cost accounting- june 2010 dec 2010 and june 2011
TRANSCRIPT
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
1/71
ZAMBIA INSTITUTE OF CHARTERED ACCOUNTANTS
TECHNICIAN LEVEL
T2: Cost AccountingJune 2010
December 2010
June 2011
QUESTION PAPERS AND SUGGESTED SOLUTIONS
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
2/71
2
JUNE 2010 T2: COST ACCOUNTING ...................................................................... 3
SUGGESTEDSOLUTIONS.................................................................. 12
DECEMBER 2010 T2: COST ACCOUNTING .................................................................... 23
SUGGESTEDSOLUTIONS .................................................................. 37
JUNE 2011 T2: COST ACCOUNTING .................................................................... 51
SUGGESTEDSOLUTIONS .................................................................. 62
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
3/71
3
ZAMBIA INSTITUTE OF CHARTERED ACCOUNTANTS
CHARTERED ACCOUNTANTS EXAMINATIONS
TECHNCIAN LEVEL
T2: COST ACCOUNTING
SERIES: JUNE 2010
TOTAL MARKS 100
TIME ALLOWED: THREE (3) HOURS
INSTRUCTIONS TO CANDIDATES
1. You have ten (10) minutes reading time. Use it to study the examination paper carefully so that you
understand what to do in each question. You will be told when to start writing.
2. This paper is divided into TWO sections:
Section A: Attempt ALL multiple choice questions.
Section B: Attempt FOUR questions.
3. Enter your student number and your National Registration Card number on the front of the answer
booklet. Your name must NOT appear anywhere on your answer booklet.
4. Do NOT write in pencil (except for graphs and diagrams).
5. The marks shown against the requirement(s) for each question should be taken as an indication of
the expected length and depth of the answer.
6. All workings must be done in the answer booklet.
7. Present legible and tidy work.
8. Graph paper (if required) is provided at the end of the answer booklet.
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
4/71
4
Section A
(Multiple Choice Question)
Attempt ALL questions in this section.Each of the following questions has only ONE correct answer. Write the LETTER of the correct answer
you have chosen in your answer booklet. Marks allocated are indicated against each question.
Question 1
1.1 The annual costs of supervision in a department are estimated to be K40,000,000 if hours worked
in the department are less than 32,000,000 each year, K65,000,000 if hours worked are between
32,000,000 and 50,000,000 and K80,000,000, if hours worked are over 50,000 in the year. These
costs are an example of:A. Semi fixed cost
B. Fixed cost
C. Step cost
D. Variable cost 2 marks
1.2 The following data relates to an item of raw materials.
Unit cost of raw materials K20,000
Usage per week 250 unitsCost of ordering material, per order K400,000
Annual cost of holding inventory, as a % of cost 10%
Number of weeks in a year 48
Calculate the economic order quantity, to the nearest unit?
A. 316 Units
B. 693 units
C. 1,549 units
D. 2,191 units 2 marks
1.3 A company absorbs overheads based on labour hours. Data for the latest period are as follows:
Budgeted labour hours 8,500
Budgeted overheads K148,750,000
Actual labour hours 7,928
Actual overheads K146,200,000 2 marks
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
5/71
5
Based on the data above, calculate the under or overheads?
A. K2,550,00 underabsorbed overhead
B. K7,460,000 underabsorbed overheads
C. K13,282,000 over-absorbed over headsD. K7,998,000 over-absorbed
1.4 Consider the following features and identify which one(s) relates to service Costing.
(i) Production is carried out in accordance with the wishes of the customer
(ii) Work is usually of a relatively long duration
(iii) Costs are averaged over the units produced in the period
(iv) It establishes the costs of services rendered
A. i, ii and iii
B. ii and iii
C. iii and iv
D. i, iii and iv 2 marks
1.5 An abnormal gain in process occurs in which of the following situations?
A. When actual losses are greater than the normal loss level
B. When costs are reduced through increased machine speed
C. When actual losses are less than the normal level
D. When the process output is greater than planned 2 marks
1.6 When direct materials are issued to production what is the double entry?
A. Dr. Material Cr Production department
B. Dr. Production overhead control Cr material stock account
C. Dr. Bank Cr. Working in progress
D. Dr. Work in progress Cr. Material Stock Account 2 marks
1.7 Which of the following would not be used to estimate standard direct material prices?
A. The availability of bulk purchase discounts
B. Purchase contracts already agreed
C. The forecast movement of prices in the market
D. Performance standards in operation. 2 marks
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
6/71
6
1.8 An important feature of a cost centre is that:
A. It uses only monetary information.
B. It has clearly defined boundaries.
C. It must be in one specific location only.
D. It must be an area of the business through which products pass. 2 marks
1.9 In marginal and absorption costing, a company doses not hold any opening or closing inventories.
Which of the following statement is true?
A. Profits will be higher if absorption costing is used
B. Profits will be the same if either absorption costing or marginal costing was used.
C. Profits will be higher if marginal costing is used
D. None of the above 2 marks
1.10 Gross wages incurred in department 5 in July 2009 were K154,000,000. The wages analysis
shows the following summary breakdown of the gross pay.
Paid to direct labour Paid to indirectlabour
K000 K000Normal Basic pay 71,824 33,937
Overtime:
Basic pay 15,514 9,981
Premium 3,879 2,495
Shift allowance 7,700 3,879
Sick pay 3,935 856
102,852 51,148
What is the direct wages cost for department 5 in July 2009?
A. K71,824,000B. K87,338,000
C K98,917,000
D. K102,852,00 2 marks
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
7/71
7
Section B
Attempt any FOUR questions in this Section
Question 2
(a) Identify FOUR costs to a business arising from labour turnover. 4 marks
(b) MC LTD manufacturers a single product, product X.
Production operatives are paid a basic wage of K3 per hour worked, but an
Additional 50% premium will be paid for any overtime hours. The basic working week is 38 hours.
During the month ended 31 March 2010, there were 4 weeks of production and the company
employed 30 production operatives. No overtime was worked during the month and all 30
operatives worked for full 38 hours for each of the 4 weeks of production. During the month 456
units of product X were made.
Required:
Calculate the labour cost for a single unit of product X made in the month ended 31 March 2010
4 marks
(c) The information below relates to the hours worked by three production operatives during the
month ended 30 April 2008:
Operative A: 140 basic hours and 17 hours overtime
Operative B: 150 basic hours and 22 hours overtime
Operatives C: 120 basic hours and 20 hours overtime
Required:
Calculate separately the total wages earned by each of operatives A, B and C during the month
ended 30 April 2008. 9 marks
(d) Overtime premium could be treated as a direct labour cost or could be treated as part of the
overhead cost.Required:
Explain the circumstances under which overtime premium would be treated as a direct labour cost
and those in which it would be treated as an overhead cost. 3marks
(Total: 20marks)
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
8/71
8
Question 3
A chemical processor manufactures a single product using two processes (process 1 and process 2).
The output from process 1 goes directly into process 2.
In Process 1.
1. There is no work-in-progress at the end of any period
2. There is a normal loss allowance of 20% of input
3. In the period just ended
(i) 30,000 kg of raw material were input
(ii) Output was 24,500 kg
In Process 2.
1. There are no losses
2. In the period just ended,
(i) 24,500 kg of processed material was input, after transfer from Process 1, at a cost of
K308,700,000
(ii) 6,000kg of raw material were added, at a cost of K32,900,000 and were mixed with the
material input from Process 1;
(iii) Conversion costs totaled K68,400,000(iv)` There was no opening work-in progress but 5,000 kg remained in the process at the end of
the period, complete for all materials and 60% complete for conversion costs.
Required
For the period just ended:
(a) Calculate the abnormal gain or loss in kg in Process 1 5 marks
(b) Prepare Process 2 account showing clearly both weights (kg) and values (k) 15 marks
Total: 20 marks
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
9/71
9
Question 4
A company manufactures a single product with the following variable costs per unit.
