Cost Accounting Past Papers

The Institute of Chartered Accountants of Pakistan
Foundation and Modular Examinations
Autumn 2001
September 08, 2001

COST ACCOUNTING
FE-2 (PAPER-5) & MODULAR (PAPER D12) D
(MARKS 100)
(3 hours)
Q.1(a) Place each of the following expenses of a manufacturing concern within the classification
of Production, Administration and Selling and Distribution:
(i)
Cost of oil used to lubricate fork lifter employed in finished goods warehouse.
(ii)
Salary of security guards posted at cash counter located in the Karachi factory.
(iii)
Commission paid to sales representatives.
(iv)
Commission paid to companys purchasing agent.
(v)
Auditors fee
(vi)
Cost of damaged raw materials.
(vii) Insurance expenses on finished goods
(viii) Cost of packing cartons.
(ix)
Cost of protective clothing for machine operators.
(x)
Cost of stationery used in the Lahore factory.
(b) Classify the following cost as fixed, variable and semi-variable:
(i)
Depreciation calculated on straight line method.
(ii)
Royalty expense
(iii)
Factory insurance
(iv)
Supervision and inspection
(v)
Industrial relations and employees welfare expenses
(vi)
Property tax
(vii) Overtime costs
(viii) Material handling costs
(ix)
Machinery repairs charges
(x)
Generator fuel costs.
Q.2
(05)
(05)
The following information is available for the month of December 2000 of Khalid
Enterprises:
Accounts payable December 01,
Work in process December 01,
Finished goods December 01,
Material December 31,
Accounts payable December 31,
Finished goods December 31,
Actual factory overhead
Cost of goods sold
Payment of accounts payable used
only for material purchases
Rs
Rs
Rs
Rs
Rs
Rs
Rs
Rs
6,000
30,000
50,000
15,000
10,000
60,000
150,000
300,000
Rs
35,000
Factory overhead is applied at 200% of direct labour cost. Jobs still in process on December
31, have been charged Rs 6,000 for material and Rs 12,000 for direct labour hours (1,200
hours). Actual direct labour hours 10,000 @ Rs 8.00 per hour.
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(02)
Required :
Q.3
a)
b)
c)
d)
e)
f)
g)
Material purchased
Cost of goods manufactured
Applied factory overhead
Work in process December 31,
Material used
Material as on December 01
Over or under applied factory overhead.
(14)
Emerson efficiency plan establishes a scale of bonus ratio between low task and high task
starting with zero bonus at a certain efficiency level increasing by small increments to
successively large increments cumulating to a determined bonus at 100% efficiency. Above
100% efficiency, additional bonus is allowed. Khaskhkaily Enterprises adopted the
Emerson efficiency plan for their cigarette packing plant which employs four (4) workers.
Bonus is paid to workers in addition to basic pay which is fixed by the labour authorities.
Brief synopsis of the scheme is as follows:
Efficiency rates
Rates of Bonus
Upto 75% efficiency
0 Bonus
76% to 85% efficiency
2.5% bonus
86% to 98% efficiency
7.5% bonus
99% and above efficiency
15% bonus
Standard time 3 minutes per carton
Minimum Basic pay is Rs 3,375
Information specific for the month of August 2001 is as follows:
Actual packing for the month
Worker A 3,750 Cartons
Worker B 4,625 Cartons
Worker C 4,250 Cartons
Worker D 3,350 Cartons
August 2001 consisted of 25 working days of 9 hours each and there were no absentees
during the month. For the purpose of calculating standard per unit labour rate minimum
efficiency is considered as normal packing.
Required: Calculate the employee wise payroll cost for the month of August 2001
separately showing the basic pay and bonus payable to each employee.
Q.4
(15)
A controller is interested in an analysis of the fixed and variable cost of electricity as related
to direct labour hours. The following data has been accumulated.
Months
Electricity Cost
Direct labour hours
Rupees
Jan 2000
15,480
297
Feb 2000
16,670
350
Mar 2000
14,050
241
Apr 2000
15,340
280
May 2000
16,000
274
June 2000
16,000
266
July 2000
16,130
285
Aug 2000
16,350
301
Required :
The amount of fixed overhead and the variable cost using.

a)
The high and low points method
b)
The method of least square.
(06)
(06)
Q.5
Q.6
(03)
SS Construction Co. have under taken the construction of a fly over for Road Development
Authority. The value of the contract is Rs.12,500,000 subject to a retention of 20% until
one year after the certified completion of the contract and final approval of the authorities
surveyor. The Company has given the Contract No SS/RDA/786 for reference. The
following are the details as shown in the books of account of SS Construction Co. as on
June 30, 2001:
Amount in Rupees
Labour wages paid
4,050,000
Material purchased directly
4,200,000
Material issued from stores
812,000
Plant maintenance
121,000
Other expenses
601,000
Material in hand
63,000
Wages payable
78,000
Other expenses payable
16,000
Work not yet certified
165,000
Work certified
11,000,000
Cash received on account
8,800,000
Required: Prepare the Contract Account to show the position at June 30, 2001, retaining
an adequate provision against possible losses before final acceptance of the contract.
(10)
Shabbir Associates manufactures 3 joint products - Exe, Wye and Zee. A by-product Baye
is also produced. During the month of November 2000 the joint cost for direct materials and
direct labour were Rs 80,000 and 120,000 respectively. Shabbir Associates have an
established practice of absorbing overhead at 50% of direct cost. Production and sales
related data for the month of November 2000 is as follows:
Products
Exe
Wye
Zee
Baye
Production
Kgs
7,800
11,700
10,000
10,000
Sales
Kgs
7,000
11,000
9,000
10,000
Sales Value
Rupees per Unit
10.00
10.00
6.50
2.60
The sales value of by-product is deducted from the process cost before apportioning cost to
each joint product. Costs of common processing are apportioned between joint product on
the basis of sales value of production. Assume that there is no opening inventories.
Required: Calculate profit for the month of November and analyze the profit
product-wise.
Q.7
(10)
New Vision Trading Company Limited is planning to arrange for a six monthly overdraft
facility with a bank. However, before finalization of any arrangement it wants to know the
estimated requirements of cash. For this purpose it has hired you as consultant to make an
estimate of the foreseeable cash requirements.
The following is the basic data regarding various business cycles of the Company
I.
Sales forecast for the six months are as under:
Months
Rupees
January
800,000
February
950,000
March
600,000
April
900,000
May
1,100,000
June
600,000
(04)
II.
III.
Purchases are made as and when required

No closing stock is maintained as the supplier has capability to supply any
quantities at any time.
IV.
Gross profit ratio is maintained @ 20% of the sales price
V.
Various expenses for the six months are as under:
Rupees
Salaries and
390,000
wages
Repairs and
120,000
maintenance
Insurance
6,000
Stores and
270,000
spares
Duties
360,000
Legal charges
24,000
VI.
The recoveries from the debtors are made as follows
50% in the month of sale
30% in the month following the month of sale
20% in the second month after sale
VII.
Trade creditors are paid as under
40% in the month of purchase
40% in the month following the month of purchase
20% in the second month after purchase
VIII. All other business expenses are paid in the month of expense. Expenses are evenly
spread throughout the year.
IX The Company commenced its business on January 1, 2000 with a cash balance of
Rs 50,000.
Required: You are required to prepare a cash budget to facilitate the companys management
in assessing the working capital requirement for the next six months.
(15)
Q.8
Sangdil Limited makes two products, SS and TT. The variable cost per unit are as follows:
SS
TT
Direct Material
Rs. 6.00 Rs. 18.00
.
Direct Labour (Rs 18.00 per hour)
Rs. 36.00 Rs. 18.00
Variable overhead
Rs. 6.00 Rs. 6.00
_____
_____
Total Variable Cost
Rs. 48.00 Rs. 42.00
=====
=====
The selling price per unit is Rs 84.00 for SS and Rs 66.00 for TT. During July 2001
the available direct labour is limited to 48,000 hours. Sales demand in July is
expected to be 18,000 units for SS and 30,000 units for TT.
Fixed cost is Rs.200,000 per month.
Required:
Determine the profit-maximizing production level for the products

SS & TT.
(14)
(THE END)
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN
Foundation/Modular Foundation Examinations
Spring 2002
March 9, 2002
COST ACCOUNTING
FE-2 Paper 5 Modular D 12 (Module D, SM, 4B)
Q.1
Q.2
(a)
(b)
(c)
(MARKS 100)
(3 hours)
What are the essentials of a good wage system

How Cost Control is different from Cost Reduction
Define: Direct Material Total Variance and Direct Material Price Variance
06
02
04
The following balances are appearing in the cost ledger of Marwat Engineering as at
January 1, 2002.
General ledger control account
Materials control account
Work-in-process control account
Finished goods control account
80,000
35,000
17,500
27,500
At the end of the period you are supplied the following information by the factory
supervisor:
Materials purchased
Materials purchased for Special Job 420
Materials issued for
Repair and maintenance
Capital Job 101
Special Job 420
Production
Materials returned to suppliers
Normal material lost in transit and storage
Carriage inwards of materials
Total wages paid to employee for
Capital Job 101
Special Job 420
Production
Indirect wages
Normal idle time
Production expenses
Admin expenses
Selling expenses
Distribution expenses
Sales
Revenue from Special Job 420
Production overheads recovered as a percentage of prime cost
195,000
10,450
3,400
9,700
11,200
177,400
1,253
?
3,264
2,100
6,325
19,475
103,000
15,325
?
21,860
19,462
11,231
5,433
425,000
70,000
15.0%
(2)
Admin overheads recovered on finished production
Selling overheads recovered on finished production
Capital Job is completed and needs to be capitalised
Special job 420 was completed and despatched to customer
Inventory valuation as at January 30, 2002
Materials control account
Work-in-process control account
Finished goods control account
20,000
17,500
26,500
18,100
35,674
Required:
Prepare necessary control accounts in the cost ledger

Calculate normal loss on materials in transit and storage
Calculate normal idle time of labour
Calculate production overhead allocated to SJ420, CJ101 and normal production
Calculate profit on SJ420
Calculate capitalised cost of CJ101
a)
Assuming nil opening stocks, calculate the value of the closing stock from the data
provided below using each of the following methods:
20
Q.3
FIFO
LIFO
HIFO
Receipts
Date
October
October
October
October
1
8
16
20
Units
100
85
95
115
October 2
October 9
October 12
October 18
October 20
55
65
50
25
115
Rate
12.50
15.00
11.95
13.00
Issues
12
b)
List the main advantages and disadvantages of FIFO method of costing
c)
Apollo Industries apportioned its overheads using the following bases:

i) Direct material cost
ii) Direct labour cost
iii) Machine hours
iv) Machine values

v) Area in square meters
vi) Number of employees in the department
03
(3)
You have been requested by the Production Manager to reassess the overhead
apportionment basis. You are required to provide an appropriate basis for each of the
following overheads:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Q.4
Rent and property tax

Electric power
Direct material handling
Indirect materials
Indirect labour wages
Workmen canteen expenses
Insurance
Medical insurance
Factory security
05
A one-year contract has been offered to Maliaka Industries which will uitilise an existing
machine that is only suitable for such contract works. The machine cost Rs 275,000 four
years ago and has been depreciated by Rs 60,000 per year on a straight-line basis and thus
has a book value of Rs 35,000. The machine could now be sold for Rs 47,500 or in oneyears time for Rs 4,000
Four types of materials would be required for the contract as follows:
Material
071
076
079
085
Units
Available
in stocks
1,200
200
3,000
1,800
Purchase price
of stocks
Required for
contract
450
1,250
800
1,200
23.00
32.00
47.00
33.00
Current
Buying price
Rupees
17.00
42.00
53.50
13.25
Current resale
price
14.50
40.50
42.00
12.00
Material 071 and 085 are in regular use within the firm. Material 076 could be sold if not
used for the contract and there are no other uses for 079, which has been deemed to be
obsolete.
The labour requirements for the contract are
Skilled
Semi-skilled
Unskilled
First six
Subsequent six
months
months
Hours Required
1,350
1,276
1,400
1,225
1,225
1,400
First six
Subsequent six
months
months
Normal wage rate in Rupees
25.00
28.75
17.00
19.00
15.00
16.00
It is expected that there will be shortage of skilled labour in the first six months only.
Therefore, for the purposes of the contract skilled labour will have to be diverted from other
work from which a contribution of Rs 7.50 per hour is earned, net of wage costs. The firm
currently has a surplus of semi-skilled labour paid at full rate but doing unskilled work. The
labour concerned could be transferred to provide sufficient labour for the contract and
would be replaced by unskilled labour.
(4)
Overheads are generally allocated in the firm at Rs 18 per skilled labour hour which
represents Rs 13 for fixed overheads and Rs 5 for variable overheads.
Required:
You are required to determine the relevant cost of the contract and sales price of the
contract using the following assumptions:
10 % contribution margin is earned on the relevant cost of the contract.
Contribution margin over relevant cost is equal to 15% of selling price.
18
Q.5
A chemical compound is made by raw material being processed through two processes. The
output of process A is passed to process B where further material is added to the mix. The
details of the process costs for the financial year December 2001 are as below:
Process A
Direct material 2000 kgs @ Rs 5.00 per kg
Direct Labour Rs 7,200
Process Plant Time 140 hrs @ Rs 60.00 per hr
Expected output 80% of input
Actual output 1400 kgs
Normal loss is sold @ Rs 0.50 per kgs
Process B
Direct material 1400 kgs @ Rs 12.00 per kg
Direct Labour Rs 4,200
Process Plant Time 80 hrs @ Rs 72.50 per hr
Expected output 90% of input
Actual output 2620 kgs
Normal loss is sold @ Rs 1.825 per kgs
The department overhead for the year was Rs 6,840 and is absorbed into the costs of each
process on direct labour cost. There was no opening stock at the beginning of the year.
Required:
Prepare the following accounts:
a)
Process A
b)
Process B
c)
Normal loss/gain of both process
Q.6
05
05
05
In a manufacturing deptt 1 kg of product K requires two chemicals A and B. The following

are the details of product K for the month of January 2002.
a)
Standard mix of Chemical A is 50% and Chemical B is 50%
b)
Standard price per kg of chemical A is Rs 60 and chemical B is Rs 75
c)
Actual input of chemical B is 350 kgs
d)
Actual price of chemical A is Rs 75
e)
Standard normal loss is 10% of total input
f)
Material Cost Variance Rs 3,250 adverse
g)
Material yield variance Rs 675 adverse
h)
Actual output 450 kgs.
Required:
i) Material Mix Variance
ii) Material Usage Variance
iii) Material Price Variance
06
03
06
(THE END)
Foundation Examinations
Autumn 2002
September 07, 2002

COST ACCOUNTING
FE-2 Paper 5 & Module D Paper D12
Q.1
(a)
(b)
(c)
(d)
Q.2
Q.3
(MARKS 100)
(3 hours)
Describe the roll of a Cost Accountant in a manufacturing unit.

