National

Institute of Public
Administration

BUSINESS STUDIES DIVISION (BSD)

DIPLOMA IN ACCOUNTANCY AND GOVERNMENT ACCOUNTING

SUBJECT NAME: COST ACCOUNTING

DiAG 2020

JUNE 2022 EXAMINATION

DATE :

SESSION :

DURATION : THREE HOURS

INSTRUCTION TO CANDIDATE:

1. This paper contains SEVEN questions.

2. Answer FIVE FULL questions.
3. Number each answer clearly in the left margin along with the sub question number.
4. Draw the diagram whenever required.
5. Start each answer on a new page.
6. Total marks : 100

DO NOT TURN THIS PAPER UNTIL TOLD TO DO SO

PLEASE LEAVE THE ANSWER SCRIPT BEHIND
AFTER THE EXAMINATION

Page 1 of 7
QUESTION ONE

A. A company is having three production departments X, Y and Z and two service

departments, boiler house and pump-room.

The boiler-house has to depend upon the pump-room for supply of water and pump-room
in its turn is dependent on the boiler-house for supply of steam-power for driving the
pump. The expenses incurred by the production departments are: X is K600 000; Y is
K525 000; and Z is K375 000. The expenses for boiler-house are K175 500 and pump-
room are K225 000.

The expenses of the boiler-house and pump-room are apportioned to the production
departments on following basis:

Departments Boiler Pump

X Y Z House Room
Expenses of boiler house 20% 40% 30% - 10%
Expenses of pump house 40% 20% 20% 20% -

Show clearly as to how the expenses of boiler-house and pump-room would be

apportioned to X, Y and Z departments using;
a. Direct method 5 Marks
b. Elimination method 7.5 Marks
c. Reciprocal (repeated distribution) method 7. 5 Marks

[Total: 20 Marks]

QUESTION TWO

A. A company manufacturer 5000 units of a product per month. The cost of placing an order is
K100. The purchase price of the raw material is K10 per kg. The re-order period is 4 to 8
weeks. The consumption of raw materials varies from 100 kg. to 450 kg. per week. The
average weekly consumption being 275 kg. The carrying cost of inventory is 20% per
annum.
Assuming 52 weeks in a year, you are required to calculate;

Page 2 of 7
 a. Re-order quantity. 4 Marks
b. Maximum level. 2 Marks
c. Minimum level. 2 Marks
d. Average level. 2 Marks
e. Annual Total Cost 2 Marks
B. List FOUR differences between financial accounting and management accounting. 4 Marks
C. Mention 3 commonly used methods for pricing material issues 4 Marks
[Total: 20 Marks]

QUESTION THREE

From the following you are required to prepare a statement showing the issues made under;
a. LIFO method 5 Marks
b. FIFO method 5 Marks
c. Weighted average method 5 Marks
d. What was the total cost of issues 5 Marks

Date Opening Balance 100 units at K10 each

1 Received 200 units at K10.50 each
2 Received 300 units at K10.60 each
4 Issued 400 units
6 Issued 120 units
7 Received 400 units at K11 each
10 Issued 200 units
12 Received 300 units at K11.40 each
13 Received 200 units at K11.50 each
15 Issued 400 units

[Total: 20 Marks]

Page 3 of 7
QUESTION FOUR

Poncho Limited commenced business on 1st January making one product only, with then
following costs:

K'000
Direct Labour 5
Direct Material 8
Variable production overhead 2
Fixed production overhead 5
Total cost 20

The fixed production overheads figure has been calculated on the basis of a budgeted normal
output of 36,000 units per annum.
You are to assume that there is no expenditure or efficiency variance and that all budgeted
expenditure is incurred evenly over the year.
Selling, distribution and administration expenses are:

Fixed K120 million

Variable 15% of the sales value

The selling price per unit is K35 000 and the number of units produced and sold were;

February March
Units Units
Production 2 000 3 200
Sales 1 500 3 000

Page 4 of 7
Required

Prepare profit statement for each of the months of March and April using:
i. Marginal costing 10 Marks
ii. Absorption costing 10 Marks
[Total: 20 Marks]

QUESTION FIVE

A. Highlight the differences between Profit centre and Cost centre 4 Marks
B. Give the following information:
Direct Materials K20000;
Direct Labour K10000;
Factory Expenses K7000;
Administration Expenses K5000;
Selling Expenses K7000
Sales K60 000.
i. Find the Prime Cost, 2 Marks
ii. Works Cost, 2 Marks
iii. Cost of production, 2 Marks
iv. Total Cost 2 Marks
v. Profit 2 Marks
C. Give THREE (3) differences between Marginal costing and Absorption costing. 6 Marks
[Total: 20 Marks]

QUESTION SIX

Wonga limited uses a single plant and production process to manufacture its candle and matches
for its mainly rural market. An extract of production data for these products for the period ending
30th April 2022 has been given as follows:

Matches Candles
Quantities produced (Units) 5000 7000
Direct labour hours per unit 1 2

Page 5 of 7
 Machine hours per unit 3 1
Set-ups in the period 10 40
Orders handled in the period 15 60

Overhead costs K’000

Relating to Machine activity 220 000
Relating to production run set ups 20 000
Relating to handling of orders 45 000
Total 285 000

Required
Calculate the production overheads to be absorbed by one unit of each of the products using:

i. Traditional costing. 10 Marks

ii. Activity Based Costing approach. 10 Marks
[Total: 20 Marks]

Page 6 of 7
QUESTION SEVEN
A. A Manufacturer sells a product at K8 per unit, and sells all that is produced. Fixed cost is
22
K5000 and variable cost per unit is (Kwacha)
9

i. Find the total output and revenue at the break- even point. 5 Marks
ii. Find the profit when 1800 units are produced. 4 Marks
iii. Find the output required to obtain a profit of K10 000 4 Marks

B. Poncho Glass Ltd recorded the following costs for the past six months

Month Activity level Total cost

Units (000) K’000
1 40 6,586
2 30 5 826
3 36 6 282
4 38 6 396
5 42 6 700

Required
i. Find the Total cost function 4 marks
ii. Estimate the total costs when 75 units where produced. 3 marks
[Total: 20 Marks]

END OF EXAMINATION PAPER

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