K
Direct materials 700
Direct labour 550
Manufacturing overheads 200
1,450
The selling price of the product is K3,600 per unit. Fixed manufacturing costs are expected to be
K134,000,000 for a period. Fixed non manufacturing costs are expected to be K87,500,000. fixed
manufacturing costs can be analysed as follows:
Production Cost centres Service General1 2 Department Factory
K38,000,000 K46,500,000 K26,500,000 K23,000,000
General factory costs represent space costs. Space utilisation is as follows:
Production cost centre 1 40%
Production costs centre 2 50%
Service department 10%
60% of service department costs are labour related and the remaining 40% machine related.
Normal production department activity is as follows:Direct Machine Production
Labour hours Hours Units
Department 1 80,000 2,400 120,000
Department 2 100,000 2,400 120,000
Fixed manufacturing overheads are absorbed at a predetermined rate per unit of production for each
production department, based upon normal activity.
Required:
(a) Calculate departmental overhead absorption rates 7 marks
(b) Prepare a profit statement for a period using the full absorption costing system from the data given
above. 7 marks
(c) Prepare a profit statement for the period using marginal costing principles assuming all units
produced are sold. 6 marks
Total: 20 marks
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
10/71
10
Question 5
Ndipo Limited operates a process, (Process A) the following details are available for one period.
There was no opening Work-In-Progress.
During the period, 8,250 units were introduced at a total cost of K478,500.
Labour and overheads incurred were K347,500.
Normal loss is at 8% of input and can be sold at K12 per unit.
At the end of the period, the closing Work-In-Progress was 1,600 units, which were 100% completein respect of materials and 60% complete in respect of labour and overheads.
The balance of units were transferred to Finished Goods Account.Requirements:
(a) (i) Draw up a statement of Equivalent units. (2 marks)
(ii) Calculate the cost per Equipment unit. (2 marks)(iii) Draw up a statement of valuation. (3 marks)
(iv) Prepare Process A Account. (5 marks)
(b) (i) Distinguish between normal loss and abnormal loss
(ii) Briefly explain the difference in accounting treatment between them. (4 marks)
(Total 20 marks)
Question 6
Triple H manufactures one product, and the entire product is sold as soon as it is produced. There is no
opening or closing inventories. The company operates a standard costing system and analysis ofvariances is made every month. The standard cost card for the product, Yoyo is as follows:
STANDARD COST CARD YOYO
K000
Direct materials 20 kilos at K4,000 per kilo 80
Direct wages 30 hours at K2,000 per hour 60
Variable overheads 30 hours at K300 per hour 9
Fixed overhead 30 hours at K3,700 per hour 111
Standard cost 260Budgeted (planned) output for the month of October 2008 was 5,100 units
Actual results for October 2008 were as follows:
Production of 4,850
Materials consumed in production amounted to 93,000 kgs at a total cost of K390 million
Labour hours paid for amounted to 200,000 hours at a cost of K380 million
Actual operating hours amounted to 185,000 hours
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
11/71
11
Variable overheads amounted to K56 million
Fixed overheads amounted to K575 million
Required:
Calculate the material labour, variable overhead and fixed overhead variances Total: 20 marksEND OF PAPER
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
12/71
12
JUNE 2010
T2: COST ACCOUNTING
SUGGESTED SOLUTIONS
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
13/71
13
Section A
Question 1 Multiple Choice Questions
1.1 C
1.2 D
1.3 B
1.4 D
1.5 C
1.6 D
1.7 D
1.8 B
1.9 B
1.10 D
Workings
1.2ch
dw2EOQ
=2,000
12,000400,0002
= 4,800,000
= 2,191 units
1.3 OAR =8,500
0148,750,00
= K17,500 /labour hour
Overhead absorbed
= 17,500 7,928
=138,740,000
Under absorption
Actual K146,200,000
Absorbed K138,740,000
Under Absorption 7,460,000
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
14/71
14
Question 2
(a) The costs arising from labour turnover are;(i) Leaving costs, including the cost of administering the necessary documentation and
possible disruption of work, especially if employees cannot be replaced immediately.
(ii) Recruitment costs, comprising the cost of advertising, selection and engagement. This
may include agency fees and relocation expenses.
(iii) Learning cost, including the cost of training, and possible reduced productivity during the
learning period and poorer quality work.
(iv) Low morale of remaining staff resulting in greater absenteeism and poorer productivity.
(b) (i) Wages payable March 2008
30 employees 4 weeks 38 hours/wee
= 4,560 hours K3 per hour
= K13,680
Output in month 456 units
Direct labour cost per unit of X = K123,680/456 = K30 per unit.
(c) Operatives
A B C
Basic pay 140 hrs K3 150 hrs K3 120 hrs K3
K420 K450 K360
Overtime 17 hrs K4.50 22 hrs K4.50 20 hrs K4.50
K76.50 K99.00 K90.00
Total K496.50 K549.00 K450.00
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
15/71
15
(d) Accounting treatment of overtime premium
In most industries, overtime is worked for reasons that include additional orders, to offset time lost
through breakdown or staff absence; or simply to achieve the levels of volume for current orders,
supported by current staffing levels.
In such cases, this type of overtime is simply analysed as indirect and treated as part of overhead
cost. However, if overtime was worked as a result of specific request from a customer to him to
finish an urgent order, then it would be treated as direct labour.
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
16/71
16
Question 3
(a) Abnormal gain in process 1:
KgInput 30,000
Less: normal loss 6,000 (30,000 20%)
Expected output 24,000
Less: actual output 24,500 (input to process
2)
Abnormal gain 500
(b) Process 2 Account
Kg K000 Kg K,000
Process 1 costs 24,500 308,700 Output 25,500 346,800
Added materials 6,000 32,900 Work-in-progress 5,000 63,200
Conversion costs 68,400
30,500 410,000 30,500 410,000
Workings:
1. Equivalent units (kg):
Material Conversion
Output 25,500 25,500 (24,500 + 6,000 5,000)
Closing work-in-progress 5,000 3,000 (5,000 0.6)
30,500 28,500
2. Costs:
Total K 341,600,000 68,400,000
K per equivalent unit 11,200 2,400 Total = K13,600
3. Valuation:
Output K346,800 (25,500 kg K13,600 per kg)
Closing WIP K63,200,000 (5,000 kg K11,200 per kg) + (3,000 kg K2,400 per kg)
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
17/71
17
Question 4
(a) Overhead analysis sheet
Dept 1 Dept 2 Service GeneralDept Factory
K000 K000 K000 K000
Initial overhead 38,000 46,500 26,500 23,000
Re-apportion General factory 9,200 11,500 2,300 (23,000)
28,800
Re-apportion Service 60% on labour 7,680 9,600 (17,280)
Re-apportion Service 40% on machine 5,760 5,760 (11,520)
60,640 73,360
Budgeted output 120,000 120,000
Overhead absorption rate per unit (K) 505 611
K
(b) Full Cost - Materials 700
Labour 550
Variable manufacturing overheads 200
Fixed manufacturing overheads 1,116
2,566
Operating Profit Statement Full Absorption Costing Method.
K000 K000
Sales 120,000 3,600 432,000
Production cost (120,000 2,566) 307,920
Less closing inventory 0 307,920
Gross profit 124,080
Non-manufacturing overheads 87,500
Reported profit 36,580
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
18/71
18
(c) Operating profit Statement marginal costing method
K000 K000
Sales (120,000 x 3,600) 432,000
Production cost (120,000 1,450) 174,200
174,000
Contribution 258,000
Manufacturing overheads 134,000
Non-manufacturing overheads 87,500
(221,500)
Reported profit 36,500
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
19/71
19
Question 5
(a) (i) Statement of Equivalent units
Overheads Units completed C.W..PTotal
Equiv. Units E.V
Material 5,990 1,600 7,590
Labour & overheads 5,990 960 6,950
(ii) Cost per unit
Total Costs Total E.V.Cost per unit
Material (478,500-7,920) 7,590 62
Labour & overheads 347,500 6950 50
112
(iii) Statement of valuation
Closing W.I.P
1,600 62 99,200
960 50 48,000
147,200
(iv) Units Amt Units Amt
Materials 8,250 478,500 Output 5,990 670,880
Labour
& overheads 347,500 Normal loss 660 7,920
Closing W.I.P 1,600 147,200
8,250 826,000 8,250 826,000
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
20/71
20
Working
1. Normal loss 8% 8,250 = 660.
Expected output (8,250 660) = 7,590
Closing W.I.P = 1, 600
Account title
Each correct entry
(b) (i) Normal loss is the expected loss in a process. It is the level of loss or waste unit
management would expect to occur under normal operating conditions.
