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Cost Accounting Question Paper

Cost Accounting

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2009

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2008/2009
SECOND SEMESTER EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE

BAC 404: COST ACCOUNTING

DATE: Tuesday
25th August 2009
TIME: 8.00am-10.00am
------------------------------------------------------------------------------------------------------------
INSTRUCTIONS:
• Answer all questions
• Show all your workings
• Make allocated are shown at the end of each questions
Question One
Solai Ltd is a manufacturing Company that requires component GLB 50 in one of its
production lines. The components are bought from outside suppliers. From past
experience, the company has determined that the demand for the components can be
approximated by a normal distribution with a mean of 500 and a standard deviation of 10,
over the range 470 to 530.

There is an initial stock of 2000 components and the company has decided to order in
batches of 2,500 where never the stock level falls below 1,500 components. Again past
experience indicated that the time between the order being placed and delivery levels as
follows.

Lead time distribution
Lead
time
(weeks)
1

3 3 4
Page 1 of 5

Probability
0.20
0.50
0.25
0.05
The unit cost of holding stock is Ksh 5 per week applied to the total stock held at the end
of each week. The cost associated with placing an order is Ksh 500 and the unit cost of
being out of stock is Kshs 200 per week. The company does all its accounting at the end
of the week and all ordering and delivery occur at the beginning of a week.
Required
Estimate the average cost per week of the above policy, using simulation analysis and the
following random numbers
For demand: 034743738636964736614698
6371623326168044560111410959
7742467662
For lead time: 957310765174
Hint:
• Use 15 trial runs
• Round off the demand probability to 3 decimal places and estimate in ranges of 5.
[Total

20marks]
Question Two
Large service organization, such as banks and hospitals, used to be noted for their lack of
standard costing systems, and their relatively unsophisticated budgeting and control
systems compared to the practice in large manufacturing organizations. But this is
changing and many large service organizations are now revising their use of management
accounting techniques.
Required:
a)
Explain the features of large service organizations that encourage the application
of
activity based approaches to the analysis of cost information.
[4marks]
b)
Explain which features of service organizations may create problems for the
application
of
activity
based
costing.
[4marks]
c)
ABC Ltd is a manufacturing company that makes only three products x, y, and z.

Data for the period ended last month are as follows:

X

Y

Z
Page 2 of 5

Units produced and sold

12,000
16,000
8,000

Kshs
Kshs
Kshs
Sales
price
per
unit
(Kshs)
50
70
60

Direct material cost per unit (Kshs)
16

24

20

Direct labour cost per unit
(Kshs)
8 12
8

Total
cost
drivers

Kshs
Production Overheads costs
102,000
Machine hours
Production scheduling

84,000
Machine hours
Set-up costs

54,000
Number of production runs
Quality control

49,000
Number of production runs
Receiving materials

64,000
Number of component receipts

Packing materials

36,000
Number of customer orders
Information on the cost drivers is given as follows:

X

Y

Z

Direct
labour
hours/unit
1 1.5
1
Machine
hours/unit
½

1 1.5
Number
of
components
unit
3 5 8
Number
of
components/receipt 18
20
10
Number
of
customer
orders
6 20
10
Number
of
production
runs
6 16
8
Required:
Using activity based costing, show the cost and gross profit per unit for each product
during
the
period.
[12marks]

Total 20mark

Question Three

a)
Distinguish between joint products and by products.

[3marks]
b)
A process costing Kshs 200,000 produces 3 products- A, B, and C. Output details
are as follows:
Product
A
- 6000
litres
Page 3 of 5

Product
B
- 10000
litres

Product
C
- 20000tonnes

Each product may be sold at the completion of the process as follows:
Product Sales
value

Kshs
A
Kshs
10/Litre

B

Kshs 4/Litre

C

Kshs 10/tonne
Alternatively further processing of each individual product can be undertaken to
product and enhanced product thus:
Enhanced product Subsequent
processing
cost

Sales value after

Final process
A
Kshs
14/Litre
Kshs
20/Litre
B
Kshs
2/Litre
Kshs8/Litre
C
Kshs
6/tonne
Kshs
16/tonne
Required:
Allocate the joint cost to the joint products using the constant Gross Margin Rate
Method. [12marks]

Total 15marks

Cost Accounting Question Paper

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