Cost Accounting Questions

QUESTION ONE

The following transactions relate to item A101 stocked by Excel Products Ltd. for the month of September 1996:

Receipts:

Issues

The closing balance for the month of August 1996, was a batch of 3,000 units received at a unit price of Sh.20.

Required

Under FIFO system of stores issues, a stores perpetual inventory record for item A101.

(Total: 20 marks)

QUESTION TWO

a) What assumptions under lie the break-even analysis? (9 marks)

1. Target Products Ltd. Has just been incorporated and plans to produce a product to

retail at Sh.20 per unit. The company has a choice of installing Machine A or B each

of which has an annual production capacity of 10,000 units.

Machine A could attract fixed costs of Sh.50,000 per annum and would yield a profit of Sh.50,000 per year if sales hit the 10,000 units target.

Machine B could attract a fixed cost of Sh.24,000 per year and would yield a profit of Sh.36,000 per annum with a sales level of 10,000 units.

Variable costs vary directly with production for both machines.

Required

a) Break-even sales for each machine. (3 marks)

b) The sales level at which both machines are equally profitable (4 marks)

c) The range of sales where one machine is more profitable than the other (4 marks)

(Total: 20 marks)

QUESTION THREE

Intercom Products Ltd. manufactures a number of products. The following data relates to

one of its products for the month of November 1996:

However, the company’s budgeted production and sales for the month were 1,200,000 units but only 1,000,000 units were produced, out of which only 900,000 were sold.

The company’s unit standard cost for the product is as follows:

	Sh	Sh.
Direct materials		5.00
Direct Labour		3.00
Overheads:
- Variable	2.00
- Fixed	1.50	3.50
Selling and administration:
- Variable	1.00
- Fixed	1.50	2.50
Profit margin		1.00
Unit selling price		15.00

It is the company’s policy to value stock at standard cost. There were no opening or closing stock of work-in-progress.

Required

a) Profit and loss statement under total costing (6 marks)

b) Profit and loss statement under direct costing (6 marks)

c) A reconciliation of profits obtained in (a) and (b) above. (4 marks)

d) Explanation of the difference in profits or losses obtained in (a) and (b) above.

(4 marks)

(Total: 20 marks)

QUESTION FOUR

Southend Quarries Ltd. crushes and refines mineral ore into three products in a joint operation. For the year to 31 May 1996, the cost and production figures of the company were as follows:

Department A: Initial joint costs Sh.4,200,000 producing 100,000 Kg. of Classic;

300,000 Kg of deluxe and 500,000 Kg of standard..

Department B: Process Classic further at a cost of Sh.2,000,000.

Department C: Process Deluxe further at a cost of Sh.3,000,000.

Results achieved for the year under reference were:

Classic: 100,000kg completed; 95,000kg sold for Sh.200 per Kg; final stock

5,000Kg.

Deluxe: 300,000Kg. Completed; 295,000Kg sold for Sh.5 per Kg,; final stock

5,000Kg.

Standard: 500,000Kg completed; 495,000 Kg sold for Sh.20 per Kg; final stock

5,000Kg. It required no further processing.

Required

a) Allocation of the joint costs to the three products using the net realizable – value

method (12 marks)

b) Total and unit value of closing stock schedule (8 marks)

(Total: 20 marks)

QUESTION FIVE

Your organization is considering introducing additional capital into the business in order

to be able to build a new factory to replace the existing one at cost of Sh.20 million.

Discuss the various factors you would consider in order to satisfy yourself that the new investment is justified in terms of efficiency and profitability. (Total: 20 marks)

SECTION II

QUESTION SIX

a) What are the main features of double entry cost accounting? (10 marks)

b) Describe the matters to which attention should be paid in locating the

differences if any between the profit disclosed by the cost accounts and

that disclosed by the financial accounts for the same period (10 marks)      (Total: 20 marks)

QUESTION SEVEN

Write explanatory notes on the following:

a) Fixed and flexible budget. (10 marks)

b) Controllable and uncontrollable costs (10 marks)  (Total: 20 marks)