Abnormal loss is the amount by which the actual loss exceeds the expected or normal loss
in a process.
(ii) Normal loss is not given a cost. If normal is sold as scrap the revenue reduces the input
cost of the process. Abnormal loss is given a cost like good units.
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
21/71
21
Question 6
(a) (i) Material price variance K
93,000 kg should have cost ( K4,000) 372,000,000
But did cost 390,000,000
Material price variance 18,000,000 (A)
(ii) Material usage variance
4850 units should have used ( 20) 97,000 kgs
But did use 93,000 kgs
Material usage variance in kgs 4,000 kgs (F)
X standard material price K4,000
K16,000,000 (F)
(b) (i) Labour rate variance K200,000 hours should have cost (x K2,000) 400,000,000
But did cost 380,000,000
Labour rate variance 20,000,000 (F)
(ii) Labour efficiency variance
4,850 units should have used ( 30) 145,500 hours
But did use 185,000 hours
Labour efficiency variance in hours 39,500 hoursX standard labour rate K2,000
Labour efficiency variance in K K79,000,000 (A)
(iii) Idle time variance
15,000 hours K2,000 K30,000,000 (A)
(c) (i) Variable overhead expenditure variance K
185,000 hours should have cost ( K300) 55,500,000
But did cost 56,000,000
Variable overhead expenditure variance 500,000 (A)(ii) Variable overhead efficiency variance
4,850 units should have used ( 30) 145,500 hours
But did use 185,000 hours
Variable o/head efficiency variance in hrs 39,500 hours (A)
X standard variable o/head rate K300
Variable o/head efficiency variance in k K11,850,000 (A)
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
22/71
22
(d) (i) Fixed overhead expenditure variance K
Budgeted fixed o/heads (5,100 K111,000) 566,100,000
Actual fixed o/heads 575,000,000
Fixed overhead expenditure variance 8,900,000 (A)
(ii) Fixed overhead volume efficiency variance
4,850 Yoyo should have taken (x 30 hrs) 145,500 hours
But did take 185,000 hours
Fixed o/head volume efficiency variance 39,500 hours (A)
X standard fixed o/head absorption rate per hour K3,700
146,150,000 (A)(iii) Fixed overhead volume capacity variance
Budgeted hours of work (5,100 30 hrs) 153,000 hours
Actual hours of work 185,000 hours
32,000 hours
X standard fixed o/head absorption rate per hr. K3,700
K118,400,000 (F)
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
23/71
23
ZAMBIA INSTITUTE OF CHARTERED ACCOUNTANTS
CHARTERED ACCOUNTANTS EXAMINATIONS
TECHNCIAN LEVEL
T2: COST ACCOUNTING
SERIES: DECEMBER 2010
TOTAL MARKS 100
TIME ALLOWED: THREE (3) HOURS
INSTRUCTIONS TO CANDIDATES
1. You have ten (10) minutes reading time. Use it to study the examination paper carefully so that you
understand what to do in each question. You will be told when to start writing.
2. This paper is divided into TWO sections:
Section A: Attempt ALL multiple choice questions.
Section B: Attempt FOUR questions.
3. Enter your student number and your National Registration Card number on the front of the answer
booklet. Your name must NOT appear anywhere on your answer booklet.
4. Do NOT write in pencil (except for graphs and diagrams).
5. The marks shown against the requirement(s) for each question should be taken as an indication of
the expected length and depth of the answer.
6. All workings must be done in the answer booklet.
7. Present legible and tidy work.
8. Graph paper (if required) is provided at the end of the answer booklet.
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
24/71
24
SECTION A
Attempt ALL multiple choice questions in this section.
Each of the following questions has only ONE correct answer. Write the LETTER of the correct answeryou have chosen in your answer booklet. Marks allocated are indicated against each question.
Data For Questions 1.1 and 1.2
A company makes special assemblies to customers orders and uses job costing. The data for period 1
are:
Job. No. Job No. Job No.
J10 J20 J30
K K K
Opening work in progress 26,800 42,790
Material added in period 17,275 18,500
Labour for period 14,500 3,500 24,600
The budgeted overheads for the period were K126,000.
1.1 What overheads should be added to job number J30 for the period?
A K24,600
B K65,157
C K72,761
D K126,000 (2 marks)
1.2 Job No J20 was completed and delivered during the period and the firm wishes to earn 333
1%
profit on sales. What is the selling price of Job No J20.
A K69,435
B 75,521
C K84,963
D K138,870 (2 marks)
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
25/71
25
1.3 Which of the following statements about predetermined overhead absorption rates are true?
(i) Using a predetermined absorption rate avoids fluctuations in unit costs caused by abnormally
high or low overhead expenditure or activity levels.
(ii) Using a predetermined absorption rate offers the administrative convenience of being able to
record full production costs sooner.
(iii) Using a predetermined absorption rate avoids problems of under/over absorption of
overheads because a constant overhead rate is available.
A (i) and (ii) only.
B (i) and (iii) only.
C (ii) and (iii) only
D All of them. (2 marks)
1.4 Inventory cost control is best defined as:
A. The recording of accounting transactions relating to inventory cost.
B Ensuring that losses due to poor stores procedures are minimized.
C Minimizing inventory cost by implementing control from the point at which the inventory is
chosen to its issue into the production process.
D The process of having a management member responsible for each phase of the movement
of inventory from the choice of inventory to its issue into the production process.
(2 marks)
1.5. The following extract is taken from the production costs at two levels for Dust Limited.
Level one (1) Level two (2)
Production (units) 4,000 6,000
Production costs (K) 11,100,000 12,900,000
The cost allowance for level three (3) when activity level is budgeted at 5,000 Units is:
A K4,500,000B K12,000,000
C K14,700,000
D K16,500,000 (2 marks)
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
26/71
26
1.6 Which of the following is a characteristic of an investment centre?
A Managers have control over marketing
B Management has a sales team
C Management has a sales team and is given a credit control function.
D Managers can purchase and dispose of capital assets. (2 marks)
1.7 DM Limited manufactures a single product C, for which the standard material cost is as follows:
STANDARD COST
Material 14 Kg at K3,000 K42,000 per unit
During May 2009, 800 units of product C were manufactured, 12,000 Kg of material were
purchased for K33,600,000, of which 11,500 Kg were issued to production.
DM Limited values all stock at standard cost.
The materials prices and usage variances for May 2009 were:
Price Usage
A. K2,300,000 (F) K900,000 (A)
B. K2,300,000 (F) K300,000 (A)
C. K2,400,000 (F) K900,000 (A)
D. K2,400,000 (F) K840,000 (A) (2 marks)
1.8. A System in which both financial accounts and cost accounts are handled together and presented
as one set of account is best described as:
A. An account independent system
B. Reconciled system
C. An integrated system
D. An inter-locking system (2 marks)
1.9. A component manufacturer with multiple outlets stocks a component for which the following
information is available:
Average usage per day 75 Units
Maximum usage per day 95 Units
Minimum usage per day 50 Units
Lead time 12 18 days
Re-order quantity 1,750 Units
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
27/71
27
Based on the data above, calculate the maximum inventory level?
A 1,750 units.
B 2,275 units.
C 2,860 units.
D 2,900 units. (2 marks)
1.10 Apportionment of overhead cost may be defined as:
A. Charge to a cost centre of an overhead cost item with no estimation.
B Charge each cost centre with a share of an overhead cost using an appropriate basis to estimate
the benefit extracted by each cost centre.
C Charge to cost units for the use of an overhead cost.