At the end of the month goods have arrived from the supplier but the relevant
invoice has either not been received or has not yet been processed for
payment by the relevant department. How you would deal with the problem
while preparing monthly management accounts.
Outline briefly a system for ascertaining idle time of a production worker
employed in a manufacturing concern.
A chart of accounts, accompanied by adequate instructions, is a great aid to
better accounting, costing and controlling. Explain.
With reference to material control system, you are required to explain the meaning
of:
(i) Perpetual Inventory
(ii) Continuous Stock Taking
(03)
(05)
(05)
(05)
The Parrot Steels factory overhead rate is Rs.5 per hour. Budgeted overhead for
5,000 hours per month is Rs.30,000 and at 7,000 hours is Rs.37,000. Actual
overhead for the month is Rs.29,000 and actual volume is 7,000 hours.
Required:
(i)
Variable overhead in overhead rate
(ii) Budgeted fixed overhead rate
(iii) Applied factory overhead rate
(iv) Over or under absorb factory overhead
(v) Spending variance
(vi) Idle capacity variance
Q.4
(04)
(02)
(02)
(02)
(02)
(03)
(03)
A manufacturing company makes a product by two processes and the data below
relates to the second process for the month of June 2002.
Work in process as on June 01, 2002 was 1,200 units represented by the following
costs:
Rupees
Direct material (100%)
54,000
Direct wages (60%)
34,200
Overhead (60%)
36,000
During June 4,000 units were transferred from first process @ Rs.37.50 per unit.
This cost is treated as material cost of second process.
(2)
Other costs were as follows:
Rupees
24,150
164,825
177,690
Additional material
Direct Wages
Overhead
Quantitative data shows the following:
Finished Goods transferred to godown
Finished Goods in hand
Normal loss
Work in process (100% material and 50% wages and
overhead)
3,200 units
500 units
520 units
980 units
Average method of pricing is used.
Q.5
Required (i) Equivalent Production Statement for June 2002

(ii) Process Account for the month of June 2002
(04)
(10)
(a) What is margin of safety?

(b) The fixed cost of an enterprise for the year is Rs.400,000. The variable cost per
unit for a single product being made is Rs.20. Each units sells at Rs.100.
(03)
Required
(i) Break even point.
(ii) If the turnover for the next year is Rs.800,000, calculate the estimated
contribution and profit, assuming that the cost and selling price remain the
same.
(iii) A profit target of Rs.400,000 has been desired for the next year. Calculate the
turnover required to achieve the desired result.
Q.6
(a) Explain the main functions of a cash budget and discuss briefly its importance
in a system of budgetary control.
(b) Jawed Enterprises has bank balances of Rs.100,000 as on January 01, 2002.
The sales forecast for the next six months are as follows:
January
February
March
April
May
June
(04)
(04)
(04)
(05)
Rupees
850,000
750,000
800,000
800,000
900,000
950,000
Trend of recoveries against sales are 55% in the month of sales, 30% in next
month, 10% in the second month and 5% in the third month.
(3)
Cost of sales are 80% of sales, payable immediately to avail 5% cash discount
of cost. Other costs are 10% of sales. Personal drawing are Rs.25,000 per
month. Any shortfall will be financed by bank @ 12% markup p.a. worked out
on the closing balance of the month. Mark up is payable next month.
Q.7
Required:
(i) Cash budget for the six month ending June 30, 2002
(10)
(ii) Budgeted Income Statement for the six month ending June 30, 2002
(05)
Baba Machine Factory manufactures equipment for textile, sugar and cement
industries. The company has three sales departments who are authorized to sell
directly to these industries. The following information is available for the month of
June 2002.
Particulars
Capacity utilization
Gross sales
Net sales
Sales salaries
Storage expenses
Delivery expenses
Cost of goods manufactured as a % of gross sales
Textile
Division
30%
Rupees
130,000
120,000
10,000
6,000
2,000
Sugar
Division
30%
Rupees
170,000
150,000
15,000
8,000
4,000
Cement
Division
30%
Rupees
200,000
200,000
20,000
8,000
5,000
50%
60%
65%
Other marketing & selling expenses are Rs.24,000 to be allocated on net sales basis.
General salary are Rs.35,000 to be allocated on manufacturing cost basis and
commission to sales person are 2% of the net sales. The company is using 90% of its
capacity and each of the sales department are confident that they will be able to sell
the equipment if the capacity is increased to 100%. The additional cost for utilizing
100% capacity is estimated to be 5% of net incremental sales.
Required: (i) Income Statement in (columnar form) for the month of June 2002
for all the three divisions and as a whole.
(ii) Advice the management whether to increase its capacity to 100%
or not. If your answer is in affirmative, the division you would
suggest to increase the capacity.
(10)
(05)
(THE END)
Modular Intermediate Examinations
Spring 2003
March 08, 2003

COST ACCOUNTING
Module D Paper D 12
Q.1
(MARKS 100)
(3 hours)
Following transactions appeared in the books of accounts of the Company

PURCHASES
Month
Jan
Feb
April
Quantity (Units)
100
200
400
Cost per unit (Rs.)

41
50
51.87
SALES
Month
March
May
June
Quantity (Units)
250
350
100
Sale price per unit (Rs.)

64
70
74
There was an opening balance of 100 units for Rs.3,900.

From the information given above, for the six month ended June 30, show the store
ledger records including the closing stock balance and stock valuation by using
weighted average, FIFO and LIFO methods of pricing.
(09)
Q.2
(a)
Following is the labour data of a company for a given week:

Days
Units
Hours
Monday
Tuesday
Wednesday
Thursday
Friday
270
210
300
240
260
8
8
8
8
8
Required:
You are required to prepare a schedule showing weekly earning, hourly rate, and the
labor cost per unit assuming a 100% bonus plan with a base wage of Rs. 6/- per hour
and a standard production rate of 30 units per hour.
(06)
(b)
(03)
What are the requirements for an incentive plan to be successful.
(2)
Q.3
The following data of a period relates to a manufacturing department:

Budgeted
Actual
Direct Material Cost
Rs.500,000
Rs.750,000
Direct Labour Cost
Rs.500,000
Rs.550,000
Production Overhead
Rs.750,000
Rs.800,000
Direct Labour Hours
100,000
130,000
During the period a Job XY 54 was completed. Direct material costing Rs.100,000
direct labour Rs.21,000 and overhead costing Rs.115,000 were incurred.
Required:
(a)
(b)
(c)
(d)
Q.4
Calculate predetermined production overhead absorption rate on the following

basis:
(i) as a percentage to direct material cost (ii) direct labour hours
Calculate the production overhead cost to be charged to XY54 based on rates
calculated in answer (a) above.
Assume that the direct labour hour rate of absorption is used. Calculate the
under or over absorbed production overheads for the period and state an
appropriate treatment in the accounts.
If the factory overhead control account has a credit balance at the end of the
period, was overhead over applied or under applied?
(04)
(04)
(04)
(04)
ABC Limited produces four joint products Q,R,S and T, all of which result from
processing a single Raw Material Z. The following information is provided to you:
Joint Product
Q
R
S
T
Numbers of Units
5000
9000
4000
2000
Selling price per unit

Rupees
18
8
4
11
The company budgets for a profit of 14% of sales value. Other costs are as follows:
Carriage Inward
6%
Direct Wages
18%
Manufacturing overhead
12%
Administrative overhead
10%
Required:
(a) Calculate the maximum price that may be paid for the raw material.
(b) Prepare a comprehensive Cost Statement for each of the products allocating the
material cost and other costs based on:
(i)
the numbers of units, and
(ii)
the sales value.
(04)
(08)
(3)
Q.5
(a)
(b)
List the contents of a complete budget document of a manufacturing concern.

Explain Functional Budget.
Q.6
M/s Gama & Sons produces only one product by the name Gama and the standard
manufacturing cost of the product is as under:
Rupees
Direct material (4 kg @ Rs.3 per kg)
12
Direct labour (5 hours @ Rs.4 per hour)
20
Variable overhead
5
Fixed overhead
15
__________
Total standard cost
52 per unit
=========
(08)
(06)
The budgeted quantity to be produced is 10,000 kg and actual production was 9,500
units. The actual consumption and cost during the period was as under:
Rupees
Direct material ( 37,000 kg)
120,000
Direct labour (49,000 hours)
200,000
Variable overhead
47,000
Fixed overhead
145,000
__________
Total standard cost
512,000
=========
There was no stock of work in process or finished goods at the beginning or end of
the period.
Required:
You are required to calculate the relevant cost variances
Q.7
(14)
A company manufactures a single product by the name BABA. Its variable cost is
Rs.40/- and selling price is Rs.100/-. For the current year, Company expects a net
profit of Rs.2,750,000 after charging a fixed cost of Rs.850,000. However the
production capacity is not utilized and the Manager Marketing suggested the
following for maximization of profit:
Suggestion
1
2
3
Reduced selling price by

%
5
7
10
Sale volume expected

to increase by
%
10
20
25
Required:
(a) Evaluate the above proposals and advise the most profitable suggestions
assuming no change in the cost structure.
(b) Suggest other considerations for the decisions.
(14)
(4)
Q.8
A company which manufactures a uniform product is operating at 60% level of

activity. At this level the sales are Rs.60,000 at a selling price of Rs.10/- per product.
The following information regarding cost is available.
Variable cost
Rs. 2 per product
Semi variable cost may be considered fixed at Rs.6,000 with a variable cost of
Rs.0.50 per product.
Fixed cost is Rs.20,000 at the present level of activity but is estimated that
achievement of an 80% - 90% level would increase cost by Rs.4,000.
A proposal has been made to the Directors that the price of product should be
reduced by 10% so as to reach a wider sales market. The Board is considering it and
require a statement showing:
(a) the operating profit if the company is operating at level of activity of 60%,
70% and 90% assuming that selling price
(i)
remains as at present
(ii)
is reduced to Rs.9
(08)
(b) The percentage increase in present output which will be required to maintain
the present profit if the Company reduces the selling price.
(04)
(THE END)
Intermediate Examinations Autumn 2003
September 06, 2003

COST ACCOUNTING
Module D
Q.1
Q.2
Q.3
(MARKS 100)
(3 hours)
Why should semi variable expenses be separated into fixed and variable elements?
What methods are available for separating semi variable expenses?
07
How Cash Budget assists management in making more effective use of money?
Name two methods used for the preparation of a cash budget.
09
The estimated overheads likely to be incurred relating to a cost center with two major
machines installed are as under:
Rupees
Supervision
Indirect employees, wages
Earned leave
Maintenance cost
Power
Depreciation
Rent of building
8,000
10,000
5,000
15,000
20,000
5,000
2,500
65,000
Details of various allocations of the cost centers are as under

Machine-1
Running hours
1)
2)
3)
4)
5)
6)
7)
Supervision cost
Capital cost of machine
Indirect employees
Total employees
Maintenance hours
Kilowatt hours
Floor Space
Rs
Rs
No
No
Sq. ft
Machine-2
Total
5,000
1,000
6,000
4,000
20,000
8
20
600
100,000
5,000
4,000
5,000
2
5
120
20,000
5,000
8,000
25,000
10
25
720
120,000
10,000
Required: Calculate machine hour rate for each machine.

Q.4
10
Following data pertains to a worker of a manufacturing industry.

Actual production
Working hours in a week
Guaranteed rate per hour
Estimated time to produce one unit
400 units
48 hrs
Rs.10
8 minutes
As an incentive the management has agreed to increase the

time allowed per unit by
20%
(02)
Required:
Calculate the gross wages of the worker according to:
a) Piece work with a guaranteed weekly wages
b) Under Rowan premium bonus
c) Under Hasley premium bonus 50% to worker
Q.5
09
Tata Cools manufactures a range of products including Air conditioners which pass
through three processes before transfer to finished goods store. Production department
for the current month has given the following production data.
PROCESS
1
Basic Raw Material (10,000 units)
Direct material addition
Direct wages
Direct expenses
Production overheads (to be allocated
on the basis of direct wages)
Output
Normal loss in process of input
Scrap value of each lost unit
Rs
Rs
Rs
Rs
6,000
8,500
4,000
1,200
9,500
6,000
930
Total
5,500
12,000
1,340
6,000
23,500
22,000
3,470
Rs
Units
%
Rs
16,500
9,200
10
0.20
8,700
5
0.50
7,900
10
1.00
There was no stock at start or at the end in any process.

