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 Rs 6,000 30,000 50,000 15,000 10,000 60,000 150,000 300,000 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 : 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)
Q.3
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.
(15)
Q.4
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
(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 f inal 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
Q.6
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) (MARKS 100) (3 hours)
Q.1
(a) (b) (c)
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
Q.2
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 Repair and maintenance 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 Required: Q.3 a) Assuming nil opening stocks, calculate the value of the closing stock from the data provided below using each of the following methods: FIFO LIFO HIFO 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 20,000 17,500
26,500 18,100 35,674
20
Receipts Date October October October October Issues October 2 October 9 October 12 October 18 October 20 55 65 50 25 115 12 b) c) List the main advantages and disadvantages of FIFO method of costing 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 1 8 16 20 Units 100 85 95 115 Rate 12.50 15.00 11.95 13.00
(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 Repair and maintenance 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 Available in stocks 1,200 200 3,000 1,800 Units Required for contract 450 1,250 800 1,200 Purchase price of stocks Current Buying price Rupees 17.00 42.00 53.50 13.25 Current resale price
071 076 079 085
23.00 32.00 47.00 33.00
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
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
Skilled Semi-skilled Unskilled
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 i passed to process B where further material is added to the mix. The s 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 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 (THE END)
05 05 05
06 03 06
Foundation Examinations
Autumn 2002
September 07, 2002 COST ACCOUNTING FE-2 Paper 5 & Module D Paper D12 Q.1 (a) (b) (MARKS 100) (3 hours) (04)
(c) (d)
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.
(03) (05) (05)
Q.2
With reference to material control system, you are required to explain the meaning of: (i) Perpetual Inventory (ii) Continuous Stock Taking 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
(05)
Q.3
(02) (02) (02) (02) (03) (03)
Q.4
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: 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) Average method of pricing is used. Required (i) Equivalent Production Statement for June 2002 (ii) Process Account for the month of June 2002 Q.5 (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. 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. (04) (10) (03) 3,200 units 500 units 520 units 980 units Rupees 24,150 164,825 177,690
(04)
(04) (04)
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 Rupees 850,000 750,000 800,000 800,000 900,000 950,000
(05)
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. Required: (i) Cash budget for the six month ending June 30, 2002 (ii) Budgeted Income Statement for the six month ending June 30, 2002 Q.7 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 50% Sugar Division 30% Rupees 170,000 150,000 15,000 8,000 4,000 60% Cement Division 30% Rupees 200,000 200,000 20,000 8,000 5,000 65%
(10) (05)
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. (THE END) (10)
(05)
Modular Intermediate Examinations
Spring 2003
March 08, 2003 COST ACCOUNTING Module D Paper D 12 Q.1 Following transactions appeared in the books of accounts of the Company PURCHASES Month Jan Feb April Quantity (Units) 100 200 400 SALES Month March May June Quantity (Units) 250 350 100 Sale price per unit (Rs.) 64 70 74 Cost per unit (Rs.) 41 50 51.87 (MARKS 100) (3 hours)
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 Monday Tuesday Wednesday Thursday Friday 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. (b) What are the requirements for an incentive plan to be successful. Units 270 210 300 240 260 Hours 8 8 8 8 8
(06) (03)
(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) 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)
(b) (c)
(04) (04)
(d)
Q.4
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. (08) (06)
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 ========= 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 (14)
Q.7
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 Reduced selling price by % 5 7 10 Sale volume expected to increase by % 10 20 25
1 2 3
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 (MARKS 100) (3 hours)
Q.1
Why should semi variable expenses be separated into fixed and variable elements? What methods are available for separating semi variable expenses? How Cash Budget assists management in making more effective use of money? Name two methods used for the preparation of a cash budget. 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 Machine-2 1,000 4,000 5,000 2 5 120 20,000 5,000 Total 6,000 8,000 25,000 10 25 720 120,000 10,000
07
Q.2
09
Q.3
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 5,000 4,000 20,000 8 20 600 100,000 5,000
Sq. ft
Required: Calculate machine hour rate for each machine. Q.4 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 As an incentive the management has agreed to increase the time allowed per unit by 400 units 48 hrs Rs.10 8 minutes
10
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 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 Rs Units % Rs 9,200 10 0.20 8,700 5 0.50 7,900 10 1.00 6,000 8,500 4,000 1,200 2 3 Total 6,000 23,500 22,000 3,470 16,500
09
9,500 6,000 930
5,500 12,000 1,340
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 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
15
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
Module D
Q.1 Explain the following terms: Expense Product cost Semi-variable cost Period cost
(MARKS 100) (3 hours)
(02) (02) (02) (02)
Q.2
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 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) Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. 12,500 15,000 23,000 4,500 10,252 10,000 7,050 125 per unit 16% 10,050 0.50% 22,048
Rs.
(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.) 90,775 83,125 84,800 99,084 84,860 Direct labour hours 23,750 18,750 20,000 21,000 19,750
1999 2000 2001 2002 2003
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.
(10)
Q. 5
AAD Companys Budgeting Department has compiled following data for decision-making: Product Demand in units Average sale price Rs. 318 421 280 Material per unit Rs. 172 172 172 Labour per unit Rs. 76 173 32 Opening stock Units 50 50 -
A B C
1,500 2,200 3,700
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 460 units 27,654 47,689 7,500
Rs. Rs.
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.
(20)
Q.7
ABC Limited intend to commence production from July 1. They have provided following information for the first four months of operation: PARTICULARS Sales in units Selling price per unit Cost per unit Material Labour Overhead Depreciation Administrative Marketing 1st 9,500 60 2nd 9,300 58 3rd 9,900 59 4th 10,000 60
20 10 5 5 3 2
18 10 5 5 3 2
19 10 5 5 3 2
20 10 5 5 3 2
Capital expenditure
50,000
(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: Departmental overheads before distribution of Service Departments Rs 6,000 Rs 8,000 Rs 3,630 Rs 2,000 ________ Rs 19,630 =======
Departments Producing Dept A Producing Dept B Service Y Service Z Total Departmental Overheads
Service Provided Dept Y Dept Z 40 % 40 % 20 % ______ 100 % ===== 20 % 50 % 30 % ______ 100 % =====
(10 )
(THE END)

