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Introduction To Cost Accounting Question Paper
Introduction To Cost Accounting
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2009
UNIVERSITY EXAMINATIONS: 2009/2010
SECOND YEAR STAGE II EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CAA 103: INTRODUCTION TO COST ACCOUNTING
DATE: DECEMBER 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer ALL Questions
QUESTION ONE
a) “I don’t seem to understand what the costs of my business are? Despite our sales revenue
increasing, it doesn’t seem to be translating into real money into the wallet. Ms Rita, the CEO of a Green Grocery in town was heard saying. She has just learned that you are a B. Com
student at KCA University and seeks your help. Clearly and concisely, explain to her what
constitutes to cost to her business (6Marks)
b) Discuss the importance of cost accounting to a small enterprise (7 Marks)
c) Clearly and in detail, discuss how costs may be classified in a real business world (12 Marks)
QUESTION TWO
a) For each of the following procedure, identify the steps in the manufacturing cycles in which it occurs: procurement, Production, Warehousing, or Selling.
i) Materials are requisitioned and transferred to the factory
ii) An order is sent to a supplier to obtain more raw materials
iii) A customer’s order is received and filled
iv) The weekly payroll is recorded
v) Finished goods are placed in appropriate storage areas
vi) New employees are interviewed and hired by the personnel department
vii) Finished goods are shipped to the customer
viii) Manufacturing overhead costs are estimated and charged to product
ix) A shipment of raw materials arrives and is unpacked (9 Marks)
b) Consolidated Lamp Company manufactures desk lamps. The total manufacturing costs for July
2009 are as follows:
i) Raw materials purchased Ksh. 102,340
ii) Raw materials used: direct materials Ksh. 83,005; indirect materials Ksh. 26,715
iii) Factory wages earned Ksh. 138,240
iv) Factory wages allocated: direct labour Ksh. 104,620; indirect labour Ksh. 33,620
v) Other overhead costs incurred Ksh. 29,568 (credit the total to vouchers payable)
vi) Estimated manufacturing overhead costs applied to jobs worked Ksh. 87,829
vii) Finished goods transferred to warehouse Ksh. 271,783
viii) Finished goods sold and shipped to customers Kshs.275,333
ix) Finished goods sold and billed to customers Ksh. 382,257 (selling price)
The general ledger accounts have the following opening balances on July 1, 2009: Raw
materials Ksh. 86,280; Work in process Ksh. 68,837; Finished goods Ksh. 42,090. Assume
selling expenses of Ksh. 49,741; Administrative expenses of Ksh. 21,800; and estimated
corporate taxes of Ksh. 14,153
Required:
a) General journal entries to record each of the costs (9 Marks)
b) Prepare a statement of cost of goods manufactured (4 Marks)
c) Extract the income statement for the month (3 Marks)
QUESTION THREE
a) Milton Company produces a single product. During 2008, 22,000 units were produced and 25,000
units were sold. The following cost and selling price information is given.
Selling price Ksh. 40 per unit
Materials and labour Ksh. 12 per unit
Fixed manufacturing overhead (based on normal production of
20,000 units and annual cost of Ksh. 200,000) Ksh. 10 per unit
Variable overhead Ksh. 2 per unit
Selling and administrative costs (all fixed) Ksh. 200,000 for year
There was no beginning inventory of work in process
Under the cost accounting system used by the company, overhead is applied on the basis of
Ksh. 12 per unit of product. Under applied or over applied overhead is charged to cost of goods sold. The following costs were incurred during the year:
Ksh
Materials and labour 264,000
Variable overhead 44,000
Fixed manufacturing overhead 200,000
Selling and administrative expenses 200,000
The beginning inventory of 6,000 units of product had a cost of Ksh. 24 per unit under
absorption costing. Under variable direct costing the beginning inventory cost would have been Ksh. 14 per unit. FIFO costing is used.
Required:
i). Prepare an income statement for 2008, based on absorption costing (8 Marks)
ii). Prepare an income statement for 2008, based on direct costing (6 Marks)
iii). Prepare an analysis explaining the difference, if any, between the net incomes reported under the two costing approaches (3 Marks)
b) The Today Company produces one product, which is sold at a fixed price of Ksh. 25 per unit. For the year 2008, the company operated at full capacity and a total of 100,000 units were produced and sold. The company’s fixed costs totaled Ksh. 600,000 and the variable costs were Ksh.
1,000,000.
Required:
i) Determine the company’s break –even sales in units and in shillings (5 Marks)
ii) How many units must be sold to make a net income of Ksh. 120,000 (3 Marks)
QUESTION FOUR
Write short notes on the following
a) Relevant costs for decision making (6 Marks)
b) Budgetary control (5 Marks)
c) Zero based budgeting (8 Marks)
d) Allocation base/cost drivers (6 Marks)
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