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SOLUTION COST AND MANAGEMENT NOV 2010 (a) (A) The Cost Accountant provides financial information for stock valuation

purposes and also presents relevant information to management for decision-making and planning and cost control purposes. For example, the cost accountant provides information on the costs and revenue of alternative courses of action to assist management in selecting the one which will maximixe future cash flow. By coordinating plans together in the form of budgets and comparing actual performance with plans, the cost accountant can pinpoint those activities which are not proceeding according to plan.
(B)

(i) Direct costs are those costs which can be traced to a cost objective. If the cost objective is a sales territory the fixed salaries of salemen will be direct cost. Therefore the statement is incorrect. (ii) This statement is correct because sunk costs are costs that have been created by a decision made in the past and that cannot be changed by any decision that will be made in the future. Whether a cost is controllable depends on the level of authority and span being considered. For example, a department foreman may have no control over the number of supervisors employed in his department but this decision may be made by his suyperior. In a long run such costs are contrallable. Schedule of Annual Mileage Costs 5000 km GHS Variable cost: Spares Patrol (a) Total Variable Cost Variable cost per km Fixed cost: Depreciation Maintenance Vehicle licence Insurance (b) Total Fixed Cost Total cost (a + b) 100 380 480 0.096 2,000 120 80 150 2,350 2,830 10,000 km GHS 200 760 960 0.096 2,000 120 80 150 2,350 3,310 15,000 km GHS 300 1,140 1,440 0.096 2,000 120 80 150 2,350 3,790 30,000 km GHS 600 2,280 2,880 0.096 2,000 120 80 150 2,350 5,230

(iii)

(b)

10 x 4.200 …… (5) = 36.85y y = 4.800 962 1.203 816 7.600 …… (4) Eliminate x by multiplying equation 4 by 10 and add equation 3 and 4 x .352 D .500 1.200 + .15 x 4.081 C 4.812 .000 2 yrs SOLUTION 2 (a) Let x represent the Maintenance Department Cost and y the Canteen Department x = 4.190 C .081 Substitute y in equation 5 x .019 B .10x …… (2) x..081 B 5.081 Workings: M C .200 722 816 7.= .15y = 4.15y -x + 10y 9.30 x 4.20 x 4.15 = 4.444 408 8.081) = 4..812 A Bal b/d Maintenance (4.428 7.081 D 6.25 x 4.20 x 4.812 .15 (4.000 …… (6) = 40.000 1.15y …… (1) y = 3.812 .500 -1.200 = 4.500 = GHS2.812 .200 x = 4.200 x – 612.738 A .600 + .Workings Depreciation = 5.20 x 4.200 …… (3) -.10x + y = 3.812) Canteen 6.35 x 4.

738.837.74 12.178.800 840 1.000 = 23. Cost of goods would have been overstated and gross profit understated until it is adjusted.00 Maintenance Canteen 4.96 24.239 GHS1.46 7.This is when the total overheads added to the work done exceed the actual overhead paid.786.9% Contribution per occupants days Break-even point (occupant days) = = = Break-even (occupant charges) = = = (iii) 263.06 2.191.000 FC Contr/Int 265.05 - 3.9 6. Under Aborption: is where overheads added is less than actual paid.200 630 804 90.09 8.019.000 10.407 120.18 7.61 (ii) Margin of safety: = Occupant days (full capacity – Break-even (in occupant days) Occupant days (full capacity) .00 B 5.050 804 150. (c) Pre-determined Overheads Absorption Rate Advvantage: It helps in timely determination of cost of goods produced. Disadvantage: Cost may not be accurate SOLUTION 3 (a) (i) Total contribution = 1.26 .260 402 180.000 x 100 1.000 1.96 24.91 - (b) Over absorbed Overheads: .06 1. Goods produced can be invoiced before actual overheads are paid.000 == GHS10.000 .100.500 1.81 .200 603 9.108.100.00 D 6.000 = 263.600 420 4.000 Contribution Margin Ratio = 263. Costs of goods are under stated and higher profits reported until it is adjusted.18 7.45 12.83 days 265.72 .000 0.11 1.352.Repeated Distribution Method b/d M C M C M C A 6.6 21.36 .03 2.020 603 .00 C 4.

