Grand Test 2 with Solution – Autumn 2023 SAUD TARIQ

CAF 3 Cost and Management Accounting

ST Academy
Certificate in Accounting and Finance Stage Examination
June 1, 2023
70 Minutes – 40 marks
Additional reading time – 5 minutes

CAF 3 - Cost and Management Accounting (Grand Test 2)

Q1) Usama Jameel Limited (UJL) follows perpetual inventory system and uses weighted average
method for inventory valuation. The purchase & issue of AB and CP are:
Date AB CP
Receipt Issue Receipt Issue
Litre Rate Litre Litre Rate Litre
2-May-23 - - - 1,350 330 -
5-May-23 - - 1,680 - - 1,950
9-May-23 - - 900 - - 900
12-May-23 1,260 156 - 2,100 345 -
18-May-23 - - 750 - - 450
24-May-23 1,500 165 - 750 372 -
31-May-23 - - 1,500 - - 1,350
Following further information is also available:
i. Opening inventory of AB and CP was 3,000 litres at the rate of Rs. 50 per litre and 1,500 litres at
the rate of Rs. 115 per litre respectively.
ii. The physical inventories of AB and CP were 1605 litres and 420 litres respectively. The stock
check was conducted on 01 June and 31 May 2023 for AB and CP respectively.
iii. Due to contamination, 285 litres of AB and 315 litres of CP were excluded from the stock check.
Their net realisable values were Rs 20 and Rs. 50 per litre respectively.
iv. 750 litres of AB which was received on 01 June 2023 and 285 litres of CP which was issued on
31 May 2023 after the physical count were included in the physical inventory.
v. 450 litres of chemical AB was held by UJL on behalf of a customer, whereas 300 litres of
chemical CP was held by one of the suppliers on UJL’s behalf.
vi. 300 litres of AB and 600 litres of CP were returned from the production process on 31 May and
01 June 2023 respectively.
vii. 720 litres of chemical AB purchased on 12th May and 450 litres of chemical CP purchased on
24th May 2023 were inadvertently recorded as 1260 litres and 750 litres respectively.
Required:
a) Reconcile the physical inventory balances with the balances as per book. (10)
b) Determine the cost of closing inventory of chemical AB and CP. Also compute the cost of
contaminated materials as on 31 May 2023. (10)

Lectures: sta.saudtariq.com/Course/Detail/4885 1 Sir Saud Tariq (CAF 3, CAF 6, CFAP 3, CFAP 4, MSA 2)
 Grand Test 2 with Solution – Autumn 2023 SAUD TARIQ
CAF 3 Cost and Management Accounting
ST Academy
Question 2) Falah Limited (FL) is a manufacturer of product Z and has annual operational capacity of
82,500 machine hours. FL uses absorption costing.
Below is a summary of FL’s profit or loss statement for the years ended 31 October 2021and 2022:
31 October 2022 31 October 2021
Units Rs. in '000 Units Rs. in '000
Sales 9,950 447,750 10,500 466,500
Opening inventory – finished goods 3,500 93,000 2,500 60,000
Cost of production 10,450 282,150 11,500 293,250
Closing inventory – finished goods 4,000 (108,000) 3,500 (93,000)
Cost of goods sold (267,150) (260,250)
Gross profit 180,600 206,250
(Under)/over absorbed production overheads (1200) 1,950
Selling and administration cost (62,700) (67,425)
Net profit 116,700 140,775

In both years, the actual and standard machine usage per unit are 6 hours. However,
thestandard machine usage was 80% and 82% of the operational capacity in 2021 and
2022 respectively.
Fixed overhead absorption rate of Rs. 2100 per machine hour was applied in 2021. FL
revises its fixed overhead absorption rate for each year on the basis of prior year’s
actualfixed overhead expenditure.
Required:
(a) Calculate budgeted and actual fixed overheads for 2021 and 2022. (4 Marks)
Prepare profit or loss statement for the year ended 31 October 2022, using marginal
costing. (5 Marks)
(b) Reconcile the actual profits under marginal and absorption costing for the year ended 31
October 2022. (2 Marks)
(Total 13 Marks)
Question 3)

Required: Prepare Profit Statements with BOTH Absorption Costing and Marginal Costing and reconcile
the profits for September 2005. (7 Marks)

