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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:2010
UNIVERSITY EXAMINATIONS: 2009/2010
FIRST YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
CAA 103: INTRODUCTION TO COST ACCOUNTING (SUNDAY)
DATE: AUGUST 2010 TIME: 2 HOURS
INSTRUCTIONS: Answer ALL questions
QUESTION ONE
a) What costs are involved in the manufacture of a product? How are these costs classified?
(5 Marks)
b) Explain the three main inventory accounts of a manufacturing enterprise (3 Marks)
c) Is the total cost of raw materials used charged to work in process? If not, explain (3 Marks)
d) Why is it possible under the process cost system to charge indirect material and indirect labour in
a production department to work in process instead of manufacturing overheads? (5 Marks)
e) Explain the four main cost categories when costs are classified according to their behavior.
(9 Marks)
QUESTION TWO
a) During the month of June 2010, 3,900 units of production were started in the machining
department of Kaluu manufacturers, of which 3,700 were completed. Of the 3,700 completed
units, 80 are still on hand in the department and have not been physically transferred to the next
department. There are also 200 units still in process; they are estimated to be 65% complete as
to labour and overheads. Labour for the month was Ksh. 2,719,300.
i) What is the total labour cost applicable to the 3,620 units transferred to the next department?
(6 Marks)
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ii) What is the labour cost applicable to the 80 units completed and still on hand? (3 Marks)
iii) What is the labour cost applicable to the 200 uncompleted units on hand? (4 Marks)
b) The finishing department of Mapambano Enterprises had no beginning work in process
inventory. During the month of May 2010, 6,500 units were transferred in from prior
department. Of this amount, 6,000 were completed by the end of the month and transferred to
finished goods. The ending work in process inventory was 100% complete as to materials and
40% complete as to labour and 30% complete as to overheads.
i) What are the equivalent units of production for materials (4 Marks)
ii) What is the equivalent production for labour (4 Marks)
iii) What are the equivalent units of production for overheads (4 Marks)
QUESTION THREE
a) Prince, a student at KCA University, has just started a part time business of construction and
selling ladders. He plans to charge an average of Ksh. 5,000 for each ladder. He estimates that
his variable costs for materials, labour and supplies will be Ksh. 3,000 for each ladder. His
fixed costs are estimated to be 30,000 per month, including manufacturing overhead and
operating expenses.
i) Compute the contribution margin per ladder and use that amount to compute the break
even volume expressed in ladders (3 Marks)
ii) If sales total 50 ladders during the month of June 2010, what will be the total
contribution margin? Show computations (3 Marks)
iii) If Prince constructs and sells 50 ladders per month, what will be his estimated net
income? (3 Marks)
iv) If Prince’s goal is to earn a Ksh. 60,000 per month, how many ladders will he have to
construct and sell each month? ( 4 Marks)
b) A company’s contribution margin is 40%. A proposal has been made to install certain
equipment that would result in an increase of Ksh.40,000 per year in fixed costs but would
increase the contribution margin (through a decrease in variable costs) to 44%. Existing fixed
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costs Ksh. 200,000 per year. What increase in sales volume would be necessary in order to
justify purchasing the equipment? (6 Marks)
c) If in a given year the number of units of product manufactured exceeds the number of units sold,
is the reported net income likely to be larger under absorption costing or under direct costing?
Explain (6 Marks)
QUESTION FOUR
a) What do you understand by the term budgetary control? (3 Marks)
b) Critically, discuss the factors considered in developing a sales budget. Do you agree or disagree
that developing a sales budget is the most critical stage in the budgeting cycle? Explain
(10 Marks)
c) Qualtech Manufacturing Company has projected its sales of Classic Smoker grills to be 12,000
units during the year 2010. At the beginning of 2010, the company will have 1,400 Smoker
grills in stock, but the controller and purchasing manager have decided that the number of units
in the raw materials inventory, must be decreased by 30% by end of 2010. One of the parts
required for each grill is Smoking pot. At the start of 2010, the company expects to have 1,000
Smoking pots in raw materials inventory. The recorded cost of the 1,000 units is Ksh. 48 each.
During 2010, it is anticipated that the cost of raw materials will rise by 2.5% per unit.
i) How many pots will be required for production in 2010? (4 Marks)
ii) How many pots will be purchased in 2010? (4 Marks)
iii) What will be the total budgeted cost of the pots to be purchased in 2010 (4 Marks)
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