THE MOMBASA POLYTECHNIC UNIVERSITY COLLEGE

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1 THE MOMBASA POLYTECHNIC UNIVERSITY COLLEGE Faculty of Business & Social Studies DEPARTMENT OF BUSINESS STUDIES BACHELOR OF BUSINESS ADMINISTRATION HBC 2117: COST ACCOUNTING BBA 2 ND YEAR 1 ST SEMESTER EXAMS SERIES: APRIL/MAY TIME: 2 HOURS INSTRUCTIONS TO CANDIDATES 1. The paper consists of FIVE questions. 2. Answer question ONE and any other TWO questions. Q.1 (a) Explain any FOUR differences between Cost and Financial Accounting. (4 marks) (c) What is the Economic Order Quantity when demand is 40 units per working day ordering cost 200/= per order, the items cost 10/= each and the carrying costs are 10% per year. There are 250 working days in a year. (6 marks) The following data relates to Material 10x used by ABC Co. Ltd. Date Receipts Purchase Price Issues. 01/10/ units /10/ units /10/08 80 units 16/10/ units 20/10/08 90 units /10/ units 2010 Mombasa Polytechnic University College Page 1

2 Prepare the store ledger using Weighted Average Pricing method. (4 marks) (d) A small factory of has two service departments, maintenance (m) and store (s) and three production departments (P 1, P 2 & P 3). The service departments provides services for each other as well as for the production departments. The overheads applicable to each department are as follows: Department Overheads M 6,800 S 2,700 P 1 12,000 P 2 19,000 P 3 26,000 67,000 The following table shows how the services departments overheads area allocated. M S P 1 P 2 P 3 M - 5% 25% 38% 37% S 15% - 40% 27% 18% Using simultaneous equation apportion the service department overheads to production department. (12 marks) (e) Briefly explain any FOUR limitations of a GVP analysis. (4 marks) Q.2 (a) The following data were taken from the records of Kofo Ltd. Period 1 Period 2 Production 38,000 27,000 Sales 27,000 38,000 Opening stock - 11,000 Closing stock 11,000 - All the above are in Kgs. The firm makes a single product, the financial details of which are as follows: (Based on annual activity level of 30,000 Kgs). Cost per Kg (shs) Direct Materials 1.50 Direct Labour 1.00 Production Overhead (30% of labour) Mombasa Polytechnic University College Page 2

3 Selling price per Kg is 8/=. Administration overheads are filed at 25,000/= and one third of the production overheads are fixed. Prepare separate operating statements on Marginal costing and Absorption costing. ABC Ltd manufactures two types of products for the printing industry. Budgeted Sales of the products known as P&Q for 2009 were. Product Quantity Price (shs) P Q Stocks of these products were: Product Opening Stock Closing stock P 1500 units 2000 units Q 2200 units 90 units Prepare production budged for the company. Q.3 Expo Company Limited makes a chemical that passes through three production processes, 1, 2 and 3. In the month of April 2009, 6000 litres of the basic Raw Material priced at Kshs.240,000 were introduced into process 1 subsequently, the following costs were incurred: Element of Cost Total Process Kshs Direct Material 87,500 30,000 40,000 17,000 (Additional) Direct Labour 110,000 40,000 50,000 20,000 Direct Expenses 16,900 6,000 1,600 9,300 Normal Loss per process was estimated as: Process I 10% Process II 5% Process III 8% 2010 Mombasa Polytechnic University College Page 3

4 Output of each process was: Process I 5,300 Process II 5,000 Process III 4,700 The loss in each process represented scrap which could not be sold. There was no stock of materials or work in progress at the beginning or as at the end. Production overheads were absorbed by each process on the basis of 25% of the cost of direct labour. (i) Prepare separate process accounts for each of the three processes. (12 marks) (ii) Prepare the Abnormal loss of Abnormal gain accounts. (5 marks) (iii) Briefly explain what is meant by Abnormal Loss and Abnormal Gain as used in process accounts. (3 marks) Q.4 (a) A company makes a single product with a total capacity of 40,000 litres per year. Cost and Sales data are as follows: Selling Price 10/= per litre Marginal Cost 5/= per litre Fixed cost 100,000 Draw a break-even chart/cost volume profit chart to show the likely profit at an output level of 30,000 litres. The Opening cash balance on 1 st Jan. was kshs.30,000. The sales were budgeted as follows: Month Sales (Kshs) November 80,000 December 90,000 January 75,000 February 75,000 March 80,000 Analysis of records shows that debtors settle their obligations according to the following pattern. 60% within the month of sales 25% the following month 10% the month following 5% are normally irrecoverable Mombasa Polytechnic University College Page 4

5 Extracts from the purchases budget were as follows: Month Purchases to Kshs. December 60,000 January 55,000 February 45,000 March 80,000 All purchases were on credit and the payment schedule was that 90% within the month of purchase and the balance settled a month later. Wages were 15,000/= per month and overheads of Kshs.20,000 per month (including Kshs.5,000 depreciation) are settled monthly. Taxation of 8,000/= was paid in February and the company received a settlement of insurance claims amounting to Kshs.25,000 in March. Prepare a Cash Budget for January, February and March. Q.5 (a) The standard cost for X100 is as follows: Elements of cost Shs. Direct Materials (10Kgs) 20 Direct Labour (6 hours) 15 Variable Overheads (6 hours 24 Fixed Overheads (6 hour) 18 Total Standard cost 77 Standard Profit 23 Standard Selling Price 100 During the period, the following details were recorded: Shs. Purchase of materials (13,000 Kgs) 29,250 Direct Wages (5600 hrs) 14,560 Variable Overheads 24,192 Fixed Overheads 17,850 Materials issued to production were 9810 Kgs. The following details relate to the company for the same period. Budgeted for period. Actual for period Sales 1000 units at 100 Production 1000 units 980 units Fixed overheads 18,000/= 17,850/= 2010 Mombasa Polytechnic University College Page 5

6 Using the above information prepare:- (i) Material Cost variances (ii) Labour Cost variances (iii) Sales variances (12 marks) Briefly explain any FOUR advantages of Marginal Costing Techniques. (8 marks) 2010 Mombasa Polytechnic University College Page 6