Lectures: sta.saudtariq.com/Course/Detail/4885 2 Sir Saud Tariq (CAF 3, CAF 6, CFAP 3, CFAP 4, MSA 2)
 Grand Test 2 with Solution – Autumn 2023 SAUD TARIQ
CAF 3 Cost and Management Accounting
ST Academy
Solutions
Q1) Usama Jameel Limited (UJL)
a) Reconciliation
Marks AB CP
Opening Stock 3,000 1,500
Purchases as per system 2,760 4,200
Issue (4,830) (4,650)
Closing Stock as per system (2) 930 1,050
Contaminated stock (1) (285) (315)
Received/Issued (2) 750 285
Stock held by RL of customer (1) 450 -
Stock held by suppliers (1) (300)
-
Material returned from (1)
300
production -
Overstated stock (1) (540) (300)
Balance as per physical count (1) 1,605 420
Part b)
Product AB
Purchase Issue Balance Marks
Date
Rate Rate
Litre Rate Amount Litre Amount Litre Amount
01-May 3,000 50.0 150,000
05-may 1,680 50.0 84,000
09-May 900 50.0 45,000
420 50.0 21,000
12-May 720 156 112,320 720 156.0 112,320
1,140 116.9 133,320 (0.5)
18-May 750 116.9 87,711 (0.5)
390 116.9 45,609
24-May 1,500 165 247,500 1,500 165.0 247,500 (0.5)
1,890 155.1 293,109 (0.5)
31-May 1,500 155.1 232,627 (0.5)
390 155.1 60,483
contaminated stock (285) 155.1 (44,199) (0.5)
105 16,284
return from production 300 155.1 46,525 (0.5)
Cost of closing stock (Good) 405 62,809
NRV of contaminated stock 285 20.0 5,700 (1)
690 68,509 (0.5)

Lectures: sta.saudtariq.com/Course/Detail/4885 3 Sir Saud Tariq (CAF 3, CAF 6, CFAP 3, CFAP 4, MSA 2)
 Grand Test 2 with Solution – Autumn 2023 SAUD TARIQ
CAF 3 Cost and Management Accounting
ST Academy

Product CP Marks
Purchase Issue Balance
Date
Litre Rate Amount Litre Rate Amount Litre Rate Amount
01-May 1,500 115 172,500
02-May 1,350 330 445,500 1,350 330 445,500
2,850 216.8 618,000 (0.5)
05-May 1,950 216.8 422,842 (0.5)
09-May 900 216.8 195,158
- -
12-May 2,100 345 724,500 2,100 345 724,500
18-May 450 345.0 155,250 (0.5)
1,650 345.0 569,250
24-May 450 372 167,400 450 372 167,400 (0.5)
2,100 350.8 736,650 (0.5)
31-May 1,350 350.8 473,561
750 350.8 263,089 (0.5)
contaminated stock (315) 350.8 (110,498) (0.5)
Cost of closing stock (Good) 435 152,592 (0.5)
NRV of contaminated stock 315 50.0 15,750 (0.5)
(0.5)
750 168,342

Lectures: sta.saudtariq.com/Course/Detail/4885 4 Sir Saud Tariq (CAF 3, CAF 6, CFAP 3, CFAP 4, MSA 2)
 Grand Test 2 with Solution – Autumn 2023 SAUD TARIQ
CAF 3 Cost and Management Accounting
ST Academy
Question 2) Falah Limited (FL)
Part a:

OAR (2021) = 2,100/machine hr

OAR per unit = 2,100*6

OAR per unit = 12,600/unit (0.5 Marks)

Budgeted Fixed OH= OAR/unit * Budgeted unit

2021 2022
Total Capacity in machine hrs 82,500 82,500
standard usage %age *80% *82%
Budgeted capacity in machine hrs 66,000 67,650
machine hr/unit ÷6 ÷6
budgeted production in units 11,000 units (0.5 Marks) 11,275 unit (0.5 Marks)

Budgeted fixed OH in 2021 = 12,600/unit * 11000 units = 13,8600,000 (0.5 Marks)

Computation of Actual Fixed OH in 2021 using Under/Over Absorption:

Rs.
OAR 12,600/unit
Actual production unit *11,500
OH absorbed 144,900,000
Actual fixed OH (balancing) 142,950,000 (1 Mark)
Over Absorbed 1,950,000
Actual OH in 2022 = Rs 142,950,000

Budgeted Fixed OH in 2022 = Actual Fixed OH in 2021

Budgeted Fixed OH in 2022 = 142,950,000

OAR for 2022 = Not same as 2021 = Budgeted fixed OH/Budgeted Production Unit = 142,950,000/11,275

