Cost Accounting I Question Paper

Cost Accounting I

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2008

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2007/2008
SECOND SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR
OF COMMERCE

BAC 202:
COST ACCOUNTING I

DATE: Monday, 16th June, 2008

TIME: 8.00 a.m. – 10.00 a.m.
------------------------------------------------------------------------------------------------------------
INSTRUCTIONS:
? Answer ALL questions.
? Show your workings.
? Marks allocated are shown at the end of each question.

QUESTION ONE
a)
Ardhi Company is considering the type of remuneration scheme to adopt for its
employees. The following information is availed to you for your analysis:

Mambo
Saidi
Mbogo
Actual hours worked

38 36 40
Hourly rate of pay (sh.)
30 20 25
Output (units) A 42 120 -
B 72 76 -
C 92 - 50
A B C
Standard time allowed per unit (minutes)
6 9 15

For the calculation of piecework earnings the company values each minute at the
rate of Sh.0.5.
Required:
a)
Calculate the earnings for each employee using:
i)
Basic guaranteed hourly rates

(3 marks)
ii)
Piecework rates

(3 marks)
iii)
Premium bonus, given that an employee earns the premium bonus
at the rate of two thirds of the time saved.
(6 marks)

b)
Ushindi Limited manufactures ornaments for export trade. Jobs are
allocated to two operators, Mbotela and Juma with bonus paid for hours
saved. In the month of February, 2007 Mbotela made 186 units and Juma
made 210 units for which the two allowed of 30 standard minutes and 25
standard minutes per unit respectively was credited.
The basic wage rate was Sh.18 per hour for both employees. For every
hour saved, a bonus was paid at 20% of the basic wage rate. Hours
worked in excess were paid at the basic wage rate plus two thirds.
Mbotela completed his job in 44 hours and Juma completed his job in 39
hours.
A basic week has 40 hours.

Required:

For each operator:

i)
The amount of bonus payable

(2 marks)

ii)
The total gross wage payable

(3 marks)

iii)
The wages cost per unit

(3 marks)

Total: 20 marks)

QUESTION TWO
Central Machinery Ltd is preparing its budget for the year ending 30 June 2008. For the
fuel expenses consumption it is decided to estimate an equation of the form Y = a + bx,
where Y is the total expense at an activity level x, a is the fixed expense and b is the rate
of variable cost.
The following information relate to the year ending 30t June 2008.

Month
Machine
Fuel Oil
Month
Machine
Fuel Oil
Hours
expenses
Hours
Expenses
2007
(‘000’)
(Sh. ‘000’)
2008
(‘000’)
(Sh.’000’
July
34
640
January
26
500
August
30
620
February
26
500
September
34
620
March
31
530
October
39
590
April
35
550

2
November
42
500
May
43
580
December
32
530
June
48
680

The annual total and monthly average figures for the year ended 30 June 2008 are as
follows:

Machine Hours
Fuel oil Expense
(‘000’)
(Sh. 000)
Annual Total
420
6,840
Monthly Average
35
570

Required:
i)
Using the high-low method, estimate and interpret the fixed and variable cost
elements of the fuel oil expense.

(6 marks)
ii)
Using the results in (i) above, predict the fuel oil expenses for November 2008 if
experience indicates that 41,000 machine hours will be used.
(2 marks)
iii)
Briefly explain any two limitations of High-low method of cost estimation that
may be overcome by using linear regression analysis.

(4 marks)
iv)
By using simple linear regression analysis it is established that the coefficient of
determination (r2) arising from the data is approximately 0.25. Interpret the
significance of this fact.

(3 marks)

(Total: 15 marks)
QUESTION THREE
a)
Kenya Ltd has three production departments and two service departments. The
following is their budgeted factory overheads for the year ended 30th September,
2007.

Shs.
Shs.
Production departments:
A

240,000

B

180,000

C

220,000
640,000
Service departments: X

86,000
Y 44,000
130,000

770,000

======

3
The service department costs are to be reapportioned as per the following
percentages:

A

B

C

X

Y

X
20

30

35

-

15

Y
30

30

30

10

-
Required:
Re-apportion the service department costs to the production departments using the
simultaneous equation method.

(10 marks)
b)
You are informed that the overheads are absorbed on the basis of the direct labour
hours and the budgeted direct labour hours for the departments as given below:
Departments A
1,000 hours

B
2,500 hours

C
4,000 hours
Required:
Determine the overhead absorption rates per hour for the three production
departments.

(3 marks)
c)
Bidii Enterprises is located at Kariobangi Light Industries area in Nairobi. The
company manufactures a product ‘Cornex’ which is used in building industry.
The main raw material used in the manufacture of “Cornex’ is material B42000.
Annual requirements:

144,000 units
Ordering costs

Sh.12,500 per order
Annual holding costs:

20% of the purchase price
Purchase price per unit:

Sh.500
Safety stock requirement:

None.
Required:
i)
The economic order quantity

(2 marks)
ii)
The number of orders needed per year

(2 marks)
iii)
Total cost of ordering and holding material B42000
Per year.

(3 marks)

(Total: 20 marks)

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