cost accounting past papers ca

8/7/2019 Cost Accounting Past Papers CA

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The Institute of Chartered Accountants of Pakistan

Foundation and Modular Examinations Autumn 2001

September 08, 2001

COST ACCOUNTING (MARKS 100)

FE-2 (PAPER-5) & MODULAR (PAPER D12) D (3 hours)

Q.1(a) Place each of the following expenses of a manufacturing concern within the classification

of Production, Administration and Selling and Distribution:(i) Cost of oil used to lubricate fork lifter employed in finished goods warehouse.(ii) Salary of security guards posted at cash counter located in the Karachi factory.

(iii) Commission paid to sales representatives.

(iv) Commission paid to companys purchasing agent.(v) Auditors fee(vi) Cost of damaged raw materials.(vii) Insurance expenses on finished goods

(viii) Cost of packing cartons.(ix) Cost of protective clothing for machine operators.

(x) Cost of stationery used in the Lahore factory. (05)

(b) Classify the following cost as fixed, variable and semi-variable:

(i) Depreciation calculated on straight line method.

(ii) Royalty expense(iii) Factory insurance(iv) Supervision and inspection(v) Industrial relations and employees welfare expenses

(vi) Property tax(vii) Overtime costs

(viii) Material handling costs(ix) Machinery repairs charges(x) Generator fuel costs. (05)

Q.2 The following information is available for the month of December 2000 of KhalidEnterprises:

Accounts payable December 01, Rs 6,000

Work in process December 01, Rs 30,000Finished goods December 01, Rs 50,000Material December 31, Rs 15,000

Accounts payable December 31, Rs 10,000Finished goods December 31, Rs 60,000

Actual factory overhead Rs 150,000

Cost of goods sold Rs 300,000Payment of accounts payable used

only for material purchases Rs 35,000

Factory overhead is applied at 200% of direct labour cost. Jobs still in process on December31, have been charged Rs 6,000 for material and Rs 12,000 for direct labour hours (1,200hours). Actual direct labour hours 10,000 @ Rs 8.00 per hour.


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(02)

Required : a) Material purchasedb) Cost of goods manufacturedc) Applied factory overhead

d) Work in process December 31,e) Material used

f) Material as on December 01

g) Over or under applied factory overhead. (14)

Q.3 Emerson efficiency plan establishes a scale of bonus ratio between low task and high taskstarting with zero bonus at a certain efficiency level increasing by small increments to

successively large increments cumulating to a determined bonus at 100% efficiency. Above100% efficiency, additional bonus is allowed. Khaskhkaily Enterprises adopted theEmerson efficiency plan for their cigarette packing plant which employs four (4) workers.

Bonus is paid to workers in addition to basic pay which is fixed by the labour authorities.Brief synopsis of the scheme is as follows:

Efficiency rates Rates of BonusUpto 75% efficiency 0 Bonus

76% to 85% efficiency 2.5% bonus86% to 98% efficiency 7.5% bonus

99% and above efficiency 15% bonusStandard time 3 minutes per cartonMinimum Basic pay is Rs 3,375

Information specific for the month of August 2001 is as follows:Actual packing for the month

Worker A 3,750 CartonsWorker B 4,625 CartonsWorker C 4,250 Cartons

Worker D 3,350 CartonsAugust 2001 consisted of 25 working days of 9 hours each and there were no absentees

during the month. For the purpose of calculating standard per unit labour rate minimumefficiency is considered as normal packing.

Required: Calculate the employee wise payroll cost for the month of August 2001separately showing the basic pay and bonus payable to each employee. (15)

Q.4 A controller is interested in an analysis of the fixed and variable cost of electricity as relatedto direct labour hours. The following data has been accumulated.

