MOJA FINANCIAL CONSULTANTS B5

EXAMINATION : MAY 2025~NORMAL SESSION

SUBJECT : PERFORMANCE MANAGEMENT

CODE : B5

TIME ALLOWED : 3 HOURS

TEST : 1

GENERAL INSTRUCTIONS

1. There are TWO Sections in this paper. Sections A and B which comprise SIX
questions.
2. Answer question ONE in Section A.
3. Answer ANY FOUR questions in Section B.
4. In total answer FIVE questions and marks are shown at the end of each question.
5. Show clearly all your workings in the respective answers where applicable.

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MOJA FINANCIAL CONSULTANTS B5

SECTION A: Compulsory Question.

QUESTION 1
Gisenyi Ltd. Manufactures a single product branded “RARE” and it is sold in the entire
east African region. The management accountant of the institution prepared the
following production, sales and cost data relating to the product:

Actual Production and sales information:

Month Production units Sales units

June 32,000 26,500
July 30,000 32,600

Cost information:

Variable cost per unit Amount (FRW)

Direct material 7,000
Direct labour 11,000
Production overhead 4,000
Selling and distribution overhead costs 3,000

Fixed overheads
Production overhead 240,000,000
Selling and distribution overhead costs 180,000,000

Additional information:

1. The budgeted monthly production of the company is 32,000 units.

2. The normal selling price of the product is FRW 50,000 per unit.
3. As at the beginning of the month of June, there was no opening inventory or
work-in-progress.

Required:

i. Standard cost per unit by using absorption and marginal costing. (2 Marks)
ii. Profit or loss statements for the month of July based on Absorption costing
technique (6 Marks)
iii. Profit or loss statements for the month of July based on Marginal costing
technique. (6 Marks)
iv. Reconciliation statement that reconcile the profit shown in part (ii) and (iii) (2
Marks)
v. Explain advantages of absorption over marginal costing (4 marks)
[Total: 20 Marks]

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MOJA FINANCIAL CONSULTANTS B5

SECTION B: Choose any four questions.

QUESTION 2
Nyigi Company Co (NCC) Ltd produces three types of products U, V, and W. All
processed from similar raw materials. The company prefers an Activity-Based Costing
(ABC) as a good method to make an improvement in respect of costing.

The data regarding their products for last year 2021 are provided below:

Details U V W

Production and sales quantity (Units) 300 240 360

Selling price per unit (FRW) 1,500 2,400 2,600
Material usage(kg) per unit 20 30 40
Direct labour hours per unit 2 3 4
Machine hours per unit 1 2 2
Number of productions runs per annum 36 24 16
Number of purchase orders per annum 48 56 84
Number of deliveries per annum 96 60 62

The price of raw materials remains constant throughout the year at FRW 240 per Kg.
the same way, the direct labour cost for the whole workforce was FW 2800 per hour.

The annual overhead costs were as follows: FRW

Machine set up costs 531,000

Machine running costs 1,328,000
Procurement costs 960,000
Delivery costs 1,086,400

Required:

i. Calculate cost per unit of each product using ABC Method (10 Marks)
ii. Calculate cost per unit of each product using traditional costing method, that
allocates overheads by using machine hours. (5 marks)
iii. Explain advantages and disadvantages of ABC. (5 marks) [Total 20 Marks]

QUESTION 3
The University Computing Center (UCC) was launched just over a year ago, with the intention
that it would manufacture and sell small electronic devices (such as USB memory sticks and
electronic pointers) in the first instance but that operations might later extend to the
importation and customization of hardware. Because of rapid technological and market
changes, product lifecycles are short. Before launching any product, the Computing Division
carries out any necessary research and development (R & D) work and then forecasts the
product’s profitability over a three-year product lifecycle. A net profit ratio of 10% in the
product lifecycle is required.

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MOJA FINANCIAL CONSULTANTS B5

The R & D work for a new electronic pointer has just been completed at a cost of TZS 180,000.
Variable production costs per unit are forecast as TZS 2 in Year 1, increasing at a rate of 10%
per annum thereafter. Fixed production costs are forecast as TZS 140,000 per annum, and
step-fixed production costs each year are forecast at TZS 50,000 per 100,000 units produced
(or part thereof). The selling price per unit is forecast to be TZS 4.50 per unit in Year 1; it is
expected to increase by 4% at the beginning of Year 2 but is not expected to increase
thereafter.

In the first year, sales are forecast at 150,000 units and there will be heavy marketing
expenditure (estimated at TZS 80,000) aimed at strengthening the market position of the
product. Sales are forecast at 210,000 units in Year 2, and marketing costs in Year 2 are
expected to decrease to TZS 70,000. As Year 3 is expected to be the final year of the product’s
lifecycle, it is forecast that marketing costs will be reduced to TZS 10,000 and sales will be
just 100,000 units. All units are expected to be sold in the same year as production takes
place.

