THE INSTITUTE OF FINANCE MANAGEMENT

FACULTY OF ACCOUNTING, BANKING AND FINANCE

DEPARTMENT OF ACCOUNTING AND FINANCE

BACHELOR OF ACCOUNTANCY AND TAXATION

AFU 07408: COST ACCOUNTING

SEMESTER II FINAL EXAMS

ACADEMIC YEAR 2018/2019

DATE: WED 18th JULY, 2019 TIME ALLOWED: 3HRS

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GENERAL INSTRUCTIONS:
1. There are two sections in this paper. Attempt ALL questions in Section A,
and any three (3) questions from Section B.
2. This exam carries 60 marks. All questions carry equal marks.
3. Show all your workings.
4. Your answer should be relevant and to the point.
5. You are reminded to adhere to ALL Institute’s Examination Regulations.
SECTION A: ANSWER ALL QUESTIONS IN THIS SECTION

The following are descriptions and examples of cost accounting concepts. Identify the
type of cost that best fit the description from 1-30 below. Write in your answer booklet.

QUESTION ONE (TOTAL 15 MARKS)

1. ……………………implies the entire distribution of the overhead item to the

departments on a logical basis or is the direct allotment of cost to the traceable cost
object. It is the process of associating the expenses incurred, to different departments
of the organization.

2. …………………….refers to distribution of various overhead items, in proportion, to

the department on a logical basis. When the cost items cannot be out rightly charged
to or accurately traceable to a particular cost center, then such items of cost are
prorated amongst various cost objects, on an equitable basis.

3. If the manufacturing overhead cost applied to work in process is more than the
manufacturing overhead cost actually incurred during a period, the difference is
known as ……….

4. If the manufacturing overhead cost applied to work in process is less than the
manufacturing overhead cost actually incurred during a period, the difference is
known as………….

5. ………….. associated with preventing defects such as Training, early reviews, quality
planning, tools, process improvement initiatives.

6. ……………associated with analyzing and testing the product to ensure it conforms to

specifications. Such as Inspections, testing, audits, quality control

7. ……………. associated with fixing defects found prior to release.Such as Repair,

retesting, updating documentation

8. …………… associated with fixing defects found after release such as Technical
support, defect reporting and tracking, field updates, loss of future sales

9. It is an activity or item or operation for which a separate measurement of costs is

desired E.g. the cost of operating the personnel department of a company, the cost of a
repair fob, and the cost for control
10. It is a location or function of an organization in respect of which costs are ascertained
in other words smallest segment of activity or area of responsibility for which cost is
accumulated

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11. It is location or function where managers are accountable for sales revenues and
expenses E.g. division of a company that is responsible for the sales of products
12. is the Cost that can be identified specifically with or traced to a given cost object but
the unit cost remains constant
13. remains constant over a relevant range of activity level but unit cost falls with an
increase in activity volume
14. this cost increases or decreases with activity level but not in direct proportion with the
level of activity
15. this cost remains constant for a range of activity levels, then, on further increase in
activity, the cost jumps to a new level and remains constant over a certain range until
the next jump occurs.
16. salaries of factory supervision and office staff, stationery, consumable supplies, spare
parts for machine that assist to the production of final products
17. In a garment industry the cost of fabrics in garments plus the cost of remuneration for
working time such as tailors’ wages plus the cost of hiring a machine for producing
buttons for the garment are regarded as ……….
18. are the resources that have been acquired and are expected to contribute to the future
revenue They will be recorded as assets in current period. They will be charged as
expenses when they have been consumed in the generation of revenue
19. are the expenses attributable to the generation of revenue in the current period
20. Provides information to users who are external to the business. It reports on past
transactions and its format are governed by law and standards.
21. Is concerned with internal users of accounting information, such as operation
managers. The generated reports are specific to the requirement of the management to
ascertain and control cost and the reporting can be in any format which suits the users
22. These are costs of resources already acquired. They are costs that have been created
by a decision made in the past.
23. If labour is diverted from product A to product B, the relevant cost is not the amount
paid to the worker but the Contribution lost if the product A cannot be made. The
contribution lost for not producing product A is……..
24. ………is when at a particular level of management, a manager can exercise
significant influence over the cost and if a manager at a particular level of
management can authorize the cost
25. ………A range of business activity within which the assumptions made about cost
behavior are valid
26. are incurred in the event of temporary cessation of activities. Can be saved if activities
are allowed to continue
27. Are those costs that result from a permanent cessation of business activities e.g. costs
connected with disposal of a non-current assets
28. Cost that is considered to be part of the cost of merchandise. For a retailer, cost is the
cost from the supplier plus all costs necessary to get the item into inventory and ready
for sale, e.g. freight-in. For a manufacturer the product costs include direct material,
direct labor, and the manufacturing overhead (fixed and variable).