September 11, 2004
COST ACCOUNTING
MODULE D Q.1 (a)
Describe briefly THREE major differences between: (i) financial accounting, and (ii) cost and management accounting. (06) 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 Financial ledger control A/c 2,940 Production overhead control account Rs. 000 Financial ledger control A/c 1,790 Job ledger control account Rs.000 1,724
(b)
Opening balance
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 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 7,800 units per month 8,190 units per month 9,100 units per month
Required: Prepare a table showing per unit cost at present and various expected levels of production. Q.3 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 128,480 34,344 Machine Shop B 99,640 36,760 Assembly
Canteen Maintenance
(16)
Direct Wages (Rs) Indirect Wages (Rs) Consumable Materials(incl. Maintenance) (Rs) Rent & Rates (Rs) Building Insurance(Rs) Heat & Light(Rs) Power(Rs) Depreciation of Machine (Rs) Area (Sq Ft) Value of Machines(Rs) Power Usage (%) Direct Labour (Hours) Machine Usage (Hours)
518,920 313,820
290,800 62,696 118,600 61,420
67,600 66,800 9,600 13,600 34,400 160,800 90,000 1,608,000 100% 72020 54,422
25,600
34,800
4,800
2,400
20,000 760,000 54% 16020 14,730
24,000 716,000 40% 12410 37,632
30,000 88,000 3% 43590 2,060
12,000 12,000 1%
4,000 32,000 2%
3 The proportion of Maintenance cost center time spent for other cost centers is: Machine Shop A Machine Shop B Assembly Canteen Required: Allocate the overhead expense by using the appropriate bases of apportionment. Q.4 The incomplete process account relating to period 4 for a company which manufactures paper is shown below: Process account Rs. 16,000 Finished goods 8,125 Normal loss 3,498 Work in progress (12) 45% 40% 13% 2%
Material Labour Production overhead
Units 4,000
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: Calculate the values of abnormal loss, closing WIP and finished goods. Q.5 (a) (b) (c) Explain the straight line equation Y = a + bx with reference to cost behaviour. What are the limitations and problems of the equation? 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 (08) (04) (05)
(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) (64,000) 32,000 (6,400) 25,600 (8,000) (7,200) (2,400) 8,000
Other Variable Cost - selling expenses Contribution Fixed Costs: Production Overhead Administration Selling Net Profit The standard cost per unit is: Direct material (1 Kg) Direct labour (3 hours) Variable cost (3 hours) Budgeted selling price per unit is Rs. 60 Rs. 16 18 6
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)

