THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

Intermediate Examinations Autumn 2004

September 11, 2004

COST ACCOUNTING (MARKS 100)

MODULE D (3 hours)

Q.1 (a) Describe briefly THREE major differences between: (i) financial accounting,
and (ii) cost and management accounting. (06)

(b) The incomplete cost accounts for a period of Company A are given below:

Stores ledger control account

Rs. 000
Opening balance 2,640
Financial ledger control A/c 3,363

Production wages control account

Rs. 000
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
Opening balance 1,724

The balances at the end of the period (in ‘000’) were:

Stores ledger Rs.2,543
Job ledger Rs.2,295

During the period 65,000 kilos of direct material were issued from stores at a
weighted average price of Rs.48 per kilo. The balance of materials issued from
stores represented indirect materials.

Two thirds of the production wages are classified as ‘direct’. Average gross
wage of direct workers was Rs.20 per hour. Production overheads are
absorbed at a predetermined rate of Rs.30 per direct labor hour.

Required:

Complete the cost accounts for the period. (08)

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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 7,800 units per month

Production manager 8,190 units per month
Labour contractor 9,100 units per month

Other data is as under:

Fixed overheads Rs. 264,368 per month

Variable overhead Rs. 73 per machine per hour
Daily wages (8 hours shift) Rs. 200 per person
Number of machines 10
Number of labour required 2 per machine
Standard capacity 28 units per machine
Direct material Rs. 75 per unit
Working days in a month 26

Required:
Prepare a table showing per unit cost at present and various expected levels of
production. (16)

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 Machine Assembly Canteen Maintenance

Shop A Shop B

Direct Wages (Rs) 518,920 128,480 99,640 290,800

Indirect Wages (Rs) 313,820 34,344 36,760 62,696 118,600 61,420
Consumable
Materials(incl.
Maintenance) (Rs) 67,600 25,600 34,800 4,800 2,400
Rent & Rates (Rs) 66,800
Building Insurance(Rs) 9,600
Heat & Light(Rs) 13,600
Power(Rs) 34,400
Depreciation of
Machine (Rs) 160,800
Area (Sq Ft) 90,000 20,000 24,000 30,000 12,000 4,000
Value of Machines(Rs) 1,608,000 760,000 716,000 88,000 12,000 32,000
Power Usage (%) 100% 54% 40% 3% 1% 2%
Direct Labour (Hours) 72020 16020 12410 43590
Machine Usage (Hours) 54,422 14,730 37,632 2,060
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The proportion of Maintenance cost center time spent for other cost centers is:

Machine Shop A 45%

Machine Shop B 40%
Assembly 13%
Canteen 2%

Required:

Allocate the overhead expense by using the appropriate bases of apportionment. (12)

Q.4 The incomplete process account relating to period 4 for a company which
manufactures paper is shown below:

Process account
Units Rs. Units Rs.
Material 4,000 16,000 Finished goods 2,750
Labour 8,125 Normal loss 400 700
Production overhead 3,498 Work in progress 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. (08)

Q.5 (a) Explain the straight line equation Y = a + bx with reference to cost behaviour. (04)

(b) What are the limitations and problems of the equation? (05)

(c) Using the data provided below, determine the variable cost per unit and fixed
cost of 14,000 units.

Output (Units) Total Cost (Rs)

11,500 204,952
12,000 209,460
12,500 212,526
13,000 216,042
13,500 221,454 (05)
14,000 226,402
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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 42 kg per unit

Raw material price
Direct labour
Factory Overhead-Variable
Factory Overhead-Fixed
Price
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.

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:

Rate (Rs.)
A 37.00
B 56.25
C 62.75

Production department concentrating on yield aspect experienced a different ratio of

raw material mix and got 876 kgs out of following mix:

Quantity (Kgs)
A 750
B 185
C 65

Required:
Find out the effect of deviation from standards by calculating:
(a) Price Variance (05)
(b) Mix Variance (05)
(c) Yield Variance (06)
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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. Rs.

SALES 96,000
Cost of Sales:
Opening stock 6,000
Production 72,000
Closing stock (14,000)
(64,000)
32,000
Other Variable Cost - selling expenses (6,400)
Contribution 25,600
Fixed Costs:
Production Overhead (8,000)
Administration (7,200)
Selling (2,400)
Net Profit 8,000

The standard cost per unit is:

Rs.
Direct material (1 Kg) 16
Direct labour (3 hours) 18
Variable cost (3 hours) 6

Budgeted selling price per unit is Rs. 60

The company’s 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)