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Introduction To Cost Accounting Question Paper
Introduction To Cost Accounting
Course:Diploma In Business Management
Institution: Kca University question papers
Exam Year:2009
UNIVERSITY EXAMINATIONS: 2009/2010
STAGE IV EXAMINATION FOR DIPLOMA IN BUSINESS MANAGEMENT
DAA 103: INTRODUCTION TO COST ACCOUNTING
DATE: DECEMBER 2009 TIME: 1½Hours
INSTRUCTIONS: Answer Any THREE Questions
QUESTION ONE (20 MARKS)
a) Outline the benefits of maintaining an efficient stock control system. (5 Marks)
The following are the stock movements of stock item SM12:
Receipts Issues
(units) (units)
01 April 1,000 at sh7 each
06 April 1,500 at sh8 each
10 April 900
14 April 2,000 at sh9 each
15 April 2,600
22 April 2,000 at sh9.50 each
27 April 3,100
The stock as at 31 March was 800 units valued at sh 6 each.
Required:
b) Prepare stock cards for stock item SM12, showing the value of EACH of the two issues and the
value of closing stock using EACH of the following stock pricing methods:
i). FIFO
ii). LIFO
2
iii). Weighted average method (15 Marks)
QUESTION TWO (20 MARKS)
The following data relates to three employees who work for a company which operates a premium
bonus system, where a bonus is paid equal to half time saved, i.e. the Halsey system.
Employee A B C
Time allowed (hours) 41 42 42
Time taken (hours) 37 38 37
Basic hourly rate sh9.00 sh9.00 sh9.00
Note – there is no overtime premium.
Required:
a) Calculate the gross wages for each employee. (9 Marks)
b) Explain the benefits of operating such an incentive scheme to a company. (8 Marks)
c) Define “overtime premium”. (3 Marks)
QUESTION THREE (20 MARKS)
Mauzo Ltd has four production departments; Designing, Machining, Welding, and Assembling. The
budgeted overheads of the company were fixed as follows as at 1 January 2007
Department Budgeted overheads Overhead absorption base
Sh.
Designing 960,000 Labour hours (budgeted 80,000 hours)
Machining 2,760,000 Machine hours (budgeted 200,000 hours)
Welding 1,200,000 Labour hours (budgeted 40,000 hours)
Assembling 600,000 Labour hours (budgeted 30,000 hours)
Additional information
1. Selling and administrative overheads are 20% of factory cost.
2. At the beginning of May 2007, the company received a batch order of the company’s products.
The company estimated to incur the following costs in relation to this batch
• Materials sh. 37,000
• Labour:
3
128 hours of designing at sh. 27 per hour
492 hours of machining at sh. 30 per hour
90 hours of welding at sh. 27 per hour
175 hours of assembling at sh. 20 per hour
• Direct expenses sh. 6,350
3. The company charges customers a mark-up of 331/3 % on cost per unit
Required:
(i) The overhead absorption rate for each department (12 Marks)
(ii) The total cost of the batch (6 Marks)
(iii) The selling price per unit if the batch order was for 125 units (2 Marks)
QUESTION FOUR (20 MARKS)
Marcus Ltd. makes a chemical product and uses process costing. The following details relate to the
month of February 2007:
PROCESS ONE Input 5,000 litres of chemical A at sh0.90 per
litre
300 direct hours at sh4 per hour
Overhead cost sh2,650
4,750 litres transferred to Process 2
In Process 1 there is a normal loss of 5% of input – it has no scrap value.
PROCESS TWO Input 4,750 litres from Process One.
1,150 litres of chemical B at sh1.50 per
litre
200 direct hours at sh3.75 per hour
Overhead cost sh3,900
5,605 litres were transferred to finished
stock
There was no work in progress
In Process 2 there is a normal loss of 5% of input – it has no scrap value.
Required:
a) Complete the process account for Process 1. (8 Marks)
b) Complete the process account for Process 2. (8 Marks) [8
4
c) Distinguish between a normal and abnormal loss. (4 Marks)
QUESTION FIVE (20 MARKS)
a) Butterworth Acoustics is a manufacturer of loudspeakers and has spare productive capacity which
it is seeking to utilise with the introduction of a new model – the Borabora
You have been provided with the following information which relates to the product Borabora:
Sh
Selling Price per unit 20.00
Direct Material Cost per unit 6.50
Direct Labour Cost per unit 5.50
Fixed Overheads per month 16,800
Required:
i. Calculate the unit contribution for product Borabora. (3 marks)
ii. Calculate the break-even point for product Borabora. (3 marks)
iii. Calculate the profit-volume (PV) ratio. (3 marks)
iv. Calculate how many units of product Borabora must be sold to make a profit of Sh12,000.
(3 marks)
b) Differentiate between the following terms:
(i) Fixed costs and marginal costs (2 marks)
(ii) Discretionary costs and period costs (2 marks)
(iii) Cost tracing and cost accumulation (2 marks)
(iv) Sunk costs and standard costs (2 marks)
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