Code of the Name of the Module Date of Exam Time of Set

Module Exam
BBF/BAC 211 Cost Accounting 23/06/2021 14:00Hrs 1

You are advised to read the following before answering the examination questions.
1. Read each of the questions carefully before you answer.
2. Number the answers to the questions clearly before answering.
3. Answer all parts of a question at one place in continuous manner.
4. Please write as clearly as possible as illegible handwriting cannot be marked

This paper contains two parts; Section A and Section B. Section A is compulsory and
comprises two questions with two sub-questions each with a total of 20 marks. Section B
contains five questions having two sub questions of 20 marks. Answer any three questions
from section B.
 Section A
Answer both questions

QUESTION ONE

a) MESI Plc. Has provided the following details in relation to its inventory of raw material
Q and work-in progress:

Raw material Q

01 June 2021 Received 1,000 Kg @ K8.00 per Kg

10 June 2021 issued to production 800 Kg
16 June 2021 Received 1,200 Kg @ K9.50 per Kg
23 June 2021 Received 2000 Kg @ K10.00 per Kg
28 June 2021 Issued to production 1,500 Kg

Required:
Prepare a statement showing the amount charged to production and the cost of the inventory of
raw materials held after each inventory transaction using each of the following methods of
inventory valuation:

i. First-in, First-out (FIFO)

ii. Last-in, First-out (LIFO)
iii. Weighted Average (AVCO) (12 marks)

b) MESSI plc. Is planning to launch a new product next year and budgeted to use 55,000
units of a special material. The material will be used at an even rate throughout the year.
The purchasing manager has decided he is going to place orders for 2,200 units at regular
intervals during the year. The costs associated with the material are as follows:

1. Purchase price K2.75 per unit

2. Ordering cost K15 per order
3. Holding cost K1.00 per unit, per year

Required:
i. Calculate the ordering and holding cost based on the suggested quantity of 2,200 units
per order. (4 marks)
ii. State the meaning of economic order quantity (EOQ) model. (1 mark)
iii. Calculate the Economic order quantity (EOQ). (3 marks)
[Total: 20 Marks]
QUESTION TWO

The following information relates to the only product manufactured and sold by Nkuni Ltd.
K per unit
Selling price 180
Direct material cost 55
Direct labour cost 45
Variable production overhead 10
Variable sales & marketing overhead 8

The following levels of activity took place over the first three months of the product’s life:
Sales Production
Units Units
January 5,800 7,000
February 6,500 8,000
March 7,800 8,500
Additional information is as follows:
1. Budgeted fixed production overhead was K 500,000 per annum.
2. Actual fixed production overhead for the period was K 45,000 per month.
3. Sales and marketing overhead of K35,000 per month and administration overhead
of K20,150 per month were in line with the budget for that period.
4. All fixed overhead costs are budgeted on the basis of a projected volume of
80,000
units per year and all costs are expected to be incurred at a constant rate
throughout
the year.
5. The business does not expect to have any inventory at 1 January.
Required:
(a) On the assumption that Nkuni Ltd. operates an absorption costing system, calculate
the (under)/over absorbed fixed production overhead for each month. (3 marks)
(b) Prepare a profit statement for each month using each of the following bases:
(i) Absorption costing
(ii) Marginal costing (14 marks)
(c) Reconcile the difference in the reported profit under the two (2) bases for each month.
(3 marks)
[Total: 20 Marks]

Section B
Answer any three

QUESTION THREE
Bola Limited makes football boots. In May 2021 the budgeted sales and production were 19,000
boots and the standard cost card is as follows:
K/unit
Materials (2kg at K5/kg) 10
Labour (3hrs at K12/hr) 36
Overheads (3hrs at K1/hr) 3
Total fixed costs in the period were budgeted at K100,000 and were absorbed on the basis of
labour hours worked.

In May 2021 the following results were achieved.

40,000kg of material (Leather) was bought at a cost of K196,000, this produced 19,200 football
boots. No inventory of raw materials is held. The labour was paid for 62,000 hours and the total
cost was K694,000. Labour worked for 61,500 hours.
Variable overheads in the period were K67, 000.

The sales price was reduced to protect the sales levels. However, only 18,000 football bats were
sold at an average price of K65.

Total fixed costs in May were K107,000.

Required:
Calculate the following variances:
(a) Material price and usage (4 marks)
(b) Labour rate, idle time and efficiency (4 marks)
(c) Variable overhead expenditure and efficiency (4 marks)
(d) Fixed overhead expenditure and volume (4 marks)
(e) Sales price and volume profit (4 marks)
[Total: 20 Marks]

