The Professionals’ Academy of Commerce

Pakistan’s Leading Accountancy Institute

(Certificate in Accounting and Finance)
Mid Term Examinations (Sir. SY & SS)
9 June, 2022
3 hours – 100 marks
Additional reading time - 15 minutes

Cost and Management Accounting

Q.1 Ahmed Limited (AL) is a manufacturer and recently company is purchasing one major component that is
used in manufacturing from a supplier Hafez Limited (HL). HL is a reliable supplier of components and
AL has been purchasing such components from HL for last 20 years. AL usage of component
significantly varies during lead time of 1 week.
Data of last three years shows the following trends:
Number of components demanded Probability of demand during
During lead time lead time
350 39%
391 31%
450 23%
472 07%
Other relevant information is as under:
 Holding cost per component per annum Rs. 175. Ordering cost per order is Rs.7,014.70
 Contribution loss per component Rs. 38 Rs.
 There are 52 weeks in a year.
Required:
Suggest the appropriate Re-order level for AL. (18)

Q.2
May Opening balance 250 units at value of Rs. 7500
1
7 Issued to production 70 units
9 Purchased from Supplier Beta & Co 450 units @ Rs.32 each
11 Issued to production 125 units
12 Returned to Beta & Co 50 units
14 Issued to production 355 units
19 Purchased from Supplier Zeeshan & Co 290 units @ Rs. 35 each
20 Issued to production 94 units
23 Purchase from Naeem Limited 45 units@ Rs37 each
28 issued to production 125 units
31 Shortage in physical stock count 16 units

Required:
Record all above transactions in store ledger and determine cost of month end closing inventory using
weighted average Method. (15)
Q.3 The following information relates to Zahra Company for the month of May 2022
During the month of May, following transactions took place:
Rs.
(a) Materials purchased on account 360,000
(b) Direct materials issued (No indirect material issued) 230,000
(c) Total payroll (direct labor 165,000 & remaining indirect) 210,000
(d) Total Wages paid 210,000
(e) Accounts payable paid 360,000
(f) Cost of goods sold 525,000
(g) Sales on account @ 40% mark up

Required:
Prepare journal entries for the above transactions. (07)

Q.4 The following information is related to Theta Limited (TL).

 Basic Wage Rate is Rs 500 per hour and Overtime is paid at premium of 40%
 Normal Working hours in a day are 8 and Company operates @ 90% bonus plan
 TL fixed standard production of four units in an hour
 Bonus is calculated on weekly basis
The hours worked and units produced by the worker in a week are as follow:
Day Hours worked Production (units)
Monday 11.00 48.00
Tuesday 12.00 50.00
Wednesday 8.00 35.00
Thursday 9.00 34.00
Friday 10.00 42.00

Required:
(a) Total Wages for the week
(b) Wages cost per unit
(c) Wages cost per hour (15)

Q.5 The Production Director of a company desires to use marginal costing method for decision making
instead of absorption costing method. Following data has been summarized from the cost accounting
records:
(i) Budgeted Fixed overheads (annual) : Rs(000)
Factory overhead 6,000
Marketing & distribution 3,200
General & administrative 800
Total 10,000
(i) Normal production for the current year is 100,000 units.
(ii) Inventory at start of year was 7000 units and units sold during the year were 90,000.
(iii) Actual Production Overheads of the year was Rs. 6,500,000 and marketing & distribution and
General & admin were same as budgeted.
(iv) Actual Production during the year was 93,000 units and with following actual cost.
 Selling Price per unit Rs. 1,500
Variable Production cost per unit Rs. 1,000
Variable marketing/distribution cost per unit Rs. 50

Required:
Prepare Income Statements for the year under following methods:
(i) Marginal costing system; and (05)
(ii) Absorption costing system. (05)

Q.6 Fast Autos (FA) manufactures components for auto industries. It started its business in 1990 in a small
workshop which has now developed into a fully automated factory with latest computerized machines.
For allocating overheads, FA has been using single plant-wide factory overhead absorption rate based on
direct labor hours. In view of strong competition, the company’s management is reviewing its pricing
strategies and wants to introduce a more accurate method of product costing.
The pertinent information is as under:
(i) Actual expenses for the quarter ended 31 March 2022 were as under: Rupees
Direct wages (30,000 labor hours) 3,000,000
Machines operating expenses (50,000 machine hours) 2,500,000
Maintenance expenses 1,500,000
Technical staff expenses 2,000,000
Expenses of procurement 1,000,000
Expenses of finished goods stores and dispatch 1,600,000
Administration and selling expenses(Head Office) 5,000,000
Total 16,600,000

(ii) During the quarter:

 60 purchase orders were processed and received.
 120 sales orders were acquired and delivered.
 150 batches were set for production.
(iii) Maintenance expenses pertain to:
Production 70%
Procurement 5%
Finished goods stores and dispatch 15%
Quality control 10%
(iv) It is estimated that Technical staff devotes 50% of its time to maintenance, 30% to production, 8%
to quality control and 12% to procurement.
(v) Quality inspection is carried out at the commencement and completion of each batch
(vi) FA produces a number of components. Information related to two major products of the company,
(vii) for the quarter ended 31 March 2022 is as under:
LV MV
No. of units produced and sold 10,000 12,000
Batch size (no. of units) 400 500
Machine hours per batch 200 150
Direct labor hours worked 1,000 1,500
Direct material costs (Rs.) 850,000 900,000
Average size of a purchase order (Rs.) 170,000 150,000
No. of sales orders delivered 8 10
 Required:
Compute the unit cost of components LV and MV using:
 Activity Based Costing; and
 A single factory overhead rate based on direct labor hours. (20)
Q.7
Proton Limited (PL) produces various products which pass through Processing and Finishing
departments. Logistics and Maintenance departments provide necessary support for the production.
Following information is available from PL’s records for the month of January 2022:

(i)
Overhead costs Direct labor hours

Departments Budgeted Actual Budgeted Actual

-------- Rupees -------- -------- Hours --------

Processing 1,280,000 1,170,000 28,000 28,800

Finishing 690,000 511,000 21,000 20,100

Logistics - 112,500 - -

Maintenance - 89,400 - -

(ii) Costs of support departments are apportioned as under:

Departments Processing Finishing Logistics Maintenance

Logistics 60% 25% - 15%

Maintenance 40% 48% 12% -

Required:

(a) Allocate actual overhead costs of support departments to production departments using
repeated distribution method. (10)
(b) Compute under/over applied overheads for the month of January 2022. (05)

(THE END)