D Classification of overhead cost as fixed or variable. (2 marks)(Total 20 marks)
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
28/71
28
SECTION B:
Attempt any FOUR questions in this Section.
Question 2
(a) Two products (Y and Z) are jointly produced in a single process. Joint costs for a period
amounted to K52,000. Output of the two products in the period was:
Product Y 2,000 units
Product Z 3,500 units
There was no opening or closing work in progress or finished goods inventory. Both products
are currently sold without further processing for:
Product Y K12.00 per unit
Product Z K16.00 per unit
Sales values are used as the basis for apportioning joint costs.Required:
Prepare a Profit statement showing apportioned costs to each product in the period.
(6 marks)
(b) (i) Describe three main ways in which the costing of services differs from the costing of
manufactured products. (6 marks)
(ii) A Soweto businessman operates a fleet of 10 buses. Operating data are as follows:
DESCRIPTION COST
Purchase of vehicles
(depreciated on a Straight-line basis over 5 years) K920 million (for 10 buses)
Vehicle disposal value (after 5 years) K8 million (per bus)
Road fund licence and insurance K4.5 million (per bus per year)
8 tyres per vehicle replaced after every
40,000 kilometres at K0.5 million per tyre.
Servicing done every 16,000 kilometres at K1.3 million per bus.
Fuel consumption is 1 litre per 4 kilometres at K1000 per litre
Vehicle usage is 80,000 kilometres per vehicle per year.
Each driver of a vehicle is paid K12 million per year.
Required:
Calculate the total vehicle operating costs per kilometre (to 2 decimal places). (8 marks)
(Total: 20 marks)
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
29/71
29
Question 3
(a) PM LTD maintains a cost ledger for accounting purposes.
From the cost accounts, the following information was available for the period:K
Cost of finished goods produced 1,024,100
Cost of goods sold 986,920
Direct material issued 395,500
Direct wages 170,960
Production overheads (incurred) 416,440
Direct material purchases 433,180
In the cost accounts, additional depreciation of K25,000 per period is charged and production
overheard are absorbed at 250% of wages.
The various cost ledger account balances at the beginning of the period were:
K
Stores account 108,500
Work-in progress account 178,200
Finished goods account 84,150
Required:
Prepare the following accounts in the cost ledger, showing clearly the double entries between the
accounts, and the closing balances:
Stores account
Work-in progress account
Finished goods account
Production overheard account (12 marks)
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
30/71
30
(b) ABD Ltd. Manufacturing makes a product with the following standard cost specification.
K
Direct material 45kgs at K8.20 per kilo 369
Direct labour 25hrs at K6.00 per hour 150
Total standard variable cost 519
Fixed production overhead K3.60 per direct labour hour 90
Total production standard cost 609
In period 7 there was a budget of 200 units. Actual production was 220 units with costs as follows.
Period 7 Actual results
K
Direct materials 10,390kgs 82,704
Direct labour hours 5,700hours K5.90 33,630
Fixed overheard 18,912
Total costs 135,246
ABD Ltd. operates a standard absorption costing system.
There were no stocks at the beginning or end of period 7.
Required:
Calculate the following cost variances.
(i) Direct materials price variance and Direct Materials usage variance (4 marks)
(ii) Direct labour rate variance and Direct Labour efficiency variance (4 marks)
(Total: 20 marks)
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
31/71
31
Question 4
(a) CAVES Ltd. manufactures a single product using material X. The following information relates to
issues and receipts of material X during the year ended 31 December 2009.
Material X-Inventory Card
Date Details units Receipts Total cost IssuedUnit cost(K) (K) Units
01 Jan 09 Balance b/f 100 4.50 450.00
03 Feb 09 issued 70
04 Mar 09 Received 40 5.20 208.00
06 Jun 09 Issued 20
17 Aug 09 Received 50 4.90 245.00
10 Oct 09 Issued 30
17 Nov 09 Received 20 5.35 107.00
02 Dec 09 Issued 30
Required:
Calculate separately the cost of each issue during 2009 using:
(i) First-in, first-out method of pricing; (5marks)
(ii) Last-in, first-out method of pricing; (5marks)
(iii) Average cost method of pricing, where the average cost is calculated upon each movementin inventory (that is, the weighted average method) (4marks)
(b) A small manufacturing business comprises three production departments undertaking machining,
assembly and finishing operations and support departments for stores and for buildings. A
production period budgeted cost and resource profile for each of the five departments is as follows:
Machining Assembly Finishing Stores Buildings
Overhead costs (K) 350,000 250,000 185,000 125,000 320,000
Space (meters) 500 400 450 650 650
Material (volume) 12,000 35,000 5,000Direct labour hours 6,000 7,500
Direct machine hours 8,000
Required:
(i) Re-apportion stores and buildings costs using a suitable basis. (3marks)
(ii) Calculate absorption rates for each of the three production departments. (3marks)
(Total: 20 marks)
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
32/71
32
Question 5
Musalale Ltd manufactures three products, AEE, BEE and CEE. Each product uses the same materials
and the same type of direct labour but in different quantities. The company currently uses a cost plus
basis to determine the selling price of its products. This is based on full cost using an overhead
absorption rate per direct labour hour. However, the Managing Director is concerned that the company
may be losing sales because of its approach to setting prices. He thinks that a marginal costing
approach may be more appropriate, particularly since the workforce is guaranteed a minimum weekly
wage and has a three-month notice period.
Required:
(a) State two advantages and two disadvantages of (i) marginal and (ii) absorption costing
systems. (4 marks)
(b) The direct costs of the three products are shown below:
Product AEE BEE CEE
Budgeted annual production (units) 7,500 12,000 20,000
Cost per unit (Kwacha)
Direct materials 7,000 9,000 6,000
Direct labour (K2,000/hour) 8,000 6,000 10,000
In addition to the above direct costs, Musalale incurs annual indirect production costs of
K20,750,000.
Required:
Calculate the full cost per unit of each product using the absorption costing system. (6 marks)
(c) An analysis of the companys indirect production costs shows the following:
Cost Pool Cost driver
Material ordering costs K4,372,000 Number of orders
Machine setup costs K1,992,000 Number of batches
Machine running costs K7,948,300 Number of machine hours
General facility costs K6,437,700 Number of machine hours
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
33/71
33
The following additional data relate to each product:
Product AEE BEE CEE
Machine hours per unit 10 16 14
Batch size (units) 500 400 1,000
Supplier orders per batch 8 6 10
Required:
Calculate the full cost per unit of each product using Activity Based Costing. (10 marks)
(Total: 20 marks)
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
34/71
34
Question 6
The following data have been extracted from the budgets of Choma Ltd, a company which manufactures
and sells a single product:
K per unit
Selling price 45.00
Direct material cost 10.00
Direct wages cost 4.00
Variance overhead cost 2.50
Fixed production overheads are budgeted at K400,000 per annum. Normal production levels are thought
to be 320,000 units per annum.
Budgeted selling and distribution costs are as follows:
Variable K1.50 per unit sold
Fixed K80,000 per annum
Budgeted administration costs are K120,000 per annum.
The following pattern of sales and production is expected during the first six months of 2011:
January March April June
Sales (units) 60,000 90,000Production (units) 70,000 100,000
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
35/71
35
There is to be no inventory on 1 January 2011.