Months Electricity Cost Direct labour hoursRupees

Jan 2000 15,480 297

Feb 2000 16,670 350Mar 2000 14,050 241

Apr 2000 15,340 280May 2000 16,000 274

June 2000 16,000 266July 2000 16,130 285Aug 2000 16,350 301

Required : The amount of fixed overhead and the variable cost using.a) The high and low points method (06)

b) The method of least square. (06)


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(03)Q.5 SS Construction Co. have under taken the construction of a fly over for Road Development

Authority. The value of the contract is Rs.12,500,000 subject to a retention of 20% untilone year after the certified completion of the contract and final approval of the authoritiessurveyor. The Company has given the Contract No SS/RDA/786 for reference. The

following are the details as shown in the books of account of SS Construction Co. as onJune 30, 2001:

Amount in Rupees

Labour wages paid 4,050,000Material purchased directly 4,200,000

Material issued from stores 812,000Plant maintenance 121,000

Other expenses 601,000Material in hand 63,000Wages payable 78,000

Other expenses payable 16,000Work not yet certified 165,000

Work certified 11,000,000Cash received on account 8,800,000

Required: Prepare the Contract Account to show the position at June 30, 2001, retaining

an adequate provision against possible losses before final acceptance of the contract. (10)

Q.6 Shabbir Associates manufactures 3 joint products - Exe, Wye and Zee. A by-product Bayeis also produced. During the month of November 2000 the joint cost for direct materials anddirect labour were Rs 80,000 and 120,000 respectively. Shabbir Associates have an

established practice of absorbing overhead at 50% of direct cost. Production and salesrelated data for the month of November 2000 is as follows:

Products Production Sales Sales ValueKgs Kgs Rupees per Unit

Exe 7,800 7,000 10.00Wye 11,700 11,000 10.00

Zee 10,000 9,000 6.50Baye 10,000 10,000 2.60

The sales value of by-product is deducted from the process cost before apportioning cost toeach joint product. Costs of common processing are apportioned between joint product on

the basis of sales value of production. Assume that there is no opening inventories.

Required:Calculate profit for the month of November and analyze the profitproduct-wise. (10)

Q.7 New Vision Trading Company Limited is planning to arrange for a six monthly overdraftfacility with a bank. However, before finalization of any arrangement it wants to know the

estimated requirements of cash. For this purpose it has hired you as consultant to make anestimate of the foreseeable cash requirements.

The following is the basic data regarding various business cycles of the CompanyI. Sales forecast for the six months are as under:

Months Rupees

January 800,000February 950,000

March 600,000April 900,000May 1,100,000


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(04)

II. Purchases are made as and when requiredIII. No closing stock is maintained as the supplier has capability to supply any

quantities at any time.IV. Gross profit ratio is maintained @ 20% of the sales price

V. Various expenses for the six months are as under:

RupeesSalaries and

wages

390,000

Repairs and

maintenance

120,000

Insurance 6,000Stores and

spares

270,000

Duties 360,000

Legal charges 24,000VI. The recoveries from the debtors are made as follows

50% in the month of sale

30% in the month following the month of sale20% in the second month after sale

VII. Trade creditors are paid as under40% in the month of purchase40% in the month following the month of purchase

20% in the second month after purchaseVIII. All other business expenses are paid in the month of expense. Expenses are evenly

spread throughout the year.IX The Company commenced its business on January 1, 2000 with a cash balance ofRs 50,000.

Required: You are required to prepare a cash budget to facilitate the companys management

in assessing the working capital requirement for the next six months. (15)

Q.8 Sangdil Limited makes two products, SS and TT. The variable cost per unit are as follows:

SS TTDirect Material Rs. 6.00 Rs. 18.00 .

Direct Labour (Rs 18.00 per hour) Rs. 36.00 Rs. 18.00Variable overhead Rs. 6.00 Rs. 6.00

_____ _____

Total Variable Cost Rs. 48.00 Rs. 42.00===== =====

The selling price per unit is Rs 84.00 for SS and Rs 66.00 for TT. During July 2001the available direct labour is limited to 48,000 hours. Sales demand in July isexpected to be 18,000 units for SS and 30,000 units for TT.

Fixed cost is Rs.200,000 per month.