QUESTION FOUR
Mushili Ltd, a company located in Ndola’s light industrial area, manufactures plastic containers
for the pharmaceutical and cosmetic industries. The plant, in which the company undertakes all
of its production, has two production departments – ‘Cutting’ and ‘Shaping’, and two service
departments – ‘Stores’ and ‘Maintenance’.
The information provided below has been extracted from the company’s budget for the next
financial year which ends on 31 December 2022:
Allocated Production Overhead Costs K
Cutting Department 140,000
Shaping Department 160,000
Stores Department 35,000
Maintenance Department 28,000
Apportioned Production Overheads K
Factory rent 525,000
Factory building insurance 70,000
Plant & machinery insurance 39,000
Plant & machinery depreciation 58,500
Canteen subsidy 150,000
The following additional information is also provided:
Cutting Shaping Stores Maintenance
Dept Dept Dept Dept
Floor area (square metres) 18,000 12,000 3,000 2,000
Value of Plant & Machinery (K) 300,000 50,000 25,000 15,000
Number of stores requisitions 1,000 500 - -
Maintenance hours required 2,700 2,000 300 -
Number of employees 34 60 4 2
Machine hours 12,000 2,200 - -
Labour hours 9,000 15,000 - -

Required:
(a) Prepare an overhead analysis sheet based on the above information, clearly state the basis
used for any apportionments. (12
marks)
(b) Explain four different levels of performance which may be incorporated into a system of
standard costing and their effect on employee motivation. (8 marks)

[Total: 20 Marks]

QUESTION FIVE
The following information relates to Chisapo Ltd. It is a manufacturing business that is
considering the introduction of a piece-work incentive scheme in one of its departments, which
has 6 employees.

Current Payroll
Basic working week 38 hours
Over-time premium 20% of normal pay grade.
Normal grade A pay rate is K 22 per hour.
Normal grade B pay rate is K 18 per hour.

Employee Normal Normal Normal

Hrs Worked Pay Grade Units Produced
1 41 A 170
2 44 A 170
3 40 B 150
4 38 B 150
5 38 B 160
6 45 A 180

Piecework Incentive Scheme Proposal

Under the proposed incentive scheme, the standard time allowance would be 20 minutes per unit.
The piecework rate would be based on grade A labour rates, with a standard piecework
enhancement of 6%. All employees would receive the same piecework rate.

Required:
(a) Outline the purpose of an incentive scheme. (5 marks)
(b) Calculate the normal pay due to each employee based on the current payroll terms. (5 marks)
(c) Calculate the standard piecework rate on the basis of the proposed incentive scheme. (5
Marks)
(d) Calculate the normal pay due to each employee under the terms of the proposed incentive
scheme. (5 marks)
[Total: 20
Marks]

QUESTION SIX

1. Below is the static budget and actual results of Yugu Inc. for the month of April 2021.
 Actual Static
Production (units) 42,000 40,000
Sales (units) 40,000 30,000

Revenue (K) 236,000 180,000

Variable Costs (K):
Material 76,000 60,000
Labour 63,200 44,800
Factory Overhead 34,000 24,000
Contribution Margin 62,800 51,200
Fixed Costs:
Factory Overhead 12,880 12,000
Office Expenses 22,000 20,000
Profit 27,920 19,200

The management is pleased with the income higher than budgeted. However, they understand
that significant increase in units sold renders the comparison of actual results and the static
budget unfair.

Required:

Using marginal costing

a) Prepare a cost card (3 marks)
b) prepare a flexed budget and calculate the total variances. (8 marks)

2. The following information is given to you from which you are required to prepare a Cost
Sheet and Sales for the period ended on 30th June 2021:

Consumable material: K
Opening stock 20,000
Purchases 122,000
Closing stock 10,000
Direct wages 36,000
Direct Expenses 24,000
Factory overheads 50 % of direct wages
Office and administration overheads 20% of works cost
Selling and distribution expenses K3 per unit sold

Units of finished goods:

In hand at the beginning of the period (Value K12,500) 500
Units produced during the period 12,000
In hand at the end of the period 1,500
Profit on selling price 20%

There is no work-in-progress either at the beginning or at the end of the period.

 (9 marks)
[Total: 20 Marks]

QUESTION SEVEN

a) You work for a management consulting firm whose mandate is to provide consultancy
services to manufacturing companies in Zambia as well as conducting training through
workshops and seminars. During the previous workshop conducted by your firm at
Village Inns in Solwezi, a questionnaire was distributed to participants with a request for
them to suggest probable training topics for future seminars for the year 2021. Your Boss,
Mrs. Lucy Kaira has asked you to compile a list of suggested topics as per the
questionnaire. The most popular topic raised by participants was “Cost Reduction
Strategies”.

Required:

Prepare notes on the following basic cost definitions for the development of the PowerPoint
presentation by Mrs Lucy Kaira in the forthcoming workshop.

(i) Cost Object (2 marks)

(ii) Cost Unit (2 marks)
(iii) Cost Centre (2 marks)
(iv) Variable Cost (2 marks)
(v) Fixed Cost (2 marks)
(vi) Mixed Costs (2 marks)
(vii) Conversion Costs (2 marks)

b) The maintenance cost for the leading cooking oil manufacturer in Main Masala, Ndola
for the past six months are as follows: -

Month Maintenance Total Maintenance

Hours Costs (K)
______________________________________________________________
January 625 7,950
February 500 7,400
March 700 8,275
April 550 7,625
May 775 9,100
June 800 9,800

Required:
i. Determine an estimate of the total maintenance costs for the month of July 2021 when
maintenance hours are anticipated to be 925 using the high low method. (4 marks)

ii. List two (2) other ways of separating semi-variable costs, other than the one
used in b (i) above. (2 marks)
[Total: 20 Marks]

End of the exams!