletic events and other contests, including high profile corporates in Tanzania. Tuzo’s manufacturing plant has the capacity to produce 10,000 medals each month. The company’s current production and sales levels is 7,500 medals per month, sold at the current domestic price of TZS 150,000 per medal.

The cost data for the month of July 2025 is as summarized below:

Tuzo Ltd has received a special one-time order for 2,500 medals at TZS 100,000 per medal. Tuzo ltd makes medal for existing customers in batch size of 50 medals (150 batches 50 medals per batch – 7,500 medals).

The special order for 2,500 medals requires Tuzo Ltd to manufacture the models in 25 batches of 100 medals each.

REQUIRED:

1. Recommend whether Tuzo should accept the special order, justifying your recommendations with reason(s), supported by assumptions.
2. Assuming the plant capacity was 9,000 medals instead of 10,000 medals per month and the special order must be either taken in full or totally rejected. Recommend whether Tuzo Ltd should accept the order, supporting with reason(s) and computations.
3. State any other factors that should be considered in the decision in (a) and (b) above.

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1. Your friend Ms. Nyinoghono Makusarako is the Chief Executive Officer of Waza Manufacturing Ltd. (WML). She has just received from her accountant the two most recent income statements for the month of June and July 2025, and is puzzled because sales have increased in July, yet profit have declined relative to June. She has share you with the following summary of income statements for both months.

   	June	July
   Sales (TZS 20,000 per unit)	200,000,000	250,000,000
   Standard cost of sales	(120,000,000)	(150,000,000)
   Standard gross profit	80,000,000	100,000,000
   Capacity over/(under) absorption	8,000,000	(16,000,000)
   Selling and administrative overheads	(20,000,000)	(20,000,000)
   Income	68,000,000	64,000,000

   She has also been able to share that the standard fixed costs per unit is TZS 8,000 based on a normal capacity of 12,000 units per month.

   REQUIRED:

   1. Determine the production levels for each of the two months.
   2. Explain the results to Ms. Makusaro
   3. Prepare the income statement (in columnar form) for each month based on variable costing.

2. Traditional costing is now rapidly being replaced with target costing in some sectors.

   REQUIRED:

   Explain the meaning of “target costing” and highlight any four (4) justifications for use of target costing.

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Tucheze Limited is an outdoor sports company dealing with production of wide variety of outdoor sports equipment. Its new division, Tema manufactures and sell a single product, CHEZA, a sport equipment that uses modern technology that is linked to GPS. The demand for CHEZA is relatively insensitive to price changes. The following data are available for Tema, an investment center for Tucheze Limited.

REQUIRED:

1. Compute Tema’s Return on Investment (ROI) if the selling price of CHEZA is TZS 720,000 per unit.
2. If the management requires a ROI of at least 25% from the division, what is the minimum selling price that Tema should charge for CHEZA
3. Assume that Tucheze judges the performance of its investment centers on the basis of residual income rather than ROI. Calculate the minimum selling price that Tema should charge per unit of CHEZA if the company’s required rate of return is 20%.
4. Comments of the remarks of Mwakapisi, one of your colleagues, that Economic Value Added (EVA) is the overriding criterion for performance measurement, arguing further that ROI and residual income should be ‘shelved’.

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