Required: Determine the profit-maximizing production level for the productsSS & TT. (14)

(THE END)


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THEINSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

Foundation/Modular Foundation Examinations Spring 2002

March 9, 2002


FE-2 Paper 5 Modular D 12 (Module D, SM, 4B) (3 hours)

Q.1 (a) What are the essentials of a good wage system 06

(b) How Cost Control is different from Cost Reduction 02(c) Define: Direct Material Total Variance and Direct Material Price Variance 04

Q.2 The following balances are appearing in the cost ledger of Marwat Engineering as at

January 1, 2002.

General ledger control account 80,000Materials control account 35,000

Work-in-process control account 17,500Finished goods control account 27,500

At the end of the period you are supplied the following information by the factorysupervisor:

Materials purchased 195,000Materials purchased for Special Job 420 10,450Materials issued for

Repair and maintenance 3,400

Capital Job 101 9,700Special Job 420 11,200

Production 177,400Materials returned to suppliers 1,253Normal material lost in transit and storage ?

Carriage inwards of materials 3,264

Total wages paid to employee forRepair and maintenance 2,100Capital Job 101 6,325Special Job 420 19,475

Production 103,000Indirect wages 15,325

Normal idle time ?Production expenses 21,860Admin expenses 19,462

Selling expenses 11,231Distribution expenses 5,433

Sales 425,000Revenue from Special Job 420 70,000Production overheads recovered as a percentage of prime cost 15.0%


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(2)

Admin overheads recovered on finished production 20,000Selling overheads recovered on finished production 17,500Capital Job is completed and needs to be capitalised

Special job 420 was completed and despatched to customerInventory valuation as at January 30, 2002

Materials control account 26,500

Work-in-process control account 18,100Finished goods control account 35,674

Required:

Prepare necessary control accounts in the cost ledger

Calculate normal loss on materials in transit and storage

Calculate normal idle time of labour

Calculate production overhead allocated to SJ420, CJ101 and normal production

Calculate profit on SJ420 Calculate capitalised cost of CJ101 20

Q.3a) Assuming nil opening stocks, calculate the value of the closing stock from the data

provided below using each of the following methods:

FIFO

LIFO

HIFO

Receipts

Date Units RateOctober 1 100 12.50October 8 85 15.00

October 16 95 11.95October 20 115 13.00

IssuesOctober 2 55October 9 65

October 12 50October 18 25

October 20 11512

b) List the main advantages and disadvantages of FIFO method of costing 03

c) Apollo Industries apportioned its overheads using the following bases:

i) Direct material cost iv) Machine values

ii) Direct labour cost v) Area in square metersiii) Machine hours vi) Number of employees in the department


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(3)

You have been requested by the Production Manager to reassess the overheadapportionment basis. You are required to provide an appropriate basis for each of the

following overheads:

1. Rent and property tax

2. Repair and maintenance3. Electric power

4. Direct material handling5. Indirect materials

6. Indirect labour wages7. Workmen canteen expenses8. Insurance

9. Medical insurance10. Factory security 05

Q.4 A one-year contract has been offered to Maliaka Industries which will uitilise an existingmachine that is only suitable for such contract works. The machine cost Rs 275,000 four

years ago and has been depreciated by Rs 60,000 per year on a straight-line basis and thushas a book value of Rs 35,000. The machine could now be sold for Rs 47,500 or in one-

years time for Rs 4,000

Four types of materials would be required for the contract as follows:

Material Units Purchase priceof stocks

CurrentBuying price

Current resaleprice

Availablein stocks

Required forcontract

Rupees

071 1,200 450 23.00 17.00 14.50076 200 1,250 32.00 42.00 40.50

079 3,000 800 47.00 53.50 42.00085 1,800 1,200 33.00 13.25 12.00

Material 071 and 085 are in regular use within the firm. Material 076 could be sold if notused for the contract and there are no other uses for 079, which has been deemed to be

obsolete.

