Financial Aspect of Marketing July 2016 Past Paper – KNEC Diploma

Financial Aspect of Marketing July 2016 Past Examination Question Paper – KNEC

This Past Paper examination was examined by the Kenya National Examination Council (KNEC) and it applies to the following courses:

  • Diploma in Sales amd Marketing

  • Business Education Single and Group Certificate Examinations

Note: To easily navigate through the KNEC Past Examination Paper Pdf below, Mobile phone users are advised to use Mozilla or Chrome browsers

July 2016
Time: 3 hours

1. (a) Explain five users of Financial statements of an organization. (10 marks)

2. b) The following information was extracted from the financial statements of Kaluma limited for the year ended 31 December 2015.

Accounts receivable                 8,400,000
Cash                                          3,100,000
Inventories                                2,500,000
Sales                                        46,700,000
Cost of goods sold                   38,100,000
Total current liabilities            17,300,000
All sales were made on credit.

The following are the average ratios for the industry:
Current ratio                              2:1
Acid test ratio                            1:1
Accounts receivable turnover    11.20 times
Inventory turnover                    19.40 times
(i) Calculate each of the following ratios:
(i)  Current ratio
(ii) Acid test ratio
(iii) Accounts receivable turnover
(iv) Inventory turnover
(íi) Evaluate the company’s performance against the industry average.  (10 Marks)

2. (a) Tready Limited has forecasted its Annual demand of commodity KX to be 3,000,000 units. The purchase price of each unit is Ksh. 20. The annual holding cost per unit is 5% of the purchase price. The cost of making an order is Ksh. 300.

(i)        Calculate the:
(i)        Economic order quantity (EOQ)
(ii)       Total inventory cost.
(ii)       The management is planning to change the current EOQ to 80,000 units.. Advise ‘he management on the viability of the plan.         (10 marks)

b) A manufacturing company has two departments, A and B. Department A manufactures two products; P and Q. The products may be sold internally to department B or to an external market. The internal transfers are at cost.

The following is the cost structure of product P and product Q.

Suiting price Product P Product Q
Variable costs 120   140

(i) Sales to the external market require an additional 20°o on cost.
(ii) The department has limited labour hours available.
(iii) The labour hours required for each product arc 2.5 hours and 5 hours for product P and product Q respectively.
(iv) Department B requires product Q from Department .4 for its manufacturing process.

I) Determine the price to be charged.

  • For supply or product Q to department B
  • To the external market

II) Advise the management of department A on the market to concentrate on. (10 marks)

3. a) Explain five limitations or re1ying• on credit cards as a source of finance for a business organisation. (10 marks)

(b) The following data was extracted from the records of Baharia i\4anufacnirinp= Company.
Average usage                50 units per week
Minimum usage              50 units per week
Maximum usage              50 units per week
Economic order quantity  25,000 units
Re-order period                 4-8 weeks
Determine the:
(i) Re-order level
(ii) Maximum stock revel
(iii) Minimum ¿stock level
(iv) Average stock level                                               (10 marks)

4. a) Peter, Karim and Toni are engaged in the production of cakes in department X, Y and Z respectively. It is expected that 4.000 cakes should be produced in a fire day week of 8 hours each.

  • Employees in department X arc paid at rate of Ksh 100 per hour.
  • Employees of department Y are paid at the rate of Ksh 1,000 per day
  • Employees of department Z are paid Ksh 8 per cake produced.

In the month of December 2015, it was ascertained that each worker put in 240 hours producing 3,520 cakes in a period of 21 days. Overtime and bonus do not apply in. this company.
Calculate she amount of wages earned by each employee during the month. (9 marks)
(b) Mamiidi is a trader who buys and sells food items at Walima market. The following information relates to the business over a six month period from January 2015 to June 2013.

Month Purchases Sales

Additional information:

  • On 1 May 2015, a new hand cart was purchased for Ksh 16,000. The old hand card was sold on 15 June for Ksh 10,000
  • Overhead expenses amounted to Ksh 1,600 and are paid one month after expenditure
  • Wages of Ksh 2,000 arc paid in the month that they are incurred
  • All sales are on credit and they are on a two-month credit period
  • One-half of the purchases are on credit and are settled one after the purchase
  • The expected bank overdraft as at 1st March 2015 was Ksh 2,000.

(i)        Prepare a cash budget for each month from March 2015 to June 2015 .
(ii)       Continent on the cash position for the period. (11 marks)

5. (a) The following product on cost relate to Africo limited for the six months ended 30 June 2015

Month Cost
(Ksh millions)
Product volume
(‘000 units)

(i)        Using high-low method, determine the:

I) Total fixed cost

(II)       Variable cost per unit
(III)      Cost functions
(ii) Predict the cost for the month of July when output is expected to be 13,000 units. (10 marks)

  1. b) The following is the trial balance of Kamwithi Enterprises as at 31 December, 2012.
Debit Credit
(Ksh) (Ksh)
Buildings 15,000,000
Machinery 14,500,000
Furniture and fittings 2,500,000
Opening inventory 5,000,000
Purchases 90,000,000
Accounts receivable


Electricity 300,000
Rent paid 1 .375,000
Interest on loan 500.000
Sales 102,500,000
Salaries 3 ,300,000
Bad debts written off 500,000
Communication expenses 750,000
Creditors 4,075,000
10% loan 3,000,000
Repair Expenses 410,000

Closing inventory was valued at Ksh 6,000,000 on 31 December, 2015.
Prepare an income statement for the year ended 31 December, 2015. (10 marks)

  1. (a) Mohamed and sons Limited intends to sc11 product TX at an exhibition organised by the association of manufacturers. hey purchase the products at Ksh 500 each, and are allowed to return all unsold products. The exhibition stands is charged a rest of Esh

200.000 per event pays.b1e in advance. The products will be sold at Ksh 900 each.
(i) Determine the number of units of the product to be sold in order to:
(i) Break-even
(ii) In order to realise a profit target of Ksh 1.8 million
(ii)  Shally, one of the customers at the exhibition has offered to buy the entire stock of product TX at a price of Ksh 650 each. Advise the management on whether to accept offer     (6 marks)
(b)  Ndedero limited manufactures and sells fruit juices. The standard cost per unit is as follows:
Standard Costs
Direct material per kg              20
Direct labour per hour              20
Variable overheads                    4
Fixed overheads                       10
Standard cost                            54
Standard margin                         6
The actual result for a 4-week period is as follows.
Actual costs
Sales                                                         957,000
Direct materials 15,000 kg @ Ksh 12      180,000
Direct labour 25,000 hours @ sh 18        450,000
Variable overheads                                    25,000
Fixed overheads                                         50,000
Net profit                                                  252,000
The budgeted output was 15,59.0 units while the actual output is 16,500 units.
Calculate each of the following variances:
(i) Materials price variance
(ii) Materials usage variance
(iii) Labour rate variance
(iv) Sales margin price variance
(v) Sales margin quantity variance                                               (12 marks)

  1. (a) A company has two alternative projects A and B, with an initial cash outlay of Ksh 500,000 and Ksh 600,000 respectively. Each project has an economic life of 5 years. Project A has a residual value of Ksh 50,000 while project B has no residual value.

Annual profits before depreciation for each project is Ksh 200,000
(i)        Using the Accounting rate of return (ARR) method, advise the management on the project to undertake.
(ii)       Outline two limitations of using the above method in decision making. (i0 marks)
(b)       Highlight five characteristics of process costing systems.   (10 marks)

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