Absorption Costing Profit Statement
January to 31 March April to 30th June
2011 2011
K000 K000 K000 K000
Sales 2,700 4,050
Cost of Sales
Opening Inventory 177.50
Production 1242.50 1775.00
Closing Inventory (177.50) (355.00)
(1,065) (1,597.50)
Gross profit 1,635 2,452.50
Over/(Under) absorbed (12.5) 25
Selling & distribution Costs
Variable (90) (135)
Fixed (20) (20)
Administration Costs (30) (30)
Profit for the quarter 1,482.5 2,292.5
* Inventory Valuation: 31/3/1170,000
10,000K1,242,500= K177,500
30/6/11100,000
20,000K1,775,000= K355,000
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
36/71
36
Required:
(a) Prepare a profit statement for each of the two quarters, in a columnar format, using the marginal
costing method. (14 marks)
(b) Reconcile the marginal costing and absorption costing profits for the quarter January to 31 March
2011. (3 marks)
(c) Write up the fixed production overhead control account for the quarter to 31 March 2011, using
absorption costing principles. Assume that the actual fixed production overhead costs incurred
amounted to K102,400 and the actual production was 74,000 units. (3 marks)
(Total: 20 marks)
END OF PAPER
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
37/71
37
DECEMBER 2010
T2 COST ACCOUNTING
SUGGESTED SOLUTIONS
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
38/71
38
SECTION A
MULTIPLE CHOICE
Solution 1
1.1 C
1.2 C
1.3 A
1.4 C
1.5 B
1.6 D
1.7 C
1.8 C
1.9 C
1.10 B
SECTION B
Solution 2
(a) Gross profit statement
Product Y Product Z
K K
Sales 24,000 56,000
Joint costs apportioned 15,600 36,400
Gross profit (total) 8,400 19,600
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
39/71
39
Workings
Sales Value:
Product Y 2,000 units at K12 /unit = K24,000 (30%)Product Z 3,500 units at K16/unit = K56,000 (70%)
K80,000
Joint cost apportionment:
Product Y K15,600 (K52,000 0.3)
Product Z K36,400 (52,000 0.7)
Total K52,000
(b) (i) Service costing is used when there is no physical product and therefore no inventory canbe held.
Service costs are often averaged over a standard unit of measurement to obtain a cost
per unit of service. This is often a composite unit, such as patient-days in a hospital or
tonne-km in a haulage company.
There is often a very high proportion of fixed costs and the key to high profits is the
efficient use of assets.
(2 marks for each point)
(ii) Cost description Cost per vehicle
(K000)
Depreciation (w1) 16,800
Road Tax licence and insurance 4,500
Tyres *8 80,000/40,000 K500,000) 8,000
Servicing (80,000/16,000 K1,300,000) 6,500
Fuel (80,000/4 K1,000) 20,000
Driver 12,00067,800
Cost per km = K67,800,000/80,000 = K847.50 (to 2 d.p)
Working
Depreciation cost per vehicle =5years
8m)K(920m= K16.8 mSolution 3
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
40/71
40
(a) (i) Stores account
K K
Balance b/d (opening inventory) 108,500 work-in-progress 395,500
Purchases (payables/cash) 433,180 Balance c/d (closing inventory) 246,180
641,680 641,680
Balance b/d 246,180
Work-in-progress account
K K
Balance b/d (opening inventory) 178,200 Finished goods account 1,024,100
Stores account 395,500 Balance c/d (closing inventory) 147,960
Direct wages 170,960Production Overhead account 427,400
(250% K85,480) 1,172,060 1,172,060
Balance b/d 147,960
Finished goods account
K K
Balance b/d (opening inventory) 84,150 Cost of goods 986,920
Purchases (payables/cash) 1,024,100 Balance c/d (closing inventory) 121,330
1,108,250 1,108,250
Balance b/d 121,330
Production overhead account
K K
Cash/payables (overheads incurred) 416,440 Work-in-progress 427,400
Depreciation 25,000 Under-absorbed overhead 14,040
441,440 441,440
Overhead incurred in the period consists of K416,440, plus additional depreciation of
K25,000 giving a total of K441,440.
Overheads absorbed amount to only K427,400. The balance of K14,040 is the amount of
under-absorbed overhead which will eventually be charged to the income statement (3 marks)
(b) (i) Direct material price variance
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
41/71
41
K
10,390 kgs of material should have cost ( K8.20) 85,198
But did cost 82,704
Direct material price variance 2,494(F)
Direct material usage variance
220 units should have used ( 45 kgs) 9,900 kgs
But did use 10,390 kgs
Usage variance in kgs 490 kgs
X standard cost per kilogram 8.20
Usage variance in Kwacha K4,018 (A)
(ii) Direct Labour rate variance
K
5,700 hours of labour should have cost ( K6.00) 34,200
But did cost 33,630
Direct labour rate variance 570 (F)
Direct Labour efficiency variance
K
220 units should take ( 25 hrs) 5,500 hrs
But did take 5.700 hrs
Labour efficiency variances in hours 200 hrs (A)
X standard rate per hour 6
Labour efficiency variance 1,200 (A)
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
42/71
42
Solution 4
(a) (i) FIFO inventory card
Description: Material X Inventory codeDate Detail Receipts Issues Balance
Qty Unitcost
Value Qty Unitcost
Value Quantity Unitcost
Value
K K K K K K
1/01 Bal b/d 100 4.50 450
3/02 70 4.50 315 30 4.5 135
4 /03 40 5.20 208 30 4.5 135
40 5.20 208
6 /06 20 5.20 104 10 45 135
40 5.20 2
17/08 50 4.90 245 30 4.5 135
20 5.20 104
50 4.90 245
10 /10 30 4.90 147 30 4.5 135
20 5.20 104
20 4.90 98
17 /11 20 5.35 107 30 4.5 135
20 5.20 104
2/12 20 5.35 107 30 4.5 135
10 4.90 49.00 20 5.20 104
10 4.90 49.00
60 288
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
43/71
43
(ii) LIFO inventory card
Description: Material X Inventory code
Date Detail Receipts Issues Balance
Qty Unit
cost
Value Qty Unit
cost
Value Quantity Unit
cost
Value
K K K K K K
Bal b/f 100 4.5 450.00
3 /02 70 4.50 315.00 30 4.50 135
4 /03 40 5.20 208 30 4.5 135
40 5.20 208
6 /06 20 5.20 104 30 4.5 135
20 5.20 104
17 /07 50 4.90 245 30 4.5 135
20 5.20 104
50 4.90 245
10 /10 30 4.90 147 30 4.5 135
20 5.20 104
20 4.90 98
17/11 20 5.35 107 30 4.5 135
20 5.20 104
20 4.90 98
20 5.35 107
2 /12 20 5.35 107 30 4.5 13510 4.90 49 20 5.20 104
10 4.90 49
60 288
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
44/71
44
(iii) AVCO inventory card
Description: Material X Inventory code..
Date Detail Receipts Issues Balance
Qty Unit cost Value Qty Unit cost Value Quantity Unit cost Value
2009 K K K K K K
1 Jan Bal b/d 100 4.50 450.00
3 Feb 70 4.50 315.00 30 4.50 135.00
4 March 40 5.20 208.00 70 4.90 343.00
6 June 20 4.90 98.00 50 4.90 245.00
17 Aug 50 4.90 245.00 100 4.90 490.00
10 Oct 30 4.90 147.00 70 4.90 343.00
17 Nov 20 5.35 107.00 90 5.00 450.00
2 Dec 30 5.00 150.00 60 5.00 300.00
(b) (i) Overhead Apportionment Schedule
Basis Machining Assembly Finishing stores Building
K K K K K
Costs As given 350,000 250,000 185,000 125,000 320,000
Reapp bldgs. Space 80,000 64,000 72,000 104,000 (320,000)
229,000
Reapp. Stores material 52,846 154,135 22,019 (229,000)
482,846 468,135 279,019 (ii)
Direct labour/machine hrs 8,000 6,000 7,500
Absorption rate K 60.36 K78.02 K37.20
Per Machine Hour per labour Hour per labour Hour
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
45/71
45
Solution 5
(a) (i) Marginal costing
Advantages Disadvantages
Contribution per unit is constant Closing inventory is valued at
variable cost instead of full cost.
No under or over absorption adjustment required Fixed costs are not shared among
the units but written off in full instead.
Useful for decision making
Simple to operate
(ii) Absorption Costing
Advantages Disadvantages
It includes fixed costs in inventory More complex to operate than marginal
costing.
