Preparation paper 8

The standard specification for a batch of 500 kg of output of Michanganyo Factory Limited (MFL) is as follow:

During the month of April 2025, MFL obtained a production of 9,750 kgs of output for which 20 batches consisting of standard input to materials were issued to the shop floor in the following ratios at the actual prices indicated against each:

REQUIRED:

1. Calculate of the following variances:
   1. Material price variance (4 marks)
   2. Material mix variance (4 marks)
   3. Material yield variance (4 marks)

2. Halima Mbaga is a fresh graduate accountant and has advised you against the use of variances and variance investigation in decision making. Her argument is that, variance are computed based on past information, on which whatever cost revenue is already sunk and thus irrelevant.

   REQUIRED:

   Taking consideration of the advice given by Halima, explain four (4) relevance of variance analysis and four (4) relevance variance investigation in decision-making. (8 marks)

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Taifa Manufacturing Ltd (TML) is a Tanzanian firm specializing in producing household electronic appliances such as refrigerators, washing machines, and microwaves. The company operates in a highly competitive market and seeks to enhance its financial and non-financial performance measurement and control systems to improve strategic decision making.

TML's management currently evaluates financial performance using traditional accounting-based measures but has been advised to integrate both Return on Investment (ROI) and Residual Income (RI) to assess divisional performance more effectively. The firm is also facing operational challenges related to customer satisfaction, employee retention, and production efficiency. The following data is relevant for the year ended December, 2024.

Financial performance

Non-financial performance data

• Customer complaints: Increased by 15% from the previous year.
• Employee turnover rate: 18% (Industry average: 12%).
• On-time delivery: 78% (Target: 95%).
• Waste reduction Initiatives: Achieved 5% reduction in material waste.
• Training and development: 65% of employees attended at least one professional training session.

REQUIRED:

1. Compute the Return on Investment (ROI) for TML and interpret the results. (4 marks)
2. Compute the Residual Income (RI) for TML and interpret the results. (4 marks)
3. Assess the company's non-financial performance using appropriate key performance indicators (KPIs).
4. Describe two (2) key challenges the company may face due to poor non-financial performance and recommend strategies for improvement. (3 marks)

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Bandara Industries (BI) manufactures three types of skincare products for sale to retailers. BI currently operates a standard absorption costing system. Budgeted information for the next year is given below:

Fixed production overheads are absorbed using a direct material cost percentage rate. The management accountant of BI is proposing changing from traditional method to an Activity Based Costing (ABC) system. The main activities and their associated cost drivers and overhead cost have been identified as follow:

Purchase details have been ascertained as follows:

REQUIRED:

Calculate for each product:

1. The total fixed production overhead costs using the current absorption costing system. (2 marks)
2. The total gross profit using the proposed Activity Based Costing (ABC) system.

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1. African Breweries Limited (ABL) is one of the leading beverage manufacturing companies in Tanzania, producing various brands of beer and non-alcoholic beverages. The company operates in a highly competitive industry, facing competition from both local and international manufacturers.

   To sustain profitability, the ABLL's management is focusing on improving cost control, pricing strategies, and production efficiency. A recent internal review of the company's cost structure identified areas for improvement, prompting the Finance Director to request a comprehensive management accounting analysis to optimize cost efficiency while maintaining product quality.

   The following financial data for the financial year 2024 has been provided:

   1. Financial information

   Cost information	Amount (TZS ,000)
   Raw Materials	45,000
   Direct Labour	30,000
   Factor overheads	25,000
   Administrative Costs	15,000
   Selling and Distribution costs	10,000
   Total revenue	180,000

   2. Product line information

   Product	Selling price Per unit (TZS)	Variable cost Per unit (TZS)	Annual sales volume
   Premium large	3,500	2,000	25,000
   Classic beer	2,800	1,500	30,000
   Soft drinks	1,200	800	20,000

   NOTE:
   The total assets value of ABL is TZS. 100,000,000 and the Minimum Required Rate of Return is 10%.

   REQUIRED:

   1. Calculate the contribution margin per unit for each product and compute the Break-Even point (BEP) in revenue for ABL. (4 marks)
   2. Based on the CVP analysis, discuss any two (2) key managerial decisions that ABL,S management can make to improve the financial performance (4 marks)

2. A college is preparing its, budget for the year 2025. In previous years, the director of the college prepared the budget without participation of senior staff and presented it to the college board for approval. The college board criticized the director over the lack of participation of this senior staff in the preparation of the budget for the year 2024 and requested that for the year 2025 budget, the senior staff should to be involved.

   REQUIRED:
   Discuss any three (3) advantages and any three (3) disadvantage for the colleges to involve the senior staff in the budget preparation process. (6 marks)

3. Evaluate any four (4) characteristics of a “good transfer pricing in a divisional Sed organization. (6 marks)

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Janka plc operates a single retail outlet selling directly to the public. Profit statement of March and April 2023 are as follows.

Required:

1. Use the high – low points technique to identify the behaviour of:
   1. Cost of sales,
   2. Selling and distribution costs,
   3. Administration costs.
2. Assuming margin of safety equal to 30% of the break – even value calculate the Janka’s annual profit.

3. Janka plc is now considering opening another retail outlet selling the same products. Janka plc plans to use the same profit margins in both outlets and has established that the specific fixed costs of the second outlet will be T.shs 100,000 per annum. Janka plc also expects that 10% of its annual sales from the existing outlet would transfer to this second outlet if it was to be opened.

   Required:
   Calculate the annual value of sales revenue required from the new outlet in order to achieve the same annual profit as previously obtained from the single outlet.

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