SCHOOL OF BUSINESS, ECONOMICS AND MANAGEMENT

AFIN 210 – COST AND MANAGEMENT ACCOUNTING

ASSIGNMENT

PUBLICATION DATE: MONDAY 24TH FEBRUARY, 2020

DUE DATE: FRIDAY 27TH MARCH, 2020

SUBMISSION INSTRUCTIONS

(1) Read and follow these instructions.

(2) Attempt ALL FIVE (5) questions in this paper.

(3) All parts of the question must be attempted.

(4) Workings must be shown and labelled clearly.

(5) Answers must be word processed/ typed using a clear font such as Arial or Tahoma
and submitted in HARD COPY on or before the due date stated above. DO NOT
submit your assignment by e-mail. Adhere to the due date for submitting the
assignment. In case you have challenges that may affect timely submission of this
assignment, please inform the lecturer in writing by e-mail and not by text message,
before the due date. Marks will be deducted for late submission of the assignment at
the rate of five (5) marks per week or part thereof.

(6) This is an individual assignment. YOU ARE STRONGLY ADVISED TO AVOID

CONVERTING THIS ASSIGNMENT INTO A GROUP ASSIGNMENT. Marks will be
deducted for assignments done and submitted like group work.

(7) On the front cover of your answer book, indicate your name, student number,
course details (course code and course name) and your programme of study.

Lecturer’s contact details:

Name: Abraham C Mulolani,
Mobile Phone Number: +260 96 676 1415,
Email: acmulolani@gmail.com

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Attempt ALL FIVE (5) questions
QUESTION ONE
LUSAKA Plc has two divisions, GAMMA and OMEGA, whose respective performances
are under review. Division GAMMA is currently earning a profit of K35,000 and has net
assets of K150,000. Division OMEGA currently earns a profit of K70,000 with net assets
of K325,000.
LUSAKA Plc has a current cost of capital of 15%.
Required:
(a) Explain the difference between a profit centre and an investment centre of an
organisation. [3 Marks]
(b) Using the information above, calculate the return on investment and residual income
figures for the two divisions under review and comment on your results. [5 Marks]
(c) Explain which method of performance evaluation (i.e. return on investment or
residual income) is more useful when comparing divisional performance.
[2 Marks]
[TOTAL: 10 MARKS]

QUESTION TWO
A business currently orders 1,000 units of product ZETA at a time. It has decided that it
may be better to use the Economic Order Quantity method to establish an optimal
reorder quantity. Information regarding inventories is given below:
Purchase price K15 per unit
Fixed cost per order K200
Holding cost 8% of the purchase price per annum
Annual demand 12,000 units
Current annual total inventory costs are K183,000, being the total of the purchasing,
ordering and holding costs of product ZETA.
Required:
(a) Calculate the Economic Order Quantity. [2 Marks]
(b) Using your answer to (a) above calculate the revised annual total inventory costs for
product ZETA and so establish the difference compared to the current ordering
policy. [4 Marks]

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(c) Describe ways in which discounts might affect this Economic Order Quantity
calculation and subsequent inventory costs. [4 Marks]
[TOTAL: 10 MARKS]

QUESTION THREE

THUMB Ltd, which manufactures a single product, is considering whether to use

absorption costing or marginal costing to report its budgeted profit in its management
accounts.
The following information is available:
K /unit
Direct materials 4.00
Direct labour 15.00
19.00

Selling price 50.00

Fixed production overheads are budgeted to be K300,000 per month and are absorbed
on an average activity level of 100,000 units per month.
For the month of April 2020, sales are expected to be 100,000 units although production
units will be 120,000 units. Fixed selling costs of K150,000 per month will need to be
included in the budget as will the variable selling costs of K2.00 per unit.

There are no opening inventories expected at 1 April 2020.

Required:
(a) Prepare the budgeted statement of profit or loss for the month of April 2020 for
THUMB Ltd using absorption costing. Clearly show the valuation of any inventory
figures. [6 Marks]
(b) Prepare the budgeted statement of profit or loss for the month of April 2020 for
THUMB Ltd using marginal costing. Clearly show the valuation of any inventory
figures. [4 Marks]
[TOTAL: 10 MARKS]

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QUESTION FOUR

GREEN Ltd makes a product that passes through two manufacturing processes. A
normal loss equal to 8% of the raw material input occurs in Process ALPHA but no loss
occurs in Process BETA. Losses have no realisable value.
All the raw material required to make the product is input at the start of Process ALPHA.
The output from Process ALPHA each month is input into Process BETA in the same
month. Work in progress occurs in Process BETA only.

Information for the month of February 2020 for each process is as follows:
Process ALPHA
Raw material input 50,000 litres at a cost of K365,000
Conversion costs K256,000
Output to Process BETA 47,000 litres
Process BETA
Opening work in progress 5,000 litres (40% complete for conversion costs) valued at
K80,000
Conversion costs K392,000
Closing work in progress 2,000 litres (50% complete for conversion costs)
Required:
(a) Prepare the Process ALPHA account for last month. [5 Marks]
(b) Calculate in respect of Process BETA for last month:
(i) The value of the completed output; and
(ii) The value of closing work in progress. [5 Marks]
[TOTAL: 10 MARKS]

QUESTION FIVE
BLUELINE Ltd manufactures many different products which pass through two
production cost centres (P1 and P2).
There are also two service cost centres (S1 and S2) in the factory. The following
information has been extracted from the budget for the coming year:

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 COST CENTRES
P1 P2 S1 S2
Allocated and apportioned production
overheads K477,550 K404,250 K132,000 K96,000
Number of employees 30 65 10 15
Total direct labour hours 68,000 11,400
Total machine hours 4,000 14,000
Service cost centre S1 costs are reapportioned to all other cost centres based on the
number of employees. Service cost centre S2 only does work for P1 and P2 and its
costs are reapportioned to these centres in the ratio 5 to 3 respectively.
Required:
(a) Calculate:
(i) the machine hour absorption rate for cost centre P1, and
(ii) the direct labour hour absorption rate for cost centre P2. [6 Marks]
(b) Explain the difference between production overheads that have been ‘allocated’ and
those which have been ‘apportioned’ to cost centres. [2 Marks]
(c) Explain why some manufacturing companies are able to allocate electric power
costs to production cost centres, whereas others can only apportion them. [2 Marks]
[TOTAL: 10 MARKS]

END OF ASSIGNMENT PAPER

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