Absorption overheads into the costs of products Does not provide useful information for
is the best way of estimating job costs and decision making
profits on jobs
Any two(2) for each ( mark each)
(b) Full cost per unit using Absorption Costing:
Product: AEE BEE CEE
Cost K K K
Direct material 7,000 9,000 6,000
Direct labour 8,000 6,000 10,000
Overheads (w1) 500 375 625
15,500 15,375 16,625
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
46/71
46
Working
1 Overheads
Product: AEE BEE CEE Total
Budget Units 7,500 12,000 20,000
Labour hrs/Unit 4 3 5
Total Labour hours 30,000 36,000 100,000 166,000
Overhead rate =hrsLabour166,000
0K20,750,00
= K125/Labour hr.
Product: AEE BEE CEE
Labour hrs/Unit 4 3 5
OAR (K/hr) 125 125 125
K500 K375 K625
(c) Full Cost per unit using Activity Based costing.
Product: AEE BEE CEE
Cost K K K
Direct material 7,000 9,000 6,000
Direct labour 8,000 6,000 10,000
Overheads (w2) 306.39 286.68 249.59
15,306.39 15,286.68 16,249.59
Working 2
Product: AEE BEE CEE Total
Budget Units 7,500 12,000 20,000
Batch Size 500 400 1,000
Number of batches
(Budgeted Units/Batch Size) 15 30 20 65
Total machine hours
(Budgeted units hrs/Unit) 75,000 192,000 280,000 547,000
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
47/71
47
Total supplier Orders
(Number of batches
Order/batch) 120 180 200 500
Cost Driver Rates
Material Ordering Costs =orders500
K4,372,000= K8,744/order
Machine Setup costs =batches65
K1,992,000= K30,646.15/batch
Machine running costs =hrsmachine547,000
K7,948,300= K14.53/machine hour
General facility Costs =hrsmachines547,000
K6,437,700 = K11.77/machine hour
Cost apportionment:
Product AEE Cost per Unit
K
Material Ordering Costs =nitsu7,500
orders120K8,744= 139.90
Machine Setup costs =units7,500
15K30,644.15 = 61.29
Machine running costs = K14.53 10 hrs = 145.30
General facility Costs = K11.77 10 hrs = 117.70
464.19
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
48/71
48
Product BEE Cost per Unit
K
Material Ordering Costs =units12,000
orders180K8,744
= 131.16
Machine Setup costs =units12,000
batches30K30,646.15= 76.62
Machine running costs = K14.53 16 hrs = 232.48
General facility Costs = K11.77 16 hrs = 188.32
628.58
Product CEE Cost per Unit
K
Material Ordering Costs =units20,000
orders200K8,744= 87.44
Machine Setup costs =units20,000
batches20K30,646.15= 30.65
Machine running costs = K14.53 14 hrs = 203.42
General facility Costs = K11.77 14 hrs = 164.78486.29
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
49/71
49
Question 6
(a) Choma Ltd
Marginal Costing Profit Statement
January to 31 March April to 30th June
2011 2011
K000 K000 K000 K000
Sales 2,700 4,050
Cost of Sales
Opening Inventory 165
Production 1,155 1,650
Closing Inventory (165) (330)
990 1,485
Selling & distribution (W1) 90 135
(1,080) (1,620)
Contribution 1,620 2,430
Less Fixed Costs
Production 100 100Selling & Distribution 20 20
Administration 30 30
Profit for the quarter 1,470 2,280
(1 mark for each entry except for total and sales)
(b) Reconciliation Statement for January to March 2011
K000
Marginal Costing Profit 1,470.0
Add: Change in Inventory (10,000 x K1.25/unit) 12.5
Absorption Costing profit 1,482.5
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
50/71
50
(c ) Production Overhead Control Account
K K
Payables 102,400 WIP 92,000
(74,000 1.25)
Over/under absorption a/c 9,900
102,400 102,400
END
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
51/71
51
ZAMBIA INSTITUTE OF CHARTERED ACCOUNTANTS
CHARTERED ACCOUNTANTS EXAMINATIONS
TECHNCIAN LEVEL
T2: COST ACCOUNTING
SERIES: JUNE 2011
TOTAL MARKS 100
TIME ALLOWED: THREE (3) HOURS
INSTRUCTIONS TO CANDIDATES
1. You have ten (10) minutes reading time. Use it to study the examination paper carefully so thatyou understand what to do in each question. You will be told when to start writing.
2. This paper is divided into TWO sections:
Section A: Attempt ALL multiple choice questions.
Section B: Attempt FOUR questions.
3. Enter your student number and your National Registration Card number on the front of the answer
booklet. Your name must NOT appear anywhere on your answer booklet.
4. Do NOT write in pencil (except for graphs and diagrams).
5. The marks shown against the requirement(s) for each question should be taken as an indication ofthe expected length and depth of the answer.
6. All workings must be done in the answer booklet.
7. Present legible and tidy work.
8. Graph paper (if required) is provided at the end of the answer booklet.
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
52/71
52
SECTION A
Attempt ALL multiple choice questions in this section.
Question 1
Each of the following questions has only ONE correct answer. Write the LETTER of the correct answer
you have chosen in your answer booklet. Marks allocated are indicated against each question.
1.1 Chundu Ltd, a tyre fitter, stocks a popular tyre for which the following information is available.
Average usage 140 tyres per day
Minimum usage 90 tyres per day
Maximum usage 175 tyre per dayLead time 10 16 days
Re-order quantity 3000 tyres
Based on the data above, what is the reorder level?
A 2,240
B 2,800
C 3,000
D. 5,740 (2 marks)
1.2 Using the data in 1.1 above, calculate the maximum stock level.
A 2,800
B 3,000
C 4,900
D 5,800 (2 marks)
1.3. The use of variable cost as the minimum price to be considered when negotiating for a job order
may be acceptable whenA the company has idle production capacity.
B marginal cost accounting system is in use.
C the order will be lost if a higher price is sought.
D the use of this pricing basis secured a previous order from the same customer. (2 marks)
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
53/71
53
1.4. The standard cost information for Jumbos single product shows the standard direct material
content to be 4 litres at K3,000 per litre.
Actual results for April were:
Production 1,500 units
Material used 5,000 litres at a cost K16,000,000
All of the materials were purchased and used during the period. The direct material Price and
usage variances for April are:
Material price Material usage
A K1,000,000 (F) K3,000,000 (F)
B K1,000,000 (F) K3,000,000 (A)
C K1,000,000 (A) K2,500,000 (F)D K1,000,000 (A) K3,000,000 (F) (2 marks)
1.5 Which of the following would be illustrated by the cost curve shown below?
A Direct material cost
B Direct labour cost
C Variable cost per unit
D Fixed cost per unit (2 marks)
Cost
(Kwacha)
Quantity (Q)
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
54/71
54
1.6. Which of the following describes a cost unit?
A. Cost per unit of output
B. Direct cost
C. Unit of productD. Production department (2 marks)
1.7. When materials are issued to production, what is the double entry?
A Dr work in progress control account
Cr Stores ledger control account
B Dr work in progress control account
Cr purchases ledger control account
C Dr production overhead control account
Cr stores ledge control accountD Dr Stores ledger control account
Cr work in progress control account (2 marks)
1.8 A food manufacturing process has a normal wastage of 10% of input. In a period, 5,000 kg of
material was input and there was an abnormal loss of 100 kg. No inventories are held at the
beginning or end of the process.
What is the quantity of good production achieved?
A 5,600 kgB 4,600 kg
C 4,490 kg
D 4,400 kg (2 marks)
DATA FOR QUESTIONS 1.9 AND 1.10
A factory consists of two production cost centres A and B and two service cost centres X and Z.
The total overheads allocated and apportioned to each cost centre are as follows:
A B X Z
K140,000 K120,000 K60,000 K80,000
The work done by the service cost centres (SCC) can be represented as follows:
A B X Z
Percentage of X 60% 40%
Percentage of Z 30% 50% 20%
After the re-apportionment of the SCC has been carried out using the direct method;
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
55/71
55
1.9. What is the total overhead for production cost centre A?
A K212,250
B K209,600
C K240,000
D K180,000
(2 marks)
1.10. What is the total overhead for production cost centre B?
A K160,000
B K210,000
C K193,750D K190,400 (2 marks)
(Total: 20 marks)
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
56/71
56
SECTION B
Attempt any FOUR questions in this Section
Question 2
DC Limited makes a single product MY for which the standard cost is as follows:
K
Direct materials 4 Kg at K120 per Kg 480.00
Direct labour 5 hours at K70 per hour 350.00
Fixed production overheads 5 hours at K100 per hour 500.00
1,330.00
Overhead is absorbed into production on the basis of standard hours of production and the normal
volume of production for the period just ended was 20,000 units (100,000 standard hours of production).
