Outline four functions of a management accountant in an organization. Formulate the linear programming problem and prepare the initial simplex tableau.

1. a) • Goal Congruence: Transfer pricing aims to ensure that decisions made by individual divisions align with the overall strategic objectives of the entire organization. • Performance Evaluation: It provides a basis for evaluating the profitability and efficiency of each division, as it determines the revenue for the selling division and the cost for the buying division. • Divisional Autonomy: Transfer pricing allows divisional managers to maintain a degree of independence in their decision-making, fostering a sense of responsibility and accountability. • Optimal Resource Allocation: By reflecting the economic value of goods and services transferred internally, it helps in allocating resources efficiently across different divisions within the company.

b) Step 1: Calculate Variable Cost per unit and Total Fixed Costs. Selling Price (SP) per unit = Ksh. 320 Variable Costs (VC) per unit: Raw material = Ksh. 80 Direct labour = Ksh. 40 $VC per unit = Ksh. 80 + Ksh. 40 = Ksh. 120$ Fixed Costs (FC) per month: Rent = Ksh. 50,000 Supervisor salary = Ksh. 100,000 $Total FC = Ksh. 50,000 + Ksh. 100,000 = Ksh. 150,000$ Target Profit = Ksh. 450,000

Step 2: Calculate Contribution Margin (CM) per unit. $CM per unit = SP per unit - VC per unit$ $CM per unit = Ksh. 320 - Ksh. 120 = Ksh. 200$

i) Determine break-even point in units and shillings. Break-even point in units (BEP units): $BEP (units) = \frac{Fixed Costs}{CM per unit}$ $BEP (units) = \frac{Ksh. 150,000}{Ksh. 200/unit} = 750 units$ Break-even point in shillings (BEP shillings): $BEP (shillings) = BEP (units) \times SP per unit$ $BEP (shillings) = 750 units \times Ksh. 320/unit = Ksh. 240,000$ The break-even point is 750 units and Ksh. 240,000.

iv) Determine number of units to be sold per month to attain the targeted profit. $Units for Target Profit = \frac{Fixed Costs + Target Profit}{CM per unit}$ $Units for Target Profit = \frac{Ksh. 150,000 + Ksh. 450,000}{Ksh. 200/unit}$ $Units for Target Profit = \frac{Ksh. 600,000}{Ksh. 200/unit} = 3,000 units$ The number of units to be sold to attain the targeted profit is 3,000 units.

ii) Determine margin of safety in units. $Margin of Safety (units) = Units for Target Profit - BEP (units)$ $Margin of Safety (units) = 3,000 units - 750 units = 2,250 units$ The margin of safety in units is 2,250 units.

iii) Determine margin of safety in percentage. First, calculate Target Sales Revenue: $Target Sales Revenue = Units for Target Profit \times SP per unit$ $Target Sales Revenue = 3,000 units \times Ksh. 320/unit = Ksh. 960,000$ Margin of Safety in shillings: $Margin of Safety (shillings) = Target Sales Revenue - BEP (shillings)$ $Margin of Safety (shillings) = Ksh. 960,000 - Ksh. 240,000 = Ksh. 720,000$ Margin of Safety in percentage: $Margin of Safety (\%) = \frac{Margin of Safety (shillings)}{Target Sales Revenue} \times 100\%$ $Margin of Safety (\%) = \frac{Ksh. 720,000}{Ksh. 960,000} \times 100\% = 75\%$ The margin of safety in percentage is 75%.