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

Computer Science

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Step-by-step solution

2 steps
  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.

Part b· 2 steps

  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\text{VC per unit} = \text{Ksh. } 80 + \text{Ksh. } 40 = \text{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\text{Total FC} = \text{Ksh. } 50,000 + \text{Ksh. } 100,000 = \text{Ksh. } 150,000

    Target Profit = Ksh. 450,000

  2. Calculate Contribution Margin (CM) per unit.

    CM per unit=SP per unit−VC per unit\text{CM per unit} = \text{SP per unit} - \text{VC per unit} CM per unit=Ksh. 320−Ksh. 120=Ksh. 200\text{CM per unit} = \text{Ksh. } 320 - \text{Ksh. } 120 = \text{Ksh. } 200

Part b(i)

Determine break-even point in units and shillings.

Break-even point in units (BEP units):

BEP (units)=Fixed CostsCM per unit\text{BEP (units)} = \frac{\text{Fixed Costs}}{\text{CM per unit}} BEP (units)=Ksh. 150,000Ksh. 200/unit=750 units\text{BEP (units)} = \frac{\text{Ksh. } 150,000}{\text{Ksh. } 200/\text{unit}} = 750 \text{ units}

Break-even point in shillings (BEP shillings):

BEP (shillings)=BEP (units)×SP per unit\text{BEP (shillings)} = \text{BEP (units)} \times \text{SP per unit} BEP (shillings)=750 units×Ksh. 320/unit=Ksh. 240,000\text{BEP (shillings)} = 750 \text{ units} \times \text{Ksh. } 320/\text{unit} = \text{Ksh. } 240,000

The break-even point is 750 units and Ksh. 240,000.

Part b(iv)

Determine number of units to be sold per month to attain the targeted profit.

Units for Target Profit=Fixed Costs+Target ProfitCM per unit\text{Units for Target Profit} = \frac{\text{Fixed Costs} + \text{Target Profit}}{\text{CM per unit}} Units for Target Profit=Ksh. 150,000+Ksh. 450,000Ksh. 200/unit\text{Units for Target Profit} = \frac{\text{Ksh. } 150,000 + \text{Ksh. } 450,000}{\text{Ksh. } 200/\text{unit}} Units for Target Profit=Ksh. 600,000Ksh. 200/unit=3,000 units\text{Units for Target Profit} = \frac{\text{Ksh. } 600,000}{\text{Ksh. } 200/\text{unit}} = 3,000 \text{ units}

The number of units to be sold to attain the targeted profit is 3,000 units.

Part b(ii)

Determine margin of safety in units.

Margin of Safety (units)=Units for Target Profit−BEP (units)\text{Margin of Safety (units)} = \text{Units for Target Profit} - \text{BEP (units)} Margin of Safety (units)=3,000 units−750 units=2,250 units\text{Margin of Safety (units)} = 3,000 \text{ units} - 750 \text{ units} = 2,250 \text{ units}

The margin of safety in units is 2,250 units.

Part b(iii)

Determine margin of safety in percentage.

First, calculate Target Sales Revenue:

Target Sales Revenue=Units for Target Profit×SP per unit\text{Target Sales Revenue} = \text{Units for Target Profit} \times \text{SP per unit} Target Sales Revenue=3,000 units×Ksh. 320/unit=Ksh. 960,000\text{Target Sales Revenue} = 3,000 \text{ units} \times \text{Ksh. } 320/\text{unit} = \text{Ksh. } 960,000

Margin of Safety in shillings:

Margin of Safety (shillings)=Target Sales Revenue−BEP (shillings)\text{Margin of Safety (shillings)} = \text{Target Sales Revenue} - \text{BEP (shillings)} Margin of Safety (shillings)=Ksh. 960,000−Ksh. 240,000=Ksh. 720,000\text{Margin of Safety (shillings)} = \text{Ksh. } 960,000 - \text{Ksh. } 240,000 = \text{Ksh. } 720,000

Margin of Safety in percentage:

Margin of Safety (%)=Margin of Safety (shillings)Target Sales Revenue×100%\text{Margin of Safety (\%)} = \frac{\text{Margin of Safety (shillings)}}{\text{Target Sales Revenue}} \times 100\% Margin of Safety (%)=Ksh. 720,000Ksh. 960,000×100%=75%\text{Margin of Safety (\%)} = \frac{\text{Ksh. } 720,000}{\text{Ksh. } 960,000} \times 100\% = 75\%

The margin of safety in percentage is 75%.

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