For the period under consideration, the actual results were:
Production of MY 18,000 units
Direct materials used 76,000 Kgs at a cost of K8,360,000
Direct labour cost incurred for 84,000 hours worked K6,048,000
Fixed production overhead incurred K10,300,000
Required:
(a) Prepare a standard cost card for production achieved. (3 marks)
(b) Calculate the following variances:
(i) Material Price and Material Usage variances. (4 marks)
(ii) Labour Rate and Labour Efficiency variances. (4 marks)
(iii) Fixed overhead Expenditure and Fixed overhead volume variances. (4 marks)
(c) Reconcile the Standard Cost to Actual Cost. (5 marks)
(Total: 20 marks)
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
57/71
57
Question 3
(a) There are two production cost centres (P1 and P2) and two service cost centres (Material Stores
and Employee Facilities) in a factory. Estimated overhead costs for the factory for a period,
requiring apportionment to cost centres, are:
K000
Building depreciation and insurance 42,000
Salaries 27,000
Power to operate machinery 12,600
Other utilities 9,400
In addition the following overheads have been allocated to cost centres.
Cost centresP1 P2 Material Stores Employee facilities
(K000) (K000) (K000) (K000)
107,000 89,000 68,000 84,000
Further information:
Cost centres
P1 P2 Material Stores Employee
facilities
Total
Floor area (m2) 4,560 5,640 720 1,080 12,000
Number of employees 18 24 6 6 54
Share of other utilities
overhead
35% 45% 10% 10% 100%
Machine hours 6,200 5,800 12,000
Share of materials Store
overheads
40% 60% 100%
Required:(i) Prepare a schedule showing the allocated and apportioned factory overhead costs for each
cost centre. (10 marks)
(ii) Re-apportion the service cost centre overheads, using the direct method. (5 marks)
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
58/71
58
(b) At the beginning of Month 2, the balance in the inventories ledger for material M27 was 2,400 kg
at K36,000 per kg. The movements of the material in month 2 and the prices per kg were as
follows:
Inventories ledger accountDay Receipts Issues
Quantity Price Quantity price
Kg k/kg Kg k/kg
4 5,000 36,500
6 4000 36,500
17 6,000 37,000
Required:
Calculate the closing inventory value at the end of month 2 by completing the inventories ledger.
(5 marks)
(Total: 20 marks)
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
59/71
59
Question 4
(a) (i) Explain the accounting treatment for overtime premium and shift work premium payment.
(2 marks)
(ii) Mr Simcard Banda, a machine operator, is paid K5,000 per hour and has a normal working
week of 35 hours. Overtime is paid at the basic rate plus 50%. If in week 3, he worked 45
hours, calculate the overtime premium paid to him. (2 marks)
(b) Sambro Spinning Mills of Ndola is proposing to introduce an incentive scheme into its factory.
Required:
Describe three advantages and three disadvantages of individual incentive schemes. (6 marks)
(c) Sambro Spinning Mills of Ndola is undecided what kind of scheme to introduce in its factory. The
table below shows labour details relating to four individual employees, W, X, Y and Z.W X Y Z
Rate of pay per hour K6,000 K4,000 K5,000 K7,200
Actual hours worked 38 hrs 36hrs 40 hrs 34 hrs
Production units
Production A 84 240 - 240
Production B 144 152 - 540
Production C 184 - 100
Standard time allowed (per unit) is:
Product A 12 minutes per unit
Product B 18 minutes per unit
Product C 30 minutes per unit
Each minute is valued at K100 for piecework calculation purposes.
Required:
From the information above calculate earnings for each employee using:
(i) Guaranteed hourly rates only (basic pay)
(ii) Piecework, with earnings guaranteed at 80% of basic pay where an employee fails to earn
this amount.
(iii) Premium bonus, in which the employee receives two-thirds () of time saved in addition to
hourly pay. (Round off to the nearest thousand Kwacha) (10 marks)
(Total: 20 marks)
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
60/71
60
Question 5
(a) IAS 11 accounting for long term contracts allows the contractor to take credit for part of the
attributable profit to the contract in each years contract.
Required:
Explain three specific matters to be considered when deciding the extent of profit to be taken on
uncompleted contracts. (6 marks)
(b) Chuchu contractors Ltd begun constructing a Radio station for Mwelesa Christians in Lusaka and
details of the contract no. RS158 during the year ended 30th September 2010 were as follows:
ITEM K000
Materials purchased and delivered to site 44,210
Materials issued from store 3,740Materials returned to store 860
Site wages 14,400
Site direct expenses 1,950
Plant sent to site 4,800
Plant returned from site 1,300
Architects fees 2,000
Sub-contract work 6,800
Head office overheads charged (12% of site wages)
At the year end, valuations were:
K000
Materials on site 1,240
Plant on site 2,050
Cost of work done but not yet certified (work in progress) 3,710
Prepayments 110
Accruals 370
During the year architects certificates to the value of K81,000,000 were issued, and Mwelesa
Christians made progress payments to this extent less 10% retention monies.Required:
(i) Prepare the contract account for No. RS158 showing clearly the figure of cost of work
certified carried down and work in progress carried down. (10 marks)
(ii) Calculate the profit taken on the contract. (4 marks)
(Total: 20 marks)
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
61/71
61
Question 6
Chikunichisiasia Ltd manufactures a range of products and the data below refer to one product which
goes through one process only. The company operates a reporting system for process and product
costs and the data given below relate to Period 3.
There was no opening work-in-progress inventory.
5,000 units of material at K776.18 per litre were input at the start of the process.
K
Materials added 2,766,000
Direct wages incurred 1,311,000
Production overhead 1,494,000
Normal loss is 3% of input.
Closing work-in-progress was 800 litres but these were incomplete, having reached the following
percentages of completion for each of the elements of cost as follows:
%
Materials 75
Direct wages 50
Production overhead 25
270 litres were scrapped after a quality control check when the litres were at the following degrees ofcompletion:
%
Materials added 66
Direct wages 33
Production overhead 16
Litres scrapped, regardless of the degree of completion, are sold for K200 per litre.
Required:
(i) Prepare the following: Process account (7 marks)
statement of equivalent units, (4 marks)
statement of cost per equivalent units and (2 marks)
statement of valuation. (4 marks)
(ii) Prepare the abnormal gain or Loss account. (3 marks)
(Total: 20 marks)
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
62/71
62
JUNE 2011
T2 COST ACCOUNTING
SUGGESTED SOLUTIONS
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
63/71
63
SECTION A
Multiple Choice
Solution 1
1 B
2 C
3 B
4 D
5 C
6 C
7 A
8 D
9 B
10 D
SECTION B
Solution 2
(a) Standard Cost Card
K000
Direct material (K480
18,000) 8,640Direct Labour (K350 18,000) 6,300
Fixed overheads (K500 18,000) 9,000
Standard cost 23,940
(b) Variances
Direct material price variance = (K120 K110) 76,000
= K760,000 favourable
Materials usage variance = (72,000 76,000) K120
= K480,000 Adv
Labour Rate variance = (K70 K72) 84,000
= K168,000 Adv
Labour Efficiency variance = (90,000 84,000) K70
= K420,000 Fav
Fixed ohd Expenditure variance = (K10,000,000 K10,300,000)
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
64/71
64
= K300,000 Adv
Fixed ohd Volume variance = (20,000 18,000) K500
= K1,000,000 Adv
(c) Reconciliation of Standard Cost to Actual Cost
K000Standard Cost (see (a) 23,940
K000 K000
Adverse Favourable
Material price 760
Material usage 480
Labour Rate 168
Labour Efficiency 420
Overhead Expenditure 300
Overhead volume 1,000
1,948 1,180 768 Adv
Actual cost 24,708
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
65/71
65
Solution 3
(a) (i)
Bases P1 P2 Materialstores Employeefacilities Total
K000 K000 K000 K000 K000
Allocated 107,000 89,000 68,000 84,000 348,000
Apportioned;
Building depreciation & insurance
(On the basis of floor spaceoccupied)
15,960 19,740 2,520 3,780 42,000
(On basis of number of employees) 9,000 12,000 3,000 3,000 27,000
Power to operate machinery
(On the basis of machine hours) 6,510 6,090 - - 12,600
Other futilities
(On the basis of % share given) 3,290 4,230 940 940 9,400
141,760 131,060 74,460 91,720 439,000
(ii) Re-apportionment
Employee Facilities
Apportioned Costs 141,760 131,060 74,460 91,720
(On the basis of No. of employees) 34,395 45,860 11,465 (91,720)
Material Stores
(on the basis of % share given) 34,370 51,555 (85,925) NIL
210,525 228,475 NIL
(b) Material pricing method
Last-in First-out (LIFO) - because the issue on day 6 is at the latest price (i.e. the price of the
receipt on Day 4 rather the price of the opening inventory.)
