2017 EXAMINATIONS ACCOUNTING TECHNICIAN PROGRAMME PAPER TC 9: COSTING & BUDGETARY CONTROL

Transcription

1 EXAMINATION NO EXAMINATIONS ACCOUNTING TECHNICIAN PROGRAMME PAPER TC 9: COSTING & BUDGETARY CONTROL THURSDAY 1 JUNE 2017 TIME ALLOWED: 3 HOURS 9.00 AM NOON INSTRUCTIONS 1. You are allowed 15 minutes reading time before the examination begins during which you should read the questions and, if you wish, make annotations on the question paper. However, you are not allowed, under any circumstances, to open the answer book and start writing or use your calculator during this reading time. 2. There are 5 questions in this paper. 3. Answer ALL questions. 4. Each question carries 20 marks. 5. Show all your workings in order to gain full marks. 6. Marks will be awarded for clarity, correctness and logical presentation. 7. Use of non-programmable calculators is allowed. 8. Begin each answer on a fresh page. 9. DO NOT OPEN THIS PAPER UNTIL YOU ARE INSTRUCTED BY THE INVIGILATOR This question paper contains 6 pages.

2 1. (a) State any two advantages of an Activity Based Costing (ABC) system. 2 Marks State any two disadvantages of an ABC system. 2 Marks (c) Kolwe Ltd produces three products: X, Y and Z. Management is considering switching from a costing approach, for the three products, based on a labour hour absorption rate, to an ABC system. The following information relates to previous week s production of the three products: Product X Y Z Direct material (K) 8,840 7,550 11,780 Direct labour (K) 46,040 16,670 37,220 Labour hours 6,520 2,360 5,480 Units produced 1, ,180 Production overhead is currently absorbed using labour hours, based on the following weekly budget: Cost item Machine set-up 9,890 Machine processing costs 20,060 Purchasing and inventory costs 12,840 Maintenance 11,520 54,310 K In preparation for switching to an ABC system, Kolwe Ltd has recorded the following cost drivers for the three products, over the week s production: Product Activity Cost Driver X Y Z Machine set-up Number of set-ups Machine processing Machine hours Purchasing & inventory Number of requisitions Maintenance Maintenance hours (i) Using labour hour absorption costing (current system), calculate: (1) the overhead absorption rate per hour 1 Mark (2) the total unit cost for each of the three products 6 Marks Calculate the unit cost for each of the three products using the ABC system. 9 Marks Page 2 of 6

3 2. (a) Other than FIFO, state any other three methods used in stock valuation. 3 Marks The following information relates to one of the products retailed by Tayamba Ltd, which completed its first year of trading on 31 May During the first year of trading, the following transactions took place : Purchases of P roduct Q: December 2016 February 2017 May 2017 Sales of product Q: January 2017 March 2017 April ,000 units at K30 per unit 1,400 units at K35 per unit 1,100 units at K40 per unit 800 units at K50 per unit 600 units at K56 per unit 900 units at K60 per unit There was no opening stock at the beginning of the financial year. It is the accounting policy of Tayamba Ltd to use the F irst In First O ut (FIFO) method of stock valuation. At 31 May 2017, a stock-take ascertained the following, in relation to Product Q: (1) 950 units were in perfect condition. (2) 150 units were in a damaged condition and would be sold at K20 per unit after repairs. Repairs cost K3 per unit. (3) Any missing units are to be treated as uninsured loss. (i) Using the FIFO method of stock valuation, prepare a stores card to show the value of the closing stock before taking into account the damaged stock or any other stock losses. 7 Marks Calculate the value of stock to be included in the compa ny s statement of financial position (balance sheet) as at 31 May (iii) Calculate the profit on product Q for the year ended 31 May Marks Continued/ Page 3 of 6

4 3. (a) (i) Mention any two uses of budgets. 2 Marks State any three disadvantages of incremental budgets. 3 Marks Mathero Ltd is preparing budgets for the year to 31 December The company manufactures and sells one product. The selling price is K150 per unit, but this will increase to K160 with effect from 1 July The budgeted sales volumes are as follows: January to March April to June July to September October to December 40,000 units 50,000 units 30,000 units 45,000 units Sales for January to March 2019 are expected to be 40,000 units. Each product uses 3 kg of component X, 2 kg of component Y, and 1 kg of component Z, the current unit prices of which are as follows: Component X Component Y Component Z K9 per kg K6 per kg K25 per kg The prices for components X and Y are expected to increase by 10% from 1 April 2018 while that for component Z is expected to rise by 5% from the same date. The labour cost for the product is K30 per unit and this will increase by 5% from 1 October The variable production overhead will be K10 per unit. The fixed production overhead is budgeted at K264,000 for the year, and is incurred evenly over each three-month period. Stock of finished units is budgeted at 20% of the next three month period s sales. No stocks of components are held. Prepare the following budgets for Mathero Ltd for each of the four threemonth periods of 2018: (i) Sales budget in value and units 2 Marks Production budget in units (iii) Component usage budget in kg (iv) Production cost budget Page 4 of 6 3 Marks 6 Marks Continued/

5 4. (a) Define the term limiting factor. 2 Marks A company manufactures two types of components - the Supreme and the Standard. Both undergo similar production processes and use similar materials and grades of labour. A shortage of direct labour has recently been identified and the company will not be able to produce the required number of components for the six months ending 31 December During these six months, the direct labour capacity will be restricted to 235,000 hours. The standard selling prices and prime costs for each component are as follows: Selling price Direct materials Direct labour (rate of K10 per hour) Estimated sales demand (in units) Other information: Calculate: (1) Production overhead (2) Selling and distribution overhead (3) Administration overhead Supreme K ,000 Fixed K400,000 K70,000 K100,000 Standard K ,000 Variable K5 per direct labour hour 10% of selling price (i) the contribution per unit for each of the two types of components. 5 Marks the production plan that will maximise profit for the six months ending 31 December Marks (iii) the profit that will be earned for the six months ending 31 December 2017 (use your answer to 4). 6 Marks (iv) the amount of profit, based upon the estimated sales demand, which will be lost by the company as a result of the limiting factor. 2 Marks Continued/ Page 5 of 6

6 5. (a) In line with decision-making; (i) Define the term margin of safety. 2 Marks (iii) State any four assumptions behind the cost-volume-profit (CVP) analysis. Give four situations where marginal costing can be used as a decisionmaking aid. In the context of cash budgets: (i) Mention any two advantages of preparing cash budgets. 2 Marks State any three reasons why there might be differences between profit and cash balance at the end of a period. 3 Marks (c) In the context of standard costing : (i) State any two types of standards. 2 Marks Explain any three uses of standards. 3 Marks E N D Page 6 of 6