Nacomi Limited manufactures one product. The following information was extracted for the month of October 1997:

Production in units 5,000
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:  
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:

  1. 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.
  2. 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.
  3. Fixed and variable overhead absorption rates are based upon standard hours produced.
  4. 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


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)


a) Explain the distinction between joint products and by-products. (4 marks)

  1. 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


i) Process accounts for moulding and finishing showing clearly the normal and abnormal

losses. (16 marks)

(Total: 20 marks)


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:

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


The contract account for the year ended 30 June 1997 (Total: 20 marks)


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
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


i) Budgeted purchases (4 marks)

ii) Budgeted debtors (4 marks)

iii) Cash budget (6 marks)

(Total: 20 marks)


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
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


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)


List and explain the factors, which should be considered when setting the standard labour cost of a product (Total: 20 marks)


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)