QUESTION ONE

The Blank Manufacturing Company Ltd. Consists of four production departments and two service departments. For the month of September the direct departmental expenses were as follows:

Production Departments - A, Shs.800; B, Shs.5,600; C, Shs.800; D,Shs.400
Service Department- X, Shs1,800 Y, Shs2,400    

The cost of service departments X and Y are allocated to the other departments on a percentage basis viz:

  A B C D X Y
X 30 20 25 15 - 10
Y 20 30 10 25 15 -

Required

Prepare a statement showing the distribution of the service department expenses.

QUESTION TWO

One of your clients, a jobbing engineer, has hither to based his quotation on cost of material and labour plus a percentage to cover overheads and profit. He has now accepted your advice to relate costs to the departments (A, B, and C) through which the work passes and in pursuance of this policy, to charge overhead to Jobs on the basis of departmental direct labour hours. With your assistance he has produced the following data for the coming year:

Expenses   Proposed basis of departmental apportionment
Rent, Rates and Insurance 6,200 Floor area
Indirect Labour 3,900 Direct labour hours
Depreciation 2,200 Plant valuation
Repairs and Maintenance 1,200 Technical estimate viz: A,Shs.540; B, Shs378; C,Shs.282
Consumable stores 900 Direct labour hours
Canteen 2,000 Number of employees
Work Manager’s salary 2,600 Allocation viz: A,Shs.700; B, Shs.1,100; C, Shs.800
National Insurance 400 Number of employees
General Administration 6,000 Ratio of quotations based on past experience viz: A, 5/12; B, 4/12, C, 3/12



Your client estimates that Department A will work 6,000 direct labour hours in the year; Department B: 4,000; and Department C: 2,000 hours. Wages rates are Department A: Shs.0.5; Department B: Shs.0.45 and Department C: Shs.0.4. The number of employees in each department is: A: 40; Department B: 25; and Department C: 15.

Departmental floor areas are: Department A 15,000 sq.ft; Department B 18,000 and Department C 17,000 sq.ft. The value of plant and machinery used in each department is: Department A Shs.20,000; Department B Shs.18,000 Department C Shs.6,000.

Required

  1. Calculate the hourly overheads rates to be charged for work in each department.
  2. Prepare a quotation for a Job to which the following data relates:
Direct material Shs.774.81
Direct labour:  
Department A 20 hours
Department B 12 hours
Department C 4 hours
Profit 20|% on selling price  


QUESTION THREE

  1. Explain four reasons why costs of operations need to be allocated to various users.(8 marks)
  1. Discuss three main methods used to allocate costs to the various users. (12 marks)

(Total: 20 marks)

QUESTION FOUR

In the context of process costing, define and distinguish between joint products and by-products. (Total: 20 marks)

QUESTION FIVE

  1. Explain four requirements that have to be met for uniform costing to be

appropriately applied: (4 marks)

  1. A company produces three joint products, Yi, Y2 and Y3. The data below reflects average monthly results:
  Y1 Y2 Y3
Monthly output (kg) 40,000 20,000 20,000
Sales Value at split off (shs.) 0 30,000 105,000
Sales Value after Split off 45,000 100,000 155,000
Costs of further processing 20,000 40,000 65,000

The joint costs were Shs.100,000

Required:

Allocate the joint cost using the three methods used to allocate joint costs. (16 marks) (Total: 20 marks)