You are required to prepare the following accounts
a)
b)
c)
d)
e)
Q.6
Process 1
Process 2
Process 3
Abnormal Loss
Abnormal Gain
04
04
04
04
04
The Parrot Company sold 150,000 units @ Rs. 30 each, Variable cost is Rs. 20
(Manufacturing Rs. 15 & Marketing Rs. 5), Fixed Cost is Rs. 1,200,000 annually
which occurs evenly throughout the year (Manufacturing Rs. 800,000 & Marketing
Rs. 400,000)
Required
i)
ii)
iii)
iv)
v)
Breakeven point in units

Breakeven point in Rupees
Number of units to be sold to earn profit before tax of Rs. 200,000
Number of units to be sold to earn after tax profit of Rs. 100,000 if tax rate
is 25%
The breakeven point in units if selling price is increased by Rs. 3 and
variable cost by Rs. 2 per unit
10
(03)
Q.7
A manufacturing concern is currently buying a component used in its finished product

from a local supplier @ Rs. 2,000. The company has been informed that plant to
produce this component is available and can be installed at space available with the
company. Two alternative proposals are under consideration:
a) Install a semi-automatic machine in which case fixed cost will be
Rs. 5,000,000 and variable cost Rs. 1,500 per unit.
b) Install an automatic machine in which case fixed cost will be Rs. 10,000,000
and variable cost Rs.1,200 per unit.
Note (Depreciation and interest costs are included in fixed cost).
Required:
(i)
At what level of output it is justified to install any of the above two
machines.
(ii)
If the annual requirement of the component is 15,000 units, which machine
would you advise to install.
(iii)
At what level of output would you advise the company to install automatic
machine instead of semi-automatic machine.
Q.8
15
Following information pertains to Dilber Associates:

Normal capacity of a plant is 20,000 units per month or 240,000 units a year.
Variable costs per unit are:
Direct material
Direct labour
Variable FOH
Total
Rs. 3.00
Rs. 2.25
Rs. 0.75
Rs. 6.00
Fixed overheads are Rs. 300,000 per year or Rs.1.25 per unit at normal capacity.
Company is using units of product as basis for applying overheads. Fixed marketing
and administrative expenses are Rs. 60,000 per year and variable marketing expenses
are Rs. 3,400, Rs. 3,600, Rs. 4,000 and Rs. 3,000 for the first, second, third and fourth
month respectively.
Actual and applied variable overheads are the same. Likewise no material or labour
variance exists. There is no work in process. Standard costs are assigned to finished
goods only.
The sale price per unit is Rs. 10 and actual production, sale and finished goods
inventories in units are:
MONTHS
First
Second
Third
Fourth
Units in beginning inventory
Units produced
Units sold
Units in ending inventory
17,500
17,500
-
21,000
18,000
3,000
3,000
19,000
21,000
1,000
1,000
20,000
16,500
4,500
Required: From the above information prepare income statement through Absorption
Costing and Direct Costing methods.
(THE END)
20

Intermediate Examinations Spring 2004
March 11, 2004
COST ACCOUNTING
(MARKS 100)
(3 hours)
Module D
Q.1
Explain the following terms:

Expense
Product cost
Semi-variable cost
Period cost
Q.2
(02)
(02)
(02)
(02)
Critically analyse the following statement:

Labour turnover should be low whereas stock turnover should be high.
(08)
Q. 3 XYZ Company produces 200 articles of X per annum. Each article of X requires
3.8 units of material Y. Some other data is given below:
Cost per unit of Y
Warehouse monthly rent
Warehouse fumigation during the year
Watchman salary per month
Per order inspection charges
Service departments factory overhead charged to
Store department
Ordering department
Stock holding per annum
Working capital cost
Salaries of ordering department
Broker commission on supply of Y
Per order lump sum out of pocket expenses of
broker of material Y
Rs.
Rs.
Rs.
Rs.
Rs.
12,500
15,000
23,000
4,500
10,252
Rs.
Rs.
Rs.
10,000
7,050
125 per unit
16%
10,050
0.50%
Rs.
Rs.
22,048
You are required to calculate:

(a)
(b)
(c)
Economic Order Quantity.

Number of orders per annum on the basis of Economic Order Quantity.
Verify your answer in (b) by calculating total ordering plus carrying
costs per annum:
(i) Assuming higher number of orders than in (b)
(ii) Assuming lower number of orders than in (b)
(08)
(02)
(03)
(03)
(2)
Q.4
AAB Company is planning its capacity for the year 2004 at 90% of the rated capacity.
For the purpose of estimating other factory overhead expenses company uses five years
history and simple regression analysis method. Data in hand is as under:
Rated capacity
Direct labour hours at 100% capacity
20,000
25,000
Five year history of Other factory overhead expenses is as under:

Year
Other factory overhead

expenses (Rs.)
Direct labour
hours
1999
2000
2001
2002
2003
90,775
83,125
84,800
99,084
84,860
23,750
18,750
20,000
21,000
19,750
In the year 2002 other factory overhead expenses include a penalty of Rs. 12,734 on non
compliance of certain labour laws.
You are required to calculate fixed and variable portions of estimated other factory
overhead expenses at planned capacity.
Q. 5
(10)
AAD Companys Budgeting Department has compiled following data for decision-making:
Product
A
B
C
Demand
in units
Average
sale price
Rs.
Material
per unit
Rs.
Labour
per unit
Rs.
Opening
stock
Units
1,500
2,200
3,700
318
421
280
172
172
172
76
173
32
50
50
-
Minimum order quantity of each product is 100 units. The company has Rs. 800,000
working capital in hand and a running finance line of Rs. 500,000 at 24% per annum cost.
Production lead time and sales recovery period is estimated at one year.
Administrative and marketing expenditure per annum are Rs. 152,700 and Rs. 72,842
respectively.
Opening stock carry same unit cost as given for current year.
You are required to:
(a)
(b)
Prepare product sales mix that can generate maximum net profit.
(08)
Projected Profit and Loss Statement according to your suggested product mix. (04)
(3)
Q.6
Following is the data of Department B of EFG Company for December, 2003:

Work in process (opening)
(Completed as to material 20% and conversion
cost 25%)
Work in process (ending)
(Completed as to material 50% and conversion
cost 25%)
Current period transactions are:
Cost transferred from Department
A
Units transferred from Department
A
Units mishandled and lost before start of
any process
Material consumed
Conversion cost incurred
Units transferred out
8,500 units
Rs.
43,860
11,540 units
Rs.
45,600
12,000 units
Rs.
Rs.
460 units
27,654
47,689
7,500
Normal spoilage is 6% of units transferred out and inspection is done at the end of
process. Company uses FIFO method for inventory valuation.
You are required to prepare production report of Department B showing Quantity
Schedule, Cost Charged to Department and Heads of Account where costs have been
accounted for.
Q.7
(20)
ABC Limited intend to commence production from July 1. They have provided
following information for the first four months of operation:
1st
2nd
3rd
4th
9,500
9,300
9,900
10,000
Selling price per unit
60
58
59
60
Cost per unit

Material
Labour
Overhead
Depreciation
Administrative
Marketing
20
10
5
5
3
2
18
10
5
5
3
2
19
10
5
5
3
2
20
10
5
5
3
2
50,000
PARTICULARS
Sales in units
Capital expenditure
(4)
Additional Information
1) Material will be purchased on cash basis. The company intends to keep
stock for one month.
2) Wages to be paid at the end of the month.
3) Other costs will be accrued for one month.
4) Production for 5th month is expected to be 6,500 units.
5) Sales collections are as follows:
50% collection in first month
30% collection in second month
20% collection in third month
6) Loan from sponsors Rs 300,000 to be repaid in 5 equal monthly
installments beginning from second month of operation.
7) Cash in hand to be maintained at Rs 50,000. Deficit, if any, will be
financed from bank. Any surplus funds to be utilized towards payment
of bank liability. Markup, if any, will be paid @ 8% p.a. every six
months.
8) Cash in hand as on July 1, Rs 50,000.
Required:(a)
(b)
Q.8
Budgeted profit & loss for the four months.

Budgeted Cash flow statement for the four months.
(06)
(10)
From the following information, allocate overheads of service departments to individual

producing departments by adopting algebraic method:
Departments
Producing Dept A
Producing Dept B
Service Y
Service Z
Total Departmental Overheads
Departmental overheads
before distribution of
Service Departments
Rs 6,000
Rs 8,000
Rs 3,630
Rs 2,000
________
Rs 19,630
=======
Service Provided
Dept Y
Dept Z
40 %
40 %
20 %
______
100 %
=====
20 %
50 %
30 %
______
100 %
=====
(10 )
(THE END)

September 11, 2004
COST ACCOUNTING
(MARKS 100)
(3 hours)
MODULE D
Q.1
(a)
Describe briefly THREE major differences between: (i) financial accounting,

and (ii) cost and management accounting.
(06)
(b)
The incomplete cost accounts for a period of Company A are given below:
Stores ledger control account
Rs. 000
Opening balance
2,640
Financial ledger control A/c
3,363
Production wages control account
Rs. 000
2,940
Production overhead control account
Rs. 000
1,790
Opening balance
Job ledger control account

Rs.000
1,724
The balances at the end of the period (in 000) were:

Stores ledger
Rs.2,543
Job ledger
Rs.2,295
During the period 65,000 kilos of direct material were issued from stores at a
weighted average price of Rs.48 per kilo. The balance of materials issued from
stores represented indirect materials.
Two thirds of the production wages are classified as direct. Average gross
wage of direct workers was Rs.20 per hour. Production overheads are
absorbed at a predetermined rate of Rs.30 per direct labor hour.
Required:
Complete the cost accounts for the period.
(08)
2
Q.2
ABC Company has been manufacturing 7,280 units per month of a product and
selling the same at a price of Rs.154 per unit. With the increase in competition the
customers are now asking for new contracts at a rate of Rs.140 per unit. The
company has started cost/benefit analysis of various options like extra shift working,
buying new technologies etc. However, as an immediate step they are going to
implement 100% bonus wages plan for improvement in production capacity. Mixed
expectations of the outcome of this plan are:
Owners
Production manager
Labour contractor
7,800 units per month

Other data is as under:

Fixed overheads
Variable overhead
Daily wages (8 hours shift)
Number of machines
Number of labour required
Standard capacity
Direct material
Working days in a month
Rs. 264,368 per month

Rs. 73 per machine per hour
Rs. 200 per person
10
2 per machine
28 units per machine
Rs. 75 per unit
26
Required:
Prepare a table showing per unit cost at present and various expected levels of
production.
Q.3
(16)
The AJFA & Co is preparing its production overhead budgets and therefore need to
determine the apportionment of these overheads to products. Cost center expenses
and related information have been budgeted as below:
Total
Machine
Shop A
Machine
Shop B
Assembly
Canteen
Maintenance
61,420
Direct Wages (Rs)
518,920
128,480
99,640
290,800
Indirect Wages (Rs)
313,820
34,344
36,760
62,696
118,600
Consumable
Materials(incl.
Maintenance) (Rs)
Rent & Rates (Rs)
67,600
66,800
25,600
34,800
4,800
2,400
160,800
90,000
20,000
24,000
30,000
12,000
4,000
1,608,000
760,000
716,000
88,000
12,000
32,000
54%
40%
1%
2%
Building Insurance(Rs)
9,600
Heat & Light(Rs)
13,600
Power(Rs)
34,400
Depreciation of
Machine (Rs)
Area (Sq Ft)
Value of Machines(Rs)
Power Usage (%)
100%
3%
Direct Labour (Hours)
72020
16020
12410
43590
Machine Usage (Hours)
54,422
14,730
37,632
2,060
3
The proportion of Maintenance cost center time spent for other cost centers is:
Machine Shop A
Machine Shop B
Assembly
Canteen
45%
40%
13%
2%
Required:
Allocate the overhead expense by using the appropriate bases of apportionment.
Q.4
(12)
The incomplete process account relating to period 4 for a company which

manufactures paper is shown below:
Material
Labour
Production overhead
Units
4,000
Process account
Rs.
16,000 Finished goods
8,125 Normal loss
3,498 Work in progress
Units
2,750
400
700
Rs.
700
There was no opening work in process (WIP). Closing WIP consisting of 700 units
was complete as shown:
Material
100%
Labour
50%
Production overhead
40%
Losses are recognized at the end of the production process and loss units are sold at
Rs.1.75 per unit.
Required:
Q.5
Calculate the values of abnormal loss, closing WIP and finished goods.
(08)
(a)
Explain the straight line equation Y = a + bx with reference to cost behaviour.
(04)
(b)
What are the limitations and problems of the equation?
(05)
(c)
Using the data provided below, determine the variable cost per unit and fixed
cost of 14,000 units.
Output (Units)
11,500
12,000
12,500
13,000
13,500
14,000
Total Cost (Rs)

204,952
209,460
212,526
216,042
221,454
226,402
(05)
4
Q.6
PQR Company manufactures product E in 1,000 units batches and sells them in
100 unit packs. Cost data of the said product is as under:
Raw material
Raw material price
42 kg per unit
Rs.37 per kg for annual buying
upto 3.5 million kgs.
Rs.36.90 per kg for annual
buying over 3.5 million kgs.
Rs. 850 per unit
Rs.300 per unit
Rs. 500,610 per month
Rs. 2,862 per unit.
Direct labour
Factory Overhead-Variable
Factory Overhead-Fixed
Price
Current production level is 80,000 units per annum, which is 100% of rated capacity
of the plant. For any increase in production, there will be an increase in fixed
overhead by Rs.25,000 per month.
Cost accountant of the company is of the view that the company can achieve
break-even level at lesser quantity if production is increased to avail purchase
discount of Rs.0.10 per kg.
Required:
(10)
Verify the opinion of the Cost Accountant.
Q.7
GHI Company produces 817 kgs Y for which following standard chemical mix is
used:
Material
Standard Quantity (Kgs)
Standard Rate per kg.(Rs)
A
750
38.00
B
150
53.00
C
50
59.50
Purchase department knowing the standard mix made efforts for reducing the
average price of material mix and achieved the results as under:
A
B
C
Rate (Rs.)
37.00
56.25
62.75
Production department concentrating on yield aspect experienced a different ratio of

raw material mix and got 876 kgs out of following mix:
A
B
C
Quantity (Kgs)
750
185
65
Required:
Find out the effect of deviation from standards by calculating:
(a)
Price Variance
(b) Mix Variance
(c)
Yield Variance
(05)
(05)
(06)
5
Q.8
Khan Company is a small business which has the following budgeted marginal
costing profit and loss account for the month ended June 30, 2004:
Rs.
SALES
Cost of Sales:
Opening stock
Production
Closing stock
Rs.
96,000
6,000
72,000
(14,000)
Other Variable Cost - selling expenses

Contribution
Fixed Costs:
Production Overhead
Administration
Selling
Net Profit
(64,000)
32,000
(6,400)
25,600
(8,000)
(7,200)
(2,400)
8,000
The standard cost per unit is:

Rs.
16
18
6
Direct material (1 Kg)

Direct labour (3 hours)
Variable cost (3 hours)
Budgeted selling price per unit is Rs. 60
The companys normal level of activity is 4000 units per month. It has budgeted
fixed production costs at Rs.8,000 per month and absorbed them on the normal level
of the activity of units produced.
Required:
Prepare budgeted profit and loss under absorption costing for the month ended June
30, 2004.
(10)
(THE END)

Intermediate Examinations Spring 2005
March 12, 2005
COST ACCOUNTING
Module D
Q.1
(a)
(MARKS 100)
(3 hours)
It is often stated that actual product cost cannot practically be worked out.
(i) Why do you think this statement is made?
(05)
(ii) If the statement is correct, is the whole cost accounting process
worthwhile?
(04)
(b)
Q.2
(i)
Explain with reasons the significance of chart of accounts for the

purpose of cost accounting.
(03)
(ii) Give reasons why over- or under-absorptions of overheads may arise.
(03)
A company manufactures and retails clothing.

