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Introduction To Cost Accounting (Sunday) Question Paper
Introduction To Cost Accounting (Sunday)
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2011
UNIVERSITY EXAMINATIONS: 2010/2011
FIRST YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
CAA 103: INTRODUCTION TO COST ACCOUNTING (SUNDAY)
DATE: AUGUST 2011 TIME: 2 HOURS
INSTRUCTIONS: Answer ALL Questions
Question one
a) With reference to material cost control, identify the disadvantages of overstocking. (4 Marks)
b) What are the advantages of budgeting (4 Marks)
c) KCA Ltd uses two types of materials Q and R in the production process. The monthly usage and
re-order period for materials Q and R are given below:
Materials Q R
Normal Usage (Kg) 280 252
Minimum usage (kg) 140 126
Maximum usage (kg) 420 378
Re-order quantity (kg) 1050 1008
Re-order period (months) 2 to 3 3 to 4
Required
For each type of material calculate:-
i. Re-order level (3 Marks)
ii. Minimum stock level (3 Marks)
iii. Maximum stock level (3 Marks)
iv. Average stock level (3 Marks)
d) Company XYZ Ltd has a constant monthly demand of 8000 units of product T. The purchase price
of product T is sh. 20 per unit. A lead time of four days is required from the date of order to the
date of delivery of the component. Ordering cost is sh. 60 per order while the holding cost is 10%
per annum.
Required
i) Calculate the total holding and ordering cost of the component per annum (4 Marks)
ii) (e) Describe the main features of contract costing (6 Marks)
(Total 30 Marks)
Question Two
a) Explain the sequence in preparing a masters budget (5 Marks)
b) In response to their bankers demand USIU Ltd have assembled the following data for cash flow forecast purposes.
Forecast
Sales (shs) Purchases (units)
2011 May 300,000 7,250
June 300,000 7,250
July 560,000 13,500
August 820,000 36,500
September 960,000 25,000
October 630,000 22,500
November 630,000 12,500
December 520,000 8,000
On the basis of past experience, 50% of the customers settle their account with the month of sale , 30%
of the month of sale and the balance in the third month.
Suppliers are paid in full the month following the month of purchase.
The current purchase price which is expected to go up by 20% from July 2011 is shs 25 per unit.
Obligation to pay under lease of shs 75,000 per month is due at the commencement of each quarter.
3
Monthly wage bill is expected to be shs 80,000 a month. Interest on shs 800,000, 10% debenture
stock is due at the end of September 2011 while the 2010 provisional corporate tax estimated at shs
60,000 is due in August 2011. A national depreciation charge of shs 15,000 will continue to be charged
in the company’s book. Bank balance is expected to be shs 100,000 at 30th June 2011 and it is the
company’s desire to maintain the same as its minimum banks balance. Bank overdraft is available at
25 % per annum on the first day of the month of approval.
Required
a) Sales and cash receipt schedule for the four months July to October 2011. (3 Marks)
b) Purchases and cash payments schedule for four months July to October 2011 (2 Marks)
c) Monthly cash forecast in columnar format for the three months July to September 2011
showing the financing required. (10 Marks)
(Total 20 Marks)
Question Three
a) Explain the difference between flexible budget and static budget. Briefly explain the advantages of
flexible budget. (4 Marks)
b) Nabii Ltd has budgeted to produce 10,000 units during the month of March 2009. The following
overhead variable budget has been prepared by the accountant for the 10,000 units.
£
Indirect material 4,000
Lubricants 1,000
Power 3,000
Fixed cost 2,000
The relevant range is Kshs 8,000 to 11,000 units. The production goal of 10,000 units is not met and
the company was able to produce only 9400 units during the month and incurred the following costs.
Indirect material £3800
Lubricants £950
Power £2900
Fixed cost £3000
Required
i. Prepare a static performance report (2 Marks)
ii. Prepare a flexible performance report (2 Marks)
iii. Comment on the results of the two budgets (2 Marks)
c) Explain any four features of a standard costing technique (4 Marks)
d) Company ABC Ltd produces a single product. Variable manufacturing overhead is applied to
products on the basis of direct labour hours. The standard cost for a unit product are as follows:-
Shs
Direct material 6 kg at Shs. 0.5 3
Direct Labour 1.8 hrs at 10 per hour 18
Variable manufacturing overheads: 1.8 hrs @ Shs 5 9
30
During July 2009, 2000 units were produced . The cost associated with July’s Operation were as
follows:-
Materaial purchased : 18000kg at Shs 0.6 10,800
Material used in production 14000 kg -------
Direct labour 4000 hrs @ 9.75 per hour 39,000
Variable manufacturing overhead cost incurred 20,800
Required
i. Direct material variances (3 Marks)
ii. Direct Labour variance (3 Marks)
iii. Variable manufacturing variances (3 Marks)
(Total – 20 Marks)
Question Four
a) Explain the concept of ‘make or buy decision’ in Cost accounting disciplines (2 Marks)
b) Han products manufactures 30,000 units of part S-6 each year for use on its production line. At this
level of activity , the cost per unit for part S-6 is as follows:-
£
Direct materials 3.60
Direct labour 10.00
Variable manufacturing overhead 2.40
Fixed manufacturing overhead 9.00
Total cost per part 25.00
An outsider supplier has offered to sell 30,000 units of part S-6 each year to Han Products for £21 per
part. If Han Product accepts this offer , the facilities now being used to manufacturer part S-6 could be
rented to another company at an annual rent of £80,000. However Hans Product has determined that
two-thirds of the fixed manufacturing overhead being applied to part S-6 would continue even if part
S-6 were purchase from outside supplier.
Required
i) Should Hans Products accept or reject supplier offer. Show your workings (8 Marks)
c) Write brief notes on the following:-
i. Cost ascertainment (2 ½ Marks)
ii. Costing method (2 ½ Marks)
iii. Costing techniques (2 ½ Marks)
iv. Costing systems (2 ½ Marks)
(10 Marks)
(Total – 20 marks)
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