The labour requirements for the contract are

First sixmonths

Subsequent sixmonths

First sixmonths

Subsequent sixmonths

Hours Required Normal wage rate in Rupees

Skilled 1,350 1,276 25.00 28.75Semi-skilled 1,400 1,225 17.00 19.00

Unskilled 1,225 1,400 15.00 16.00

It is expected that there will be shortage of skilled labour in the first six months only.Therefore, for the purposes of the contract skilled labour will have to be diverted from otherwork from which a contribution of Rs 7.50 per hour is earned, net of wage costs. The firm

currently has a surplus of semi-skilled labour paid at full rate but doing unskilled work. Thelabour concerned could be transferred to provide sufficient labour for the contract andwould be replaced by unskilled labour.


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(4)

Overheads are generally allocated in the firm at Rs 18 per skilled labour hour whichrepresents Rs 13 for fixed overheads and Rs 5 for variable overheads.

Required:

You are required to determine the relevant cost of the contract and sales price of the

contract using the following assumptions:

10 % contribution margin is earned on the relevant cost of the contract.

Contribution margin over relevant cost is equal to 15% of selling price. 18

Q.5 A chemical compound is made by raw material being processed through two processes. Theoutput of process A is passed to process B where further material is added to the mix. The

details of the process costs for the financial year December 2001 are as below:Process ADirect material 2000 kgs @ Rs 5.00 per kg

Direct Labour Rs 7,200Process Plant Time 140 hrs @ Rs 60.00 per hr

Expected output 80% of inputActual output 1400 kgsNormal loss is sold @ Rs 0.50 per kgs

Process B

Direct material 1400 kgs @ Rs 12.00 per kgDirect Labour Rs 4,200Process Plant Time 80 hrs @ Rs 72.50 per hr

Expected output 90% of inputActual output 2620 kgs

Normal loss is sold @ Rs 1.825 per kgsThe department overhead for the year was Rs 6,840 and is absorbed into the costs of eachprocess on direct labour cost. There was no opening stock at the beginning of the year.

Required:Prepare the following accounts:

a) Process A 05b) Process B 05

c) Normal loss/gain of both process 05

Q.6 In a manufacturing deptt 1 kg of product K requires two chemicals A and B. The followingare the details of product K for the month of January 2002.a) Standard mix of Chemical A is 50% and Chemical B is 50%

b) Standard price per kg of chemical A is Rs 60 and chemical B is Rs 75c) Actual input of chemical B is 350 kgs

d) Actual price of chemical A is Rs 75e) Standard normal loss is 10% of total inputf) Material Cost Variance Rs 3,250 adverse

g) Material yield variance Rs 675 adverseh) Actual output 450 kgs.

Required:i) Material Mix Variance 06

ii) Material Usage Variance 03iii) Material Price Variance 06


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(2)

Other costs were as follows:

Rupees

Additional material 24,150Direct Wages 164,825

Overhead 177,690

Quantitative data shows the following:

Finished Goods transferred to godown 3,200 units

Finished Goods in hand 500 unitsNormal loss 520 unitsWork in process (100% material and 50% wages and

overhead) 980 units

Average method of pricing is used.

Required (i) Equivalent Production Statement for June 2002 (04)

(ii) Process Account for the month of June 2002 (10)

Q.5 (a) What is margin of safety? (03)

(b) The fixed cost of an enterprise for the year is Rs.400,000. The variable cost perunit for a single product being made is Rs.20. Each units sells at Rs.100.

Required(i) Break even point.

(ii) If the turnover for the next year is Rs.800,000, calculate the estimatedcontribution and profit, assuming that the cost and selling price remain the

same.(iii) A profit target of Rs.400,000 has been desired for the next year. Calculate the

turnover required to achieve the desired result.

