Faculty of Business and Management

BBA/DBA 211 Managerial Accounting

Open Book Exam
Date: Wednesday, June, 16th, 2021
Instructions to Candidates:
i) This paper contains two sections, i.e. A and B
ii) Section A is compulsory to all candidates i.e. questions 1 and 2 (carries 40%)
iii) Attempt any three questions from section B (carries 60%)
iv) Use a maximum of 14 pages for this exam

SECTION A (Compulsory)
Q.1
a) Why might a company claim that the total cost of employing a person is $15.30 per
hour when the employee’s wage rate is $10.50 per hour? How should this difference
be classified and why? (05 marks)

There might be Managerial Accounting differences in the Controlling dimension that will be
determined in a variance analysis. Does the spending make sense? Yes. The cost of the employee
travel, training, commission costs must be added into the employment consideration for wages or
it would eat out of the company actual costs

b) Explain why the income statement of a manufacturing company differs from the
income statement of a merchandising company? (05 marks)

There are specific costs related to income statements which are Raw Material, Direct Labor,
Manufacturer Overhead, Non-Manufacturer Costs. Reviewing the cost flow concepts of work in
progress inventory to finished goods inventory then to the cost of goods and selling general and
administrative expenses. A company’s result of operations is sensitive to proper cost assignment
and much of the direct materiel, direct labor, and factory overhead end up in inventory. The
FASB has external reporting rules requiring allocation of the production overhead to inventory.
Also, a company must apply the US tax uniform capitalization rules (Walther, 2016).

c) The following costs are incurred by an electrical appliance manufacturer. Classify these
costs as direct materials, direct labor, and manufacturing overhead, selling, or
administrative costs. Use a table form provide. Eg

Cost Classification
Cost of spare parts Direct material
President’s salary Administrative
Cost of electrical wire used in making Direct material
appliances.
Cost of janitorial supplies (the janitors Manufacturing overhead
work in the factory.
Wages of assembly-line workers. Direct labor
Cost of promotional displays Selling
Cost accountant’s salary (the accountant Administrative
works in the factory).
Cost of cleaner used to clean appliances Direct labor
when they are completed
Cost of aluminum used for toasters Direct material
Cost of market research survey. Selling
1
i) President’s salary. ( mark)
2
1
ii) Cost of electrical wire used in making appliances. ( mark)
2
1
iii) Cost of janitorial supplies (the janitors work in the factory. ( mark)
2
1
iv) Wages of assembly-line workers. ( mark)
2
1
v) Cost of promotional displays. ( mark)
2
1
vi) Assembly-line supervisor’s salary .( mark)
2
 1
vii) Cost accountant’s salary (the accountant works in the factory). ( mark)
2
1
viii) Cost of cleaner used to clean appliances when they are completed .( mark)
2
1
ix) Cost of aluminum used for toasters.( mark)
2
1
x) ( mark)
2

d) Classify the costs listed in (c) above as either product costs or period costs. (05
marks). Use a table form provided.

Product Period
Cost of electrical wire used in making President’s salary
appliances
Cost of janitorial supplies (the janitors work Wages of assembly-line workers.
in the factory
Cost of promotional displays
Assembly-line supervisor’s salary
Cost of aluminum used for toasters Cost accountant’s salary
Cost of cleaner used to clean appliances
when they are completed
Cost of market research survey.
Total, 20marks

Q.2
Walk-Toki Manufacturing Company is a producer of music compact discs (CDs) and tapes. The
following account balances are for the year ended December 31, 2020
Administrative expenses $ 60,000
Depreciation expense – Manufacturing equipment $50,000
Direct labor $468,000
Manufacturing supplies expense $40,000
Indirect labor $36,000
Beginning inventories, January 1:
Direct materials $14,000
Work in process $20,000
Finished goods $128,000
Ending inventories, December 31:
Direct materials $44,000
Work in process $56,000
Finished goods $92,000
Direct materials purchases $216,000
Rent expense – Factory $28,000
Sales $1,400,000
Selling expense $72,000
Other manufacturing overhead $126,000
Required;
(i) Prepare a statement of cost of goods manufactured for Walk-Toki Manufacturing
Company for the year ended December 31. (12 marks)

Walk-Toki Manufacturing Company

Statement of cost of goods manufactured  

For the year ended December 31  

Direct Materials Used:

  Raw Materials inventory, January 1 $162000

  Raw Materials purchases $216,000

  Less: Raw Materials inventory, December 31 192,000

  Raw Materials used 186,000

Less: Indirect Materials Used $0

Direct Materials Used $14,000

Direct labor 468,000

Manufacturing overhead:

