Cost Accounting Questions
Questions on Types of Costing
QUESTION ONE
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 | |
| Costs: | ||
| 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.
| Shs | |
| Direct materials | 250 |
| Direct wages | 200 |
| Prime cost | Shs.450 |
| Labour hours required | 80 |
| Machine hours required | 50 |
You are required to
- Calculate by different methods six overhead absorption rates:
- Comment briefly on the suitability of each method calculated in (a).
- Calculate cost estimates for job A57 using in turn each six overhead absorption rates calculated in (a). (Total:20 marks)
QUESTION TWO
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.
| Shs | |
| 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 |
Required
- 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.
- Determine the amount to be shown as work-in-progress in the records of Majengo Builders at 30 November 2004. (Total: 20 marks)
QUESTION THREE
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.
Required
- Prepare a Contract Account for the year ended 30 September 1989 as it would appear in the records of Oceanic Construction Company.
- (Contract profit, if any, is to be credited in the ratio of work certified to work not certified)
- Compute the value of work-in-progress at 30 September 1989
(Total: 20 Marks)
QUESTION FOUR
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 |
| Output: | ||
| 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%.
Required
Draw a Process Accounts for both Processes for the month of October. (Total:20 Marks)
QUESTION FIVE
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:
| Shs | ||
| 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.
Required
- Calculate the cost of completed units transferred to finished goods.
- Calculate the value of work-in-progress at end of November.
- 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)