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 29. These costs are treated as expenses of the accounting period in which they are
incurred because they are expected not to benefit future periods
30. Occur when an organization runs out of a particular item for which there is a customer
demand

SECTION B: ATTEMPT ANY THREE QUESTIONS

QUESTION TWO (TOTAL 15 MARKS)

(a) Describe the following concepts
i. Just-In-Time (JIT)
ii. Bullwhip Effect
iii. Buffer Stock (4.5 marks)

(b) RAHISI LTD has provided you with the following information relating to its stock: -

Average usage 12,000 units per week

Minimum usage 8,800 units per week
Maximum usage 15,800 units per week
Lead time (the time between ordering and 3-5 weeks
replenishment of goods)
Ordering cost per order TZS18,000
Annual cost of carrying a unit in stock TZS780

Required: Calculate (10.5 marks)

i. Economic Order Quantity (EOQ)
ii. Reorder level
iii. Reorder quantity
iv. Minimum level
v. Maximum level

QUESTION THREE (TOTAL 15 MARKS)

(a) Explain the following terms
i. Normal loss
ii. Abnormal loss
iii. Scrap value (4.5 marks)

(b) The KD Leather produces a single product –Belts and passes through three process
Cutting, Tanning and Packaging. At the beginning of March 2019, KD Leather had
20,500 partially completed belts of KD Leather in the tanning department and its
associated cost were as follows:-

Material  TZS. 12,955,000

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 Conversion cost TZS 35,050,000

It has received 50,600 belts from the Cutting department in March. The manufacturing
cycle takes three months- one month for each department. The company started its
manufacturing operation on 1st March, 2019 and the costs of production for the
Tanning department for this month were as follows:
Material  TZS. 61,700,000
Conversion cost TZS 75,900,000

The production statistics for the month were as follow:

Units completed and transfer to finished goods store 60,500 belts
Unit in Process on March 31, 2019 (Material 100%, Conversion cost 30%)
 
Required: Using weighted average method, prepare the Cost of Production Report on 31st of
March, 2019 (10.5 marks)

QUESTION FOUR (TOTAL 15 MARKS)

With example explain the following
i. Production volume variance A production-volume variance arises when the
actual production volume achieved does not coincide with the expected
volume of production used as a denominator for computing the fixed-overhead
rate for product-costing purposes
ii. Overhead Application Rates - Overhead rates are budgeted; they are estimates.
The budgeted rates are used to apply overhead based on actual events
(5 marks)
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(c) Kacha business commenced business on 1 January 2017. It manufactures a special
type of chair designed to alleviate back pain. Information on the first two year’s
trading is as follows:

2017 2018
Opening stock (chairs) - 1,000
Number of chairs manufactured 5,500 6,500
Number of chairs sold 4,500 5,000
Closing stock (chairs) 1,000 1,500
Budgeted production (chairs) 5,000 5,000
Selling price TZS130,000 per chair
Direct materials TZS30,000 per chair
Direct labour TZS40,000 per chair
Variable production overheads TZS15,000 per chair
Annual fixed production overheads TZS100,000,000
Fixed Administrative Expenses TZS 40,000,000
Sales commission TZS 3000 per chair

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The standard variable production and selling and administrative costs remain the same in both
years. The actual fixed manufacturing overhead incurred is TZS100,000,000 each year, and
the actual fixed administrative cost is TZS40,000,000 each year

Required:
i. The directors ask for your help in producing profit statements using the marginal
costing and absorption costing methods for 2017 and 2018. They say that they will use
‘the one that shows the higher profit’ to the company’s bank manager (9 marks)
ii. Write a note to the directors explaining the reason for different profit figures and
commenting on their statement. (1 mark)

QUESTION FIVE (TOTAL 15 MARKS)

(a) Name any five suitability conditions for the use of time rate system of payment
(5 marks)
(b) The management of PRIDE LTD wants to formulate an incentive plan for the workers
with a view to increase productivity. The following particulars have been extracted
from the books of company:

Piece Wage rate TZS. 10,000 per unit

Weekly working hours
Hourly wages rate
Standard/normal time per unit
Actual output for a week
40 hours
TZS. 40,000 (guaranteed)
15 minutes.
Worker A 176 units
Worker B 140 units

Required: From the following information calculate total remuneration for both workers
(Worker A and worker B) using
(i) Halsey (50%) bonus scheme
(ii) Rowan incentive plan (Total 10 marks)