QUESTION ONE

1. From the following, prepare a schedule highlighting;

  • Prime cost
  • Production cost
  • Total cost
    Sh.
(i) Expenses of the administration function 60,000.00
(ii) Materials used in producing products 220,000.00
(iii) Depreciation in Sh.  
  Office equipment 5,000.00  
  Machinery (production) 29,000.00  
  Delivery vans 18,000.00  
  Show rooms 6,000.00 58,000.00
(iv) Direct labour costs incurred 155,000.00
(v) Indirect factory expenses 17,000.00
(vi) Wages of truck driver 30,000.00
(vii) Salaries and expenses of salesmen 100,000.00
(viii) Salaries of the administration staff 40,000.00
(ix) Salaries of the production staff 30,000.00
(x) Expenses of delivering goods 50,000.00

(16 marks)

QUESTION TWO

Papermaking Ltd. Makes paper which is cut and packed before being transferred into the finished goods store. The paper is moved from department to department by a fork lift truck. Each pack of finished product contains one ream of paper. The paper is loaded onto wooden pallets before delivering to customers. The following cost information related to papermaking Ltd. For period ended 31st March 19x4

  Sh.
Pulp 100,000.00
Clay 40,000.00
Wrapping paper (used in packing dept.) 3,500.00
Spare knives for cutting machines 800.00
Cleaning rags for machines 500.00
Royalty payments 10,000.00
Making dept. wages to packages 38,000.00
Cutting dept. wages for machine crew 26,000.00
Packing dept. wages to packages 20,000.00
Fork lift truck driver wages 8,000.00
Factory managers salary 11,000.00
Wooden pallets 3,600.00
Dispatch dept. wages 17,000.00
Delivery vehicle driver wages 9,600.00
Sales managers salary 17,500.00
Advertising cost 16,500.00
Sales office wages 18,500.00
General Managers salary 30,000.00
Production managers salary 21,500.00
Maintenance fitter wages 25,000.00
Maintenance workshop costs 17,000.00
Maintenance engineers salary 18,000.00
Administration salaries 45,000.00
Electricity costs (See note 1) 18,000.00
Administration office machine rental 1,000.00
   
Sundry other costs;  
Production 33,000.00
Administration 42,000.00
Selling 11,000.00
Distribution 16,000.00
   

Note 1

Electricity is charged to each function area as follows; production 75%, administration 5%, selling 5%, distribution 15%.

Note 2

Maintenance costs should be totaled before a cost summary is prepared and charges to each function making use of the maintenance service as follows; production 80%, administration 3%, selling 3%, distribution 14%.

Required

  • Prepare a cost summary for the period ended 31 March 19x4 analyzing costs into
  • prime costs, production costs and total cost.
  • (Give all subtotals of classified costs). (24 marks)

QUESTION THREE

Lorenzo Company operates a brushless car wash; incoming vehicles are put on an automatic, continuously moving conveyer belt. Cars are washed as the conveyor belt carries the car from the start station to the finish station. After the car moves off the conveyor belt, it is dried manually. Workers then clean and vacuum the inside of the car. Workers are managed by a single supervisor. Lorenzo serviced 80,000 cars in 2000.

Lorenzo reports the following costs for 2000:

Account description Costs (sh)
Car wash labour 240,000,000
Soap, cloth and supplies 32,000,000
Water 28,000,000
Power to move conveyor belt 72,000,000
Depreciation 64,000,000
Supervision 30,000,000
Cashier 16,000,000

Required

  1. Classify each account as variable or fixed with respect to cars washed.
  2. Lorenzo expects to wash 90,000 cars in 2001. Use the cost classification you developed in (a) to estimate Lorenzo’s total costs in 2001.
  3. Calculate the average cars of washing a car in 2000 and 2001. (Use the expected 90,000 car wash level for 2001)

QUESTION FOUR

The following data has been provided by a catering company that prepares banquets and parties for both individuals and business functions through the year. The data indicates that overhead expenses vary with the direct labour hours expended.

Month       Labour hours        Overhead costs(sh.)

January       2,500                    55,000

February     2,700                   59,000

March         3,000                    60,000

April            4,200                   64,000

May             4,500                   67,000

June             5,500                  71,000

July              6,500                  74,000

August        7,500                  77,000

September   7,000                75,000

October        4,500                68,000

November     3,100              62,000

December     6,500              73,000

Total              57,500             805,000

Required

  1. Using regression analysis, calculate the variable cost per person for a cocktail party, if the following additional information is given. The cost structure on a person basis is;
    • Food and beverages sh.15.00
    • Labour (0.5) 5.00
  1. The company has asked you to prepare a bid for a 200 person cocktail party to be given next month. Determine the minimum bid price the company would be willing to submit to earn a profit.
  1. Compute the value of: (i) r and(ii) r squared. Explain the significance of the values giving their names.

QUESTION FIVE

CMB Company has budgeted factory overhead for four volumes of operations as follows:

  Machine hours
Costs (sh) 5,000 6,000 7,000 8,000
Indirect labour 2,100 2,400 2,700 3,000
Insurance 600 600 600 600
Depreciation 1,000 1,200 1,400 1,600
Utilities 2,000 2,300 2,400 2,900
Total 5,700 6,500 7,100 8,100

Required

  1. Indicate whether each of the four overhead cost budgeted is fixed, variable or semi variable
  1. Using the high low method, determine the cost estimating formula for each of the four factory overhead costs.