FACULTY OF BUSINESS ADMINISTRATION

DEPARTMENT OF BUSINESS STUDIES AND HUMAN RESOURCE MANAGEMENT

AC 213 – COST ACCOUNTING
SEMESTER I/2023-24 TEST I – MARKING SCHEME

Question One
(a) With short notes, explain any four qualities of good information. (2 Marks)
(i) Relevance - Information must be relevant to the purpose for which a manager
wants to use it. Reports should not contain irrelevant paragraphs which only
annoy the managers reading them. (0.5 Mark)
(ii) Completeness - An information user should have all the information he needs to
do his job properly. If he does not have a complete picture of the situation, he
might well make bad decisions. (0.5 Mark)
(iii) Accuracy - Information should obviously be accurate because using incorrect
information could have serious and damaging consequences. However,
information should only be accurate enough for its purpose and there is no need to
go into unnecessary detail for pointless accuracy. (0.5 Mark)
(iv) Clarity - Information must be clear to the user. If the user does not understand it
properly he cannot use it properly. Lack of clarity is one of the causes of a
breakdown in communication. (0.5 Mark)
(v) Reliability - Information must be reliable and trusted by the managers who are
expected to use it.
(vi) Communication – Information must be communicated to individuals who are
given the authority to do certain tasks. They must be given the information they
need to do them.
(vii) Volume - Reports to management must be clear and concise.
(viii) Timing - Information must be communicated on time, information which is not
available until after a decision is made may serve no purpose.
(ix) Cost - The benefits obtainable from the information must exceed the costs of
acquiring it.
(b) In a tabular form, explain any four differences between Management Accounting and
Financial Accounting. (2 Marks)
Management Accounting Financial Accounting
Management accounting information is Financial accounting information is
provided to managers and employees provided to interested parties outside
within the organization. (0.25 Mark) the organisation (shareholders,
creditors, banks, stock exchange, trade
unions). (0.25 Mark)
 Management accounting reports are
unregulated. (0.25 Mark)
The primary source of data for
management accounting information is
the organisation’s basic accounting
system plus data from many other
sources (financial and non-financial
like work processes, committed
customers and suppliers). (0.25 Mark)
Management accounting reports often
focus on sub-units within the
organisation, such as departments,
divisions, geographical regions or
product lines. These reports are based
on a combination of historical data,
estimates and projections of future
costs. The data may be subjective and
there is a strong emphasis on reporting
information that is relevant and timely.
(0.25 Mark)
Financial accounting reports are legally
required and must conform to
accounting standards. (0.25 Mark)
The primary source of data for
financial accounting information is
almost exclusively the organisation’s
basic accounting system, which
accumulates financial information.
(0.25 Mark)
Financial accounting reports tend to
focus on the enterprise in its entirety.
These reports are based almost
exclusively on verifiable transaction
data. The focus is often on reliability
rather than relevance and the reports
are not timely. (0.25 Mark)

(c) Eshumand Co. Ltd manufactures loaves of bread called Eshusweetie. The variable cost per
unit is Tshs. 1,500 and the sales price per unit is Tshs. 3,500. The total fixed cost is Tshs.
800,000.00 per month. Required: Calculate the break-even point in sales units.
(3.5 Marks).

BEP (in units) = Total fixed costs (0.5 Mark)

Contribution per unit
BEP = FC
CM/unit

And the contribution margin per unit = Selling Price/Unit – Variable Cost/Unit (0.5 Mark)

= Tshs. 800,000.00 (1.5 Marks) = 4,000 units (0.5 Mark)

(Tshs. 3,500 - Tshs. 1,500)
Hence, to break-even, Eshumand Co. Ltd must sell 4,000 loaves of bread. (0.5 Mark)

Question Two:
(a) Explain what you understand with the terms economy, efficiency and effectiveness as
applied in Management Accounting. (3 Marks)
(i) Economy concerns inputs, and it means the acquisition of sufficient quality and
quantity of financial, human, physical and information resources at the appropriate
times at the lowest cost. (1 Mark)
(ii) Efficiency concerns both inputs and outputs which means the use of financial,
human, physical and information resources to maximize output for any given set of
 resource inputs. In other words, input is minimized for any given quantity and
quality of output. (1 Mark)
(iii) Effectiveness refers to the actual outcome of an organization, that is, the
achievement of the objectives or other intended effects of activities. (1 Mark)

(b) Explain what is meant with variable and fixed costs (1 Marks)
(i) Variable costs vary in direct proportion to the volume of activity; that is, doubling
the level of activity will double the total variable cost. Consequently, total variable
costs are linear and unit variable cost is constant. (0.5 Mark)
(ii) Fixed costs remain constant over wide ranges of activity for a specified time period.
They are not affected by changes in activity. (0.5 Mark)

(c) Variable Cost per Unit = Budgeted Manufacturing Costs per Unit + Other Expenses per
Unit
Tshs.
Ie. Direct Material 15,000
Direct Labour (1) 10,000
Direct Expenses 7,500
Administrative overheads (W1) 6,400
Selling and distribution overheads (W2) (1) 14,400
Variable Cost per unit produced 53,300
Hence, the Variable cost per unit produced is Tshs. 53,300.00 (0.5 Mark)

W1
Administrative Overheads
Tshs.
Total administrative overheads 800,000,000
Variable administrative overheads (0.4 x 800,000,000) 320,000,000
Variable administrative overheads per unit (320,000,000 / 50,000) 6,400 (0.5)

W2
Selling and Distribution Overheads
Tshs.
Total selling and distribution overheads 1,200,000,000
Variable administrative overheads (0.6 x 1,200,000,000) 720,000,000
Variable administrative overheads per unit (720,000,000 / 50,000) 14,400 (0.5)