(04)

(04)

(04)

Q.6 (a) Explain the main functions of a cash budget and discuss briefly its importancein a system of budgetary control. (05)

(b) Jawed Enterprises has bank balances of Rs.100,000 as on January 01, 2002.The sales forecast for the next six months are as follows:

RupeesJanuary 850,000February 750,000

March 800,000April 800,000

May 900,000June 950,000

Trend of recoveries against sales are 55% in the month of sales, 30% in nextmonth, 10% in the second month and 5% in the third month.


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(3)

Cost of sales are 80% of sales, payable immediately to avail 5% cash discountof cost. Other costs are 10% of sales. Personal drawing are Rs.25,000 permonth. Any shortfall will be financed by bank @ 12% markup p.a. worked out

on the closing balance of the month. Mark up is payable next month.

Required:

(i) Cash budget for the six month ending June 30, 2002 (10)

(ii) Budgeted Income Statement for the six month ending June 30, 2002 (05)

Q.7 Baba Machine Factory manufactures equipment for textile, sugar and cement

industries. The company has three sales departments who are authorized to selldirectly to these industries. The following information is available for the month of

June 2002.

Particulars Textile

Division

Sugar

Division

Cement

DivisionCapacity utilization 30% 30% 30%

Rupees Rupees RupeesGross sales 130,000 170,000 200,000Net sales 120,000 150,000 200,000

Sales salaries 10,000 15,000 20,000Storage expenses 6,000 8,000 8,000

Delivery expenses 2,000 4,000 5,000

Cost of goods manufactured as a % of gross sales 50% 60% 65%

Other marketing & selling expenses are Rs.24,000 to be allocated on net sales basis.

General salary are Rs.35,000 to be allocated on manufacturing cost basis andcommission to sales person are 2% of the net sales. The company is using 90% of itscapacity and each of the sales department are confident that they will be able to sell

the equipment if the capacity is increased to 100%. The additional cost for utilizing100% capacity is estimated to be 5% of net incremental sales.

Required: (i) Income Statement in (columnar form) for the month of June 2002for all the three divisions and as a whole.

(10)

(ii) Advice the management whether to increase its capacity to 100%or not. If your answer is in affirmative, the division you would

suggest to increase the capacity. (05)

(THE END)


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Modular Intermediate Examinations Spring 2003

March 08, 2003


Module D Paper D 12 (3 hours)

Q.1 Following transactions appeared in the books of accounts of the Company

PURCHASES

Month Quantity (Units) Cost per unit (Rs.)

Jan 100 41

Feb 200 50April 400 51.87

SALES

Month Quantity (Units) Sale price per unit (Rs.)

March 250 64May 350 70June 100 74

There was an opening balance of 100 units for Rs.3,900.From the information given above, for the six month ended June 30, show the storeledger records including the closing stock balance and stock valuation by usingweighted average, FIFO and LIFO methods of pricing. (09)

Q.2 (a) Following is the labour data of a company for a given week:

Days Units Hours

Monday 270 8

Tuesday 210 8Wednesday 300 8Thursday 240 8Friday 260 8

Required:

You are required to prepare a schedule showing weekly earning, hourly rate, and thelabor cost per unit assuming a 100% bonus plan with a base wage of Rs. 6/- per hour

and a standard production rate of 30 units per hour. (06)

(b) What are the requirements for an incentive plan to be successful. (03)


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(2)

Q.3 The following data of a period relates to a manufacturing department:Budgeted Actual

Direct Material Cost Rs.500,000 Rs.750,000Direct Labour Cost Rs.500,000 Rs.550,000Production Overhead Rs.750,000 Rs.800,000

Direct Labour Hours 100,000 130,000

During the period a Job XY 54 was completed. Direct material costing Rs.100,000direct labour Rs.21,000 and overhead costing Rs.115,000 were incurred.