  Indirect labor $36,000

  Depreciation expense – 50,000

 Rent expense factory 28,000

  Other expense – factory 126000

    Total manufacturing overhead 240,000

Total Manufacturing Cost   $722,000

  Add: Work in process inventory, January 1 20,000

  Less: Work in process inventory, December 31 -56,000

Cost of goods manufactured   $686000

(ii) Prepare an income statement for the year ended December 31, 2020. (08 marks)
Total, 20marks
 SECTION B
Attempt any Three Questions
Q.3
The Oceanside Garden Nursery buys flowering plants in four-inch pots for $1.00 each and sells
them for $2.50 each. Management budgets monthly fixed costs of $2,100 for sales volumes
between 0 and 5,000 plants. Data has been summarized below;
DATA
Description Amount
Sales price per unit $2.50
Variable cost per unit $1.00
Total fixed costs $2,100
Profit at breakeven 0
Target profit $5,000
Required;
a) Compute the contribution margin per unit. ( 04 marks

2.50-1.00

C.M =1.50

b) Use the contribution margin approach to compute the company's monthly

breakeven point in units. (04 marks)
To calculate the break-even point in units use the formula: 
Break-Even point (units) = Fixed Costs ÷ (Sales price per unit – Variable costs per unit)
¿ costs
¿¿

2100
(2.50−1.00)

=1400 units
 c) Use the contribution margin ratio approach to compute the breakeven point in sales
dollars. (04 marks)

Break-Even point (sales dollars) = Fixed Costs ÷ Contribution Margin.

¿ costs
Contribution margin
2100
(2.50−1.00)

=1400 units

d) Use the contribution margin approach to compute the monthly sales units required
to earn a target operating income of $5,000. (04 marks)

Operating Income = (units sold X price per unit) – (units sold X cost per unit) – Fixed
Cost
OI = SC –VC -FC
5000 = (2.50*S)-(1.00*S)-2100
5000 + 2100 = 1.50S
7100 = 1.5S
S = 7100/1.5
S = 4733.33333
S = 4733units
Therefore the monthly sales units required to earn a target operating income of $5,000 are
4733units
 e) Compute the company’s margin of safety percentage. (04 marks)

Actual Sales−Breakeven point

Margin of safety percentage= ∗100
Actual Sales

4733−1400
Margin of safety percentage= ∗100
4733

Margin of safety percentage=70.4 %

Q.4
Mr. Bean’s chocolate Wiggly bars pass through two processes. The data for the month just ended
are:
Cost Item Kg $ Cost Item $
Process 1 Ingredients 4,000 5,000 Process 2 Packaging 10,000
Labour 4,000 Labour 6,000
Overheads 2,000 Overheads 3,000
Mr. Bean allows the staff to eat 5% of the chocolate as they work on Process 1. There was no
work in progress at the month end.
a) Prepare the two process accounts and calculate the cost per kg. (10 marks)
PROCESS 1 ACCOUNT
UNITS AMOUNT UNITS AMOUNT
Ingredients 4000kg 5000 Normal loss (W1) 200
Labour & overheads 6000 Transfer to process 2 (W2) 3800
11,000
11,000 11,000

Workings W1: Normal Loss = 5% x 4000kg = 200Kg

There is no work in progress or scrap value or abnormal losses or gains, so we can now balance the
account to obtain the amounts transferred to

Process 2. W2: Transfer to Process 2 = 4,000kg – 200kg = 3,800kg

b) Prepare a finished goods account. (05 marks)

PROCESS 2 ACCOUNT
UNITS AMOUNT UNITS AMOUNT
Transfer from process 3800 kg 11000 Finished goods 30000
Packaging 10000 Balancing figure
Labour & OH 9000
11,000 30,000
 c) How would Mr. Bean benefit while using process costing? (05 marks)

Advantages Of Process Costing

Simple Method Of Costing

Process costing is very simple method of computing costs of each stage or process of production.
Because of homogeneous products, average cost of product can be calculated easily in less time.
Periodic Calculation Of Cost
Cost of each process and per unit cost of finished products can be determined periodically at
short intervals with less clerical and paper works. 
Suitability
Process costing is suitable for standardized products, large scale production, identical or
homogeneous products etc.
Better Managerial Control
Cost and performance of each process or department can be evaluated regularly at short
intervals. With the help of standard costing, management can take appropriate steps to minimize
unnecessary costs and wastage. So, process costing facilitates the management for better control.
Flexible Method
Manufacturing firms can add or remove process as per their needs and requirements in order to
control the cost of production. So, process costing facilitates flexibility in the production process.