March 12, 2005
COST ACCOUNTING
Module D Q.1 (a)
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)
(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)
Q.2
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) 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.
(b) (c) (d)
(12)
Q.4
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. (06)
Q.5
Total Surveys Limited conducts market research surveys for a variety of clients. Extracts from its records are as follows: 2003 Rupees in million 6.000 2004 Rupees in million 6.615
Total Costs
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: Rs.(000) 1,300 1,000 250 400 600 1,000
Rent of premises Advertising Printing of tickets Ticket sellers, security Wages of Gala Promotions Limited Personnel employed at the concert Fee of artist
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 Ali Limited makes and sells one product, the standard production cost of which is as follows for one unit: Rs. 18 28 3 20 69
(03)
(04) (04) (04)
Direct labour Direct materials Production overhead Standard production cost
3 hours at Rs.6 per hour 4 kilograms at Rs.7 per kg Variable Fixed
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 Required: (a)
(4) Six months ending 31 March 2004 8,500 7,000
Six months ending 30 September 2004 7,000 8,000
(b)
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)
Q.8
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) 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.
(2) (3)
(4)
(5)
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. (THE END)
(11)

September 10, 2005
COST ACCOUNTING
Module D Q.1 (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) 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)
(b)
Q.2
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 40 20 100 Invoice price per unit 59.00 60.50 80 62.00 80 63.00 Units issued 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 I II III IV Number of employees 6 18 4 1 Rate per hour (Rs.) 40 32 28 16 Individual hours worked 40 42 40 44
Actual output and standard times are given below: Component A B C Output 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: Machine groups C D 25,768 97,392 39,545 1,000 2 10 1,000 1,800 15,000 10,000
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 Required: (a) (b)
TOTAL 285,600 514,080 257,040 10,000 16 85 8,000 8,400 105,000 125,000
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
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 Hours 8 3 1 4
(c)
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)
Q.5
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: Rs. 200,000 320,000 220,000
Materials Direct labour Factory overhead
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) Material price variance Labour rate variance Overhead budget variance A statement of actual cost of Falkon per bag for December.
(09)
Q.6
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 2,400 2,800 3,600 Direct Material Rs. 48,000 56,000 72,000 Direct Labour 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.25 million (including variable cost Rs.15 million) Rs.20 million (including variable cost Rs.11 million) Rs.6 million
Commission and discounts are 5% of sales value.
(5) Required: (a) (b) 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)
Q.8
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
August . September October
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
(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: Rupees 44,000 349,600 247,520 106,444
Cash Accounts receivable Inventories Accounts payable
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. (THE END) (19)

