Cost Accounting Questions

QUESTION ONE

Healthcross Products Ltd commenced business on 1 May 2000. The company ahs approached their bankers for overdraft facilities. The bank has in turn demanded a cash flow statement in support of their request. The following information ahs been assembled for the purpose:

It is established that 60% of the customers pay within the month of sales, 20% the month following the month of sale and 15% the month following while the balance is normally uncollectible.

The current purchase price of Sh 20 per unit is expected to rise by 20% on 1 July and by another 25% on 1 August. Disbursements to suppliers are made in full in the month following the month of purchase.

The company anticipates paying general and administration expenses at the rate of Sh 80,000 a month payable as incurred while obligation under a medium term lease payable at the commencement of each quarter amount to Sh 50,000 per month.

Corporation tax of Sh 150,000 is due in September while Sh 200,000 will be paid to a supplier for purchase of an asset in the same month.

The bank balance on 30 June 2000 is expected to be Sh 50,000 while the company intends to maintain a minimum monthly balance of Sh 100,000. Financing attracts interest at the rate of 24% per annum debited in the month following the month of utilizing the overdraft.

Required:

1. Sales/debtors’ collection schedule on a monthly basis for the months of May to September 2000. (6 marks)
2. Purchases schedule on a monthly basis for the months of May to September 2000.  (3 marks)

3. In columnar form, cash flow statement for the three months July to September 2000 on a monthly basis showing financing required, if any. (11 marks)     (Total: 20 marks)

QUESTION TWO

The following information ahs been assembled by Sancross Products Ltd which manufactures and retails products A and B. The details given below relate to the year commencing 1 July 200:

Fixed production overhead is applied on direct labour basis. Administration, selling and distribution expenses are recovered at the rate of 20% of production cost and profit loaded at 25% of standard production cost.

Finished goods stock position valued at production cost is expected to be as follows:

Direct material stocks valued at standard prices are as follows:

For the year to 30 June 2001, fixed production overhead has been estimated at

Sh 1,800,000 and direct labour at 1,200,000 hours.

No opening or closing work-in-progress is anticipated.

Required:

1. Production budget in units. (8 marks)
2. Direct materials cost budget. (3 marks)
3. Purchases budget in value. (6 marks)
4. Direct labour cost budget. (3 marks)     (Total: 20 marks)

QUESTION THREE

The following information has been extracted from the books of Solarcross Ltd for the year to 31 March 2000:

The company’s unit selling price is Sh 550.

Required:

1. Profit and loss statement under direct costing approach. (8 marks)
2. Profit and loss statement under indirect costing approach. (8 marks)
3. An explanation of the difference in profit or loss in (a) and (b) above. (4 marks)     (Total: 20 marks)

QUESTION FOUR

The following information relates to item P003 stocked by 2000 products Ltd for the month of April 2000:

The closing balance for March 2000 was a batch of 3,000 units received at a unit price of Sh 19.

Required:

1. Stores perpetual inventory record for item P003 for May 2000 under LIFO system of stores issues. (14 marks)
2. Closing stock valuation. (6 marks)     (Total: 20 marks)

QUESTION FIVE

Sannet Products Ltd who manufactures and retails products A, B and C employ sixty direct workers who work under a group of bonus scheme. The company engages three grades of workers who are paid a bonus of the excess of time allowed over time taken. The bonus paid is 75% of the workers’ base rate and is shared by the workers in proportion to the time spent on the work. The following production data has been extracted from the company’s records for April 2000.

Product	Units produced	Time allowed per unit
A	320	63
A	640	120
C	1200	100

Grade of worker	Number of direct workers	Base rate per hour (sh)	Hours worked per worker
1	20	30	30
2	8	27	64
3	32	24	50

Required:

1. Percentage of hours saved to hours taken. (6 marks)
2. Bonus due to the group. (7 marks)
3. Gross earnings due to the group. (7 marks)     (Total: 20 marks)

QUESTION SIX

In spite of rapid expansion and growth, the management of Magicross Ltd are concerned that although the accounts presented disclose profits being made, the company’s overdraft has been increasing.

Required:

As the Company’s Cost Accountant, draft a report to management;

1. Detailing factors that can cause an increase in bank overdraft in the face of increasing profitability. (10 marks)
2. Giving options available for improving the company’s liquidity without seeking external funds. (10 marks)(Total: 20 marks)

QUESTION SEVEN

1. What is flexible budgeting? (6 marks)
2. Explain how flexible budgeting may be utilized to control costs. (14 marks)   (Total: 20 marks