750 Dec 7.500 – 24. Margin of safety = 26. To assist in setting budgets. 3.Occupant days (full capacity) = 365 days x 100/days = 36.000 = GHS9.9 = 26.5 61.000 _____ 48.83 26. (b) 1.000 10.800 39.65 days To provide a formal basis for assessing performance and efficiency.000 10 60. SOLUTION 4 (i) Debtors Collection Schedule Sales SP Sales Rev.000 13.000 9.000 24. 4.500 10 65.000 Revised contribution per occupant days = 237.500 = 8.000 9.8% (iv) Revised contribution = 1.000 Oct 6. Receipts July August September October November December 9.178. 6. To provide a basis for estimating.300 62.100.350 _____ 62. To motivate staff and management.100 10.050 13.000 Revised Break-even point (occupant days) = 285.000 27.000 – 863.000 = 285.500 days :.000 + 140.000 = 237.150 11.500 8.000 12.000 Sept 6.000 _____ 57.050 .66 days (v) Fixed Cost = 145. To control costs by establishing standards and analysing variances.000 Nov 6. 2.500 9.5 66.96 = 26003.767.9 Revised Break point (occupant days) = 265. 5. To provide guidance on possible ways of improving performance.100 36.700 37.000 12.

(ii) Note – Bad debt is 2% so third instalment is 18% .000 Nov.000 6 42.300 Nov 62.200 18.200 Expenses 12% of Sales Sept 7.000 6 42.000 53.000 51.000 42. The closing balances per the budget can be invested short term to earn some income.200 42.180 8.000 .100 42. Free cash can also be reinvested in the operations for expansion.200 6 43.870 31.000 .000 7.000 Oct 7.000 20.410 Dec 7.040 Dec 62. 7.980 2.740 20.300 31.000 62.800 2.000 = 50.410 10.200 2.980 Cash Budget Receipts Payments: Purchases Expenses Delivery van Drawings NCF Bal b/d Bal c/d (b) Sept 48.800 Oct 57.150 42.800 7.800 20.P.8 Payment for Purchases Purchase (unit) C.000 7.200 7.000 20.040 39.200 Oct 7.500 6 39.600 (5. 6.000 Dec.000 29.410 2. .800 10.500) 25. Payments Sept 7.000 7.000 25.Total sales in July = 10.050 43.910 Cash is an asset that does not generate revenue when kept idle.000 43.800 Nov 7.000 = 45.2 Total sales in August = 36.

000 Units should use (38.400 A 4.400 ÷ 1.000 kg 26.000 + 2.20 38.2) = 2.500 ÷ 0.000 kg 154.000 38.000 kgs GHS126.600 F (f) i. Fixed Overheads Incurred GHS157.000 38.570 Efficiency Variance (2.000 Fixed Production O/d expense variance = 3.10/hr (b) Direct Materials Purchased and cost Standard Cost Per kg Direct Materials Usage Variance :.000 kg 180.000 = GHS1.000 kg – 154.000 Unuits did take (a above) = 78.570 hrs = 0.570 x GHS2/hour = GHS153.10 Actual hours worked = 165.000 kg 152. Variable production Overheads Expenditure Variance Total Variance Production Overhead = Efficiency Variance = :. Usage Virance in kgs = 78.000 hrs = 1.000 ÷ 2.000 x 4) = But 38.000 Absoption Rate Per Hour :.000 F :.000 kgs = 26.000 Units should take 76. Absorbed Overheads = = 160. (a) Actual hours worked Standard Rate = 152.000 kgs = (d) Standard Hrs Allowed for the Production Achieved Labour Efficiency Variance = VOEff.000 units duid use 152.75 = GHS1.140 2.20 Actual Rate = 2.000 ÷ 80. Raw Materials Purchased Actual cost = (75p – 5p) 180.000 ÷ 80.90 Rate Variance = 0.000 ÷ 80.200 F 2.000 kg (c) Director materials Used above Standard Allowed 180.V Variable Overheads Rate Per Hour = GHS96.000 = Add increase in raw materials stock :.75 = 2.000 hrs GHS2/hr (e) = Standard Hours x Rate/hour = 76.570 Hrs Actual Fixed production Overheads incurred and Absorbed Budgeted fixed production Overheads = 160.SOLUTION 5 1. Expenditure Variance .500 = 1.

000 hrs x 2 = 4. = Profits of Standard Costing Performance measurement Recovery of labour and overheads and what to be charged into stock Basis of control for buying.000 A iii.000 hours (A) x GHS2/hrs 4. forecasting and planning Realistic targets motivates staff Management can re-appraise activities to ascertain if they are being done in the most cost effective and efficient manner.ii.000 A 2. . usage and efficient work levels Creates atmosphere of cost-consciousness Provides recognisable basis for budgeting.000 78. Fixed Production Overhead Capacity Variance Budgeted Hours Actual Hours worked Capacity Fixed production Overhead Efficiency Variance Fixed production Overhead Efficiency = = = 80. 2.000 2.