You are required to group costs which are listed below and numbered 1 to 20 in the
following classifications (each cost is intended to belong to only one classification):
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Direct material
Direct labour
Direct expenses
Indirect production overhead
Research and development costs
Selling and distribution costs
Administration costs
Finance costs
Lubricant for sewing machines

Floppy disks for general office computer
Maintenance contract for general office photocopy machine
Telephone rental plus metered calls
Interest on bank overdraft
Performing Rights Society charge for music broadcast throughout the factory
Market research undertaken prior to a new launch
Wages of security guards for factory
Carriage on purchases of basic raw material
Royalty payable on production of XY
Road licenses for delivery vehicles
Parcels sent to customers
Cost of advertising products on television
Audit fee
Chief accountants salary
Wages of operatives in the cutting department
Cost of painting advertising slogans on delivery vans
Wages of storekeepers in a material store
Wages of fork lift drivers who handle raw materials
Developing a new product in the laboratory
(10)
Q.3
(2)
Omega Limited is a manufacturer producing various items. One of its main
products has a constant monthly demand of 20,000 units. The production of this
product requires two kg of chemical A. The cost of the chemical is Rs.5/- per kg.
The supplier of the chemical takes six days to deliver the same from the date of the
order. The ordering cost is Rs.12/- per order and the holding cost is 10% per
annum.
Required:
(a)
(b)
(c)
(d)
Q.4
Calculate the following :

(i) The economic order quantity
(ii) The number of orders required per year
(iii) The total cost of ordering and holding the chemical A for the year.
Assuming that there is no safety stock and that the present stock level is
4000 kg, when should the next order be placed?
Assuming that a safety stock of 4,000 kg of chemical is maintained, what
will be the holding cost per year?
Discuss the problems which most firms would have in attempting to apply
the EOQ formula.
(12)
The yield of a certain process is 80% as to the main product and 15% as to the byproduct. Remaining 5% is the process loss. The material put in process (10,000
units) costed Rs.21 per unit and all other charges amounted to Rs.30,000 of which
power cost accounted for 33? %. It is ascertained that power is chargeable to the
main product and by-product in the ratio of 10:9.
Required:
Draw up a statement showing the cost of the by-product.
Q.5
(06)
Total Surveys Limited conducts market research surveys for a variety of clients.
Extracts from its records are as follows:
Total Costs
2003
Rupees in million
6.000
2004
Rupees in million
6.615
Activity in 2004 was 20% greater than in 2003 and there was an increase of 5% in
general costs.
Activity in 2005 is expected to be 25% greater than 2004 and general costs are
expected to increase by 4%.
Required:
(a) Derive the expected variable and fixed costs for 2005.
(07)
(b) Calculate the target sales required for 2005 if Total Surveys Limited wishes to
achieve a contribution to sales ratio of 80%.
(03)
(c) Discuss briefly the problems in analyzing costs into fixed and variable
elements.
(05)
Q.6
(3)
Gala Promotions Limited is planning a concert in Karachi. The following are the
estimated costs of the proposed concert:
Rent of premises
Advertising
Printing of tickets
Ticket sellers, security
Wages of Gala Promotions Limited Personnel employed at the concert
Fee of artist
Rs.(000)
1,300
1,000
250
400
600
1,000
There are no variable costs of staging the concert. The company is considering a
selling price for tickets at either Rs.4,000/- or Rs.5,000/- each.
Required:
(i)
Calculate the number of tickets which must be sold at each price in order to
break-even.
(ii) Recalculate the number of tickets which must be sold at each price in order to
break-even, if the artist agrees to change from fixed fee of Rs. 1 million to a
fee equal to 25% of the gross sales proceeds.
(iii) Calculate the level of ticket sales for each price, at which the company would
be indifferent as between the fixed and percentage fee alternative.
(iv) Comment on the factors, which you think, the company might consider in
choosing between the fixed fee and percentage fee alternative.
Q.7
(03)
(04)
(04)
(04)
Ali Limited makes and sells one product, the standard production cost of which is
as follows for one unit:
Direct labour
Direct materials
Production overhead
3 hours at Rs.6 per hour

4 kilograms at Rs.7 per kg
Variable
Fixed
Standard production cost
Rs.
18
28
3
20
69
Normal output is 16,000 units per annum and this figure is used for the fixed
production overhead calculation.
Costs relating to selling, distribution and administration are:
Variable
Fixed
20 percent of sales value

Rs.180,000 per annum
The only variance is a fixed production overhead volume variance. There are no
units in finished goods stock at 1 October 2003. The fixed overhead expenditure is
spread evenly throughout the year. The selling price per unit is Rs.140.
For each of the six monthly periods, the number of units to be produced and sold
are budgeted as :
Production units
Sales units
(4)
Six months ending
31 March 2004
8,500
7,000
Six months ending

30 September 2004
7,000
8,000
Required:
(a)
(b)
Q.8
Prepare statements for the management showing sales, costs and profits for
each of the six monthly periods, using
(i) marginal costing
(ii) absorption costing
Prepare an explanatory statement reconciling for each six monthly period the
profit using marginal costing with the profit using absorption costing.
(05)
(08)
(03)
Pink Ltd. is considering proposals for design changes in one of a range of soft toys.
The proposals are as follows:
(a)
(b)
(c)
Eliminate some of the decorative stitching from the toy.

Use plastic eyes instead of glass eyes in the toys.
Change the filling material used. It is proposed that scrap fabric left over from
the body manufacture be used instead of synthetic material which is currently
being used.
On above proposals following information has been gathered by management:

(1)
(2)
(3)
(4)
(5)
Plastic eyes will cost Rs.30 per hundred whereas the existing glass eyes cost
Rs.40 per hundred. The eyes will be more liable to damage during insertion. It
is estimated that scrap plastic eyes will be 10% of the quantity issued from
stores as compared to 5% in case of glass eyes.
The synthetic filling materials costs Rs.1,600 per ton. One ton of filling is
sufficient for 2,000 soft toys.
Scrap fabric to be used as filling material will need to be cut into smaller
pieces before use and will cost Re.1 per soft toy. Scrap fabric is sufficiently
available for this purpose.
The elimination of decorative stitching is expected to reduce the appeal of the
product, with an estimated fall in sales by 10% from the current level. It is not
felt that the change in eyes or filling material will adversely affect sales
volume. The elimination of the stitching will reduce production costs by Rs.6
per soft toy.
Current sales level of the soft toy is 300,000 units per annum. Apportioned
fixed costs per annum are Rs.4,500,000. The net profit per soft toy at the
current sales level is Rs.30.
Required:
Prepare an analysis which shows the estimated effect on annual profit if all three
proposals are implemented and which enables management to evaluate each
proposal. The proposals for plastic eyes and the use of scrap fabric should be
evaluated after the stitching elimination proposal has been evaluated.
(11)
(THE END)

Intermediate Examinations
Autumn 2005
September 10, 2005
COST ACCOUNTING
(MARKS 100)
(3 hours)
Module D
Q.1
Q.2
(a)
Without an effective system of cost accounts it is doubtful whether any

business can survive in the intensely competitive conditions prevailing today.
Briefly state how a cost accounting system can be used by a business entity to
gain competitive advantage.
(06)
(b)
Management is often faced with a situation where a component which is

manufactured by their own organization has a cost, as disclosed by the cost
accounts, in excess of that which would have to be paid if it were bought in the
open market. However a decision whether to manufacture or buy cannot be
made simply by comparing internal costs with open market prices. List the
other factors which management would have to consider, both of a financial
and non-financial nature, while making such a decision.
(05)
Alpha manufacturing Co. Ltd. maintains stocks on perpetual inventory system. The
bin card for stock item code No. N96 in the company's stores contains the following
information for the month of June 2005:
Opening stock on 01 June: 60 units, value Rs. 3,600.
Date
5 June
10 June
14 June
17 June
20 June
24 June
25 June
Receipts
Units
120
Invoice
price per unit
59.00
40
60.50
20
62.00
100
63.00
Units issued
80
80
80
The market price per unit was Rs. 60.00 on June 1, rising to Rs. 62.00 on June 10,
Rs. 62.50 on June 15 and Rs. 64.00 on June 30. The standard cost may be assumed
as Rs.60.00 per unit.
The following methods of stock pricing are being considered:
(a)
(b)
(c)
(d)
LIFO
Weighted average
Standard cost
Replacement cost
Required:
Under each of these methods, determine the cost of issues and the closing stock as at
June 30.
(15)
(2)
Q.3
A factory manufactures three components A, B and C.

During a week, the following was recorded:
Labour
grade
Number of
employees
Rate per hour

(Rs.)
Individual hours
worked
I
II
III
IV
6
18
4
1
40
32
28
16
40
42
40
44
Actual output and standard times are given below:

Component
Output
A
B
C
444
900
480
Standard minutes
per component
30
54
66
The normal working week is of 38 hours. Overtime is paid at a premium of 50% of

the normal hourly rate.
A group incentive scheme is in operation and a bonus is paid based on the time
saved. The rate of bonus payment is 75% of normal hourly rate. The time saved is
allocated to each labour grade in proportion to the number of hours worked by each
group.
Required:
Calculate the total payroll showing the basic pay, overtime premium and bonus pay
for each grade of labour.
(12)
Q.4
The factory overhead budget of a manufacturing company for the year ending June
30, 2006 is as follows:
Rupees
Indirect wages
1,627,920
Insurance labour
114,240
Supervision
514,080
Machine maintenance wages
485,520
Supplies
257,040
Power
828,240
Tooling cost
285,600
Building insurance
14,280
Insurance of machinery
399,840
Depreciation - machinery
856,800
Rent and rates
371,280
5,754,840
At present, overheads are absorbed into the cost of the companys products at 70%
of direct wages. The company is considering changing to a separate machine hour
rate of absorption for each of its four different machine groups.
(3)
The following are some further details of costs and machine groups:
A
Tooling costs (Rs.)
Supervision (Rs.)
Supplies (Rs.)
Machine maintenance hours
Number of indirect workers
Total number of workers
Floor space (Sq.ft.)
Capital cost of machines
(Rs.000)
Horse-power hours
Machine running hours
Machine groups
C
D
115,958 88,042 55,832

159,340 145,471 111,877
118,634 79,089 19,772
3,000
2,000
4,000
6
6
2
26
34
15
3,000
2,400
1,600
3,200
55,000
30,000
2,400
27,000
60,000
1,000
8,000
25,000
TOTAL
25,768
97,392
39,545
1,000
2
10
1,000
285,600
514,080
257,040
10,000
16
85
8,000
1,800
15,000
10,000
8,400
105,000
125,000
Required:
(a)
(b)
Calculate a machine hour rate for each group of machines;

Calculate the overhead to be absorbed by product no. 123 involving:
Machine group
A
B
C
D
(c)
Q.5
Hours
8
3
1
4
Calculate the overhead to be absorbed by each unit of product 123 if the labour
cost is Rs.1,200 and the present method of absorption is used.
(15)
The Quetta Cement Company produces a product branded as Falkon. It has

estimated the cost per bag of 100 kgs. as under:
Rs.
Direct material
100
Direct labour
160
Factory overhead
120
380
The selling price of Falkon is Rs. 450 per bag.
During the month of December, the actual costs of production were as follows:
Materials
Direct labour
Factory overhead
Rs.
200,000
320,000
220,000
All materials are added at the beginning of production process.
(4)
Production records show completed production of 2,000 units for the month; sales
records show that 1,600 units were sold during the period. Inventory records exhibit
the following data:
Work in process inventory December 01:
Direct material, 250 units:
Direct labour, 250 units ( 40% completed)
Factory overhead, 250 units ( 40% completed )
Work in process inventory December 31:
200 units estimated to be 60% completed as to labour and factory
overheads.
Required:
(a)
(b)
(c)
(d)
Q.6
Material price variance

Labour rate variance
Overhead budget variance
A statement of actual cost of Falkon per bag for December.
(09)
Industries Limited produces a single product and has a manufacturing capacity of

7,000 units per week of 48 hours. The output data for three consecutive weeks is
given below:
Units
Produced
Direct
Material
Direct
Labour
2,400
2,800
3,600
Rs.
48,000
56,000
72,000
Rs.
60,000
70,000
90,000
Total Factory
Overheads
(Variable & Fixed)
Rs.
37,200
38,400
40,800
As cost accountant, you are asked by the company management to work out the
selling price assuming an activity level of 4,000 units per week and a profit of 20%
on selling price.
(07)
Q.7
The Sindh Engineering Company produces a bicycle which sells at Rs.1,000 per
unit. At 80% capacity utilization which is the normal level of activity, the sales are
Rs.180 million. Costs are as under:
Prime cost per unit

Factory indirect cost
Selling costs
Distribution costs
Administration costs
Rs.400
Rs.30 million (including variable cost Rs.10 million)
Rs.6 million
Commission and discounts are 5% of sales value.
(5)
Required:
(a)
(b)
Q.8
Calculate the break-even sales value.

