Healthcross Products Ltd commenced business on 1 May 2000. The company ahs approached their bankers for overdraft facilities. The bank has in turn demanded a cash flow statement in support of their request. The following information ahs been assembled for the purpose:

2000 Sales Sh ‘000’ Purchases (units)
May 200 5,000
June 200 5,000
July 380 9,000
August 560 20,000
September 620 12,000

It is established that 60% of the customers pay within the month of sales, 20% the month following the month of sale and 15% the month following while the balance is normally uncollectible.

The current purchase price of Sh 20 per unit is expected to rise by 20% on 1 July and by another 25% on 1 August. Disbursements to suppliers are made in full in the month following the month of purchase.

The company anticipates paying general and administration expenses at the rate of Sh 80,000 a month payable as incurred while obligation under a medium term lease payable at the commencement of each quarter amount to Sh 50,000 per month.

Corporation tax of Sh 150,000 is due in September while Sh 200,000 will be paid to a supplier for purchase of an asset in the same month.

The bank balance on 30 June 2000 is expected to be Sh 50,000 while the company intends to maintain a minimum monthly balance of Sh 100,000. Financing attracts interest at the rate of 24% per annum debited in the month following the month of utilizing the overdraft.


  1. Sales/debtors’ collection schedule on a monthly basis for the months of May to September 2000. (6 marks)
  2. Purchases schedule on a monthly basis for the months of May to September 2000.  (3 marks)
  1. In columnar form, cash flow statement for the three months July to September 2000 on a monthly basis showing financing required, if any. (11 marks)     (Total: 20 marks)


The following information ahs been assembled by Sancross Products Ltd which manufactures and retails products A and B. The details given below relate to the year commencing 1 July 200:

  Standard Product
  Price per kg A kg g
Direct material – M1 Sh 4 15 20
M2 Sh 5 14 12
  Standard Product
  Rate per hour A hours B hours
Direct labour – L1 Sh 8 20 15
L2 Sh 10 22 24

Fixed production overhead is applied on direct labour basis. Administration, selling and distribution expenses are recovered at the rate of 20% of production cost and profit loaded at 25% of standard production cost.

  A B
  Sh ‘000’ Sh ‘000’
Projected sales for the year 12,033 10,053

Finished goods stock position valued at production cost is expected to be as follows:

  A B
  Sh ‘000’ Sh ‘000’
1 July 2000 3,000 2,000
30 June 2001 5,000 4,000

Direct material stocks valued at standard prices are as follows:

  M1 M2
  Sh ‘000’ Sh ‘000’
1 July 2000 200 250
30 June 2001 220 270

For the year to 30 June 2001, fixed production overhead has been estimated at

Sh 1,800,000 and direct labour at 1,200,000 hours.

No opening or closing work-in-progress is anticipated.


  1. Production budget in units. (8 marks)
  2. Direct materials cost budget. (3 marks)
  3. Purchases budget in value. (6 marks)
  4. Direct labour cost budget. (3 marks)     (Total: 20 marks)


The following information has been extracted from the books of Solarcross Ltd for the year to 31 March 2000:

  Units ‘000’
Production 30
Sales 24
Production cost incurred: Sh ‘000’
Direct material 7,200
Direct labour 1,800
Variable overheads 1,500
Fixed overheads 2,700
Selling and administrations costs:  
Sales and salaries 450
Variable sales commission 300
Promotion and advertising 480
Other fixed costs 720

The company’s unit selling price is Sh 550.


  1. Profit and loss statement under direct costing approach. (8 marks)
  2. Profit and loss statement under indirect costing approach. (8 marks)
  3. An explanation of the difference in profit or loss in (a) and (b) above. (4 marks)     (Total: 20 marks)


The following information relates to item P003 stocked by 2000 products Ltd for the month of April 2000:

  Receipts Issues  
Date Units Units Unit cost (Sh)
April3 2,400   18
4   3,200  
6 2,600   20
12   2,700  
14 3,000   22
18 2,800   21
20   2,200  
22 2,600   23
25   3,800  
26 3,100   24
27 2,500   25
28 3,200   26
29   6,900  

The closing balance for March 2000 was a batch of 3,000 units received at a unit price of Sh 19.


  1. Stores perpetual inventory record for item P003 for May 2000 under LIFO system of stores issues. (14 marks)
  2. Closing stock valuation. (6 marks)     (Total: 20 marks)


Sannet Products Ltd who manufactures and retails products A, B and C employ sixty direct workers who work under a group of bonus scheme. The company engages three grades of workers who are paid a bonus of the excess of time allowed over time taken. The bonus paid is 75% of the workers’ base rate and is shared by the workers in proportion to the time spent on the work. The following production data has been extracted from the company’s records for April 2000.

Product Units produced Time allowed per unit
A 320 63
A 640 120
C 1200 100


Grade of worker Number of direct workers Base rate per hour (sh) Hours worked per worker
1 20 30 30
2 8 27 64
3 32 24 50


  1. Percentage of hours saved to hours taken. (6 marks)
  2. Bonus due to the group. (7 marks)
  3. Gross earnings due to the group. (7 marks)     (Total: 20 marks)


In spite of rapid expansion and growth, the management of Magicross Ltd are concerned that although the accounts presented disclose profits being made, the company’s overdraft has been increasing.


As the Company’s Cost Accountant, draft a report to management;

  1. Detailing factors that can cause an increase in bank overdraft in the face of increasing profitability. (10 marks)
  2. Giving options available for improving the company’s liquidity without seeking external funds. (10 marks)(Total: 20 marks)


  1. What is flexible budgeting? (6 marks)
  2. Explain how flexible budgeting may be utilized to control costs. (14 marks)   (Total: 20 marks