INSTITUTE OF CHARTERED ACCOUNTANTS (GHANA) NOVEMBER 2010 EXAMINATIONS (PROFESSIONAL) PART3 COST AND MANAGEMENT ACCOUNTING (Paper 3.3) Attempt ALL Questions TIME ALLOWED: Reading & Planning - 15 Minutes Working - 3 HoursQUESTION 1 @ “@ (B) Describe the role of the cost accountant in a manufacturing organization. (4 marks) Explain whether you agree with each of the underlined statements: @ All direct costs are variable. (ii) Sunk costs are irrelevant when providing decision making information. (iii) Variable costs are controllable and fixed costs are not. (6 marks) (>) As the Cost Accountant of Nyamebekyere Ltd, you are required to prepare a schedule to be presented to management showing for the mileages of 5,000; 10,000; 15,000 and 30,000 km per annum; a) 2) (3) @ total variable cost total fixed cost total cost variable cost per km Data: Cost of motor vehicle Salvage value afier 2 years or 60,000 km is expected to be Maintenance — 6 monthly service costing Spare parts per 1000 km Vehicle licence, per annum Insurance, per annum Petrol, per gallon Average mileage from one gallon is 25 km. QUESTION 2 GHS 5,500 1,500 20 80 150 190 (10 marks) (Total: 20 marks) (A) Good Look Manufacturing Company has Maintenance and Canteen Departments that support the four production departments.Details of total overheads for the first quarter of 2010 are provided below: Departments A B ic D Maintenance Canteen GHS GHS GHS GHS GHs GHS Overheads 6,200 5,000 4,800 6,500 4,200 3,600 The service departments costs are shared as follows based on the benefits received. A B Cc D Maintenance Canteen Maintenance 15% 25% 20% 30% - 10% Canteen 20% 20% 35% 10% 15% ~ Required: Calculate the total overheads for each of the Production Departments after the apportionment of the Service Departments Costs. a2 marks) (b) _ Explain Over and Under Absorbed Overheads indicating the effect of each on Gross Profit. a marks) (©) Mention and explain two (2) merits and two (2) demerits of using pre-determined Overheads Absorption Rate to determine the cost of a product. 4 marks) (Total: 20 marks) QUESTION 3 (@) _ Braha Beda Hotels is a company in the hospitality industry that takes care of travelers area of operation. ‘The budgets for the Hotel for the year 2010 are as follows: GHS GHS Occupants charges 1,100,000 Cost Variabl irect supplies 80,000 Direct salaries 600,000 Occupants service: Overheads 65,000 Administration 92,000 Fixed: Overheads 125,000 Administration 140,000 1,102,000 Loss 2, along itsAdditional Information: 1. Number of rooms available 100 per day 2. Occupants days 24,000 per annum ‘You are required to compute: (The contribution margin ratio. (i) The Break-even point in both occupants days and occupants charges. (ii) ‘The margin of safety ratio if the Hotel operates at full capacity. (iv) The Break-even point in occupant days if direct salaries were increased to GHS626,000. (v) The Break-even point in occupant days if fixed occupants service overheads were inereased to GHS145,000. (15 marks) (6) Outline five (S) objectives of standard costing. (5 marks) (Total: 20 marks) QUESTION 4 The 4M Fabrication Company is in the process of preparing the Cash Budget for the last four months of 2010 that is September to December. The following information has been made available. (Projected sales Sept. Oct. Nov. Dee. Quantity (Units) 6,000 6,500 6,500 7,000 (ii) Selling Price is GHS10 per unit but expected to drop by 5% from 1* November. (iii) Payment for goods sold is as follows; 20% in the month of sales 60% the following month after sales and the balance in the second month after sales. Bad debt is estimated at 2% of sales value, (iv) Purchases of goods at GHS6.00 per unit are as follows: September 7000 units, October 7000 units, November 7200 units and December 6500 units. (v) Goods purchased are paid one month in arrears (vi) Monthly expenses estimated at 12% on sales revenue are paid in the month of incurrence. (vii) ‘The company plans to buy a delivery van at GHS27,000, 40% of the cost to be paid in October and the balance in January 2011.(viii) ‘The Director withdraws GHS2,000 monthly for personal expenses. (ix) Extracts from August figures are as follows: (a) Debtors GHS46,000 out of which GHS10,000 is part of July sales before the bad debt. (b) Creditors for goods GHS20,000 (c) | Cash GHS7,000. Required: 1. Prepare the monthly cash budget for the four months ending December 2010. (14 marks) 2. Advise the Managing Director on the steps to be taken to ensure efficient use of idle cash balances. (2 marks) 3. Explain four (4) benefits derived from the preparation of cash budgets. (4 marks) (Total: 20 marks) QUESTION 5 STP Company Ltd is a manufacturing company located in the export processing zone. It manufactures a single product for the export market. During the month of July, the following information was the result of its operation activities. 1, Actual operations result included the following: i. Direct wages incurred GHS165,000. ii, Actual production in the month was 38,000 Units iii, ‘There were no stocks at the beginning of the period, but there were 26,000 kgs of direct materials in stock at the end of the month. 2. The following variances were calculated from its operations during the month. i, Direct wages rate GHS0.20 per hr (A) ii, Direct material price (calculated on purchases at time of receipt at GHS0.05 per kg) GHS9,000 (F) iii, Direct Material Usage GHS1,500 (A)iv v. vi. vii. Variable production overheads total variance GHS2,200 (F) Variable production overheads sufficiency variance GHS2,400 (A) Fixed production overheads volume variance GHS8,000 (A) Fixed production overheads expenditure variance GHS3,000 (F) 3, The standard material allowed per unit is 4 kgs at a standard price of GHS0.75 per kg. 4 The budget for the month included the following: i, iii, Required: ‘The budgeted direct labour hours for the month were 80,000 hours at a budgeted cost of GHS152,000. Budgeted variable production overheads for 80,000 hours was GHS96,000. Budgeted fixed production overheads was GHS160,000, this is absorbed into the product costs on a direct labour hour rate basis. 1. Calculate for the month of July, (@) The actual hours worked. (>) The direct materials purchased and their cost (©) The direct materials used above the standard allowed. (4) The standard hours allowed for the production achieved. (©) The actual fixed overheads incurred and absorbed in the month. () The following variances: i. Variable production overheads expenditure ii, Fixed production overheads capacity iii, Fixed production overhead efficiency (1S marks, 2. Outline the benefits which a company may derive from a standard costing system. (5 marks) (Total: 20 marks)