OAR for 2022 = 12,678.49/unit (0.5 Mark)

Computation of actual Fixed OH in 2022 using Absorption:

Rs.
OAR 12,678.49/unit
Actual production unit *10450
OH absorbed 132,490,221
Actual fixed OH (balancing) 133,690,221 (0.5 Mark)
Under Absorbed 1,200,000

Actual Fixed OH in 2022 = Rs 133,690,221 Total 4 Marks

Lectures: sta.saudtariq.com/Course/Detail/4885 5 Sir Saud Tariq (CAF 3, CAF 6, CFAP 3, CFAP 4, MSA 2)
 Grand Test 2 with Solution – Autumn 2023 SAUD TARIQ
CAF 3 Cost and Management Accounting
ST Academy
Part b:
Profit or Loss Statement for the year 31 Aug 2022, using Marginal Costing:
Rs. '000 Rs. '000
Sales 447,750
less; Variable Cost of Sales
opening stock (13,971.43/unit * 3500) (0.5 Mark) 48,900
Variable Production cost (14,321.51*10450) (0.5 Mark) 149,660
less: closing stock (14,321.51*4000) (0.5 Mark) (57,286) (141,274)
Gross CM 306,476
Variable selling and admin expense (0.5 Mark) (62,700)
Net CM 243,776
Fixed cost (actual) (0.5 Mark) (133,690)
Net Profit with Marginal Costing (0.5 Mark) 110,086

Working:

Total Cost/unit Final Cost/unit Variable Cost/unit (Full 1

Mark if shown directly)
2021 93,000,000/3500 = 26,571.43 (0.5 Mark) (12,600) (0.5 Mark) 13,971.43
2022 282,150,000 /10,450=27,000 (0.5 Mark) (12,678.49) (0.5 Mark) 14,321.51
(Total 5 Marks)

Part c:
Profit Reconciliation:
Rs. '000
Profit with marginal costing 110,086 (0.5 Mark)
Difference in closing stock (12,678.49*4000) 50,714 (0.5 Mark)
Difference in opening stock (12,600*3500) (44,100) (0.5 Mark)
Profit with absorption costing 116,700 (0.5 Mark)
(Total 2 Marks)

Lectures: sta.saudtariq.com/Course/Detail/4885 6 Sir Saud Tariq (CAF 3, CAF 6, CFAP 3, CFAP 4, MSA 2)
 Grand Test 2 with Solution – Autumn 2023 SAUD TARIQ
CAF 3 Cost and Management Accounting
ST Academy
Question 3
Gerry Hatrick Ltd.
Profit and Loss Account
For the month ended September 2005

Marginal Costing (4 Marks)

Sales revenue (800 x 1,800) 1,440,000 (0.5)

Variable cost of sales
Opening stock of finished goods -
Cost of production (240 x 2,400) 576,000 (0.5)
Closing stock of finished goods [(2,400 – 1,800) x 240] (144,000) (0.5)
(432,000)
Gross contribution margin 1,008,000
Variable revenue overheads (1,440,000 x 10%) (144,000) (0.5)
Net contribution margin 864,000
Fixed costs
Fixed revenue overheads 120,000 (0.5)
Fixed administration overheads 80,000 (0.5)
Fixed operating expenses (160 x 2,000) 320,000 (0.5)
(520,000)
Net profit 344,000 (0.5)

Absorption costing (4 Marks)

Sales revenue (800 x 1,800) 1,440,000
Cost of sales
Opening stock of finished goods -
Cost of production (400 x 2,400) 960,000 (0.5)
Closing stock of finished goods [400 x (2,400 – 1,800)] (240,000) (0.5)
(720,000)
Add: Overabsorption of overheads (W1) 64,000 (2)
Gross profit 784,000
Less: Expenses (144,000 + 80,000 +120,000) (344,000) (1)
Net profit 440,000

Working
Absorbed overheads (160 x 2,400) = 384,000
Actual overheads (160 x 2,000) = 320,000
Over absorption = 64,000

Reconciliation (2 Marks)
Net profit under marginal costing 344,000 (0.5)
Add: Difference in closing finished goods (240,000 – 144,000) 96,000 (1)
Net profit under absorption costing 440,000 (0.5)

Lectures: sta.saudtariq.com/Course/Detail/4885 7 Sir Saud Tariq (CAF 3, CAF 6, CFAP 3, CFAP 4, MSA 2)