Prepare statements showing sales, costs, profit and contribution margin at
each of the following levels:
i)
at the normal level of activity;
ii)
if unit selling price is reduced by 5% thereby increasing sales and
production volume by 10% of the normal activity level;
iii) if unit selling price is reduced by 10% thereby increasing sales and
production volume by 20% of the normal activity level.
(12)
As a cost accountant of Colombia Company, you are required to develop cash and
other budget information. The budget is to be based on the following assumptions:
Sales:
(a) Customers are allowed a 2% discount if payment is made within 10 days after
the billing date. Receivables are recorded at the gross selling price.
(b) Sixty percent of the billings are collected within the discount period; 25% by
the end of the month; 9% by the end of the second month. Bad debts are
estimated at 6% of sales.
(c) Sales are billed on the last day of the month.
Purchases:
(a) Sixty percent of all purchases and other expenses except salaries and wages
are paid in the same month whereas the balance is paid in the following
month.
(b) Raw materials inventory at the end of each month is equal to 130% of next
months production requirement.
(c) The cost of each unit of inventory is Rs.20.
(d) Wages and salaries earned each month by employees total Rs.60,000.
(e) Marketing, general, and administrative expenses (of which Rs.2,000 is
depreciation) are estimated at 15% of sales.
Actual and projected sales are as follows:
Rs.
354,000 November ....
363,000 December
357,000 January
Rs.
342,000
360,000
366,000
Actual and projected materials needed for production:

Units
August .
11,800 November ....
September
12,100 December
October
11,900 January
Units
11,400
12,000
12,200
August .
September
October
(6)
Wages are paid weekly. The unpaid amount at the end of each month is projected as
follows:
Rs.
Rs.
July ..
14,000 October
2,000
August .
6,000 November ....
6,000
September
10,000 December
12,000
On August 31, the following balances appeared in the companys books of account:
Cash
Accounts receivable
Inventories
Accounts payable
Rupees
44,000
349,600
247,520
106,444
The above balances are expected to increase by 25% during the month of
September.
Required:
Cash budget for the months of October, November and December.
(19)
(THE END)

Spring 2006
March 11, 2006
COST ACCOUNTING
(MARKS 100)
(3 hours)
Module D
Q.1
(a)
An important feature in the installation of any accounting or costing system is

the proper classification of accounts. The Bottlers Limited, bottlers and
distributors of beverages, have recently introduced a new classification which
includes the following accounts:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Samples
Sugar
Factory payroll
Foremans salary
Conveyance and travelling
Factorys clerical salaries
Drivers wages
Gas, oil and grease
Depreciation of furniture & fixtures
Salesmens salary and commissions
Light and power
Legal and audit fee
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
Freight out
Income tax
Advertising
Rent of office building
Labels
Depreciation on machinery
Insurance
Water
Truck tyres
Bottle breakages
Telephone and communication
Stationery
Classify each account under one or more of the following headings:
(b)
Q.2
Manufacturing
Selling and Distribution
Administration
(06)
Distinguish between joint products and by-products, and briefly explain the
difference in accounting treatment between them.
(04)
Eastern Limited purchases product Shine for resale. The annual demand is 10,000
units which is spread evenly over the year. The cost per unit is Rs. 160. Ordering
costs are Rs. 800 per order. The suppliers of Shine are now offering quantity
discounts for large orders as follows:
Ordered Quantity
Upto
999 units
1000 to 1999 units
2000 or more units
Unit price Rs.

160.00
158.40
156.80
The purchasing manager feels that full advantage should be taken of discounts and
purchases should be made at Rs. 156.80 per unit, using orders for 2000 units or
more. Holding costs for Shine are calculated at Rs. 64 per unit per year, and this
figure will not be altered by any change in the purchase price per unit
Required:
Advise Eastern Limited about the best choice available to them.
(10)
(2)
Q.3
Mr. Azad has provided you the following information from his factory ledger for
the quarter ended 31 December 2005:
Control Account Balances as on October 1, 2005:
Materials
Work in process
Finished goods
Rupees
49,500
60,100
115,400
Materials purchased
Direct wages
Payments for factory overheads
Depreciation of factory building and machines
108,000
50,200
30,900
42,000
Other related information is as under:
Closing stock of raw materials and finished goods at December 31, 2005
amounted to Rs. 50,300 and Rs. 125,800 respectively.
Cost of goods produced is Rs. 222,500.
Factory overheads are absorbed in production @ 160% of direct wages.
Diesel costing Rs. 2,000 included in the factory overheads was transferred to
head office for use in generator.
A bill for repairs amounting to Rs. 12,000 undertaken at the factory remained
unpaid at the end of the quarter.
Material costing Rs. 2,400 was destroyed by rain.
Required:
Write up the following accounts:
i)
ii)
iii)
iv)
v)
Q.4
Materials
Work in process
Finished goods
Factory overheads
Cost of goods sold
(10)
AG Electronics manufactures transistors which are used for assembling flat screen
TV. During the current year 5,000 transistors were manufactured at the following
costs:
Rupees
Direct material
1,000,000
Direct wages
560,000
Factory overheads:
Lease rentals equipments
90,000
Equipments Insurance
19,000
Equipments maintenance contract
200,000
Other overheads
600,000
The cost of direct materials include abnormal loss of Rs. 30,000.
(3)
The following estimates have been made for the next year:
1.
2.
3.
4.
The production is estimated to increase by 60%.

The cost of direct material will increase by 20%.
In view of a government regulation which will become effective from July 1,
next year, the rate of wages will increase by 12%.
The rate of other overheads is expected to increase by 6% from the start of
next year. 40% of the other overheads are fixed costs allocated by head office.
Moon Limited, a specialist in manufacturing transistors has offered to supply the

full requirement for the next year, at a price of Rs. 400 per unit. If it is decided to
discontinue the production of transistors, the plant currently in use would be
returned to the leasing company but the following additional costs would have to be
incurred:
Inspection
Insurance
Rs. 20,000 per annum

Rs. 8 per transistor
You are required to advise the companys management whether it should accept the
offer of Moon Limited or continue to manufacture the transistors in-house.
(10)
Q.5
The manufacturing of a chemical is carried out in three continuous processes, P1,

P2 and P3. The following data is available in respect of production during
February 2006.
Particulars
P1
P2
P3
Output litres
8,800
8,400 7,000
Costs in rupees:
Direct Material introduced (10,000 litres)
Direct wages
Direct Expenses
Work in process opening (litres)
Scrap value (Rs. per unit)
Normal loss
63,840
5,000
4,000
6,000 10,000
6,200 4,080
200
1
10%
5%
10%
At the end of P3, 420 litres of a by-product ZOLO were produced, which was
treated further at a cost of Rs. 2 per liter. Selling and distribution expenses of Re.1
per unit were incurred and it was sold at a price of Rs. 9 per litre.
Budgeted overheads for the month were Rs. 84,000. Factory overhead absorption is
based on a percentage of direct wages. The work in process at P1 comprised
material of Rs. 500 and labour and factory overheads of Rs. 1,000. There were no
closing work in process in any of the processes.
Required:
Prepare the following:
(a) Work in process account for each process.
(b) By-product account.
(12)
(4)
Q.6
Nasib Ltd. has prepared the following budgeted income statement for the year 2006:
Product
Sales
Caps
Crowns
30,800
Manufacturing costs
Materials
Labour
Production overheads:
Variable
Fixed
Rings
Pallets
Tubes
(Rupees in thousands)
34,300
45,500
35,700
63,700
Total
210,000
1,540
3,500
4,620
5,600
9,240
10,500
7,700
9,800
11,550
12,600
34,650
42,000
1,750
2,450
9,240
2,450
4,200
16,870
2,800
7,700
30,240
3,500
7,000
28,000
5,040
6,650
35,840
15,540
28,000
120,190
Transportation
Packaging
840
1,400
2,240
2,520
700
3,220
5,040
1,400
6,440
4,200
700
4.900
4,550
2,100
6,650
17,150
6,300
23,450
Administrative costs
4,620
5,145
6,825
5,355
9,555
31,500
5,040
21,140
9,660
3,815
29,050
5,250
3,675
47,180
(1,680)
3,885
42,140
(6,440)
5,285
57,330
6,370
21,700
196,840
13,160
Selling and advertising

expenses
Total cost
Profit
The Management Accountant of the company has provided the following additional
information which describes the basis on which budgeted income statement has been
prepared:
(i)
Material costs include purchase cost plus 10% additional charge, which is
added in order to recover the fixed costs of storage and stores administration.
(ii)
Labour cost is totally variable.
(iii)
Fixed production overhead includes both directly attributable fixed costs and
general fixed production overheads. The general fixed production overheads
amount to Rs. 21 million and have been allocated in proportion to labour
costs. The attributable fixed cost is avoidable if the related product is not
produced.
(iv)
Transport charges include fixed costs of Rs. 3,150,000 which have been
allocated to products in proportion to their material costs. Remaining costs
are variable.
(v)
Selling and advertising expenses include commission of 5% of sales revenue.

The remaining amount is the advertising cost which is directly attributable to
each product.
(vi)
Administrative cost is fixed and is apportioned in the ratio of sales revenue.
(vii) Packaging is a variable cost.

The Managing Director has shown his concern that Rings and Pallets are showing
loss and affecting the financial results of the company. A study which has been
carried out recently has analyzed as under:
(5)
(a)
Sales are influenced by advertising and can be increased upto 40% by

extensive advertising. However each 10% increase in sale would require a
75% increase in advertising expenditure.
(b)
The sale of Caps or Crowns can be increased by reducing the production/sale

of the product Ring. However a reduction in sale of Ring by Re.1 would
generate a sale of 45 paisas of Caps or 50 paisas of Crowns sales. This
substitution will not entail any extra advertising expenditure.
The management is considering the following three options:

(i)
(ii)
(iii)
To discontinue the product Ring and Pallets.

To launch an advertising campaign which will increase the sale of each
product by 40%.
To substitute the sale of Rings with the sale of Caps or Crowns.
Required:
Calculate the effect of each of the above options on the profitability of the
company.
Q.7
(25)
A company produces mineral water. Based on the projected annual sales of 40,000
bottles of mineral water, cost studies have produced the following estimates:
Total annual costs
(in rupees)
193,600
90,000
80,000
30,000
Material
Labor
Overhead
Administration
Variable cost percentage

100
70
64
30
The production will be sold through dealers who would receive a commission of
8% of sale price.
Required:
(i)
(ii)
Q.8
Compute the sale price per bottle which will enable management to realize a
profit of 10 percent of sales.
Calculate the break-even point in rupees if sale price is fixed at Rs. 11 per
bottle.
(10)
The standard raw material mix for 2200 kgs of finished product is as follows:
Materials
Salt
Ash
Coata
Fog
Weight (Kgs)
1,200
600
200
400
Price per Kg
(Rs.)
1.50
2.00
3.00
4.00
(6)
Materials used during an accounting period were as follows:
Materials
Salt
Ash
Coata
Fog
Weight (Kg)
6,000
4,800
1,600
2,500
Price per Kg
(Rs.)
1.6
1.8
2.6
4.1
Actual production was 12,100 kg. Calculate the following materials variances:
(i)
(iii)
(v)
Cost variance
Usage variance
Yield variance
(ii) Price variance

(iv) Mix variance
(13)
(THE END)

September 09, 2006
COST ACCOUNTING
(MARKS 100)
(3 hours)
Module D
Q.1
Hi-way Engineering Limited uses budgeted overhead rate for applying overhead to
production orders on a direct labour cost basis for department A and on a machine hour
basis in department B.
The company made the following forecasts for August 2006:
Budgeted factory overhead (Rs.)

Budgeted direct labour cost (Rs.)
Budgeted machine hours
Dept A
216,000
192,000
500
Dept B
225,000
52,500
10,000
During the month, 50 units were produced in Job no. CNG-011. The job cost sheet for
the month depicts the following information:
Dept A
Dept B
Material issued (Rs.)
1,500
2,250
Direct labour cost (Rs.)
1,800
1,250
Machine hours
60
150
Actual data for the month were as follows:
Factory overhead (Rs.)
Machine hours
Dept A
240,000
222,000
400
Dept B
207,000
50,000
9,000
Required:
(a) Compute predetermined overhead rates for each department.
(b) Work out the total costs and unit cost of Job no. CNG-011.
(c) Compute the over / under applied overhead for each department.
Q.2
(a)
(02)
(04)
(02)
Optimum inventory level can only be determined after comparing the holding
costs with the cost of ordering.
Required:
(i) Briefly discuss the impact of holding and ordering costs on optimum
inventory level.
(03)
(ii) Give three examples of costs which fall under each category.
(03)
(iii) What are the problems which may arise in determining the above costs?
(02)
(b)
Two-way Engineering Limited has been experiencing stockouts on one of its

important product RD-11. Using the EOQ formula, the company places orders of
1,250 units whenever the stock level reduces to 1500 units. The records of the
company show the following data relating to the usage of Product RD-11 during
lead times:
(2)
Usage (Units)
Usage Probability (%)
1,800
4
1,600
6
1,400
10
1,200
20
1,000
60
The company sells RD-11 at a price of Rs. 500 per unit. The annual carrying cost of one
unit is Rs. 30. The company estimates that the cost of being out of stock is Rs. 125 for
each unit.
Required:
The management of the company asks you to establish an optimal safety stock for this
material and also ascertain the probability of being out of stock on your proposed safety
stock level.
Q.3
(10)
Tram-way Hardware Store has been owned by Mr. Petrol. He had himself made all
investment in the business and had not obtained any financing. He appointed a junior
accountant to maintain the manual accounting records. During the month of August, he
asked his accountant to provide certain information including estimates as he was
planning to withdraw some amount for his personal use.
After the failure of his accountant to provide the required information, he has hired your
services for this purpose. You have gathered the following information from the
records:
(i) Sales for August 2006 amounted to Rs. 5,000,000.
(ii) Sales forecast for the next three months was as follows:
Rs.
September
6,000,000
October
5,000,000
November
5,500,000
(iii) Based on past experience, collections are expected to be 56 percent in the month
of sale and 43 percent in the month following the sale. One percent remains
uncollected
(iv) Gross margin on sales is 20% and cost of goods sold comprises of purchase cost
only.
(v) 80 percent of the goods are purchased in the month prior to the month of sale and
20 percent are purchased in the month of sale. Payment for goods is made in the
month following the purchase.
(vi) Other monthly recurring expenses which are paid in cash amount to Rs. 40,700.
(vii) Annual depreciation on fixed assets is Rs. 555,600.
(viii) Annual staff salaries are budgeted at Rs. 600,000.
(viii) Bad debts provision as at August 31, 2006 stands at Rs. 190,400.
(ix) Balances of some other accounts as at August 31, 2006 are as follows:
Fixed assets
Acc. depreciation
Owners capital
Profit and loss
Cash and bank
Rs.
9,940,000
1,900,500
2,800,000
8,380,000
1,980,940
Required:
(a) Prepare a balance sheet as at August 31, 2006.
(b) Calculate the projected balance in accounts payable as on September 30, 2006.
(c) Prepare a projected income statement for the month of September 2006.
(06)
(02)
(03)
(3)
Q.4
One-way Limited is engaged in manufacturing and sale of socks. The sales of the
company are mostly to USA and European Countries. At the end of the first quarter, the
results of operations of the company are as follows:
Rs.
Sales (Rs. 40 per unit)
5,300,000
Less: Material
1,987,500
Wages
795,000
Variable overhead
397,500
Fixed overhead
848,000
4,028,000
Gross profit
1,272,000
The factory was working at 40% capacity in the first quarter. Management of the
company has estimated that the quantity sold could be doubled next quarter if the selling
price was reduced by 15%. The variable costs per unit will remain the same, but certain
administrative changes to cope with the additional volume of work would increase the
fixed overhead by Rs. 15,000.
Required:
(a) Evaluate the managements proposal.
(b) What quantity would need to be sold next quarter in order to yield a profit of Rs.
2,000,000 if the selling price was reduced as proposed, variable cost per unit
remains the same and fixed overheads increased as estimated above?
(c) Calculate the selling price needed to achieve a profit of Rs. 2,000,000 if the
quantity sold last quarter cannot be increased, material prices increase by 12%,
wage rates increased by 15%, variable overheads are higher by 10% and fixed
overheads increase by Rs. 15,000.
Q.5
(05)
(02)
(04)
Mid-way Services Limited received an urgent order for installation of 4 machines in a

