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Caa 103: Introduction To Cost Accounting Question Paper
Caa 103: Introduction To Cost Accounting
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2012
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UNIVERSITY EXAMINATIONS: 2011/2012
YEAR I EXAMINATION FOR THE BACHELOR OF COMMERCE
CAA 103: INTRODUCTION TO COST ACCOUNTING (DAY & EVENING)
DATE: APRIL 2012 TIME: 2 HOURS
INSTRUCTIONS: Answer ALL Questions
QUESTION ONE
Tindo Ltd buys and sells product Q-3. It values sock on the basis of last in first out (LIFO). At 1 June
2001, stock in hand consisted of 4,500 units which were acquired at Sh.50 per unit. The operations for
the month were as follows:
Date Purchases Sales
June1 5,000 @ Sh 48
4 6,000 @ Sh 60
5 5,500 @ Sh 49
7 4,000 @ Sh 50
11 7,000 @ Sh 61
12 5,000 @ Sh 50
13 6,000 @ Sh 47
18 7,000 @ Sh 62
19 8,000 @ Sh 64
20 6,000 @ Sh 49.50
21 5,000 @ Sh 65
22 7,000 @ Sh 50
25 6,000 @ Sh 49
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26 2,000 @ Sh 47
28 500 @ Sh 60
29 14,000 @ Sh 64
The company incurred operating costs of Sh 450,000 during the month.
Required:
a) Stores ledger card (14 Marks)
b) Closing stock valuation (2 Marks)
c) Trading account for the month (4 Marks)
(Total 20 Marks)
QUESTION TWO
BCD Ltd manufactures office and household furniture to customers’ specifications. Because of the
specialized nature of the manufacturing process, each job is treated separately for costing purposes.
There are two stages in the manufacture of each item namely, Assembly and Finishing. In the assembly
department, overheads are absorbed on the basis of prime cost incurred in that department; overheads
are absorbed on the basis of prime cost incurred in that department. In the finishing department,
overheads are absorbed on the basis of total accumulated cost on the job in both the two stages
inclusive of overhead absorbed in assembly. The selling price of the item is then determined by
applying the usual 40% margin.
The following information is provided about budgeted data for the next financial period:
Assembly Finishing
Materials ksh. 480000 300000
Overheads ksh 594000 418500
Labour cost ksh 180000 120000
Labour hours 3000 1500
Required:
a) Calculate the overhead absorption rates for each production process. (4 Marks)
b) Job no. 148 shows the following data concerning its production:
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Assembly Finishing
Materials shs 5000 3500
Labour cost shs 2700 1600
Labour hours 12 4
Required:
Prepare the cost statement for this job and indicate the proposed final selling price. (4 Marks)
The following data relates to the actual manufacturing operations as accumulated for the whole
financial period:
Assembly Finishing
Overhead incurred shs 660000 450000
Material shs 530000 288000
Labour costs shs 200000 135000
Labour hours 3450 1650
Required:
c) Calculate the amount of overhead over applied or under applied for the company as a whole.
(4 Marks)
d) Comment on the overhead absorption rates used by the company in light of the results obtained in
(c) above. (3 Marks)
(Total 15 Marks)
QUESTION THREE
a) State and briefly explain three assumptions underlying the break-even theory. (3 Marks)
b) Jamii Company Ltd manufactures and sells a single product. The following information regarding
the company’s operations for the year ended 30 September 2001 was presented to you.
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Profit and loss account for the year ended 30 September 2001
Sh’000 Sh’000
Sales 30,000
Less:
Production costs
Direct material 6,500
Direct labour 5,400
Production overhead variable 7,000
Prime costs 18,900
11,100
Other expenses:
Selling – Variable 2,600
- Cost 1,997
Administration 2,100 6,697
Net profit 4,403
The following changes are expected to occur during the year ending 30 September 2002:
1. Selling price will be adjusted downward by 3% in order to attract more customers.
2. Material prices will rise by 2% due to inflation.
3. There will be a reduction in labour cost of 4%.
4. Production overheads will increase by 3%.
5. Increase in the efficiency of sales persons will reduce direct selling costs by 5%.
All other factors are expected to remain constant.
Required:
a) Break-even point in sales value (4 Marks)
b) The margin of safety in sales value (2 Marks)
c) The sales value at which profit of Sh 4.5 million will be achieved (2 Marks)
d) A summary operating statement that shows the net profit of Sh 4.5 million in
(c) above. (4 Marks)
(total 15 Marks)
QUESTION FOUR
XYZ Ltd. carries on its business in Nairobi. The company has been reporting its profits using
absorption costing system. During the financial year ended 30 September 2005, the following
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summary statement was provided:
Shs. Shs.
Sales (4,000 units) 5,000,000
Production cost of sales:
Variable 3,000,000
Fixed 1,000,000 (4,000,000)
Gross profit 1,000,000
Expenses:
Variable 800,000
Fixed 800,000 (1,600,000)
Net loss (600,000)
Currently the company is implementing strategies to improve its profitability, which are to be
implemented in two phases; A and B. Each phase will cover a period of six months.
The expected production and sales in units for each of the phases are shown below:
Phase A Phase B
Units Units
Production 2,500 3,000
Sales 2,400 2,900
The fixed costs are expected to increase by 20% while the variable costs per unit will remain as they
were in the previous period. The selling price per unit will be Shs. 1,500.
Required:
a) Profit and loss statements for phases A and B using:
i. Marginal costing. (6 Marks)
ii. Absorption costing (6 Marks)
b) Briefly explain the differences resulting from the two methods employed in (a) above of reporting
profits. (1 Mark)
c) Reconcile the resulting difference in the reported profit under the two methods. (2 Marks)
(total 15 Marks)
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