Cost Accounting Questions
Question on Contract Account
QUESTION ONE
Nacomi Limited manufactures one product. The following information was extracted for the month of October 1997:
| Production in units | 5,000 |
| Sh | |
| Actual cost of direct materials purchased | 5,712,000 |
| Actual direct wages paid | 4,080,000 |
| Variable overheads incurred | 630,000 |
| Fixed overheads incurred | 4,800,000 |
| The variances from standard costs were: | |
| Sh | |
| Direct material usage variance | 144,000 F |
| Direct material price variance | 272,000 A |
| Direct wages efficiency variance | 112,000 A |
| Direct wages rate variance | 120,000 F |
| Variable overhead expenditure variance | 46,000 A |
| Fixed overhead volume variance | 232,000 F |
| Fixed overhead expenditure variance | 360,000 A |
F indicates a favourable variance while A indicates an adverse variance.
Other information:
- The company used only one grade of direct material. Direct materials are purchased in kilograms. Throughout the month, the actual price paid was Sh.8.00 above the standard price per kilogram. The standard material cost of the product is Sh.720 per unit.
- The company employs only one grade of direct labour. During the month, the actual wage rate paid was Sh.68.00 per hour. Three standard hours are required to produce one unit.
- Fixed and variable overhead absorption rates are based upon standard hours produced.
- There were no stocks of materials, work-in-progress or finished goods held at either the beginning or end of the month. There were no process losses
Required:
Calculate for the month of October 1997:
a) The actual quantity of direct material consumed, in kilogrammes (5 marks)
b) The actual price, per kilogramme paid for the material. (5 marks)
c) The actual direct labour hours worked (5 marks)
d) The direct labour hours worked in excess of standard (5 marks)
(Total: 20 marks)
QUESTION TWO
a) Explain the distinction between joint products and by-products. (4 marks)
- Plastico Limited makes plastic bottles through two processes, moulding and finishing. Each bottle takes 1.5 kilogrammes of plastic material. The manufacturing design involves an estimated 5% loss on input in the moulding process but no loss is expected in the finishing process.
The following results are available for the year ended 31 October 1997:
| Input of plastic materials | 7,500 Kg |
| Output of moulded bottles | 4,750 bottles |
| Output of finished bottles | 4,600 bottles |
| Cost of plastic materials | Sh.4.00 per Kg |
| Moulding costs | Sh.24.00 per bottle |
| Finishing costs | Sh.16.00 per bottle |
Required
i) Process accounts for moulding and finishing showing clearly the normal and abnormal
losses. (16 marks)
(Total: 20 marks)
QUESTION THREE
Kazuri Construction Limited is building an extension to a large supermarket in Nairobi. Work on the extension commenced on 1 July 1996.
The information given below relates to the year ended 30 June 1997:
| Sh. | |
| Plant sent to site | 4,000,000 |
| Direct materials received at site | 18,400,000 |
| Direct wages incurred | 14,000,000 |
| Direct expenses incurred | 1,800,000 |
| Hire of crane | 1,600,000 |
| Indirect labour costs | 2,800,000 |
| Supervision salaries | 1,680,000 |
| Consultancy fees | 320,000 |
| Service costs | 720,000 |
| Hire of machinery | 800,000 |
| Overhead incurred on site | 2,400,000 |
| Head office expenses apportioned to contract | 2,800,000 |
| Cash received from contractee | 40,000,000 |
| On 30 June 1997: | |
| Value of plant on site | 3,000,000 |
| Value of work certified | 50,000,000 |
| Cost of work not certified | 10,000,000 |
| Wages accrued | 1,200,000 |
| Service costs accrued | 80,000 |
| Materials unused on site | 1,600,000 |
Required
The contract account for the year ended 30 June 1997 (Total: 20 marks)
QUESTION FOUR
a) Give sound reasons why it is necessary for a business concern to prepare a budget. ( 6 marks)
b) A wholesaling company had the following data for the month of November 1997
| Stocks | 1 November 1997 | 1,300 units |
| Sh. | ||
| Balance of debtors | 1 November 1997 | 700,000 |
| Cash balance | 1 November 1997 | 840,000 |
| Expected credit sales | 4,860,000 | |
| Expected cash receipts | 1,960,000 | |
| Minimum cash balance | 30 November 1997 | Sh.100,000 |
| Stocks balance | 30 November 1997 | 1,700 units |
| Expected sales | 10,000 units | |
| Expected collections from customers | Sh.4,700,000 | |
| Expected cash disbursements | Sh. 1,740,000 |
Required
i) Budgeted purchases (4 marks)
ii) Budgeted debtors (4 marks)
iii) Cash budget (6 marks)
(Total: 20 marks)
QUESTION FIVE
a) Explain the factors to be taken into account when choosing an overhead absorption method. (6 marks)
b) The Reta manufacturing company provided the following data for its operations for 1997:
| Standard costs per product unit: | Sh. |
| Direct material | 60.00 |
| Direct labour | 80.00 |
| Variable overheads | 20.00 |
| Fixed overheads | 40.00 |
| 200.00 | |
| Units | |
| Beginning stock | 20,000 |
| Production | 180,000 |
| Closing stock | 40,000 |
| Sales | 160,000 |
| Selling and administrative expenses: | Sh |
| Variable | 4,000,000 |
| Fixed | 2,000,000 |
| Selling price per unit | 300.00 |
Required
a) Prepare the profit and loss statement using:
i) Absorption – costing method (5 marks)
ii) Direct – costing method (5 marks)
b) A reconciliation of profit/loss figures obtained in (a) above (4 marks)
(Total: 20 marks)
QUESTION SIX
List and explain the factors, which should be considered when setting the standard labour cost of a product (Total: 20 marks)
QUESTION SEVEN
a) Write explanatory notes on the following:
i) Profit center and cost center (5 marks)
ii) Product costs and period costs (5 marks)
b) Explain how management decision influence cost behaviour (10 marks)
(Total: 20 marks)