textile mill. Immediately after receiving the order, the company deputed four engineers
on the job. Each engineer was responsible for installation of one machine. The standard
time to complete this job was 50 hours.
It is the policy of the company to pay its engineers on job to job basis. The minimum
amount the company pays is based on standard hours. The payment is made at the rate
of Rs. 100 per hour.
In order to speed up the installation work, the company offered the engineers Time
Saving Bonus (TSB) under which they would be entitled for the following incentives:
Percentages of time saved
to time allowed
0% to 10%
11% to 20%
20% to 30%
TSB
10% of time saved x hourly rate
In addition to the agreed amount, the customer has agreed to pay the company Rs. 150
for every hour saved on installation of each machine.
The jobs were completed successfully and the time spent by each engineer is as follows:
Engineers
Hours spent
A
41
B
36
C
46
D
50
(4)
Required:
(i) Calculate the total earning of each engineer and their earning per hour.
(ii) Compute the net additional revenue earned by the company.
Q.6
(08)
(03)
Broad-way Manufacturing Limited produces two products DL-1 & DL-2. The
production involves two processes, I and II. The following data is available in respect of
production during the month of August 2006.
Process I
Process II
Rs.
Rs.
Material issued
375,000
100,000
Direct wages paid
150,000
200,000
Direct expenses incurred
100,000
100,000
During the month of August, materials issued to Process I and Process II were 1,250
tons and 230 tons respectively. The cost of output of Process I is charged to Process
II. Incidental to production, two by-products i.e. PT-1 and PT-2 are generated in the first
process and treated as a credit to Process-I.
Following additional information is also available:
Product
DL-1
DL-2
PT-1
PT-2
Sales
Tons
100
900
200
50
Rs.
600,700
1,203,500
10,000
2,500
Packing
Cost
20,070
100,350
-
A shortfall occurs in Process II due to evaporation which is considered as normal loss.

There were no opening or closing stocks.
Required:
(a) Calculate joint processing costs and apportion them between DL-1 and DL-2 on
the basis of sales value.
(b) Prepare summary trading account for the month showing net profit of each
product.
Q.7
(08)
(02)
Run-way Pakistan Limited has provided you the following information about its sales,
production, inventory and variable/ fixed costs etc. for the second quarter of the year
2006.
Rupees
Sales
Operating profit
Variable manufacturing costs per unit
Fixed factory overhead per unit
Marketing & administrative expenses (Fixed Rs. 250,000)
Sales
Actual production
Budgeted production
Ending inventory
Normal capacity
Production in quarter I
Sales in quarter I
75,000,000
5,171,100
10
11
450,000
Units
3,000,000
2,420,100
3,000,000
320,200
3,500,000
3,100,150
2,200,050
(5)
The Sales Manager claims that the operating profit of the quarter has been wrongly
calculated and is much higher than Rs. 5,171,100.
It is the policy of the company to compute applied factory overhead on the basis of
quarterly budgeted production volume and charge over or under applied factory
overhead to the cost of goods sold account at the end of each quarter.
Required:
(a) You are required to prepare income statements under the present method being
used by the company and also under marginal costing method for the satisfaction
of Sales Manager.
(b) Reconcile the difference in operating profit under the two methods.
Q.8
(09)
(04)
Sub-way Furnishers (Pvt.) Limited manufactures three garden furniture products

Chairs, Benches and Tables. The budgeted data of each of these items is as under:
Budgeted sales volume

Selling price per unit (Rs.)
Cost of Timber per unit (Rs.)
Direct labour per unit (Rs.)
Variable overhead per unit (Rs.)
Fixed overhead per unit (Rs.)
Chairs
4,000
3,000
750
600
450
675
Benches
2,000
7,500
2,250
1,500
1,125
844
Tables
1,500
7,200
1,800
1,600
1,200
1,350
The budgeted volume was worked out by the sales department and the management of
the company is of the view that the budgeted volume is achievable and equal to the
demand in the market.
The fixed overheads are allocated to the three products on the basis of direct labour
hours. Production department has provided the following information:
Direct labour rate
Cost of timber
Rs. 40 per hour

Rs. 300 per cubic meter
A memo from Purchase Manager advises that because of the problem with the supplier
only 25,000 cubic meters of timber shall be available.
The Sales Director has already accepted an order for the following quantities which if
not supplies would incur a financial penalty of Rs. 200,000.
Chairs
Benches
Tables
500
100
150
These quantities are included in the overall budgeted volume.

Required:
Work out the optimum production plan and calculate the expected profit that would
arise on achievement of this plan.
(14)
Q.9
Smart-ways Manufacturing Limited makes a product called LPG. Most of the

manufacturing expenses incurred during the production of LPG are directly identifiable
as fixed or variable. However, some of the expenses are partly fixed and partly variable.
The management of the company wants to determine the fixed and variable element of
these overheads.
(6)
The total of such overheads which are partly fixed and partly variable, during each of
the last 10 months and the related production is given hereunder:
Month
No. of
Units
1
2
3
4
5
6
7
8
9
10
3,000
4,000
6,000
5,000
6,000
5,000
7,000
6,000
5,000
3,000
50,000
Factory
Overhead
(Rs.)
7,200
9,000
12,150
11,250
11,700
10,800
12,600
11,250
10,350
7,200
103,500
Required:
Determine the fixed and variable element of the above overheads on the basis of high
low method and define the relationship in terms of cost volume formula.
(04)
(THE END)

Spring 2007
March 07, 2007
COST ACCOUNTING
(MARKS 100)
(3 hours)
Module D
Q.1
The marketing department of Moon Engineering Limited has prepared the following
projected profit and loss account:
2007
2008
Rupees in million
Sales
Less:
Direct materials
Direct labour
Production overhead
Contribution margin
Less: Fixed costs
Net Profit
750.0
800.0
187.5
112.5
135.0
435.0
315.0
297.8
17.2
200.0
120.0
144.0
464.0
336.0
312.7
23.3
The marketing director is not happy with the sales growth shown in the forecasts.
Similarly, the finance director has shown his concern on the lower profitability. They
have also pointed our certain factors which were ignored while developing the above
projections. Consequently, a comprehensive study was carried out at all levels which has
resulted in the following revisions:
(i) Sales forecast for 2007 has been projected at Rs. 1.0 billion.
(ii) Sales prices are projected to remain the same in 2008. However, the total sales have
been projected to increase by 20% over the year 2007.
(iii) Material prices and costs of production overheads in 2008 will be higher by 10% as
compared to 2007;
(iv) Fixed costs will remain the same except for an expenditure of Rs. 12 million to be
incurred on a special advertising campaign during the year 2008.
Required:
(a) Revise the projected profit and loss account for both years;
(b) Calculate breakeven sales and margin of safety% for 2007 and 2008;
(c) Draw a profit volume chart in respect of each year.
Q.2
(a)
(05)
(04)
(04)
The production and cost data of Planet Manufacturing (Pvt.) Limited for the year
2006 and projections for the year 2007 are as follows:
Production (units)
Total costs (Rs.)
2006
175,000
11,900,000
2007
225,000
16,518,600
The rate of inflation in 2007 has been estimated at 15%.
(b)
Required:
Calculate the fixed and variable costs for 2007 in real terms.
(05)
What is a cost unit and cost center? Give two examples of each.
(04)
(2)
Q.3
Star Chemicals Limited uses three processes to manufacture a product ST. After the
third process the product is transferred to finished goods warehouse.
The following data for the month of January 2007 is available:
PROCESS
I
II
III
----------Rs. in thousands------Raw material A
1,500
Other direct materials
2,500
3,200
4,000
Direct wages
5,000
6,000
8,000
Direct expenses
1,600
1,885
2,020
Following additional information is also available:
(i) Production overheads are absorbed @ 80% of direct wages;
(ii) 20,000 units of raw material A having a cost of Rs. 1,500,000 were initially put in
process-I.
(iii) In each process, an amount of Rs. 500,000 has been wrongly classified as direct
wages, instead of indirect wages.
(iv) The actual output obtained during the month was as under:
Process I
Process II
Process III
18,500 units
16,000 units
16,000 units
(v) Normal loss in each process is 10%, 10% and 5% respectively. Scrap value per unit is
Rs. 100 for process-I, Rs. 200 for process-II and Rs. 300 for process-III.
(vi) There was no stock at the start or at the end of any process.
Required:
Prepare the following in the books of Star Chemicals Limited:
(a) Ledger account for each process;
(b) Abnormal gain/(loss) account.
Q.4
(12)
(04)
Venus Pharmaceutical Company Limited faced a very high labour turnover during the
last year. The issue has now been settled after the announcement of an attractive payment
plan.
Following data relating to last year has been made available to you:
(i)
Sales during the last year was Rs. 726 million and contribution margin was 10% of
sales;
(ii) Total number of actual direct labour hours was 510,000;
(iii) As a result of delays by the Personnel Department in filling vacancies, 10,000
potential productive hours were lost. All these potential lost hours could have been
sold at the prevailing rate;
(iv) The actual direct labour hours included 40,000 hours attributable to training new
recruits, out of which 25% of the hours were unproductive;
(v) The labour turnover resulted in following additional costs:
Recruitment costs
Selection costs
Rupees
284,000
128,500
Required:
Calculate the profit foregone by the company during the last year on account of labour
turnover.
(05)
(3)
Q.5
The production engineering staff of Skyline Company Limited, has set the following
standard mix for the production of one unit of Product X:
Material A
Material B
Material C
Standard loss (10%)
Weight
(Kg)
0.50
0.30
0.20
1.00
0.10
0.90
Rate Per Kg
(Rs.)
10.00
5.00
2.00
Amount
(Rs.)
5.00
1.50
0.40
6.90
6.90
Actual costs incurred on the production of 927,000 units were as follows:
Material A
Material B
Material C
Weight
(Kg)
530,000
280,000
190,000
Rate Per Kg
(Rs.)
10.00
5.30
2.20
Required:
(a) Calculate the mix and yield variances.
(b) Reconcile actual material costs with the standard costs.
Q.6
(06)
(05)
The following figures have been extracted from the budget of Uranus Limited for the
year ended June 30, 2007:
Direct labour
Electricity
Repairs and maintenance
Depreciation
Other expenses
Rupees
35,000,000
25,000,000
5,200,000
14,200,000
8,000,000
Budgeted annual production is 40,000 units. It is the policy of the company to charge
factory overhead on the basis of direct labour costs. Following additional information is
available for the first six months:
Direct material consumed (Rs.)
Factory overhead applied (Rs.)
Good units produced
Spoiled units (considered abnormal)
16,250,000
17,500,000
?
20,000
750
Spoiled units were sold for Rs. 1,200 per unit. Actual direct labour cost includes the cost
of bringing certain defective units to saleable condition, amounting to Rs. 100,000.
Required:
Prepare journal entries to record the transactions that took place during the first six
months of the year and support your answer with computation.
(17)
(4)
Q.7
Sun Fashions (Pvt.) Limited, a chain of retail garments store, has planned to introduce a
new fancy dress for babies at all its seven outlets in the country.
The company is also considering to introduce a matching crown scarf and handbag with
the new dress. Currently they are expecting to sell 15,000 dresses in the first six months
but the management feels that this sale can be increased by 30% if matching crown scarf
and handbag are marketed together.
The data relating to sales and production of dress, crown scarf and handbag are as
follows:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
Each dress requires three and half meter of cloth which is easily available in the
market at a price of Rs. 100 per meter. Part of the material left unused can be used to
manufacture a crown scarf and handbag.
The cost of cutting the dress, crown scarf and handbag is Rs. 35, Rs. 15 and Rs. 20
respectively.
The leftover pieces can be sold as under:
if only the dress is manufactured, Rs. 20 per dress;
if crown scarf and handbag is also manufactured, Rs. 5 per set.
The company has a contract with a designer firm at a monthly fee of Rs. 1,500,000.
However, in the case of handbag and crown scarf, the company will have to pay a
one time additional amount of Rs. 150,000 to the designer firm.
Each handbag will require a metal hook which is available in the market at Rs. 10
per hook. However, the company has sufficient number of metal hooks in stock
which was purchased at Rs. 6 per hook. If the company does not opt for the
manufacturing of handbags, these hooks can be sold at Rs. 8 per hook.
The dresses, crown scarves and handbags are expected to be sold according to the
following mix:
Complete set
Dress and crown scarf only
Dress and handbag only
Dress only
60%
10%
20%
10%
(vii) The selling price and variable costs (besides those mentioned above) of each product
are as follows:
Dress
Crown scarf
Handbag
Selling Price per

unit (Rs.)
2,000
400
500
Variable Costs
(besides those mentioned above)
40% of selling price
Required:
Calculate the incremental profit or loss as a result of manufacturing handbags and crown
scarves with the dress.
Q.8
Jupiter Manufacturing Company Limited consists of two manufacturing departments and

one service department. The company applies factory overhead on the following basis:
Manufacturing Department
A-1
A-2
70% of direct labour cost

Rs. 40 per direct labour hour
(16)
(5)
Following relevant information is available:
Direct materials (Rs.)

