PRACTICE QUESTIONS FOR CUAC217

Question 1 (BSIM)
Hotori Ltd manufactures white sugar and sells it to regional markets in Africa. Hotori Ltd is
in the process of preparing operational budgets for the next year’s trading period for the year
ending 31 December 2019.The managing director has provided the following information:

QUARTER

First Second Third Fourth

Budgeted sales (pkts) 10 000 30 000 40 000 20 000
Selling price per packet 20 20 20 20
($)

At Hotori Ltd management believes an ending inventory of white sugar equal to 20% of the
next quarter’s sales strikes the appropriate balance. It is also estimated that 3 000 packets of
white sugar of ending inventory in the last quarter will suffice. Inventory of white sugar from
the previous year was 2 000 units.

In order to manufacture one packet of white sugar, Hotori Ltd requires 15 kg raw materials of
sugar cane. Sugar cane cost $0.20 per kg. Hotori Ltd desires to maintain ending inventory of
sugar cane equal to 10% of the following quarter’s production needs. Opening inventory of
sugar cane is 100 000 units. It is assumed that production needs remain the same for the next
budget year.

Required:

a) From the information above, prepare for each quarter:

i. The sales budget (5 marks)
ii. The production budget (8 Marks)
iii. The direct materials usage(sugar cane) budget (7 Marks)
(Total 20 marks)

Question 2 (CARRY)
Chuk Limited is based in Kwekwe and manufactures a range of garden furniture for the Irish
market. The company commenced trading five years ago and its sales have increased
substantially since then. The garden furniture is made from wood that has been treated to
withstand Irish weather conditions. There are two production departments: Cutting and
Assembly, and two support departments: Stores and Machine Maintenance.
Direct materials and direct labour costs have already been identified and Chuk uses a
traditional absorption

The following budgeted information is available for the month of May:

Total Cutting Assembly Stores Machine

Maintenance
$ $ $ $ $
Direct wages 371 480 83 880 201 600 39 000 47 000
Indirect Wages 69 000 21 000 15 000 15 000 18 000
Power 28 360
Factory Security 10 500
Factory rent and 36 200
rates
Machine 6 600
depreciation
Light and heat 6 240
Factory Insurance 12 400
Supervisor’s 16 480
salaries

Details relating to the company’s budgeted activity for the month of May are given below:

Total Cutting Assembly Stores Maintenance

Floor area (square 1000 300 400 200 100
metres)
Machine hours 38 600 30,880 7 720
Direct labour 24 000 7 200 16,800
hours
Value of stores 186 400 139 800 46 600
issues ($)
Kilowatt hours (% 100 60 25 5 10
usage
Number of 32 8 18 3 3
employees
Value of 400 000 240 000 100 000 40 000 20 000
machinery ($)

Required:
(a) On the basis of the information provided above, prepare a schedule that presents figures
for total budgeted overheads for each of the four departments, clearly showing the basis of
apportionment adopted. (12 marks)
(b) Calculate the total budgeted overheads for both production departments after the service
departments have been re-apportioned to them. (6 marks)
(c) Calculate pre-determined overhead absorption rates for each of the production
departments. (6 marks)
[TOTAL: 25 Marks]

Question 3 (BSROM)

The following data relates to Changamire Limited, a manufacturing concern that sells its
products to regional markets:

Depreciation:
 Factory machinery 3 800

Accounting and office machinery 2 000

Motor vehicles: sales staff cars 3 800

Administration cars 1 600

Sales display equipment 300

Canteen costs (2/3 work in production) 6 000

Carriage on goods sold 7 800

Travelling expenses:

Factory workers not in production 100

Sales staff 2 900

Administration staff 200

Haulage cost on raw materials 4 000

Wages and salaries: Factory (70% is directly in manufacturing) 220 000

Sales staff 8 000

Commission on sales staff 1 400

Administration staff 72 000

Royalties per unit of production 1 600

Other factory indirect expenses 58 000

Interest on loans and overdraft 3 800

Raw materials:

Inventory at beginning of year 120 000

Purchases 400 000

Inventory at end of year 160 000

Other administration expenses 42 000

Other distribution expenses 65 000

REQUIRED:

a) PREPARE a cost sheet (statement of cost) of Changamire Limited cleary showing

i. Prime cost (7 Marks)

ii. Total factory overheads (6 Marks)

iii. Total production cost (2 Marks)

b) The managing director of Changamire Limited has asked you to prepare a report suitable
for senior management; to assist in its understanding of management accounting. He has
suggested that senior management need clarification on the topic of cost terms and their
importance and application in management accounting.
REQUIRED:
Draft a report for the managing director which explains the following commonly used cost
terms in management accounting:
i. cost object
ii. direct and indirect costs
iii. variable and fixed costs
iv. product and period costs.
Illustrate your answer with examples. (10 marks)
(Total 25 marks)

Question 4 (BSSCM)
RUE Ltd, a private company, manufactures a single product and uses a standard costing
system. The production department budgets for the last period included the following:

Production output 7 500 units

Direct materials 5 kg at $6 per kg

Direct labour 4.5 hours at $9 per hour

Fixed production overheads $4 per direct labour hour

The actual results for the period were as follows:

Production output 7 950 units

Direct materials purchased and used 41 250 kg costing $239 250

Direct labor 34 950 hours at a cost of $325 035

Fixed production overheads $130 500

REQUIRED:

(a) Identify three reasons for establishing a standard costing system (3 Marks)

(b) Calculate the standard cost for the period (4 Marks)

(c) Calculate the following variances for the period:

(i) Direct material price (3 Marks)

(ii) direct material usage (3 Marks)

(iii) direct labor rate (3 Marks)

(iv) direct labour efficiency (3 Marks)

(v) fixed overhead expenditure (3 Marks)

(vi) fixed overhead volume (3 Marks)

Question 5 (BSBE)

Builders Boy Ltd. manufactures a single multi-purpose tool (known as ‘The Builder’s Boy’)
used extensively by those involved in the construction industry. Given the current economic
climate for this industry the company are examining its projections and plans for the next
financial period: the year ending 31st August 2010. The Directors are concerned about
ensuring profitability and survival and have a number of questions and proposals about which
they require advice.
The following information has been provided for ‘The Builder’s Boy’ for the year ending
31st August 2010:
• 36,000 units of the product are expected to be sold at a uniform selling price of €15 per unit.
• Production costs are budgeted at €345,000 of which €30,000 are regarded as fixed costs.
• Selling and distribution costs are budgeted at €114,000 of which €39,000 are regarded as
variable costs.
• Administration costs are budgeted at €36,000 fixed cost plus € 6,000 variable giving a total
of €42,000.

REQUIRED:
(a) Calculate the break-even point in units and in sales value based on the original budgeted
data noted above. (6 marks)
(b) Calculate the margin of safety and provide a brief explanation of the term “Margin of
Safety”. (5 marks)
(c) Calculate the number of units to be produced if the Builders Boy Ltd is targeting a profit
of $30000 (4marks)
(d) analyze five (5) assumptions made when using break even analysis (10 marks)

Question 6 (CARRY)
a) Briefly outline the key differences between financial accounting and management
accounting with specific reference to each of the following matters in the context of financial
accounting and management accounting:
(i) Users of information.
(ii) Reporting period/ frequency.
(iii) Time orientation of information.
(iv) Reporting format. (10 marks)

b) Describe the costs associated with holding stock and ordering stock. (6 marks)

c) Calculate three normal control levels, which may be used in stock control systems, from

the following information for a particular raw material:

Economic order quantity, 12 000 kilos

Lead time, 10 to 14 working days

Average usage, 600 kilos per day

Minimum usage, 400 kilos per day

Maximum usage, 800 kilos per day (9 marks)

Question 7 (BSIM)
Kay Limited is a manufacturing company which sells its products all around
Zimbabwe. The company uses the absorption costing technique to attribute costs
to individual products provided to its customers. The factory, in which the
company undertakes all of its production, has three production departments –
‘Cutting’; ‘Shaping’ and finishing , and two service departments –‘Stores’ and
‘Maintenance’.
Total fixed production costs expected to be incurred after primary allocation and
apportionment for the upcoming financial year for each department are as follows:

Cost center $
Cutting 525 000
Shaping 400 000
Finishing 250 000
Stores 100 000
Maintenance 80 000

The stores and maintenance analysis of the services they provide indicates that
their costs should be apportioned production departments as follows:

cutting shaping finishing stores maintenance

Stores 40% 30% 20% 0% 10%
Maintenance 45% 15% 25% 15% 0%

The number of machine and labour hours budgeted each production cost centre is:
cutting Shaping finishing
Machine hours 60 000 45 000 5 000
Labour hours 30 000 17000 20 000

Required:
(a)Using the elimination method, Re-apportion the service department costs and
calculate the most appropriate overhead rate for each department.(Rate should be
calculated to two decimal places).(16 marks)

QUESTION 8 (BSSCM)

Mugwagwa a company in the retail industry uses a perpetual inventory system and
the information related to its inventory at December 2021 were as follows

Date Transaction
Nov 1 Inventory on hand – 5,000 units @ $8 each
Nov 7 Bought 7,000 units for $6.40 each
Nov 13 Sold 5,000 units for $13.00 each
Nov 17 Bought 6,000 units for $8.20 each
Nov 24 Sold 7,000 units for $14.00 each

Required:
(i) Compute the inventory balance of Mugwagwa would report on its December
2021
Using each of the following inventory methodology:
(1) First-in, first-out (FIFO)
(2) Last –in, First –Out( LIFO)
(3) Weighted Average (20 Marks

Question 9 (BSBE)
Chimudhara Ltd produces a single product called Brandy. The company is
considering adopting a standard variable costing system for internal reporting. The
management accountant has provided the following information relating to
standard costs which applies to the production of this product:
Direct materials (6kg @ $11 per kg)
Direct labour (6hrs @ $12 per hr)
Standard selling price $160

Details of the costs incurred and the revenue generated during the month of
November 2018 are provided below:

Sales 4,760,000
Direct materials (146,000kg @ $12 per kg) 1,752,000
Direct labour (164,000 hours @ $13 per hr) 2,132,000
3,884,000
Contribution 876,000
Additional Information
1. The company never holds stocks of finished products, but instead sells all
units of output in the month in which they are produced.
2. Chimudhara Ltd had budgeted to produce and sell 30,000 units of Brandy in
July of the most recent financial year. 28,000 units were actually produced
and sold during July of the most recent financial year.

Required:
(a) Identify and briefly explain three types of standard that a Management
Accountant may consider when introducing a Standard Costing system. (9 marks)
(b) Calculate the standard contribution of one unit of ‘Brandy’. (4marks)
(c) Calculate the relevant variances for November 2018 under the headings of
sales, materials and labour (12 marks)

Question 10 (BSROM)
Changamire Sports limited was established two months ago and provide a range of sports
activities for customers in Chinhoyi community. Facilities include a 25 metre swimming
pool, two tennis courts, a large fully equipped gymnasium and a multi-purpose activity hall.
The company has not yet decided what activities to run in the multi-purpose activity hall.
Two proposals have been put forward, a music class or a fitness class. Details relating to both
activities are as follows:
 Music class fitness class
Price charged per participant $7 $8
Annual insurance (fixed) $12000 $12000
Music and royalty licence fees $3.20 per class $3.20 per class
Other fixed facility costs (electricity, $2536 $2536
administration, etc.)
Instructor cost $50 per class $3,300 per year
expected number of participants per class 25 20

REQUIREMENT:
(a) For each type of class:
(i) Calculate the breakeven point in sales revenue. (6 marks)
(ii) If Changamire Sports limited requires a profit of $10,000 how many classes must be
held? (6 marks)
(b) The company is considering paying the music instructor a fixed fee of $2,600 for the year
instead of a fee per class. Calculate the effect that this change will have on the breakeven
point in sales revenue. Should the company make this change? (6 marks)
(c) Outline Three assumptions on which the Cost-Volume-Profit model is based (7 marks

[Total: 25 Marks]