THE MOMBASA POLYTECHNIC UNIVERSITY COLLEGE

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1 THE MOMBASA POLYTECHNIC UNIVERSITY COLLEGE Faculty of Business & Social Studies DEPARTMENT OF BUSINESS STUDIES DIPLOMA IN ACCOUNTANCY I BB21006: COST ACCOUNTING END OF SEMESTER EXAMS SERIES: APRIL/MAY TIME: 3 HOURS INSTRUCTIONS TO CANDIDATES: This paper consists of FIVE questions. Answer ALL questions. All questions carry equal marks. Write your student number only Department of Business Studies Page 1

2 Q.1 (a) Explain any FIVE reasons why we study Cost Accountancy. (b) Briefly highlight the major elements of cost. (6 marks) (c) A company has an annual demand for material P of 25,000 tones per annum. The cost price per ton is shs.2,000 and stock holding cost is 25%. Delivery costs per batch is shs.400. Calculate the economic order quantity. (6 marks) (d) R. Robert produced 600 units in a week but 40 units were rejected. Time allowed per unit is 6 minutes. No payment is made beyond the time allowed but the bonus is paid on accepted units only. A penalty of 30% is imposed on each rejected unit. R. Robert marked for 48 hours and his hourly rate was 75/= per hour. Calculate Robert s total wage on the basis of Halsey Bonus scheme. (8 marks) Q.2 Auto Robot Ltd. manufactures two products P and Q and has provided the following information. Product P Selling price per unit 10/= Variable cost per unit 4/= Fixed cost of operations per month Kshs.50,000 Product Q Selling price per unit 12/= Variable cost per unit 8/= Fixed cost of operations per month Kshs.30,000 (i) Calculate the Break even point of each product in units. (6 marks) (ii) Compute in profits of each of product if sales in units are 20% above the Break Even point. (iii) Briefly explain any two limitations of cost volume profit analysis. (4 marks) Q.3 (a) A company has a cash balance of Kshs.27,000 at the beginning of March, and you are required to prepare a cash budget for March, April and May having regard to the following information. Creditor gave month credit Salaries are paid in the current month 2010 Department of Business Studies Page 2

3 Fixed costs are paid one month in arrears and include a charge for depreciation of Kshs.5600 per month. Credit sales are settled as follows: 40% in the month of sale, 45% in the next month and 12% in the following month. The balance represents bad debts. Months Cash Sales Credit Sales Purchases Salaries Fixed overheads Jan 74,000 55,200 9,000 30,000 Feb 82,000 61,200 9,000 30,000 March 20,000 80,000 60,000 9,500 30,000 April 22,000 90,000 69,000 9,500 32,000 May 25, ,000 75,000 10,000 32,000 (b) The following information was obtained from the books of KK Ltd. Budgeted Cost & Sales Total Unit 000 Sales: (120,000 units) 6, Production cost of Variable costs 3, Fixed costs 1,200 5, Gross Profit Administration & Dist. Expenses (costs) Fixed Net Profit On 31 st May 2007, the following information was extracted from the records regarding the actual production and sales. 6 months to 6 months to Nov May 2007 Production (units) 55,000 40,000 Sales (units) 48,000 42,000 Stocks Opening 7,000 Closing 7,000 5,000 Prepare Trading, Profit and Loss Accounts using Marginal costing method. Q.4 (a) The data below relates to chicken feeds. Purchases Date Qty (bags) Price per bag Date Qty (bags) 2010 Department of Business Studies Page 3

4 October October There was an opening stock of 200 bags valued at shs.28,000. Prepare the store ledger using: (i) FIFO (5 marks) (ii) LIFO (5 marks) (b) The following data relates to cost estimates for production of item Y. Direct Materials 100,500 Direct wages 50,500 Direct expense 5,000 Indirect factory costs 22,000 Distribution costs 7,000 Selling expenses 10,000 Profit = 20% on selling price. Prepare a statement of cost to show the selling price of item Y. Q.5 (a) Explain the following terms as used in accounting for overheads. (i) Overhead collection (ii) Overhead allocation (iii) Ovehread apportionment (iv) Overhead absorption. (8 marks) (b) A manufacturing company has three production departments and two service departments. Overheads of the departments for a period were as follows: Production departments: A 150,000 B 270,000 C 190,000 Service departments: X 30,000 Y 50, ,000 The overheads of service departments were apportioned as follows: Departments A B C X Y 2010 Department of Business Studies Page 4

5 X 40% 20% 30% 10% Y 50% 20% 20% 10% Using repeated distribution method, distribute the overheads of service departments to production departments. (12 marks) 2010 Department of Business Studies Page 5