Direct labour (Rs.)
Direct labour hours
Number of employees
Floor space (Sq. ft.)
Manufacturing Dept.
A-1
A-2
433,000
313,000
388,800
259,200
3,500
4,000
140
220
1500
1500
Service
Department
40
750
The other expenses are as under:

Indirect labour
Factory office expenses
Depreciation of computer
Factory building expenses
Service departments expenses
Rupees
217,400
43,200
45,000
54,000
112,800
Indirect labour and service departments expenses are apportioned on the basis of direct
labour cost. Factory expenses and computer depreciation are allocated in the ratio of
number of employees to all the departments including service department.
Required:
Prepare a factory overhead distribution statement showing over / under applied FOH for
each department.
(13)
(THE END)

Autumn 2007
September 07, 2007
COST ACCOUNTING
(MARKS 100)
(3 hours)
Module D
Q.1
Binary Limited manufactures three joint products viz. Aay, Bee and Cee in one
common process. Following this process, product Aay and Bee are sold immediately
while product Cee is subjected to further processing. Following information is available
for the period ended June 30, 2007:
(i)
Opening stock in kg
Production in kg
Sales in kg
Sales price per kg (Rs.)
Aay
Nil
335,000
285,000
30.85
Bee
Nil
295,000
212,000
40.38
Cee
Nil
134,000
-
(ii)
Total costs of production were Rs 17,915,800.
(iii)
128,000 kg of Cee were further processed during the period and converted into
96,000 kg of Zee. The additional cost of further processing were as follows:
Direct labour
Production overhead
Rs. 558,500
Rs. 244,700
(iv)
94,000 kg of Zee was sold during the period, with total revenue of
Rs. 3,003,300. Opening stock of Zee was 8,000 kg, valued at Rs 172,800. FIFO
method is used for pricing transfers of Zee to cost of sales.
(v)
8,000 kg of a bye-product Vee was also produced during further processing and
sold @ Rs. 10 per kg. Sales proceeds of bye-product are adjusted against
production cost of product Zee.
(vi)
The cost of production is apportioned among Aay, Bee and Cee on the basis of
weight of output.
(vii)
Selling and administration costs of Rs. 2,500,000 were incurred during the
period. These are allocated to all the main products based on sales value.
Required:
Prepare a profit and loss account for the period, identifying separately the profitability
of each of the three main products.
(19)
Q.2
Hexa (Private) Limited is engaged in the supply of a specialized tool used in the
automobile industry. Presently, the company is incurring high cost on ordering and
storage of inventory. The procurement department has tried different order levels but
has not been able to satisfy the management.
The Chief Financial Officer has asked you to evaluate the current situation. He has
provided you the following information:
(i)
(ii)
The annual usage of inventory is approximately 8,000 cartons. The supplier does
not accept orders of less than 800 cartons. The cost of each carton is Rs. 2,186.
The average cost of placing an order is estimated at Rs 14,000 and presently two
orders are placed in each quarter.
(2)
(iii) The sales are made on a regular basis and on average, half of the quantity ordered
is held in inventory. The cost of storage is considered to be 16% of the value of
inventory.
Required:
(a) Determine the following:
Economic Order Quantity (EOQ).
Number of orders to be placed, based on EOQ.
(b) Compute the ordering costs and storage costs in the existing situation. How much
cost can be saved if quantity ordered is equal to EOQ as determined in (a) above. (10)
Q.3
Octa Limited manufactures a single product under the brand name Pak Pure. The
latest estimates related to the current year are as follows:
Production and sales (units)
Cost per unit
Direct material (Rs.)
Direct labour (Rs.)
Fixed overhead (Rs.)
Variable overhead (Rs.)
Total cost per unit (Rs.)
25,000
40
20
15
5
80
During the next year, the costs per unit are expected to increase as under:
%
20
10
5
20
Direct material
Direct labour
Fixed overhead
Variable overhead
It is the policy of the company to set the selling price at the time of budget preparation
at cost plus 50%. The Sales Manager is worried about the implications of this policy.
According to his estimate, demand for the product will vary with price as follows:
Price (Rs.)
Demand (thousand units)
100
25
105
23
110
21
115
20
The Production Manager has informed that a different type of raw material is also
available in the market at a cost of Rs. 42.30 per unit. He believes that the new material
will give an acceptable quality of output. However, as a result of using cheaper
material, a process of inspection will have to be introduced which will cost Rs. 30,000
per annum. The chances of rejection are 2% and 3% for raw material and finished
goods respectively.
Required:
(a) Determine the price which will maximize the profit.
(b) Decide whether the company should continue to use the present type of raw
material or switch over to the new one.
(10)
(Round off all the figures to two decimal places).
Q.4
Nooruddin Ahmed is planning to start a new business. He will invest his saving
amounting to Rs. 3,500,000 and intends to make borrowing arrangements with a bank
to meet the working capital requirements. His planning is based on the following
estimates:
(i)
He has identified a factory cum office premises at a monthly rent of Rs. 80,000
which will be payable in advance at the beginning of each month. However, he
needs to give three months rent as security deposit to the landlord before
occupying the space. Other fixed overheads excluding depreciation are estimated
at Rs. 120,000 per month which will be paid in the same month.
(3)
(ii)
He has signed a contract for supply of machinery costing Rs. 1,800,000. The
payment will be made at the time of delivery in January 2008. This machinery
has an estimated life of five years with no residual value.
(iii)
Production will start in January 2008 and 60% of the next months sales will be
manufactured in January 2008. Thereafter, the production will consist of 40% of
the current months sales and 60% of the next months sales.
(iv)
He estimates the following sales for the first five months:

Month
January
February
March
April
May
Unit
2,400
3,200
4,000
4,800
Rupees
3,120,000
4,160,000
5,200,000
6,240,000
(v)
Sales will be made on credit basis. A 5% cash discount will be allowed for
payments in the current month. It is estimated that 35%of each months sales
will qualify for this discount. Balance 65% will be recovered in the next month.
(vi)
Variable production cost per unit has been estimated as:

Direct material
Direct labour
Variable overhead
Total variable cost per unit
(vii)
Rupees
600
200
100
900
Raw materials costing Rs. 1,600,000 will be purchased in January 2008 in cash.
Thereafter, he intends to follow a policy of purchasing 50% of the monthly
requirement in the same month and 50% of the next months requirement. All
purchases after January shall be made on 30 days credit.
(viii) Salaries shall be paid in the first week of subsequent month.

(ix)
70% of the variable overheads shall be paid in the same month and 30% in the
next month.
Required:
Prepare a cash budget for the months January 2008 to April 2008 showing the balance
of cash / running finance at the end of each month.
(20)
Q.5
Quadra Electronics assembles and sells three products W, X and Y. The cost per unit
for each product is as follows:
W
X
Y
Rupees
Rupees
Rupees
Direct materials
4,880
1,600
1,000
Direct labour
4,000
2,000
700
Variable overheads
1,360
480
348
Fixed production overheads
1,172
1,290
960
Total cost per unit
11,412
5,370
3,008
The fixed overheads are worked out on the basis of normal production levels i.e 15,000;
45,000; and 60,000 units per annum for W, X and Y respectively.
The fixed selling and administrative costs for the next year are expected to be
Rs. 71,270,400.
(4)
Management estimates that the ratio of sales quantities of W, X and Y shall be 1:3:4 and
selling price per unit shall be Rs. 12,800; Rs. 6,000 and Rs. 3,600 respectively.
Required:
(a) Calculate the number of units of W, X and Y to be sold in order to achieve break
even.
(b) Calculate the break even sales in terms of Rupees.
(16)
Q.6
Ternary Packages is located at a remote site in an industrial estate which is far away
from the center of the city. Management of the company is now considering to provide
pick and drop facility to its employees. A two member committee has reviewed the
available options and has come up with a proposal to purchase three vans and run them
on three different routes i.e. A, B and C. The information for each van is as follows:
Rupees
1,200,000
200,000
50,000
4,000
15,000
8,000
14,000
40
Purchase price
Expected trade-in value after 4 years
Insurance per annum
Quarterly service including change of lubricants
Replacement of spare parts per 20,000 km
Vehicle License fee per annum
Tyre replacements after 40,000 km
Cost of diesel per litre
Annual running for each van will be as follows:
km
80,000
120,000
160,000
Van on route A
Van on route B
Van on route C
The committee has estimated that average running will be 16 km per litre.
Required:
(a) Prepare a schedule to be presented to the management showing following costs in
respect of each van for the first year of operation:
Total variable cost
Total fixed cost
Total cost
Variable cost per km

Fixed cost per km
Total cost per km
(b) Briefly explain why the cost per km is different in each case.
Q.7
(15)
Decimal World (Pvt) Limited is engaged in the manufacturing of standard and scientific
calculators. The company operates a bonus scheme for all its factory workers. A
performance bonus is incorporated into the wages by adding 75% of the efficiency ratio
in excess of 100% to the basic hourly rate. The following information is available for
the month of July 2007:
Basic rate of pay per hour (Rs.)
Standard production per hour (units)
Production during the period (units)
Actual hours spent
125
4
226,176
45,600
Required:
(a)
Calculate the hourly wage rate inclusive of performance bonus.
(b)
Calculate the total labour cost variance.
(THE END)
(10)

Spring 2008
March 7, 2008
COST ACCOUNTING
(MARKS 100)
(3 hours)
Module D
Q.1
Mirza Limited is engaged in the manufacturing of spare parts for automobile industry. The
company records the purchase and issue of materials in a store ledger which is not
integrated with the financial ledger. It is the policy of the company to value inventories on
weighted average basis. The valuation is carried out by the Finance Department using stores
memorandum record. A physical stock count is carried out after every six months. Any
shortage/excess is then adjusted in the financial as well as stores ledger.
On December 31, 2007, physical stock count was conducted by the Internal Auditor of the
company. He submitted the following statement to the Finance Department:
Item Code
010-09
013-25
017-10
022-05
028-35
035-15
Balance (in units)

Store
Financial
Physical
Ledger
Records
20,500
20,500
20,000
10,000
10,000
10,000
5,500
5,500
5,000
4,000
4,500
5,500
1,200
1,200
1,000
640
600
600
Cost per unit (Rs.)

Average
Current
2.00
4.00
1.00
2.00
2.75
3.00
2.25
1.50
1.10
2.00
2.50
3.50
On scrutinizing the details, Finance Department was able to ascertain the following reasons:
Item Code
010-09
013-25
017-10
022-05
028-35
035-15
Reasons
500 units were defective and therefore the Internal Auditor excluded them
while taking the physical count.
This item is not in use and is considered obsolete. The net realizable value is
Rs. 0.60 per unit.
Shortage is due to theft.
A receipt of 1,000 units was not recorded. The remaining difference is due to
errors in recording the quantity issued.
200 units returned to a supplier were not recorded. The invoiced cost was
Rs. 3 per unit.
Discrepancy is due to incorrect recording of a Goods Receipt Note.
Required:
(a) Prepare necessary Journal entries to record the adjustments in the financial ledger.
(b) State how would you make the necessary adjustments in the stores ledger?
Q.2
(a)
(14)
Explain the treatment of under-absorbed and over-absorbed factory overheads. Give