March 11, 2006
COST ACCOUNTING
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) Manufacturing Selling and Distribution Administration
(06)
Distinguish between joint products and by-products, and briefly explain the difference in accounting treatment between them. (04)
Q.2
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 Materials purchased Direct wages Payments for factory overheads Depreciation of factory building and machines 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. Rupees 49,500 60,100 115,400 108,000 50,200 30,900 42,000
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 4,000 200 1 10% 3 5% 5 10% 6,000 10,000 6,200 4,080
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 Manufacturing costs Materials Labour Production overheads: Variable Fixed Transportation Packaging Administrative costs Selling and advertising expenses Total cost Profit Caps 30,800 1,540 3,500 1,750 2,450 9,240 840 1,400 2,240 4,620 5,040 21,140 9,660 Crowns Rings Pallets Tubes (Rupees in thousands) 34,300 45,500 35,700 63,700 4,620 5,600 2,450 4,200 16,870 2,520 700 3,220 5,145 3,815 29,050 5,250 9,240 10,500 2,800 7,700 30,240 5,040 1,400 6,440 6,825 3,675 47,180 (1,680) 7,700 9,800 3,500 7,000 28,000 4,200 700 4.900 5,355 3,885 42,140 (6,440) 11,550 12,600 5,040 6,650 35,840 4,550 2,100 6,650 9,555 5,285 57,330 6,370 Total 210,000 34,650 42,000 15,540 28,000 120,190 17,150 6,300 23,450 31,500 21,700 196,840 13,160
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) (ii) (iii) Material costs include purchase cost plus 10% additional charge, which is added in order to recover the fixed costs of storage and stores administration. Labour cost is totally variable. 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. 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. 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. Administrative cost is fixed and is apportioned in the ratio of sales revenue.
(iv)
(v)
(vi)
(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. 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.
(b)
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 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 Variable cost percentage 100 70 64 30
(25)
Material Labor Overhead Administration
The production will be sold through dealers who would receive a commission of 8% of sale price. Required: (i) (ii) 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)
Q.8
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
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: Dept A 216,000 192,000 500 Dept B 225,000 52,500 10,000
Budgeted factory overhead (Rs.) Budgeted direct labour cost (Rs.) Budgeted machine hours
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.) Direct labour cost (Rs.) Machine hours Dept A 240,000 222,000 400 Dept B 207,000 50,000 9,000 (02) (04) (02)
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) 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.
(10)
Q.3
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: Rs. 9,940,000 1,900,500 2,800,000 8,380,000 1,980,940
Fixed assets Acc. depreciation Owners capital Profit and loss Cash and bank
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.
(05)
(02)
(04)
Q.5
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 20% of time saved x hourly rate 30% 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 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 -
(08) (03)
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 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
(08) (02)
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 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: 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
(09) (04)
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.)
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 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
1 2 3 4 5 6 7 8 9 10
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. (THE END)
(04)

March 07, 2007
COST ACCOUNTING
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 750.0 187.5 112.5 135.0 435.0 315.0 297.8 17.2 800.0 200.0 120.0 144.0 464.0 336.0 312.7 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) 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 (05) (04) (04)
The rate of inflation in 2007 has been estimated at 15%. Required: Calculate the fixed and variable costs for 2007 in real terms. (b) What is a cost unit and cost center? Give two examples of each. (05) (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 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: 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 (i)
(12) (04)
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: 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
Material A Material B Material C Standard loss (10%)
Actual costs incurred on the production of 927,000 units were as follows: Weight (Kg) 530,000 280,000 190,000 Rate Per Kg (Rs.) 10.00 5.30 2.20
Material A Material B Material C
Required: (a) Calculate the mix and yield variances. (b) Reconcile actual material costs with the standard costs.
(06) (05)
Q.6
The following figures have been extracted from the budget of Uranus Limited for the year ended June 30, 2007: Rupees 35,000,000 25,000,000 5,200,000 14,200,000 8,000,000
Direct labour Electricity Repairs and maintenance Depreciation Other expenses
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.) Direct labour cost (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) 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%
(ii) (iii)
(iv)
(v)
(vi)
(vii) The selling price and variable costs (besides those mentioned above) of each product are as follows: Selling Price per unit (Rs.) 2,000 400 500 Variable Costs (besides those mentioned above) 40% of selling price 55% of selling price 60% of selling price
Dress Crown scarf Handbag
Required: Calculate the incremental profit or loss as a result of manufacturing handbags and crown scarves with the dress.
(16)
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
(5)
Following relevant information is available: Manufacturing Dept. A-1 A-2 433,000 313,000 388,800 259,200 3,500 4,000 140 220 1500 1500 Service Department
Direct materials (Rs.) Direct labour (Rs.) Direct labour hours Number of employees Floor space (Sq. ft.) The other expenses are as under:
40 750
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)

