THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

Modular Intermediate Examinations Spring 2003

March 08, 2003

COST ACCOUNTING (MARKS 100)

Module D Paper D 12 (3 hours)

Q.1 Following transactions appeared in the books of accounts of the Company

PURCHASES

Month Quantity (Units) Cost per unit (Rs.)

Jan 100 41
Feb 200 50
April 400 51.87

SALES

Month Quantity (Units) Sale price per unit (Rs.)

March 250 64
May 350 70
June 100 74

There was an opening balance of 100 units for Rs.3,900.

From the information given above, for the six month ended June 30, show the store
ledger records including the closing stock balance and stock valuation by using
weighted average, FIFO and LIFO methods of pricing. (09)

Q.2 (a) Following is the labour data of a company for a given week:

Days Units Hours

Monday 270 8
Tuesday 210 8
Wednesday 300 8
Thursday 240 8
Friday 260 8

Required:

You are required to prepare a schedule showing weekly earning, hourly rate, and the
labor cost per unit assuming a 100% bonus plan with a base wage of Rs. 6/- per hour
and a standard production rate of 30 units per hour. (06)

(b) What are the requirements for an incentive plan to be successful. (03)
 (2)

Q.3 The following data of a period relates to a manufacturing department:

Budgeted Actual
Direct Material Cost Rs.500,000 Rs.750,000
Direct Labour Cost Rs.500,000 Rs.550,000
Production Overhead Rs.750,000 Rs.800,000

Direct Labour Hours 100,000 130,000

During the period a Job XY 54 was completed. Direct material costing Rs.100,000
direct labour Rs.21,000 and overhead costing Rs.115,000 were incurred.

Required:

(a) Calculate predetermined production overhead absorption rate on the following

basis:
(i) as a percentage to direct material cost (ii) direct labour hours (04)
(b) Calculate the production overhead cost to be charged to XY54 based on rates
calculated in answer (a) above. (04)
(c) Assume that the direct labour hour rate of absorption is used. Calculate the
under or over absorbed production overheads for the period and state an
appropriate treatment in the accounts. (04)
(d) If the factory overhead control account has a credit balance at the end of the
period, was overhead over applied or under applied? (04)

Q.4 ABC Limited produces four joint products Q,R,S and T, all of which result from
processing a single Raw Material Z. The following information is provided to you:

Joint Product Numbers of Units Selling price per unit

Rupees
Q 5000 18
R 9000 8
S 4000 4
T 2000 11

The company budgets for a profit of 14% of sales value. Other costs are as follows:
Carriage Inward 6%
Direct Wages 18%
Manufacturing overhead 12%
Administrative overhead 10%

Required:

(a) Calculate the maximum price that may be paid for the raw material. (04)
(b) Prepare a comprehensive Cost Statement for each of the products allocating the
material cost and other costs based on:
(i) the numbers of units, and
(ii) the sales value. (08)
 (3)

Q.5 (a) List the contents of a complete budget document of a manufacturing concern. (08)
(b) Explain Functional Budget. (06)

Q.6 M/s Gama & Sons produces only one product by the name ‘Gama’ and the standard
manufacturing cost of the product is as under:
Rupees
Direct material (4 kg @ Rs.3 per kg) 12
Direct labour (5 hours @ Rs.4 per hour) 20
Variable overhead 5
Fixed overhead 15
__________
Total standard cost 52 per unit
=========

The budgeted quantity to be produced is 10,000 kg and actual production was 9,500
units. The actual consumption and cost during the period was as under:
Rupees
Direct material ( 37,000 kg) 120,000
Direct labour (49,000 hours) 200,000
Variable overhead 47,000
Fixed overhead 145,000
__________
Total standard cost 512,000
=========

There was no stock of work in process or finished goods at the beginning or end of
the period.

Required:

You are required to calculate the relevant cost variances (14)

Q.7 A company manufactures a single product by the name ‘BABA’. Its variable cost is
Rs.40/- and selling price is Rs.100/-. For the current year, Company expects a net
profit of Rs.2,750,000 after charging a fixed cost of Rs.850,000. However the
production capacity is not utilized and the Manager Marketing suggested the
following for maximization of profit:

Suggestion Reduced selling price by Sale volume expected

to increase by
% %
1 5 10
2 7 20
3 10 25

Required:
(a) Evaluate the above proposals and advise the most profitable suggestions
assuming no change in the cost structure.
(b) Suggest other considerations for the decisions. (14)
 (4)

Q.8 A company which manufactures a uniform product is operating at 60% level of

activity. At this level the sales are Rs.60,000 at a selling price of Rs.10/- per product.
The following information regarding cost is available.

Variable cost Rs. 2 per product

Semi variable cost may be considered fixed at Rs.6,000 with a variable cost of
Rs.0.50 per product.

Fixed cost is Rs.20,000 at the present level of activity but is estimated that
achievement of an 80% - 90% level would increase cost by Rs.4,000.

A proposal has been made to the Directors that the price of product should be
reduced by 10% so as to reach a wider sales market. The Board is considering it and
require a statement showing:

(a) the operating profit if the company is operating at level of activity of 60%,
70% and 90% assuming that selling price
(i) remains as at present
(ii) is reduced to Rs.9 (08)

(b) The percentage increase in present output which will be required to maintain
the present profit if the Company reduces the selling price. (04)

(THE END)