three reasons for under-absorbed / over absorbed factory overheads.
(06)
(2)
(b)
On December 1, 2007 Zia Textile Mills Limited purchased a new cutting machine for
Rs. 1,300,000 to augment the capacity of five existing machines in the Cutting
Department. The new machine has an estimated life of 10 years after which its scrap
value is estimated at Rs. 100,000. It is the policy of the company to charge
depreciation on straight line basis.
The new machine will be available to Cutting Department with effect from February
1, 2008. It is budgeted that the machine will work for 2,600 hours in 2008. The
budgeted hours include:
80 hours for setting up the machine; and
120 hours for maintenance.
The related expenses, for the year 2008 have been estimated as under:
(i)
Electricity used by the machine during the production will be 10 units per hour
@ Rs. 8.50 per unit.
(ii) Cost of maintenance will be Rs. 25,000 per month.
(iii) The machine requires replacement of a part at the end of every month which will
cost Rs. 10,000 on each replacement.
(iv) A machine operator will be employed at Rs. 9,000 per month.
(v) It is estimated that on installation of the machine, other departmental overheads
will increase by Rs. 5,000 per month.
Cutting Department uses a single rate for the recovery of running costs of the
machines. It has been budgeted that other five machines will work for 12,500 hours
during the year 2008, including 900 hours for maintenance. Presently, the Cutting
Department is charging Rs. 390 per productive hour for recovery of running cost of
the existing machines.
Required:
Compute the revised machine hour rate which the Cutting Department should use
during the year 2008.
(08)
Q.3
Ayub Sports Limited produces boxing gloves which are in great demand in the local as well
as international market. Because of better quality and lesser competition in the market, the
companys profit has approximately doubled in 2007. A summary of companys expenses
and profit for the year 2006 and 2007 are as under:
Materials consumed
Wages
Overheads Fixed
Overheads Variable
Net profit
2007
Rupees
140,000
120,000
32,000
34,000
20,500
2006
Rupees
100,000
80,000
30,000
24,000
10,000
In 2007, sales prices were increased by 10% as compared to 2006. The material prices and
rate of wages increased by 10% and 20% respectively in 2007.
In a meeting held to evaluate the performance of various departments, significant
differences arose among the departmental heads. Therefore the Managing Director of the
company asked the CFO to analyse the financial performance objectively.
Required:
Being the CFO of the company carry out an analysis to determine the increase/decrease in
profit in 2007, due to sales price, sales volume, material price, material consumption, labour
efficiency, labour rate, variable overheads and fixed overheads.
(17)
(3)
Q.4
Fazal Industries Limited is currently negotiating a contract to supply its products to K-Mart,
a large chain of departmental stores. K-Mart finally offered to sign a one year contract at a
lump sum price of Rs. 19,000,000.
The Cost Accountant of Fazal Industries Limited believes that the offered price is too low.
However, the management has asked you to re-assess the situation. The cost accountant has
provided you the following information:
Statement of Estimated Costs (Project: K-Mart)
Material:
X (at historical cost)
Y (at historical cost)
Z
Labour:
Skilled
Unskilled
Supervisory
Overheads
Total cost
Notes
Rupees
(i)
(ii)
(iii)
1,500,000
1,350,000
2,250,000
(iv)
(v)
(vi)
(vii)
4,050,000
2,250,000
810,000
8,500,000
20,710,000
You have analysed the situation and gathered the following information:
(i) Material X is available in stock. It has not been used for a long time because a
substitute is currently available at 20% less than the cost of X.
(ii) Material Y was ordered for another contract but is no longer required. Its net realizable
value is Rs. 1,470,000.
(iii) Material Z is not in stock.
(iv) Skilled labour can work on other contracts which are presently operated by semiskilled labour who have been hired on temporary basis at a cost of Rs. 325,000 per
month. The company will need to give them a notice of 30 days before terminating
their services.
(v) Unskilled labour will have to be hired for this contract.
(vi) Two new supervisors will be hired for this contract at Rs. 15,000 per month. The
present supervisors will remain employed whether the contract is accepted or not.
(vii) These include fixed overheads absorbed at the rate of 100% of skilled labour. Fixed
production overheads of Rs. 875,000 which would only be incurred if the contract is
accepted, have been included for determining the above fixed overhead absorption
rate.
Required:
Prepare a revised statement of estimated costs using the opportunity cost approach, for the
management of Fazal Industries and state whether the contract should be accepted or not.
(14)
Q.5
Ishaq Limited manufactures plastic bottles for pharmaceutical companies. It has recently
introduced a 100% weekly group bonus plan with a guaranteed wage of Rs. 150 per hour.
Standard production per hour is 50 bottles. Each worker is supposed to work 8 hours a day
from Monday to Friday and 5 hours on Saturday. Presently, there are 20 workers who are
entitled for this plan. Production for the first week under the 100% bonus plan was:
Days
No. of bottles
Mon
8,700
Tue
7,350
Wed
9,750
Thu
7,500
Fri
8,950
Sat
4,550
Most of the workers have raised objection on the companys bonus plan. They are of the
view that bonus calculation should be based on daily production instead of weekly
production. The management of the company has asked you to determine the impact of such
a change.
(4)
Required:
Prepare statements showing labour cost per unit under each of the two options. Give reasons
for the differences, if any.
(10)
Q.6
Yahya Limited produces a single product that passes through three departments, A, B and C.
The company uses FIFO method for process costing. A review of department As cost
records for the month of January 2008 shows the following details:
Units
Work in process inventory as at January 1, 2008
(75% complete as to conversion costs)
Additional units started in January 2008
Material costs incurred
Labour costs incurred
Work in process inventory as at January 31, 2008
(50% complete as to conversion costs)
Units completed and transferred in January 2008
Material
Rs.
16,000
110,000
-
64,000
430,500
-
18,000
100,000
Labour
Rs.
28,000
230,000
-
Overhead is applied at the rate of 120% of direct labour. Normal spoilage is 5% of output.
The spoiled units are sold in the market at Rs. 6 per unit.
Required:
Compute the following for the month of January:
(a) Equivalent production units.
(b) Costs per unit for material, labour and factory overhead.
(c) Cost of abnormal loss (or gain), closing work in process and the units transferred to
the next process.
(16)
Q.7
Zulfiqar Limited makes and sells a single product and has the total production capacity of
30,000 units per month. The company budgeted the following information for the month of
January 2008:
Normal capacity (units)
Variable costs per unit:
Production (Rs.)
Selling and administration (Rs.)
Fixed overheads:
Production (Rs.)
Selling and administration (Rs.)
27,000
110
25
756,000
504,000
The actual operating data for January 2008 is as follows:

Production
Sales @ Rs. 250 per unit
Opening stock of finished goods
24,000 units
22,000 units
2,000 units
During the month of January 2008, the variable factory overheads exceeded the budget by
Rs. 120,000.
Required:
(a) Prepare profit statement for the month of January using:
marginal costing; and
absorption costing.
(b)
Reconcile the difference in profits under the two methods.
(THE END)
(15)

Autumn 2008
September 5, 2008
COST ACCOUNTING
(MARKS 100)
(3 hours)
Module D
Q.1
Binary Ltd. (BL) manufactures three products, A, B and C. It is the policy of the company to
apportion the joint costs on the basis of estimated sales value at split off point. BL incurred the
following joint costs during the month of August 2008:
Direct material
Direct labour
Overheads (including depreciation)
Total joint costs
Rs. in 000
16,000
3,200
2,200
21,400
During the month of August 2008 the production and sales of Product A, B and C were
12,000, 16,000 and 20,000 units respectively. Their average selling prices were Rs. 1,200,
Rs. 1,400 and Rs.1,850 per unit respectively.
In August 2008, processing costs incurred on Product A after the split off point amounted to
Rs. 1,900,000.
Product B and C are sold after being packed on a specialized machine. The packing material
costs Rs. 40 per square foot and each unit requires the following:
Product
B
C
Square feet
4.00
7.50
The monthly operating costs associated with the packing machine are as follows:
Depreciation
Labour
Other costs
Rupees
480,000
720,000
660,000
All the above costs are fixed and are apportioned on the basis of packing material
consumption in square feet.
Required:
(a) Calculate the joint costs to be apportioned to each product.
(13)
(b) BL has received an offer from another company to purchase the total output of Product B
without packaging, at Rs. 1,200 per unit. Determine the viability of this offer.
(03)
Q.2
Alpha Motors (Pvt.) Ltd. uses a special gasket for its automobiles which is purchased from a
local manufacturer. The following information has been made available by the procurement
department:
Annual requirement (no. of gaskets)
Cost per gasket (Rs.)
Ordering cost per order (Rs.)
Carrying cost per gasket (Rs.)
162,000
1,000
27,000
300
(2)
The gaskets are used evenly throughout the year. The lead time for an order is normally 11
days but it can take as much as 15 days. The delivery time and the probability of their
occurrence are given below:
Delivery time (in days)
11
12
13
14
15
Probability of Occurrence
68%
12%
10%
6%
4%
Required:
(a) Compute the Economic Order Quantity (EOQ) and the total Ordering Costs based on
EOQ.
(04)
(b) What would be the safety stock and re-order point if the company is willing to take:
a 20% risk of being out of stock?
a 10% risk of being out of stock?
(08)
Note: Assume a 360 day year.
Q.3 (a) Hexa Limited uses a standard costing system. The following profit statement summarizes
the performance of the company for August 2008:
Budgeted profit
Favorable variance:
Material price
Labour efficiency
Adverse variance:
Fixed overheads
Material usage
Labour rate
Actual profit
Rupees
3,500
16,000
11,040
(16,000)
(6,000)
(7,520)
27,040
(29,520)
1,020
The following information is also available:

Standard material price per unit (Rs.)
Actual material price per unit (Rs.)
Standard wage rate per hour (Rs.)
Standard wage hours per unit
Actual wages (Rs.)
Actual fixed overheads (Rs.)
Fixed overheads absorption rate
4.0
3.9
6.0
10
308,480
316,000
100% of direct wages
Required:
Calculate the following from the given data:
(a) Budgeted output in units
(b) Actual number of units purchased
(c) Actual units produced
(d) Actual hours worked
(e) Actual wage rate per hour
(15)
(b) State any two possible causes of favourable material price variance, unfavourable
material quantity variance, favourable labour efficiency variance and unfavourable labour
rate variance.
(04)
(3)
Q.4
Decimal World Limited manufactures and sells modems. It manufactures its own circuit
boards (CB), an important part of the modem. The present cost to manufacture a CB is as
follows:
Direct material
Direct labour
Variable overheads
Fixed overheads
Depreciation
General overheads
Total cost per unit
Rupees
440
210
55
60
30
795
The company manufactures 400,000 units annually. The equipment being used for
manufacturing CB has worn out completely and requires replacement. The company is
presently considering the following options:
(A) Purchase new equipment which would cost Rs. 240 million and have a useful life of six
years with no salvage value. The company uses straight-line method of depreciation. The
new equipment has the capacity to produce 600,000 units per year. It is expected that the
use of new equipment would reduce the direct labour and variable overhead cost by
20%.
(B) Purchase from an external supplier at Rs.730 per unit under a two year contract.
The total general overheads would remain the same in either case. The company has no other
use for the space being used to manufacture the CBs.
Required:
(a) Which course of action would you recommend to the company assuming that 400,000
units are needed each year? (Show all relevant calculations)
(07)
(b) What would be your recommendation if the companys annual requirements were
600,000 units?
(06)
(c) What other factors would the company consider, before making a decision?
(03)
Q.5
Octa Electronics produces and markets a single product. Presently, the product is
manufactured in a plant that relies heavily on direct labour force. Last year, the company sold
5,000 units with the following results:
Sales
Less: Variable expenses
Contribution margin
Less: Fixed expenses
Net income
Rupees
22,500,000
13,500,000
9,000,000
6,300,000
2,700,000
Required:
(a) Compute the break-even point in rupees and the margin of safety.
(04)
(b) What would be the contribution margin ratio and the break-even point in number of units
if variable cost increases by Rs. 600 per unit? Also compute the selling price per unit if
the company wishes to maintain the contribution margin ratio achieved during the
previous year.
(05)
(c) The company is also considering the acquisition of a new automated plant. This would
result in the reduction of variable costs by 50% of the amount computed in (b) above
whereas the fixed expenses will increase by 100%. If the new plant is acquired, how many
units will have to be sold next year to earn net income of Rs. 3,150,000.
(03)
(4)
Q.6
Ternary Engineering Limited produces front and rear fenders for a motorcycle manufacturer.
It has three production departments and two service departments. Overheads are allocated on
the basis of direct labour hours. The management is considering to change the basis of
overhead allocation from a single overhead absorption rate to departmental overhead rate. The
estimated annual overheads for the five departments are as under:
Direct materials
Direct labour
Indirect material
Other variable overheads
Fixed overheads
Total departmental expenses
Maximum production capacity
Direct labour hours
Machine hours
Use of service departments:
Maintenance - Labour hours
Inspection - Inspection hours
Production Departments
Service Departments
Fabrication Phosphate Painting
Inspection Maintenance
-------------------------Rs. in 000-------------------------------6,750
300
750
1,200
385
480
30
75
200
70
100
30
15
480
65
115
150
210
8,630
820
1,445
210
300
20,000
24,000
9,000
25,000
9,600
1,000
30,000
12,000
1,200
630
1,000
273
500
147
1,500
Required:
(a) Compute the single overhead absorption rate for the next year.
(06)
(b) Compute the departmental overhead absorption rates in accordance with the following:
The Maintenance Department costs are allocated to the production department on the
basis of labour hours.
The Inspection Department costs are allocated on the basis of inspection hours.
The Fabrication Department overhead absorption rate is based on machine hours
whereas the overhead rates for Phosphate and Painting Departments is based on direct
labour hours.
(10)
Q.7
Unity Electronics Limited manufactures and supplies condenser fans used in the production of
Refrigerators to Sigma Corporation. The company earns a contribution margin of Rs. 600 on
each unit sold before charging the labour cost. Following information is available from the
companys records.
Number of employees
Standard working hours (9 hours/day)
Standard hours per unit (at 100% efficiency)
Standard labour rate per hour (Rupees)
180
54
3
30
Due to the rise in demand for Refrigerators, Sigma Corporation has increased the size of its
order. However, the management is concerned about the productivity of its labour force. An
analysis of the employees performance report has revealed that the company is suffering on
account of the following:
A tendency to waste time as a result of which approximately 9 working hours are lost per
week per employee.
A tendency to work inefficiently, as a result of which the production efficiency is only 74%.
In order to meet the increased demand, the management is considering an increase in wages
by Rs. 5 per hour. The increase is likely to motivate the employees and reduce the wastage of
time by 5 hours and will also improve the production efficiency to 88%.
Required:
Advise whether Unity Electronic Limited should revise the wages. Show all necessary
supporting calculations.
(09)
(THE END)

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The Institute of Chartered Accountants of Pakistan

Foundation and Modular Examinations

September 08, 2001

The amount of fixed overhead and the variable cost using.

Purchases are made as and when required

Determine the profit-maximizing production level for the products

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

Foundation/Modular Foundation Examinations

What are the essentials of a good wage system

Prepare necessary control accounts in the cost ledger

List the main advantages and disadvantages of FIFO method of costing

Apollo Industries apportioned its overheads using the following bases:

iv) Machine values

Rent and property tax

In a manufacturing deptt 1 kg of product K requires two chemicals A and B. The following

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

September 07, 2002

Describe the roll of a Cost Accountant in a manufacturing unit.

Average method of pricing is used.

Required (i) Equivalent Production Statement for June 2002

(a) What is margin of safety?

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

Modular Intermediate Examinations

March 08, 2003

Following transactions appeared in the books of accounts of the Company

Cost per unit (Rs.)

Sale price per unit (Rs.)

There was an opening balance of 100 units for Rs.3,900.

Following is the labour data of a company for a given week:

What are the requirements for an incentive plan to be successful.

The following data of a period relates to a manufacturing department:

Calculate predetermined production overhead absorption rate on the following

Selling price per unit

List the contents of a complete budget document of a manufacturing concern.

Reduced selling price by

Sale volume expected

A company which manufactures a uniform product is operating at 60% level of

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

Intermediate Examinations Autumn 2003

September 06, 2003

Details of various allocations of the cost centers are as under

Required: Calculate machine hour rate for each machine.

Following data pertains to a worker of a manufacturing industry.

As an incentive the management has agreed to increase the

There was no stock at start or at the end in any process.

Breakeven point in units

A manufacturing concern is currently buying a component used in its finished product

Following information pertains to Dilber Associates:

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

March 11, 2004

Explain the following terms:

Critically analyse the following statement:

You are required to calculate:

Economic Order Quantity.

Five year history of Other factory overhead expenses is as under:

Other factory overhead

Following is the data of Department B of EFG Company for December, 2003:

Selling price per unit

Cost per unit

Budgeted profit & loss for the four months.

From the following information, allocate overheads of service departments to individual

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

September 11, 2004