EXAMINATION : FOUNDATION LEVEL

SUBJECT : COST ACCOUNTING

CODE : A4

EXAMINATION DATE : TUESDAY, 1ST NOVEMBER, 2022

TIME ALLOWED : THREE HOURS (9:00 A.M. – 12:00 NOON)

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GENERAL INSTRUCTIONS

1. There are FOUR questions in this paper.

2. Answer ALL questions.

3. Marks are shown at the end of each question.

4. Show clearly all your workings in the respective answers where applicable.

5. This question paper comprises 7 printed pages.

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QUESTION 1

(a) For each of the questions given below, choose the most correct answer among the four
given alternatives. Indicate your answer by writing the appropriate letter A, B, C or D in
your answer booklet.
(i) Direct cost is best described as:
A. a cost which needs to be apportioned to a cost centre
B. the highest proportion of the total cost of a product
C. expenditure that may be identified with a specific cost unit
D. a cost which cannot be influenced by its budget holder

(ii) Semi-variable cost is a cost that:

A. contains an element of both fixed and variable cost
B. increases in direct proportion to output
C. increases throughout the year
D. remains constant irrespective of the level of output

(iii) Which of the following should not be classified as a service cost centre in a
manufacturing organization?
A. Factory canteen
B. Stores
C. Materials handling department
D. Final product inspection department

(iv) Which of the following statements correctly reflects a step cost?

A. The total cost increases in steps as the level of inflation increases.
B. The cost per unit increases in steps as the level of inflation increases.
C. The cost per unit increases in steps as the level of activity increases.
D. The total cost increases in steps as the level of activity increases.
The following information relates to questions (v), (vi) and (vii):
On 1st October there were no units of Material C404 in inventory. All inventory
movements for C404 for the month of October were as follows:
10th October 4,000 units received, total cost TZS.2,000,000
16th October 3,900 units issued
20th October 1,200 units received, total cost TZS.720,000
25th October 1,100 units issued
29th October 2,800 units received, total cost TZS.2,100,000

(v) On 31st October, inventory valuation using LIFO basis is:

A. TZS.2,210,000
B. TZS.2,250,000
C. TZS.1,500,000
D. TZS.1,800,000
(vi) The value of the issued material using FIFO as at 25th October is:
A. TZS.660,000
B. TZS.825,000
C. TZS.650,000
D. TZS.550,000

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 (vii) The value of inventory using weighted average basis as at 31st October is:

A. TZS.2,218,459
B. TZS.2,265,000
C. TZS.2,191,667
D. TZS.2,127,500
(viii) An organization operates a piecework system of remuneration, but also guarantees
its employees 80% of a time-based rate of pay which is based on TZS.2,000 per
hour for an eight-hour working day. Three minutes is the standard time allowed per
unit of output. Piecework is paid at the rate of TZS.1,800 per standard hour.

If an employee produces 200 units in eight hours on a particular day, what is the
employee’s gross pay for that day?
A. TZS.12,800
B. TZS.14,400
C. TZS.16,000
D. TZS.18,000

(ix) Two products M and F are created from a joint process. M can be sold immediately
after split-off. F requires further processing into product FF before it is in a saleable
condition. There are no opening inventories and no work in progress of products M,
F or FF. The following data are available for last period:

TZS.
Total joint production costs 35,000,000
Further processing costs of product F 6,600,000

Product Production Closing

units inventory
M 42,000 2,000
FF 33,000 3,000

Using the physical unit method for apportioning joint production costs, what was
the cost value of the closing inventory of product FF for last period?
A. TZS.1,664,000
B. TZS.1,862,500
C. TZS.2,000,000
D. TZS.2,160,000

(x) Which one of the following describes a controllable cost?

A. A cost which can be influenced by its budget holder.
B. A cost which arises from a decision already taken which cannot be
changed in a short run.
C. A cost for which the behaviour pattern can be easily analyzed to facilitate
valid budgetary control comparisons.
D. A specific cost of an activity or business which would be avoided if the
activity or business did not exist.
(20 marks)

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(b) For each of the following statements, state whether the statement is true or false. Indicate
your answer by writing “TRUE” for the correct statement and “FALSE” for the
incorrect statement in your answer booklet:
(i) Management control systems are designed to aid managers in identifying non-
performing employees and designing their training modules.
(ii) Budget slack is the intentional overestimation of expenses and/or underestimation
of revenue in the budgeting process.

(iii) Standard costing is a control technique which compares standard costs and
revenues with actual results to obtain variances, which are used to stimulate
improved performance.

