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Q1.
I. Walk-Toki Manufacturing Company, Statement showing cost of goods manufactured For
the year ended on December 31.
Particulars Amount ($) Amount ($)
Inventory - Direct Material
Opening Inventory - Raw Material 14,000.00
(+) Purchases - Raw Material 216,000.00
Total Raw Materials 230,000.00
(-) Closing - Raw Materials 44,000.00
Total Direct Materials 186,000.00
Direct Labor
Cost of Labor 468,000.00
Total Direct Labor 468,000.00
Factory Overhead
Indirect Labor Cost 36,000.00
Supplies 40,000.00
Salaries and Wages -
Rent Expense 28,000.00
Depreciation 50,000.00
Others ````
Total Factory Overhead 280,000.00
Total Manufacturing Cost 934,000.00
Inventory - Work in Progress
Opening Inventory - Work in 20,000.00
Progress
Total Work in Progress 954,000.00
Closing Inventory - Work in 56,000.00
Progress
Cost of Goods Manufactured 898,000.00
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II. Walk-Toki, income statement for the year ended December 31, 2021.
Particulars Amount ($) Amount ($)
Revenue: -
Sales 1,400,000
Less cost of goods sold
Opening balance 128,000
+purchases 216,000
Less closing balance 92,000
= total cost sold 436,000
Less expenses
Administrative expenses 60,000
Depreciation expense 50,000
Rent expense – Factory 28,000
Manufacturing supplies 40,000
expense
Selling expense $72,00
Total expenses 686,000
Net profit 278,000
Assume Walk-Toki Company is considering offering a new product, Cassio. Why would it
matter if Walk-Toki Company knows how much it costs to produce and deliver each Cassio? (05
marks)
III. Walk Toki would want to the cost of production because of the following reasons.
To determine the selling price of the product. This is because knowing the costs involved
to produce the product and deliver it is important in helping to set the selling price of it.
Decision making. Information facilitates the process of decision making undertaken by
managers since decision making is all about choosing the best alternative that can add
value to the business.
To help the production firm to determine the production capacity of their company and
how much sales they will be able to make.
To enable the Walk-Toki company determine its profit margin. This is because it will be
able to assess how much profit they would want to make at that period.
To help the company be able to make its manufacturing accounts. That information is
vital in making the financial statement for the manufacturing firm.
It is important so that the walk-Toki company is able to assess whether its operating
under breakeven point or not. Breakeven point is a point at which the company makes
zero profits.
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IV. Compare and contrast an income statement of a manufacturing concern and that of a
service provision concern. (06 marks)
Manufacturing concern Service provision concern
Cost is classified according to function Costs are just listed as expenditures.
The income statement shows financial separately discloses gains and losses that fall
performance from operations first outside the regular scope of operations
Major income is from sale of manufactured Income is from offering services
Consist of three section that’s trading, profit Majorly two section that’s income and
and appropriation expenditure.
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Q2.
a.
PARTICULLARS ACTUAL STANDARD VARIANCE $ COMMENTS
RESULTS $ RESULTS $
Units Sold 20,000 24,000 4,000 Unfavorable
Revenues 2,500,000 2,880,000 380,000 Unfavorable
Total variable 1,900,200 2,112,000 211,800 Unfavorable
costs
Contribution 599,800 768,000 168,200 Unfavorable
Margin
Fixed Costs 570,000 552,000 18,000 Favorable
Operating income 29,800 216,000 186,200 Unfavorable
Table of variances
b.Explain why there were such variances in each category in (a) above?
Units sold has unfavorable variance because actual units are less than the standard
Revenues unfavorable variance because standard revenues are more the actual revenue
Total variable show adverse variation as standard variable costs are than the actual costs
There is unfavorable contribution margin since the actual contribution is greater than the
standard
Fixed costs have favorable variance because the standard fixed costs are than the actual
costs
The unfavorable variance in the operating income is as a result of standard income being
than actual incomes
c.
I. The material price variance
= (Standard unit price – Actual unit price) *Actual quantity
=(SP-AP) *AQ
= (18.20 – 20) *6000
= -18.20 x 6000
=10,800. Unfavorable
II. Quantity Variance
= (Actual quantity – Standard quantity used) *Standard cost
=(AQ-SQ) *SC
= (6000 – 5460) *18.20
= 9,828 Unfavorable
III. The labor rate variance
= (Actual hours*actual rate) – (Actual hours*standard rate)
= (AH*AR) – (AH*SR)
= (760 * 4) – (760*3.60)
= 3040 – 2736
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= 304 Favorable.
Q3.
a. Processing decision
I. Processing of component A into product A
Sale value of component A = $8,000
Sale value of product A = 12,000
The incremental revenue if component A is converted into product A ($12,000-$8,000) =$4,000.
Incremental cost of converting component A into product A = $6,000.
Therefore, advantage or disadvantage of converting component A into product A
incremental revenue-incremental cost = $4,000-$6,000 = -$2,000.
There is financial disadvantage of $2,000 of converting component A into product A.
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c. The project is not viable, because the contribution is greater than the cost.
Q4.
a. Activity Based Costing:
I. Using the ABC Formula: Cost Pool Total /Cost Driver
Activity Amount (Ugx) Relevant Cost Activity level Overhead Rate
Driver
Production of 20,310,000 Machine hours 25,000 812.4
components
Assembly of 15,200,000 Number of labor 20,000 760
components hours
Packaging 2,130,000 Units 5,000 426
Shipping 6,000,000 Units 5,000 120
Setup costs 3,4000,000 Number of 240 1,41,666.667
setups
Designing 1,200,000 Designer hours 1,000 1,200
Product testing 2,400,000 Testing hours 500 4,800
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b. Why would Tracy prefer Activity-based costing rather than the Traditional costing
method? (05 marks)
ABC is an excellent feedback tool for measuring the ongoing cost of specific
services as management focuses on cost reduction. • An ABC system can sort
through these additional overhead costs and determine which customers are
actually providing a reasonable profit. This analysis may result in some
unprofitable customers being turned away, or more emphasis being placed on
those customers who are contributing more in profits.
ABC enables the manager to decide whether he should get the activity done
within the firm or outsource the same. Outsourcing may be done if the firm is
incurring higher overhead costs as compared to the outsourcer or vice-versa. •
ABC system, we can determine the margins of various products, product lines,
and entire subsidiaries. This can be quite useful for determining where to position
company resources to earn the largest margins.
ABC is very good for determining which overhead costs should be included in
this minimum cost, depending upon the circumstances under which products are
being sold.
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