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Caa 305: Advanced Cost Accounting Question Paper
Caa 305: Advanced Cost Accounting
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2009
1
UNIVERSITY EXAMINATIONS: 2008/2009
THIRD YEAR STAGE II EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CAA 305: ADVANCED COST ACCOUNTING
DATE: APRIL 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer ALL questions
QUESTION ONE
a) “Although the income statement and the statement of cost of goods manufactured are valuable
in guiding business, they do not supply enough information to achieve the greatest efficiency
and profit under competitive conditions.”
Discuss the purposes of cost accounting in the light of this statement (7 Marks)
b) Briefly, explain the following terms as used in cost accounting highlighting their effect on
decision making if any
i) Cost drivers/allocation base
ii) Cause –and- effect allocation
iii) Joint products
iv) By-products (8 Marks)
c) Afraha Chemicals produces three chemical products, Alpha, Beta and Omega. Raw materials
are processed in a single plant to produce two intermediate products, Sigma and Iota, in fixed
proportions. There is no market for these two intermediate products. Sigma is processed
further through process X to yield the product Alpha, product Iota in converted into Beta by a
2
separate finishing process Y. The Y finishing process produces both Beta and a waste material,
Theta, which has no market value. The company can convert Theta, after additional processing
through process Z, into a saleable by-product, Omega. Afraha Chemicals can sell as much
Omega as it can produce at a price of Ksh. 1.50 per kg.
At normal levels of production and sales, 600,000 kg of common input material are processed
each month. There are 440,000 kg and 110,000 kg respectively, of the intermediate products
Sigma and Iota, produced from this level of input. After separate finishing processes, fixed
proportions of Alpha, Beta and Omega emerge, as shown below with current market prices (all
losses are normal losses):
Product Quantity Market price per kg
Ksh
Alpha 400,000 2.425
Beta 100,000 4.50
Omega 10,000 1.50
At these normal volumes, materials and processing costs are as follows:
Common plant Separate finishing
Facility processes
X Y Z
‘000’ ‘000’ ‘000’ ‘000’
Direct materials 320 110 15 1.0
Direct labour 150 225 90 5.5
Variable overhead 30 50 25 0.5
Fixed overhead 50 25 5 3.0
Total 550 410 135 10.0
Selling and administrative costs are entirely fixed and cannot be traced to any of the three
products.
3
Required:
Calculate the cost per unit of the finished products Alpha and Beta and the total manufacturing
profit, for the month, attributable to each product assuming all joint costs are allocated based
on:
i) Physical units
ii) Net realizable value, and comment briefly on the two methods (10 Marks)
QUESTION TWO
Unga millers operates a manufacturing process where six (6) people work as a team and are
paid a weekly group bonus based upon the actual output of the team compared with output
expected.
A basic 37 hour week is worked during which the expected output from the process is 4,000
equivalent units of a product. Basic pay is Ksh. 5.00 per hour and the bonus of the group,
shared equally, is Ksh. 0.80 per unit in excess of expected output.
In the week ended January 31, 2009, basic hours were worked on the process. The following
additional information is provided for the week:
Opening work in process (1,000 units):
Materials used Ksh. 540 (100% complete)
Labour and overheads Ksh. 355 (50% complete)
During the week:
Materials used Ksh. 2,255
Overheads incurred Ksh. 1,748
Completed production 3,800 units
Closing work in progress (1,300 units):
Materials (100% complete)
Labour and overheads (75% complete)
NB
There are no process losses
The FIFO method is used to apportion costs
4
Required:
a) Prepare the process account for the week ended January 31, 2008 (15 Marks)
b) Explain the purpose of the following documents which are used in the control of, and
accounting for, the materials described if part (a) above
i. Purchase requisition
ii. Materials (store) requisition (10 Marks)
QUESTION THREE
a) The following information was obtained from books of Simba Ltd for its manufacturing
activities for the year ended December 31, 2008
Budgeted direct labour cost: 75,000 hours at Ksh. 16 per hour
Actual direct labour cost: 80,000 hours at Ksh. 17.50 per hour
Budgeted manufacturing overhead: Ksh. 997,500
Actual manufacturing overhead:
Ksh
Depreciation 240,000
Property taxes 12,000
Indirect labour 82,000
Supervisory salaries 200,000
Utilities 59,000
Insurance 30,000
Rental of space 300,000
Indirect material (see data below) 79,000
Indirect material:
Beginning inventory, January 1 48,000
Purchases during the year 94,000
Ending inventory, December 31, 2008 63,000
5
Required:
i) Compute the firms predetermined overhead rate, which is based on direct labour hours
(2 Marks)
ii) Calculate the over-applied or under-applied overhead for the year (7 Marks)
iii) Prepare a journal entry to close out the manufacturing overhead account into cost of
goods sold (6 Marks)
b) “The theory of the experience curve is that an organization may increase its profitability
through obtaining greater familiarity with supplying its products or services to customers.”
This reflects the view that profitability is solely a function of market share.
Discuss the extent to which the application of the experience curve theory can help
organizations to prolong the life cycle of its products and services. (10 Marks)
QUESTION FOUR
“In recent years, writers have argued that standard costing and variance analysis should not be
used for cost control and performance evaluation purposes in today’s manufacturing world. Its
use, they argue, is likely to induce behaviour which is inconsistent with the strategic
manufacturing objectives that companies need to achieve in order to survive in today’s intensely
competitive international economic environment.”
i) Explain the arguments referred to in the above paragraph concerning the relevance
of standard costing and variance analysis (10 Marks)
ii) Explain the arguments in favour of the relevance of standard costing and variance
analysis in modern manufacturing environment (8 Marks)
iii) Suggest the methods that might be used by management accountants to control
costs and evaluate efficiency as alternatives or complements to standard costing
and variance analysis (7 Marks)
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