This page allows you to read, attempt questions and verify answers.
The following is a summary of operating data on Ngim manufacturers for the year 2013.
| TZS '000 | TZS '000 | |
|---|---|---|
| Sales | 7,000,000 | |
| Cost of goods manufactured and sold: | ||
| Direct material | 1,200,000 | |
| Direct labour | 1,100,000 | |
| Variable manufacturing overheads | 300,000 | |
| Fixed manufacturing overheads | 800,000 | (3,400,000) |
| Gross margin | 3,600,000 | |
| Selling expenses: | ||
| Variable | 300,000 | |
| Fixed | 400,000 | (700,000) |
| 2,900,000 | ||
| General and administrative expenses: | ||
| Variable | 100,000 | |
| Fixed | 1,200,000 | (11,300,000) |
| Net operating income | 1,600,000 |
Sales volume for 2014 was budgeted at 90% of 2013 sales volume. Prices for both costs were not expected to change in 2014. Actual operating data for 2014 were as follows:
| TZS '000 | |
|---|---|
| Sales | 5,800,000 |
| Direct materials | 1,300,000 |
| Direct labour | 1,100,000 |
| Variable manufacturing overheads | 300,000 |
| Fixed manufacturing overheads | 780,000 |
| Variable selling expenses | 270,000 |
| Fixed selling expenses | 290,000 |
| Variable general and administrative expenses | 110,000 |
| Fixed general and administrative expenses | 1,100,000 |
REQUIRED:
- Prepare a budgetary control report comparing the planned operating budget for 2014 with the actual results for that year. (7 marks)
- Prepare a budgetary control report that would be useful in pinpointing responsibility for the different unit section managers in 2014. (10 marks)
- Justify the strength of the report prepared in (b) over the one in (a) above. (3 marks)
- Briefly explain what you understand by the term ‘transfer pricing’.
- Explain how the existence of transfer pricing can distort performance appraisal within a divisionalized organization structure. (6 marks)
- Explain four methods which are used to determine transfer prices. (4 marks)
- OMEGA Ltd has two divisions PRODUCTION and FINISHING. Production division manufactures product Alpha-200 which it sells in outside market as well as to Finishing division that processes it to manufacture Zelfa-100. The Manager of the Finishing division has recently expressed his concern that transfer price charged by Production division is too high. During the management meeting, the company’s CEO ordered the two Divisional Managers to discuss and resolve the conflict to ensure the goal of the firm is achieved. The following information is anticipated and made available:
- Production division has been selling 50,000 units to outsiders and 10,000 units to Finishing Division, all at TZS.5,000 per unit. It is not anticipated that these demand will change. The variable cost is TZS.3,000 per unit and the fixed costs are TZS.60,000,000. Divisional investment in assets is TZS. 240,000,000.
- The Manager of Production division anticipates that Finishing division will want a transfer price of TZS.4,400.
- If Production division does not sell to Finishing division then, TZS.8,000,000 of fixed costs and TZS.40,000,000 of assets can be avoided.
- The Manager of Production division has no control over the proceeds from the sale of the assets and is judged primarily on his rate of return on investment.
- Should the Manager of Production division transfer its products at TZS.4,400 to Finishing division? (5 marks)
- Determine the lowest price that the Production division should accept. (5 marks)
Mtikisiko Plc is a manufacturing company that produces three products: Bread, Cake and Sambusa. Each uses the same resources, but in different quantities as shown in the table of budgeted data for 2020 below:
| PRODUCTS | Bread | Cake | Sambusa |
|---|---|---|---|
| Budgeted production | 1,500 | 2,500 | 4,000 |
| Direct labour hours per unit | 2 | 4 | 3 |
| Machine hours per unit | 3 | 2 | 3 |
| Batch size | 50 | 100 | 500 |
| Machine setups per batch | 2 | 3 | 1 |
| Purchase orders per batch | 4 | 4 | 6 |
| Material movements per batch | 10 | 5 | 4 |
Mtikisiko Plc budgeted production overhead costs for 2020 are TZS.4,000,000 and current practice is to absorb these costs into product costs using an absorption rate based on direct labour hours. As a result the production overhead cost attributed to each product unit is:
| Bread TZS 320 | Cake TZS 640 | Sambusa TZS 480 |
The management of Mtikisiko Plc is considering changing to an activity based method of attributing overhead costs to products and as a result have identified the following cost drivers and related costs pools:
| Cost Pool | TZS | Cost Driver |
|---|---|---|
| Machine maintenance | 1.000,000 | Machine hours |
| Machine Setups | 700,000 | Machine setups |
| Purchasing | 900,000 | Purchase orders |
| Material handling | 600,000 | Material movements |
The remaining TZS.800,000 of overhead costs are caused by a number of different factors and activities that are mainly labour related and are to be attributed to products on the basis of labour hours.
REQUIRED:
- Any four steps involved in designing an ABC System of overhead cost allocation (3 marks)
- Other methods are available for the purposes. (3 marks)
PART A
Nasihu Ltd. has the following standards for producing an alcoholic beverage:
| Materials | Litres | Ug. Shs @ Litre | Amount (Ug. Shs) |
|---|---|---|---|
| Concentrate 590N | 50 | 100 | 5,000 |
| Concentrate KAG | 50 | 300 | 15,000 |
| 100 | 20,000 |
Every 100 litres of input should yield 80 litres of Chovi, the finished product.
The production manager is supposed to make the largest possible amount of finished product for the least cost. He has some leeway to alter the combination of materials within certain wide limits, as long as the finished product meets specified quality standards. Actual results showed that 400,000 litres of Chovi were produced during last week. The raw materials used in this production were 280,000 litres of 590N and 240,000 litres of KAG. No price variances were experienced during the period.
REQUIREMENT:
- Present yield and mix variances. (13 marks)
- Comment on the performance of the manager. (7 marks)
PART B
DW, a transport company, operates three depots. Each depot has a manager who reports directly to the Operations Director. For many years the depot managers have been asked by the Operations Director to prepare a budget for their depot as part of the company’s annual budgets process. A new depot manager has been appointed to the Southern region and he has concerns about the validity of these annual budgets. He argues that the annual budgets will soon become out of date as operational circumstances change. At a recent manager’s meeting he said, “The annual budgets are restrictive. They do not permit the depot managers to make decisions in response to operational changes, or change in working practices for next year until that year’s budget has been approved”.
REQUIRED:
- Explain the differences between the above annual budgeting system and a rolling budget system. (4 marks)
- Discuss how the Southern region depot Manager could use a rolling budget system to address his concerns. (6 marks)
Ezil manufacturers three different products and the following information have been collected from the books of accounts:
| PRODUCT | |||
|---|---|---|---|
| S | T | Y | |
| Sales mix | 35% | 35% | 30% |
| Selling price (T.shs) | 300 | 400 | 200 |
| Variable cost (T.shs) | 150 | 200 | 120 |
| Total fixed costs (T.shs) | 1,800,000 | ||
| Total sales | 6,000,000 | ||
The company has currently under discussion, a proposal to discontinue the manufacture of product Y and replace it with product M, when the following results are anticipated:
| PRODUCT | |||
|---|---|---|---|
| S | T | M | |
| Sales mix | 50% | 25% | 25% |
| Selling price (T.shs) | 300 | 400 | 300 |
| Variable cost (T.shs) | 150 | 200 | 150 |
| Total fixed costs (T.shs) | 1,800,000 | ||
| Total sales | 6,400,000 | ||
Required:
Advise the company on a decision to change over to production of M. Give reasons for your answers.
Access Restricted
You need to be logged in to access this content.