THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

Foundation Examinations Autumn 2002

September 07, 2002

COST ACCOUNTING (MARKS 100)

FE-2 Paper 5 & Module D Paper D12 (3 hours)

Q.1 (a) Describe the roll of a Cost Accountant in a manufacturing unit. (04)
(b) 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. (03)
(c) Outline briefly a system for ascertaining idle time of a production worker
employed in a manufacturing concern. (05)
(d) A chart of accounts, accompanied by adequate instructions, is a great aid to
better accounting, costing and controlling. Explain. (05)

Q.2 With reference to material control system, you are required to explain the meaning
of:
(i) Perpetual Inventory
(ii) Continuous Stock Taking (05)

Q.3 The Parrot Steel’s 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 (02)
(ii) Budgeted fixed overhead rate (02)
(iii) Applied factory overhead rate (02)
(iv) Over or under absorb factory overhead (02)
(v) Spending variance (03)
(vi) Idle capacity variance (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:

Rupees
Additional material 24,150
Direct Wages 164,825
Overhead 177,690

Quantitative data shows the following:

Finished Goods transferred to godown 3,200 units

Finished Goods in hand 500 units
Normal loss 520 units
Work in process (100% material and 50% wages and
overhead) 980 units

Average method of pricing is used.

Required (i) Equivalent Production Statement for June 2002 (04)

(ii) Process Account for the month of June 2002 (10)

Q.5 (a) What is margin of safety? (03)

(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. (04)
(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. (04)
(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)

Q.6 (a) Explain the main functions of a cash budget and discuss briefly its importance
in a system of budgetary control. (05)
(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:

Rupees
January 850,000
February 750,000
March 800,000
April 800,000
May 900,000
June 950,000

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 (10)

(ii) Budgeted Income Statement for the six month ending June 30, 2002 (05)

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 Textile Sugar Cement

Division Division Division
Capacity utilization 30% 30% 30%
Rupees Rupees Rupees
Gross sales 130,000 170,000 200,000
Net sales 120,000 150,000 200,000
Sales salaries 10,000 15,000 20,000
Storage expenses 6,000 8,000 8,000
Delivery expenses 2,000 4,000 5,000

Cost of goods manufactured as a % of gross sales 50% 60% 65%

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 (10)
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. (05)

(THE END)