Required:

(a) Calculate predetermined production overhead absorption rate on the followingbasis:

(i) as a percentage to direct material cost (ii) direct labour hours (04)(b) Calculate the production overhead cost to be charged to XY54 based on rates

calculated in answer (a) above. (04)(c) Assume that the direct labour hour rate of absorption is used. Calculate the

under or over absorbed production overheads for the period and state an

appropriate treatment in the accounts. (04)(d) If the factory overhead control account has a credit balance at the end of the

period, was overhead over applied or under applied? (04)

Q.4 ABC Limited produces four joint products Q,R,S and T, all of which result from

processing a single Raw Material Z. The following information is provided to you:

Joint Product Numbers of Units Selling price per unitRupees

Q 5000 18

R 9000 8S 4000 4

T 2000 11

The company budgets for a profit of 14% of sales value. Other costs are as follows:Carriage Inward 6%Direct Wages 18%

Manufacturing overhead 12%Administrative overhead 10%

Required:

(a) Calculate the maximum price that may be paid for the raw material.(b) Prepare a comprehensive Cost Statement for each of the products allocating the

material cost and other costs based on:(i) the numbers of units, and(ii) the sales value.

(04)

(08)


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(3)

Q.5 (a) List the contents of a complete budget document of a manufacturing concern. (08)(b) Explain Functional Budget. (06)

Q.6 M/s Gama & Sons produces only one product by the name Gama and the standardmanufacturing cost of the product is as under:

Rupees

Direct material (4 kg @ Rs.3 per kg) 12Direct labour (5 hours @ Rs.4 per hour) 20

Variable overhead 5Fixed overhead 15

__________Total standard cost 52 per unit

=========

The budgeted quantity to be produced is 10,000 kg and actual production was 9,500

units. The actual consumption and cost during the period was as under:Rupees

Direct material ( 37,000 kg) 120,000

Direct labour (49,000 hours) 200,000Variable overhead 47,000

Fixed overhead 145,000__________

Total standard cost 512,000

=========

There was no stock of work in process or finished goods at the beginning or end ofthe period.

Required:

You are required to calculate the relevant cost variances (14)

Q.7 A company manufactures a single product by the name BABA. Its variable cost is

Rs.40/- and selling price is Rs.100/-. For the current year, Company expects a netprofit of Rs.2,750,000 after charging a fixed cost of Rs.850,000. However the

production capacity is not utilized and the Manager Marketing suggested thefollowing for maximization of profit:

Suggestion Reduced selling price by

%

Sale volume expectedto increase by

%1 5 102 7 20

3 10 25

Required:(a) Evaluate the above proposals and advise the most profitable suggestions

assuming no change in the cost structure.

(b) Suggest other considerations for the decisions. (14)


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(4)

Q.8 A company which manufactures a uniform product is operating at 60% level ofactivity. At this level the sales are Rs.60,000 at a selling price of Rs.10/- per product.

The following information regarding cost is available.

Variable cost Rs. 2 per product

Semi variable cost may be considered fixed at Rs.6,000 with a variable cost ofRs.0.50 per product.

Fixed cost is Rs.20,000 at the present level of activity but is estimated thatachievement of an 80% - 90% level would increase cost by Rs.4,000.

A proposal has been made to the Directors that the price of product should be

reduced by 10% so as to reach a wider sales market. The Board is considering it andrequire a statement showing:

(a) the operating profit if the company is operating at level of activity of 60%,70% and 90% assuming that selling price

(i) remains as at present(ii) is reduced to Rs.9 (08)

(b) The percentage increase in present output which will be required to maintainthe present profit if the Company reduces the selling price. (04)

(THE END)


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Intermediate Examinations Autumn 2003

September 06, 2003


Module D (3 hours)

Q.1 Why should semi variable expenses be separated into fixed and variable elements?