End Month 2 closing inventory value Material M27
[(2,400 kg at K36,000) + (1,000 kg at K36,500) + (6,000 kg at K37,000)] = K344,900,000
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
66/71
66
Solution 4
(a) (i) Overtime premium and shift-work premium are included as part of overheads. If overtime
premiums are charged directly to products/services or customers orders undertaken during
the overtime or night-shift period, they will bear higher costs than those produced during a
regular working week.
Overtime and night-shift work is usually necessitated by a generally high level of activity, not
by specific products or customers.
It is therefore inappropriagte to record activities undertaken during overtime or night hours as
being more costly than their counterparts undertaken during, say, a regular eight-hour day.
If, however, the overtime or shift premium are a direct result of a customers urgent request
for the completion of the order and not due to the general pressure of work, then the
overtime or shift premiums should be charged directly to the customer. It is important that
overtime and shift premiums are also analysed by departments for cost control purposes.
(ii) Overtime premium per hour = 50% K5,000
= K2,500
Overtime hours: (45 35) = 10 hours
Therefore, overtime premium pay = K2,500
10 hrs
= K25,000
(b) Advantages
(i) Both the firm and the employee should benefit from the introduction of an incentive scheme.
Employees should receive an increase in wages arising from the increased production. The
firm should benefit from a reduction in the fixed overhead cost per unit and an increase in
sales volume.
(ii) The opportunity to earn higher wages may encourage efficient workers to join the company.
(iii) Morale may be improved if extra effort is rewarded.
Disadvantages:
(i) Incentive schemes can be complex and difficult to administer.
(ii) Establishing performance level leads to frequent and continuing disputes.
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
67/71
67
(iii) The quality of the output may decline.
(c) (i) Hourly Rate
Employee W:38 K6,000 = K228,000
Employee X: 36 K4,000 = K144,000
Employee Y: 40 K5,000 = K200,000
Employee Z: 34 K7,200 = K244,800
(ii) Piecework
Working: standard cost per unit for the standard time allowed.
Product A 12 minutes per unit K100 = K1,200
Product B 18 minutes per unit K100 = K1,800
Product c 30 minutes per unit K100 = K3,000
Employee W: (84 K1,200) + (114 x K1,800) + (184 K3,000) = K858,000
Employee X: (240 K1,200) + (152 K1,800) = K561,600
Employee Y: (100 K1,200) = K120,000
Employee Z: (240 K1,200) + (K540 K1,800) = K1,260,000
Only employee Y earns less than 80% of basic pay. Therefore, employee Y will receive a
gross wage of K160,000. ( mark)
(iii)Time Allowed
Hours
Time Taken Time saved
(Hours)
Bonus
(K000)
Guaranteed
Pay
(K000)
Total
Wages
(K000)
152 hrs 38 114 456 228 684
93.6 hrs 36 57.6 154 144 298
50 hrs 40 10 33 200 233
210 34 176 845 245 1,090
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
68/71
68
Workings
(i) Time Allowed
Employee
W: shr15260
30x184
60
18x144
60
12x84
X: hrs.69360
18x152
60
12x240
Y: hrs5060
30100x
Z: hrs210
60
18x540
60
12x240
(ii) Bonus
W:3
2 114 K6,000 = K456,000
W:3
2 57.6 K4,000 = K154,000
Y:3
2 10 K5,000 = K33,000
Z:3
2 176 K7,200 = K845,000
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
69/71
69
Solution 5
(a) The following should be considered when deciding the extent of profit to be taken on uncompleted
contracts:
(i) The successful outcome of the contract should be certain before any interim profit is taken.(ii) Any profits should only be taken in proportion to the work completed to date on the contract.
(iii) Any anticipated overall loss on the contract should be provided for as soon as it is
recognized.
(b) (i)
K000 K000
Materials purchased 44,210 Materials returned 860
Materials in store 3,740 Plant returned 1,300
Site wages 14,400 Prepayment c/d 110Site direct expenses 1,950 Stock at site c/d 1,240
Plant sent to site 4,800 Plant at site c/d 2,050
Architects fees 2,000 Cost of work certified (w1) c/d 70,800
Sub-contract work 6,800 Work in progress c/d 3,710
Head-office o/heads
(12.5% K14,400)
1,800
Accruals c/d 370
80,070 80,070
Workings
(w1)
Total cost of work done = K74,510,000
(Debit total minus credit total)
Cost of work done and not certified is = K3,710,000
Cost of work certified is
K74,510,000 K3,710,000 = K70,800,000
(b) (ii) Profit taken =43 of notional profit x
certifiedworkofValueprogressfrompaymentCash
Where Notional profit = value of work certified cost of work certified.
NP = K81,000,000 K70,800,000
= 10,200,000
Profit Taken =4
3 K10,200,000
81,000,000
0K72,900,00 = K6,885,000
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
70/71
70
Solution 6
DR Process Account CR
Litres K Litres K
Material 5,000 3,880,900 Good Output 3,930 8,072,220
Material Added 2,766,000 Normal loss 150 30,000
Labour 1,311,000 Abnormal
Loss
120 162,480
Overheads 1,494,000 Closing WIP 800 1,187,200
5,000 9,451,900 5,000 9,451,900
DR Abnormal Gain & Loss Account CR
Litres K Litres K
Process Account 120 162,480 Scrap Account 120 24,000
Income
statement
138,480
120 162,480 120 162,480
Workings
LitresInput 5,000
Normal Loss 3% (150)
Expected Output 4,850
Abnormal Loss
(270 150) (120)
4,730
Closing WIP (800)
Good output 3,930
-
7/31/2019 Cost Accounting- June 2010 Dec 2010 and June 2011
71/71
1 Statement of Equivalent Units.
Inputunits
Outputunits
% Material % Materialadded
% Labour % Overhead
5000 Goodoutput
3,930 100 3,930 100 3,930 100 3,930 100 3,930
NormalLoss
150
Abnormal Loss
120 100 120 66 80 33 40 16 20
ClosingWIP
800 100 800 75 600 50 400 25 200
5000 5000 4,850 4,610 4,370 4,150
2. Cost of Equivalent Units
Material =units4,850
200)(150-K3,880,900 K= K794/unit
Material Added =units4,610
K2,766,000= K600/unit
Labour = K300/unit
Overhead = K360/unit
Total cost/Unit = K2,054/Unit
3. Valuation
Good Output = 3,930 units K2,054/unit = K8,072,220
Normal Loss = 150 units K200 / unit = K30,000
Abnormal Loss = (120 794) + (80 x 600) + (40 x 300) + (20 x 360) = K162,480
Closing WIP = (800 794) + ( 600 600) + (400 300) + (200 360) = K1,187,200