Questions on Types of Costing


AC Limited is a small company that undertakes a variety of jobs for its customers.

Budgeted Profit and Loss statement For the year ending 31st December 2003

  Shs Shs
Sales   750,000
Direct materials 100,000  
Direct wages 50,000  
Prime cost 150,000  
Fixed production overhead 300,000  
Production cost 450,000  
Selling, distribution and    
Administration cost 160,000 610,000
Profit   Shs.140,000
Budgeted data:    
Labour hours for the year 25,000  
Machine hours for the year 15,000  
Number of jobs for the year 300  

An enquiry has been received and the production department has produced estimates of the prime cost involved and of the hours required to complete job A57.

Direct materials 250
Direct wages 200
Prime cost Shs.450
Labour hours required 80
Machine hours required 50

You are required to

  1. Calculate by different methods six overhead absorption rates:
  2. Comment briefly on the suitability of each method calculated in (a).
  3. Calculate cost estimates for job A57 using in turn each six overhead absorption rates calculated in (a). (Total:20 marks)


Majengo Builders has been engaged to construct a building to serve as the head office for Ushirika Co-operative Society. Construction work commenced on 1 June 2004 and the following information was extracted from Majengo Builders accounting records on 30 November 2004.

Control price 1,500,000
Payment for direct wages 240,000
Accrued wages, 30 November 10,000
Materials issued 275,000
Materials returned to store 2,500
Plant and equipment at cost on 1 June 150,000
Installation costs 125,000
Payment for direct expenses 75,000
Direct expenses accrued, 30 November 5,000
Value of plant and equipment 30 November 100,000
Materials on site, 30 November 27,500
Value of work not yet certified 800,000
Cost of work not yet certified 50,000
Cash received from Ushirika Co-operative Society 750,000


  1. Prepare the Contract Account for the building for the six months to 30 November 2004, as it would appear in the records of Majengo Builders.
  2. Determine the amount to be shown as work-in-progress in the records of Majengo Builders at 30 November 2004. (Total: 20 marks)


The following information relates to contract No.C74 being undertaken by Oceanic Construction Company for the year ended 30 September 1989.

  Shs ‘000’
Materials on hand at site 1 October 1988 900
Payment for direct wages 4,800
Accrued wages not yet paid 30 September 1989 400
Materials on hand at site 30 September 1989 2,600
Payment for direct expenses 6,400
Depreciation expenses on equipment at site 800
Cost of material purchased 37,650
Machinery installation and service costs 2,400
Accrued expenses not yet paid 30 September 1989 600
Detective materials returned to stores 350
Value of work certified 40,000
Cash received from contractee 38,000
Cost of work not yet certified 24,000
Estimated total contract cost 125,000
Contract price 180,000

The contract has been in progress since 1st October 1988.

It is estimated that the contract will be completed within 9 months from 30 September 1989.


  1. Prepare a Contract Account for the year ended 30 September 1989 as it would appear in the records of Oceanic Construction Company.
  2. (Contract profit, if any, is to be credited in the ratio of work certified to work not certified)
  3. Compute the value of work-in-progress at 30 September 1989

(Total: 20 Marks)


Deluxe Paints Limited manufactures a special industrial pain known as “DX3” which undergoes two processes before completion. The following information relates to production undertaken during October 1991.

Process 1 2
Input 20,000 litres ?
  @ Sh.50  
Added costs (Sh. ‘000’)    
Material 460 368.5
Labour 386 304.5
Overhead 165 211.2
Normal loss 10% of input 5% of input
Scrap value Sh.15 per litre Sh.34 per litre
To process 2: 16,000 litres  
To Finished Goods: 13,000 litres  
To work in Progress c/f: 2,000 liters  
Previous Process Costs 100%  
Added material 80%  
Labour 70%  
Overhead 50%  

There was no opening work-in-progress in either of the two processes. Losses in process 2 had the following degree of completion: previous process costs 100%, Added material 70%, Labour 50%, Overheads 40%.


Draw a Process Accounts for both Processes for the month of October. (Total:20 Marks)


Company XYZ Ltd. manufactures a product, which passes through three processes. Given below is data relating to the financial process in the month of November:

Transfer from process 2 10,000 units 300,000
Materials   230,400
Labour   105,600
Overheads   50,400


The normal process loss is estimates at 2%. During the month of November 7,200 units were completed and transferred to finished goods. In addition, 2,000 units remained as work-in-progress whose degree of completion was 60% for materials, labour and overheads. The selling price of normal loss units its estimated at shs.30 per unit.


  1. Calculate the cost of completed units transferred to finished goods.
  2. Calculate the value of work-in-progress at end of November.
  3. Assuming that any units or normal or abnormal loss were sold at a price of SH.30 per unit, show the Abnormal Loss Account, as it would appear after the units are sold. Assume that abnormal loss units are complete in all respects.                    (Total: 20 Marks)