September 07, 2007
COST ACCOUNTING
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.) (ii) (iii) Aay Nil 335,000 285,000 30.85 Bee Nil 295,000 212,000 40.38 Cee Nil 134,000 -
Total costs of production were Rs 17,915,800. 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. 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. The cost of production is apportioned among Aay, Bee and Cee on the basis of weight of output. 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.
(v)
(vi) (vii)
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: Direct material Direct labour Fixed overhead Variable overhead % 20 10 5 20
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. 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. He estimates the following sales for the first five months: Month January February March April May (v) Unit 2,400 3,200 4,000 4,800 Rupees 3,120,000 4,160,000 5,200,000 6,240,000
(iii)
(iv)
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. Variable production cost per unit has been estimated as: Direct material Direct labour Variable overhead Total variable cost per unit Rupees 600 200 100 900
(vi)
(vii)
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: 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: Van on route A Van on route B Van on route C km 80,000 120,000 160,000 Rupees 1,200,000 200,000 50,000 4,000 15,000 8,000 14,000 40
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 (15)
(b) Briefly explain why the cost per km is different in each case. Q.7 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)

March 7, 2008
COST ACCOUNTING
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: 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 2.00 4.00 1.00 2.00 2.75 3.00 Current 2.25 1.50 1.10 2.00 2.50 3.50
Item Code 010-09 013-25 017-10 022-05 028-35 035-15
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?
(14)
Q.2
(a)
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: 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: 2007 Rupees 140,000 120,000 32,000 34,000 20,500 2006 Rupees 100,000 80,000 30,000 24,000 10,000 (i)
Materials consumed Wages Overheads Fixed Overheads Variable Net profit
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) Notes Material: X (at historical cost) Y (at historical cost) Z Labour: Skilled Unskilled Supervisory Overheads Total cost (i) (ii) (iii) (iv) (v) (vi) (vii) Rupees 1,500,000 1,350,000 2,250,000 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 16,000 110,000 18,000 100,000 Material Rs. 64,000 430,500 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.) 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 27,000 110 25 756,000 504,000
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. (15)
(THE END)

September 5, 2008
COST ACCOUNTING
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 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 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 4.0 3.9 6.0 10 308,480 316,000 100% of direct wages Rupees 3,500 16,000 11,040 (16,000) (6,000) (7,520)
27,040
(29,520) 1,020
(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:
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 9,000 630 1,000 25,000 9,600 1,000 273 500 30,000 12,000 1,200 147 1,500
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
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

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

Foundation/Modular Foundation Examinations

(a) (b) (c)

26,500 18,100 35,674

071 076 079 085

23.00 32.00 47.00 33.00

14.50 40.50 42.00 12.00

Skilled Semi-skilled Unskilled

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

(03) (05) (05)

(02) (02) (02) (02) (03) (03)

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

Modular Intermediate Examinations

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

Intermediate Examinations Autumn 2003

September 06, 2003 COST ACCOUNTING Module D (MARKS 100) (3 hours)

9,500 6,000 930

5,500 12,000 1,340

Rs. 3.00 Rs. 2.25 Rs. 0.75 Rs. 6.00

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

March 11, 2004

(MARKS 100) (3 hours)

(02) (02) (02) (02)

1999 2000 2001 2002 2003

1,500 2,200 3,700

45,600 12,000 units 460 units 27,654 47,689 7,500

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

September 11, 2004

(MARKS 100) (3 hours)

290,800 62,696 118,600 61,420

20,000 760,000 54% 16020 14,730

24,000 716,000 40% 12410 37,632

30,000 88,000 3% 43590 2,060

Material Labour Production overhead

Units 2,750 400 700

Direct labour Factory Overhead-Variable Factory Overhead-Fixed Price

(05) (05) (06)

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

March 12, 2005

(MARKS 100) (3 hours)

(b) (c) (d)

(04) (04) (04)

Direct labour Direct materials Production overhead Standard production cost

3 hours at Rs.6 per hour 4 kilograms at Rs.7 per kg Variable Fixed

Production units Sales units Required: (a)

(4) Six months ending 31 March 2004 8,500 7,000

Six months ending 30 September 2004 7,000 8,000

(05) (08) (03)

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

September 10, 2005

(MARKS 100) (3 hours)

TOTAL 285,600 514,080 257,040 10,000 16 85 8,000 8,400 105,000 125,000

Materials Direct labour Factory overhead

All materials are added at the beginning of production process.

Commission and discounts are 5% of sales value.

August . September October

Units 11,400 12,000 12,200

Cash Accounts receivable Inventories Accounts payable

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

March 11, 2006

(MARKS 100) (3 hours)