UNIVERSITY EXAMINATIONS: 2018/2019

EXAMINATION FOR THE DIPLOMA IN BUSINESS INFORMATION

TECHNOLOGY

DBIT402 COST ACCOUNTING

FULLTIME/PARTIMG

DATE: APRIL 2019 TIME: 2 HOURS

INSTRUCTION: Answer Question ONE and any other TWO questions

QUESTION ONE: (30 MARKS)

a. Define EOQ and state the limitations of the EOQ model (5 Marks)

b. EOQ model has assumptions that enable it to function properly. Enumerate and explain
five of these assumptions. (5 Marks)

c. 3G Company has an annual demand for its material amounting to 50,000 tons pa. The
purchase price per ton for the stock item is Kshs 2,000 and the stock holding cost is 25%
of the purchase price. The ordering cost is Kshs 800 per order.

Required: Calculate:

i. The EOQ. (3 Marks)

 ii. The total holding cost. (2 Marks)

iii. The total ordering cost. (2 Marks)

iv. The total relevant cost. (3 Marks)

D. Briefly explain CVP analysis and give its assumptions (10 Marks)

QUESTION TWO: (20 MARKS)

Tembo ltd buys and sells product pick. On June 1 2013, stock in hand consisted of 4,500
units which were acquired at Kshs 50 per unit. The operations for the month were as
follows:

Date Purchases Sales

2 5,000 @ Kshs 48
4 6,000 @ Kshs 60
5 5,500 @ Kshs 49
7 4,000@ Kshs 50
11 7,000@ Kshs 61
12 5,000@ Kshs 50
13 6,000@ Kshs 47
18 7,000@ Kshs 62
19 8,000@ Kshs 64
20 6,000@ Kshs 49.50
21 5,000@ Kshs 65
22 7,000@ Kshs 50
25 6,000@ Kshs 49
26 2,000@ Kshs 47
28 500 @ Kshs 60
29 14,000@ Kshs 64

The company incurred operating costs of Kshs 450,000 during the month.

Required:
i. Prepare the stores ledger card using FIFO. (10 Marks)
ii. Prepare the stores ledger card using LIFO. (10 Marks)
QUESTION THREE: (20 MARKS)
The following information has been extracted from the books of Solarcross Ltd for the year to 31
March 2000:

Units ‘000’
Production 30
Sales 24
Production cost incurred: Sh ‘000’
Direct material 7,200
Direct labour 1,800
Variable overheads 1,500
Fixed overheads 2,700
Selling and administrations costs:
Sales and salaries 450
Variable sales commission 300
Promotion and advertising 480
Other fixed costs 720

The company’s unit selling price is Sh 550.

Required:
a) Profit and loss statement under margial costing approach. (8 Marks)
b) Profit and loss statement under absorption costing approach. (8 Marks)
c) An explanation of the difference in profit or loss in (a) and (b) above.
(4 Marks)

QUESTION FOUR: (20 MARKS)

a) Differentiate between Financial accounting and cost accounting (10 Marks)
c) Xylex Ltd provided the following information with respect to their products.
Estimated FC = Kshs 1,200,000
Variable cost = Kshs 200 per unit
Selling price = Kshs 400 per unit (10 Marks)

Required:
i. Calculate the number of units to be sold so as to break even

ii. How many units must be sold to earn Kshs 300,000 target profit
iii. What profit would result if 800 units are sold?
iv. What selling price will have to be charged to have a net profit of Kshs 3,000 on
sales of 8,000 units?
v. How many additional units must be sold to cover the extra fixed cost of Kshs
800,000 incurred in advertising?
QUESTION FIVE: (20 MARKS)

a) Elaborate TWO problems of overstocking and two problems of under stocking

(4 Marks)
b) Distinguish THREE differences between cost accounting and financial accounting
(6 Marks)
c) KAJI Enterprises has provided the following data in respect of its major raw materials.
Maximum consumption 3,600 units

Minimum consumption 2,400 units

Re-Order Period 8-12 weeks

Re-order quantity 18,000 units

Required:

i. Re-order level (2 Marks)

ii. Maximum stock level (3 Marks)

iii. Minimum stock level (3 Marks)

iv. Average stock level (2 Marks)