MERU UNIVERSITY OF SCIENCE AND TECHNOLOGY

P.O. Box 972-60200 – Meru-Kenya

Tel: +254(0) 799 529 958, +254(0) 799 529 959, + 254 (0) 712 524 293,
Website: info@must.ac.ke Email: info@must.ac.ke

UNIVERSITY EXAMINATIONS 2019/2020

SECOND YEAR FIRST SEMESTER SUPPLEMENTARY/SPECIAL EXAMINATION

FOR THE DEGREE OF BACHELOR OF COMMERCE

BFC 3227: COST ACCOUNTING

DATE: JANUARY 2021 TIME: 2 HOURS

INSTRUCTIONS: Answer question one and any other two questions

QUESTION ONE (30 MARKS)

a) The following information is available for Nyanyu Company

Period

1 2 3 4 5 6

Units sold (000) 150 120 180 150 140 160

Units produced (000) 150 150 150 150 170 140

Budgeted activity is expected to average 150,000 units per period and there is no opening
stock for period 1. Unit selling price is Ksh 10, Unit variable cost is Ksh 6, fixed costs per
period is Ksh 300,000 while non manufacturing overheads are 100,000 per period

Required:

Prepare a profit and loss statement based on marginal and absorption costing (8 marks)

b)A hospital records show that the cost of carrying health checks in the last five accounting
periods has been as follows;

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 Period No of patients seen Total cost

1. 650 17,125

2. 940 17,800

3. 1260 18,650

4. 990 17,980

5. 1150 18360

Required: Estimate the cost of carrying out health checks on 850 patients using

i) Regression model (6 marks)

ii) High – low method (4 marks)

c) Explain the differences between job order costing and process costing (4 marks)

(d) Briefly state why there may be a difference between profit shown by cost accounts and that
of financial accounts (4 marks)

e) Explain the causes of differences between financial and cost accounting (4 marks)

QUESTION TWO (20 MARKS)

Kima Ltd has three production departments, X, Y and Z, and two services
departments, Stores and General Services.
For the forthcoming period, the total budgeted overhead costs are as follows:

Allocated costs (ksh000)

Department Indirect material Indirect labour
X 20 12
Y 10 12
Z 10 8

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Stores 6 8
General Services 3 6

Other costs (ksh000)

Heat and light 21

Rent 33
Plant insurance 21
Building insurance 12
Canteen 18

The following information is also available:

Department X Y Z Stores General Services
Labour rate
per hour (ksh) 4 5 6
Total direct
labour hours (000) 12 15 12
Employees 80 50 40 20 10
Area (000m2) 8 7 6 6 3
Plant valuation (ksh000) 100 120 100 40 60
Material requisitions (000) 1.2 1 1.8 - 1

The company absorbs its production overhead by using direct labour rates.
Required:
(i) Prepare an overhead analysis for the forthcoming period, showing clearly the
bases of apportionment used (7 ½ marks)
(ii) Calculate the direct labour hour rate for overhead absorption for each of the
three production departments) (4 ½ marks)
(iii) State one alternative to an hourly rate for overhead absorption, and state
why hourly rates are considered to be the most suitable method for overhead
absorption (3 marks)

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(iv) The company has been asked to quote a selling price for a job, the
Specifications of which are:

Direct material ksh169.93

Direct labour
Dept X 4 hours
Dept Y 6 hours
Dept Z 3 hours

The company requires a profit of 20% of selling price on this job

You are required to

Calculate the selling price for the job based on the above information and the
overhead rates calculated in (b) above. (5 marks)

QUESTION THREE (20 MARKS)

Xyz Company manufactures a product called “KEGI” pertinent costs and revenues data
relating to the manufacture of this product is given below

Sh.

Selling price per unit 132

Variable production cost per unit 88

Variable selling cost per unit 8

Fixed production cost (total) sh. 400,000

Fixed selling and administrative cost (total) sh. 198,000

Required:

a) Calculate the break even sales level in shillings and unit (5 marks)
b) Suppose the company desires to make a profit ofshs. 390,000, what should
be the output in units? (5 marks)
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 c) A new machine, which is more efficient, is installed. The machine increases
the fixed production cost by 20% but reduces the variable production cost
per unit by 30%. What is the new break-even point in sales revenue?
(7mks)
d) State three limitations of break- even analysis (3 marks)

QUESTION FOUR (20 MARKS)

a) Define the following terms as used in contract costing

i) Cost-plus contract (2 marks)

ii) Escalation clause (2 marks)
iii) Work certified (2 marks)

b) mjengo contractors ltd. Was awarded two contracts, A and B, at a contract price of
sh 450,000,000 and sh 375,000,000 respectively.

The contractors expect to execute the two projects for a period of five years. The
following information relates to the contracts for the year ended 31st December 2010.

Contract A contract B
Date of commencement 1 January 2010 1
June 2010
Sh (000) sh
(000)
Direct materials issued to site 120,000
45,000
Direct materials returned from site 3,000
1,500
Direct materials lost from site 1,000 750
Direct materials on site (31st December 2010) 16,500
6,000
Direct wages paid 112,500
31,500
Direct wages accrued (31st December 2010) 2,500
1,000
Direct expenses paid 49,500
26,250

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 Establishment expenses 18,750
5,250
Plant installed at site (cost) 60,000
52,500
Value of plant on 31st December 2010 48,750
48,000
Site overheads 5,000
4,000
Cash received on work certified 315,000
101,250
Cost of work not yet certified 17,250
7,500
Architect’s fees 1,500
750
Additional information:
i) During the period, materials amounting to sh 6,750,000 were transferred from
contract A and B.
ii) Stocks on site are insured comprehensively.
iii) Retention money was agreed at 10% of work certified.
Required:
Contract A and contract B accounts in the books of Mjengo contractor’s ltd and work
in progress as at 31st December 2010 . (14 marks)

QUESTION FIVE(20 MARKS)

Urembo company ltd. Manufactures a single product and uses standard costing. The standard
cost for producing one unit of the product as follows
Shs.
Direct materials:
Material X (6 kgs) 60
Material Y (10 kgs) 50
Direct labour (10 hours) 80
Production overheads:
Variable 60
Fixed 40
Standard unit cost 290

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Note: overhead is applied on the basis of direct labour hours.

In the month of may2010,the company had budgeted to produce 20,000 units. However,
22,000 units were actually produced and thee costs incurred were as follows:
Shs. Shs.
Materials cost:
Material X(68,000 kgs) 646,000
Material Y(104,000 kgs) 624,000
1,270,000

Labour cost (102,000 hours) 867,000

Manufacturing overheads:
variable 680,000
Fixed 440,000 1,120,000
Total manufacturing costs 3,257,000

Note: there was no change in stock of work in progress

Required:
Calculate the following variances indicating whether they are favourable (F) or unfavourable
(U):
i) Material price variance (2 marks)
ii) Material usage variance (2 marks)
iii) Labour rate variance (2 marks)
iv) Labour efficiency variance (2 marks)
v) Total variable overhead variance (3 marks)
vi) Total fixed overhead variance (3 marks)
vii) Explain the cause of each of the six variances listed (6 marks)

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