(iv) Any material that can be visibly identified in the final product is a direct material
and hence the cost associated with it is a direct cost.

(v) A cost that is composed of a mixture of fixed and variable components is known
as a fixed cost. (10 marks)

(c) Given the following statements, you are required to pair each statement from LIST A
with the item from LIST B appropriately. In pairing the statement with items, write the
roman number from list A against the corresponding letter from list B in your answer
booklet:
LIST A
(i) Cost that decreases per unit as production increases.
(ii) Cost per unit remains constant.
(iii) Cost that is included in the value of inventory.
(iv) Cost that is historical in nature.
(v) Cost that is associated can be identified and traced to the final product.

LIST B
A. Merchandise cost
B. Fixed cost
C. Constant cost
D. Historical cost concept
E. Stepped fixed cost
F. Variable cost
G. Product cost
H. Sunk cost
I. Identifiable cost
J. Direct cost (10 marks)
(Total: 40 marks)

QUESTION 2
During the next year, Makokoto company Ltd is planning to launch a new product and budgets
to use 56,250 units of a special material during the year. The material will be used during the
year at an even rate. Makokoto has decided that it is going to place orders for 1,125 units at
regular intervals during the year.

The costs associated with the material are as follows:

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• Purchase price TZS.3,500 per unit
• Ordering costs TZS.10,000 per order
• Holding costs TZS.500 per unit per year
REQUIRED:

(a) Calculate the ordering and holding costs based on the suggested order quantity of 1,125
units per order. (4 marks)

(b) Calculate and explain the Economic Order Quantity (EOQ). (6 marks)

(c) Calculate the difference in the ordering and holding costs between the order quantities of
1,125 units and 1,500 units. (4 marks)

(d) The supplier is keen to encourage Makokoto company Ltd to order in bulk and has offered
a discount of 5% on all purchases for an order quantity of 5,626 units.
Advise whether or not this discount is financially beneficial to Makokoto company Ltd
assuming the order quantity prior to the discount offer is 1,500 units per order.
(6 marks)
(Total: 20 marks)

QUESTION 3

The management accountants of BZ Limited is finding it difficult to cope with increasing

demand for information and has asked for your help. You have been asked to prepare variable
analysis information for the March Board meeting. You have been provided with budgeting
and actual information as shown below:

Budgeted information for the month of March:

TZS
Production in units 25,000
Direct material (250,000 Kgs) 36,250,000
Direct labour (87,500 hours) 108,937,500
Variable production overheads 27,125,000

Actual results achieved for the month of March:

TZS
Production in units 27,000
Direct material (263,250 Kgs) 39,487,500
Direct labour (97,200 hours) 119,070,000
Variable production overheads 30,618,000

Notes:
1. Actual fixed production overheads for March amounted to TZS.17,240,000.
2. Budgeted fixed production overhead is TZS.17,500,000 per month.
3. Variable production overheads is applied to products based on budget labour hours.

REQUIRED:
(a) Prepare a cost statement showing the original budget, flexed budget and actual results.
(8 marks)
(b) Calculate relevant variances in as much detail as the information permits.
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 (i) Material price variance
(ii) Material usage variance
(iii) Direct labour rate variance
(iv) Direct labour efficiencies
(6 marks)

(c) Suggest two reasons for each of the variances calculated in (b) above. (4 marks)
(d) Briefly explain the meaning of the following terms:
(i) Ideal standard costs
(ii) Attainable standard costs (2 mark)
(Total: 20 marks)

QUESTION 4
(a) Briefly differentiate the following:
(i) Cost allocation and Cost apportionment
(ii) Cost reduction and Cost control (4 marks)
(b) What are the steps of the cost accounting cycle? (3 marks)

(c) Ambiere Co Ltd is a registered company in Tanzania. It produces three products A, B,

and C for which the standard variable cost and budgeted selling price are as follows:

A B C
TZS. TZS. TZS.
Direct material 3,000 6,000 8,000
Direct wages 4,000 4,000 10,000
Variable overheads 3,000 5,000 7,000
Selling price 18,000 25,000 48,000

In two successive periods, sales were as follows:

A B C
Units Units Units
Period I 10,000 10,000 10,000
Period II 20,000 13,000 5,000

The budgeted fixed overheads amounted to TZS.135,000 each period. Inspite of

increased sales; the profit for the second period has fallen below that of the 1st period.

REQUIRED:
Prepare a presentation to the management explaining the change in profitability.
(13 marks)
(Total: 20 marks)

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