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 2019/2020

DATE: THUR 3rd SEPT, 2020 TIME ALLOWED: 3HRS

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GENERAL INSTRUCTIONS:
1. There are FOUR (4) questions in this paper. Attempt ALL questions.
2. This exam carries 100 marks. All questions carry equal marks.
3. Show all your working
4. Your answers should be relevant and to the point.
5. You are reminded to adhere to ALL Institute’s Examination Regulations.
QUESTION ONE
MULTIPLE CHOICE: Write the letter of your correct answer on the answer sheet provided: -
1) Material control does not cover the following stage.
A) Purchase of materials
B) Storing of materials
C) Issue of materials
D) Production

2) Material control aims at achieving effective…………

A) Material management
B) Quality control
C) Accounting of material
D) Material supply

3) Stores Ledger is maintained in the…………………

A) Store
B) Finance department
C) Cost accounting department
D) Both A & B

4) Stock verification sheets are maintained to record the results of ……….

A) Physical verification
B) Financial control
C) Financial verification
D) Quality verification

5) Bin card is a record of ………….only.

A) Cost
B) Value
C) Quantity
D) Expense

6) Bin card is maintained by the…………….

A) Cost accountant
B) Clerk
C) Storekeeper
D) Branch accountant

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7) Material abstract is also known as ………………
A) Material issue analysis sheet
B) Bill of materials
C) Stores ledger
D) None of the above

8) Material should be issued by the store keeper against……………….

A) Material requisition
B) Bill of materials
C) Both a & b
D) None of these

9) First In First Out (FIFO) method of valuing material issues is suitable in times of…………
A) Rising prices
B) Falling prices
C) Fluctuating prices
D) None of these

10) Which of the following statements about management accounts is/are true?
(i)  There is a legal requirement to prepare management accounts.
(ii) The format of management accounts is largely determined by law.
(iii) They serve as a future planning tool and are not used as a historical record.

A) (i) and (ii)

B) (ii) and (iii)
C) (iii) only
D) None of the statements are correct.

11) Which of the following could not be classified as a cost unit?

A) Ream of paper
B) Barrel of beer
C) Chargeable man-hour
D) Hospital

12) A job requires 2,400 actual labour hours for completion and it is anticipated that there will
be 20% idle time. If the wage rate is TZS. 3,000 per hour, what is the budgeted labour cost
for the job?
A) TZS. 57,600,000
B) TZS 72,000,000
C) TZS 86,400,000
D) TZS. 90,000,000

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13) A manufacturing company has four types of cost (identified as T1, T2, T3 and T4). The total
cost for each type at two different production levels is:

Cost type Total cost for 125 units Total cost for 180 units
T1 3,000,000 4,320,000
T2 5,250,000 7,560,000
T3 7,425,000 8,478,000
T4 9,675,000 13,932,000

Which cost types would be classified as being semi-variable?

A) T1
B) T2
C) T3
D) T4

14) Cost of idle time arising due to non-availability of raw material is:
A) Charged to costing profit and loss A/c
B) Charged to factory overheads
C) Recovered by inflating the wage rate
D) Ignored

15) When overtime is required for meeting urgent orders, overtime premium should be
A) Charged to costing profit and loss A/C
B) Charged to overhead costs
C) Charged to respective jobs
D) Ignored

16) When comparing the profitability of different stores, a firm charges rent as an expense in all
of them even though some are owned and some rented. Under these circum- stances rent is:
A)  An avoidable cost
B)  A relevant cost
C)  A notional cost
D)  A fixed cost

17) The high–low method of cost estimation can be used to

A)  Calculate the budget cost for the actual activity
B)  Calculate the highest and lowest costs in the budget period
C)  Measure the actual cost for the budget activity
D)  Predict the range of costs expected in the budget period

18) Which of the following pairs are the best examples of semi-variable costs?
A) Rent and rates
B) Labour and materials
C) Electricity and telephone
D)  Road fund licence and petrol

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19) The audit fee paid by a manufacturing company would be classified by that company as:
A) A production overhead cost;
B) A selling and distribution cost;
C) A research and development cost;
D) An administration cost.

20) Fixed costs are conventionally deemed to be:

A) Constant per unit of output;
B) Constant in total when production volume changes;
C) Outside the control of management;
D) Those unaffected by inflation.

21) Which of the following would be classed as indirect labour?

A) Assembly workers in a car plant
B) Bricklayers in a building company
C) Store assistants in a factory
D) An auditor in a firm of accountant

22) Which of the following are prime costs?

