Cost Accounting Questions
- Define marginal costing and give its limitations. (6 marks)
- The following data relate to Kenya Ltd for the year ended 31 December 1999.
Less: Total costs 20,000
Net profit 4,000
Fixed costs account for 40% of the total costs.
- Margin of safety. (2 marks)
- Break-even point in sales (2 marks)
- Sales required to earn profit of Sh 6,000,000. (2 marks)
- In order to increase sales, the management has the following two options:
- To increase sales by 25% on incurring a sales promotion cost of Sh 2,500,000.
- To increase sales by 15% on reducing selling price by 5%.
Advise the management on which option they should take. (8 marks) (Total: 20 marks)
- Explain the advantages of centralized system of maintaining stores. (5 marks)
- Explain the assumptions behind the determination of Economic Order Quantity (EOQ). (5 marks)
- The following information is given for material Y-20.
|Re-order period||12 – 24 days|
|Re-order quantity||32,000 units|
- Re-order level. (3 marks)
- Minimum stock level. (3 marks)
- Maximum stock level (3 marks) (Total: 20 marks)
- Briefly explain the following terms as used in process costing:
- Normal loss. (2 marks)
- Abnormal loss. (2 marks)
- Joint products. (2 marks)
- Timau Ltd produces a detergent which passes through two processes namely mixing and refining to completion. The following data relate to the refining process for the month of June 2000.
Cost of opening stock: Shs. Materials 100,000 Labour 25,000 Overheads 60,000
During the month 20,000 units were passed from the mixing to the refining process. Costs incurred during the month were:
Other materials 45,300
At the end of the month 21,000 units had been completed and passed to finished goods while 4,000 were still in process having reached the following stages:
Materials - 100%
Labour - 40%
Overheads - 60%
Refining Process Account. (14 marks) (Total: 20 marks)
A company ahs budgeted to produce 2,750 articles in 22,000 hours, with fixed overheads of Sh 88,000 and variable overheads of Sh 55,000. The company’s production during the period of the budget was 2,700 articles in 21,500 working hours with fixed overheads costing Sh 90,000 and variable overheads Sh 58,000.
Calculate the following variances:
- Overhead variance (3 marks)
- Fixed production overhead variance. (3 marks)
- Variable production overhead variance (3 marks)
- Fixed production overhead expenditure variance. (3 marks)
- Fixed production overhead volume variance. (3 marks)
- Fixed cost productivity variance. (3 marks)
- Capacity variance (2 marks) (Total 20 marks)
- In the context of budgetary control explain the main functions and importance of a cash budget. (5 marks)
- You are in charge of making forecasts and preparing budgets. You have been supplied with cost and revenue forecasts and details of payment as follows:
- Forecast of revenue and costs for the quarter ending 31 March 2001
January February March Shs. Shs. Shs. Direct Materials (purchases) 112,000 100,000 135,000 Wages 90,000 80,000 100,000 Overhead Production 34,000 32,000 40,000 Administration 22,000 20,000 27,000 Selling and distribution 13,000 11,000 18,000 Sales 360,000 350,000 440,000
2. Forecast of revenue and costs for the quarter ending 30 June 2001
|Selling and distribution||13,000||11,000||16,000|
Cash balance on 1 April 2001 Sh. 90,000
- Other details
- Period of credit allowed by suppliers averages two months.
- Debenture to the value of Shs. 125,000 are being issued in May 2001 and the amount is expected to be received during the month.
- A new machine is being installed at the end of March 2001 at a cost of Sh 150,000 and payment is promised in early May 2001.
- Sales commission of 3% is payable within one month of sales.
- A dividend of Sh 100000 is to be paid in June 2001.
- There is a delay of one month in the payment of overheads. There is also a delay in payment of wages averaging a quarter of a month.
- Twenty per cent of the debtors pay cash, receiving a cash discount of 4% and 70% of debtors pay within one month and receive a cash discount of 2 ½%. The other debtors pay within two months.
A cash budget on a monthly basis from the second quarter of the year 2001. (15 marks) (Total: 20 marks)
- What is the basic difference between account classification method and high-low method as applied in cost estimation? (4 marks)
- Distinguish between the following cost accounting terminologies:
- Direct and indirect costs (4 marks)
- Cost center and cost unit (4 marks)
- Joint products and by-products) (4 marks)
- Period costs and product costs (4 marks) (Total: 20 marks)
- What are the main duties of budget committee? (8 marks)
- What is meant by the term “Key factor”? (2 marks)
- Name and briefly explain five main key factors that affect budgeting process. (10 marks) (Total: 20 marks)