KABARAK UNIVERSITY

UNIVERSITY EXAMINATIONS
MAIN CAMPUS

THIRD SEMESTER, 2017/2018 ACADEMIC YEAR

EXAMINATION FOR THE DEGREE OF BACHELOR OF COMMERCE

ACCT 314: COST ACCOUNTING

STREAM: Y3S1 TIME: 2.00-4.00 PM

EXAMINATION SESSION: AUGUST DATE: 10/08/2018

INSTRUCTIONS TO CANDIDATES

1. Answer Question 1 and any other two questions in the answer booklet provided.
2. Do not write on your question papers. All rough work should be done in your
answer booklet.
3. Clearly indicate which question you are answering.
4. Write neatly and legibly.
5. Edit your work for language and grammar errors.
6. Follow all the instructions in the answer booklet
QUESTION ONE (COMPULSORY)

1. Cost accounting as a discipline is useful across the board in an organization,

Required:

Explain the role of cost accounting in

i. Financial accounting (2 marks)

ii. Manufacturing (2 marks)

As members of Kabarak University family, we purpose at all times and in all places, to set apart in
one’s heart, Jesus as Lord. (1 Peter 3:15)

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iii. Product development (2 marks)

iv. Product price (2 marks)

2. Describe four main differences between marginal costing and absorption costing (4 marks)

Airwaves company ltd uses both marginal costing and absorption costing to determine the profits of
different cost centers the following details relate to the third week of June 2018

Cost center A B C

Production 2000 2500 2200

Direct materials @ 5/= 3/= &2/= per Kg 50Kg/Unit 100Kg/unit 120Kg/unit

Direct labour @3/= 4/=&5/= per hour 20hours /unit 13hours/Unit 15hours/Unit

Variable overhead@ 200sh/Unit 150/unit 300/unit

Selling price 1200/=perunit 1500/=per Unit 1500/=per Unit

You are also informed that the fixed cost is 120,000 shillings and there was no closing stock but the
closing stock was A 40 UNITS

B 60 UNITS

C 30 UNITS

Required:

i. determine the profits reported using:

a) Absorption costing (6 marks)

b) Marginal costing (6 marks)

ii What are the advantages and disadvantages of;

a) Marginal costing (4 marks)

b) Absorption costing (4 marks)

As members of Kabarak University family, we purpose at all times and in all places, to set apart in
one’s heart, Jesus as Lord. (1 Peter 3:15)

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QUESTION TWO

The following data represent the production level of Nyamenga ltd and the related cost for the respective
week

week Production level Units Cost Kshs. (Y)

(X)
1 300 450,000
2 200 410,000
3 350 450,000
4 220 430000
5 400 550,000
6 350 470,000
7 450 760,000

Use the cost estimation methods given below to estimate the cost of production for the eighth, ninth and
tenth weeks if production is expected to be 470, 480 and 490 units

i. The high- low method of cost estimation (4 marks)

ii. The visual fit method (6 marks)

iii. The simple linear regression method (10 marks)

QUESTION THREE

a) Cost estimation is very important in cost accounting. There is no phase of business that does not
require it

Required:

Explain how cost estimation is used in

i. Budgeting (2 marks)

ii. Cost control (2 marks)

iii. Planning (2 marks)

iv. Directing (2 marks)

v. Coordinating (2 marks)

b). The budget is a monetized plan. It helps the organization to see the future.

As members of Kabarak University family, we purpose at all times and in all places, to set apart in
one’s heart, Jesus as Lord. (1 Peter 3:15)

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Required:

Prepare a simple imaginary budget of a small enterprise called; “Innovations for the future” that makes a
single product that is used to amplify sounds for the deaf. The gadget requires a special combination of
metals and carbon black. It also requires specialized labour that is very limited in supply. To make a
single unit of the product the company needs

Special material 5 grams @1230/ shillings per gram

Filler materials 10 grams @23/= per gram

Labour 50 hours @ 1000 per hour

Machining 20 hours at 50/= per hour

Only 50,000 labour hours are available

The product’s production results in a bi-product that is processed further at a cost of 200/= per unit and
sold at 3000/= per unit

The product is sold at 250,000/= per unit (10 marks)

QUESTION FOUR

a) Explain the following terms as used in cost accounting

i. Lead time (2 marks)

ii. Re-order level (2 marks)

iii. Maximum stock level (2 marks)

iv. Minimum stock level (2 marks)

v. Re-order period (2 marks)

b) In determining the Economic Order Quantity (EOQ) we must balance two antagonistic costs

Required;

i. Explain how this balancing is done and how one arrives at the EOQ. (2 marks)

ii. clearly identify the assumptions under which EOQ is calculated using the economic order model

(2 marks)

As members of Kabarak University family, we purpose at all times and in all places, to set apart in
one’s heart, Jesus as Lord. (1 Peter 3:15)

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ii. If the cost of placing an order is 2,000 shillings and the cost of carrying one unit of stock per year is
400 shillings and the demand is 150,000 units, you are required to:

i. Derive a formula for determining the EOQ (2 marks)

ii. use the formula to determine the EOQ. (2 marks)

QUESTION FIVE

a) Discuss the importance of:

i. Variance analysis (2 marks)

ii. Costing as a discipline (2 marks)

iii. Segmentation of an entity (2 marks)

iv. A cost center (2 marks)

v. A responsibility center (2 marks)

b) Explain the difference between;

i. Job order costing and batch costing (2 marks)

ii. Process costing and contract costing (2 marks)

iii. Cost accounting and financial accounting (2 marks)

iv. Marginal costing and absorption costing (2 marks)

v. Favourable and adverse variance (2 marks)

As members of Kabarak University family, we purpose at all times and in all places, to set apart in
one’s heart, Jesus as Lord. (1 Peter 3:15)

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