(i) Direct materials
(ii) Direct labour
(iii) Indirect labour
(iv) Indirect expenses

A) (i) and (ii)

B) (i) and (iii)
C) (ii) and (iii)
D) (ii) and (iv)

23) Time Keeping refers to

A) Time spent by workers on their job
B) Time spent by workers in factory
C) Time spent by workers without work
D) None of the above

24) In which of the following incentive plan of payment, wages on time basis are not
guaranteed? A) Rowan plan
B) Halsey plan
C) Taylor’s differential piece rate system
D) Gantt’s task and bonus system

25) A company uses an overhead absorption rate of TZS 3.50 per machine hour, based on
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 32,000 budgeted machine hours for the period. During the same period the actual total
overhead expenditure amounted to TZS 108,875 and 30,000 machine hours were recorded
on actual production. By how much was the total overhead under- or over-absorbed for the
period?
A) Under-absorbed by TZS 3,875
B) Under-absorbed by TZS 7,000
C) Over-absorbed by TZS 3,875
D) Over-absorbed by TZS 7,000
(25 marks @ 1 mark)
QUESTION TWO
A businessman employs 20 sewing machinists but he is aware that 10 are better workers
than the others. He is considering a training programme for his ten “less efficient”
machinists to increase their efficiency to be equal to that achieved by his “better” workers.
The following information is relevant:
i. All the 20 machinists are paid on a piecework system and are engaged on similar work,
TZS 660 per garment is paid for each good garment produced.
ii. To rectify, each rejected garment costs TZS 1,200, this work is done by sub-contractors
(outworkers at home).
iii. There is one sewing machine for each machinist.
iv. The garment machining department operates for 2,000 hours per year.
v. Average output per machinist is 12 good garments per hour with 1 reject per worker per
hour. However, ten “less efficient” machinists averaged only 10 good garments per hour
with 1.5 rejects per worker per hour, while the other ten “better” machinists averaged 14
good garments per hour with 0.5 rejects per worker per hour.
vi. Depreciation for each sewing machine is TZS 3,000,000 per year and the variable cost
for power, cleaning and preventive maintenance is TZS 1,500 per hour per machine.
vii. Fixed production overhead, other than depreciation, is being absorbed at TZS. 9,000 per
sewing machine hour.
viii. Selling price per garment is TZS. 5,700
ix. Direct material cost per garment is TZS. 3,600.
x. Training will not reduce productive hours because it will be undertaken outside the
normal working week.
xi. The demand for output is increasing so it can be assumed that what can be made can be
sold.
Required:
a) Prepare a statement of annual comparative costs for the “better” workers and the “less
efficient” workers, excluding direct material costs. (15 marks)
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b) State the financial benefit to the business, over a one-year period, if TZS. 30,000,000 is
spent on a training course for the “less efficient” workers, assuming that their efficiency
would then match that of the “better” workers. (10 marks)

QUESTION THREE
A. Discuss the following terms
i. Under absorption
ii. over absorption (5 marks)

B. Prada Ltd uses a job-costing system for its units, which pass from the Machining
Department, to the Assembly Department where products are assembled then painted. The
Machining Department is heavily automated while the Assembly Department performs a
number of manual-assembly activities. The following information relates to the two
departments of the company for the financial year ended 31st July 2020:
Machining Assembly
Budgeted manufacturing overhead (in TZS) 8,000,000 12,000,000
Actual manufacturing overhead (in TZS) 7,975,000 12,600,000
Budgeted Direct labour hours 4,000
Budgeted machine hours 5,000 -
Actual Direct labour hours - 3,800
Actual machine hours 5,100 -

The following data pertains to job no. 243 produced in June 2020:
Machining Assembly
Direct materials TZS. 64,800 -
Direct labor cost 35,200 85000
Machine hours 20 -
Direct labour hours - 10
Required:
(a) Assuming the use of normal costing, calculate the predetermined overhead rates for the
Machining and Assembly Departments.
(b) Compute the cost of Job No. 243 produced in June.
(c) Calculate the amount of over and/or under applied overhead for the year ended 31 July
2020; then briefly explains how Prada Ltd should dispose them off. (20 marks)

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QUESTION FOUR

a) Using examples discuss the following concepts: -

i. Scrap value
ii. Equivalent units (5 marks)

b) The Bharat Manufacturing Company’s product passes through only one process, process X,
and then to the finished stock. It is known from the past experience that 5% of the units
entering the process are wasted in the process. The scrap value of the wastages is TZS.800
per 100 units. The costs are as follows: -

Materials consumed 600,000

Wages 700,000
Manufacturing expenses 200,000
10,000 units were brought into process X, costing TZS 500,000. The output was 9,500 units
Required:
Determine the cost of output and cost per unit for process X and Process Y (5 marks)

c) The following data relate to Work in Process—Department C, in which all materials are
added at the start of processing:

Work in process – Department C: Inventory, August 1: TZS

Materials cost (1,200 Kg; 100% complete) 7,020,000
Conversion cost (20% complete) 1,804,000
Costs incurred this period:
Direct materials used (9,000 Kg) 36,330,000
Direct labour 10,880,000
Overhead 17,820,000
Inventory, August 31
Materials cost (1,800 Kg, 100% complete)
Conversion cost (1,800 Kg, 80% complete)
Kg of product transferred out: 8,400
Required:
Using the above data to calculate the cost of the work in progress and finished products transferred
out. (15 marks)