REQUIRED:
(a) Explain lifecycle costing and its benefits to UCC. (10 marks)
(b) Determine lifecycle net profit ratio and assess if the new products are viable or not. (10
marks) [Total: 20 marks]

QUESTION 4
Sayre Sewing Machine Company has been in operation for over 25 years. During this
time, it has shown consistent growth and has developed a strong following of satisfied
customers. Massawe Sayre, company president, states that her business philosophy
is “a quality product at a competitive price.” Until recently, this philosophy has carried
the company to its current position. The company is planning for next year`s
operations, and Sayre is concerned about the projected increased foreign
competition.

For the last three years, Sayre has been manufacturing its only product, a machine,
called the KIDUKU. During the current year, the company expects to sell 200,000
machines at an average price of $ 700. To remain competitive and continue to sell
200,000 machines, Sayre believes that the company will have to reduce the selling
price to $ 600 for the next year. At the current level of sales and production, Sayre
earns 15% return on sales, as shown:

Sales price per unit $ 700

Product costs per unit $
Materials: Computer chip 77
Motor 60
Housing unit 50
Mechanical parts 86
Assembly labour 90
Testing labour 60 $ 445
Product level equipment $ 70
General administrative costs $ 80

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MOJA FINANCIAL CONSULTANTS B5

Total product costs $ 595

Profit per unit $ 105
Return on Sales 15%

In planning for next year, the company wants to maintain the 15% return on sales
by reducing costs as follows:

 Sayre can purchase the computer chip at $ 55 per unit by committing to a

long-term purchase agreement for the year`s needs with the supplier. The
long-term agreement calls for the supplier to certify that all chips are defect-
free.
 Sayre can reduce the number of housing units and miscellaneous parts by 20%
by substituting equivalent but less expensive parts and by redesigning the
housing to eliminate multiple parts.
 Because of these changes, the company can reduce assembly and testing
labour and equipment and facility costs specific to the product, by 20%.
 All other product costs will remain the same.

Required:

(a) List the advantages and disadvantages of Sayre`s proposed changes. Explain the
risks involved with the proposed changes. (2 marks)
(b) Based on the new data for next year, can Sayre meet or exceed its target of 15%
return on sales? Show calculations. (10 marks)
(c) Assume that competition during the next year is stronger than Sayre anticipates
and that the average selling price is only $ 580 per unit. Calculate the target cost
reduction necessary to achieve the 15% return on sales. Show calculations. (4
marks)
(d) Explain roles of management accountant in an organization. (4 marks)
[Total: 20 marks]

QUESTION 5
Bob Jones owns a catering company that prepares food and beverages for banquets
and parties. For a standard party the cost on a per-person basis is as follows:

Food and beverages $15

Labor (0.5 hour $10 per hour) * 5
Overhead (0.5 hour $14 per hour) * 7
Total cost per person $27

Jones is quite certain about his estimates of the food, beverages, and labor costs but
is not as comfortable with the overhead estimate. The overhead estimate was based
on the actual data for the past 12 months, which are presented here. These data
indicate that overhead costs vary with the direct labor-hours used. The $14 estimate

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MOJA FINANCIAL CONSULTANTS B5

was determined by dividing total overhead costs for the 12 months by total labor-
hours.

Jones has recently become aware of regression analysis. He wants to form a

regression equation with overhead costs as the dependent variable and labor-hours
as the independent variable, so as to predict better the cost of the order.

Required:

(a) Estimate the regression equation of overhead cost in relation to labour hours (4
marks)
(b) Using data from the regression analysis, what is the variable cost per person for
a standard party? (6 marks)
(c) Explain the meaning of coefficient of determination and coefficient of correlation,
is there any difference? (3 marks)
(d) Bob Jones has been asked to prepare a bid for a 200-person standard party to be
given next month. Determine the price that Jones would be willing to submit to
recoup variable costs and earn a profit margin of 30%. (7 marks)
[Total = 20 marks]

QUESTION 6
T. Hilliary, Inc., uses backflush costing to account for its manufacturing costs. The
trigger points for recording inventory transactions are the purchase of materials, the
completion of products, and the sale of completed products

Required:

1. Prepare journal entries, if needed, to account for the following transactions.

a. Purchased raw materials on account, $150,000.
b. Requisitioned raw materials to production, $150,000.

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MOJA FINANCIAL CONSULTANTS B5

c. Distributed direct labor costs, $25,000.

d. Incurred manufacturing overhead costs, $100,000. (Use Various Credits
for the credit part of the entry.)
e. Cost of products completed, $275,000.
f. Completed products sold for $400,000, on account. (10 marks)
2. Prepare any journal entries that would be different from the above, if the only
trigger points were the purchase of materials and the sale of finished goods.
(5 marks)
3. Explain any advantages of Just in Time Manufacturing style. (5 marks)
[Total: 20 marks]

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