What methods are available for separating semi variable expenses? 07

Q.2 How Cash Budget assists management in making more effective use of money?Name two methods used for the preparation of a cash budget. 09

Q.3 The estimated overheads likely to be incurred relating to a cost center with two major

machines installed are as under:Rupees

SupervisionIndirect employees, wagesEarned leave

Maintenance cost

PowerDepreciationRent of building

8,00010,0005,000

15,000

20,0005,0002,500

65,000

Details of various allocations of the cost centers are as under

Machine-1 Machine-2 Total

Running hours

1) Supervision cost2) Capital cost of machine

3) Indirect employees4) Total employees5) Maintenance hours

6) Kilowatt hours7) Floor Space

RsRs

NoNo

Sq. ft

5,000

4,00020,000

820

600

100,0005,000

1,000

4,0005,000

25

120

20,0005,000

6,000

8,00025,000

1025

720

120,00010,000

Required: Calculate machine hour rate for each machine. 10

Q.4 Following data pertains to a worker of a manufacturing industry.

Actual productionWorking hours in a week

Guaranteed rate per hourEstimated time to produce one unit

A i i h h d i h

400 units48 hrs

Rs.108 minutes


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(02)

Required:

Calculate the gross wages of the worker according to:a) Piece work with a guaranteed weekly wagesb) Under Rowan premium bonus

c) Under Hasley premium bonus 50% to worker 09

Q.5 Tata Cools manufactures a range of products including Air conditioners which passthrough three processes before transfer to finished goods store. Production department

for the current month has given the following production data.

P R O C E S S1 2 3 Total

Basic Raw Material (10,000 units)Direct material additionDirect wagesDirect expensesProduction overheads (to be allocatedon the basis of direct wages)

OutputNormal loss in process of inputScrap value of each lost unit

RsRsRsRs

Rs

Units%Rs

6,0008,5004,0001,200

9,20010

0.20

9,5006,000

930

8,7005

0.50

5,50012,0001,340

7,90010

1.00

6,00023,50022,0003,470

16,500

There was no stock at start or at the end in any process.

You are required to prepare the following accounts

a) Process 1b) Process 2

c) Process 3d) Abnormal Loss

e) Abnormal Gain

04

040404

04

Q.6 The Parrot Company sold 150,000 units @ Rs. 30 each, Variable cost is Rs. 20(Manufacturing Rs. 15 & Marketing Rs. 5), Fixed Cost is Rs. 1,200,000 annuallywhich occurs evenly throughout the year (Manufacturing Rs. 800,000 & Marketing

Rs. 400,000)

Required

i) Breakeven point in units

ii) Breakeven point in Rupees

iii) Number of units to be sold to earn profit before tax of Rs. 200,000iv) Number of units to be sold to earn after tax profit of Rs. 100,000 if tax rate

is 25%v) The breakeven point in units if selling price is increased by Rs. 3 and

variable cost by Rs. 2 per unit 10


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THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

Intermediate Examinations Spring 2004

March 11, 2004

COST ACCOUNTING (MARKS 100)Module D (3 hours)

Q.1 Explain the following terms:

Expense (02)

Product cost (02)Semi-variable cost (02)

Period cost (02)

Q.2 Critically analyse the following statement:

Labour turnover should be low whereas stock turnover should be high. (08)

Q. 3 XYZ Company produces 200 articles of X per annum. Each article of X requires3.8 units of material Y. Some other data is given below:

Cost per unit of Y Rs. 12,500Warehouse monthly rent Rs. 15,000

Warehouse fumigation during the year Rs. 23,000Watchman salary per month Rs. 4,500Per order inspection charges Rs. 10,252

Service departments factory overhead charged toStore department Rs. 10,000

Ordering department Rs. 7,050

Stock holding per annum Rs. 125 per unitWorking capital cost 16%

Salaries of ordering department Rs. 10,050Broker commission on supply of Y 0.50%

Per order lump sum out of pocket expenses ofbroker of material Y Rs. 22,048

You are required to calculate:

(a) Economic Order Quantity. (08)

(b) Number of orders per annum on the basis of Economic Order Quantity. (02)(c) Verify your answer in (b) by calculating total ordering plus carrying

costs per annum:(i) Assuming higher number of orders than in (b) (03)

(ii) Assuming lower number of orders than in (b) (03)


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(2)

Q.4 AAB Company is planning its capacity for the year 2004 at 90% of the rated capacity.For the purpose of estimating other factory overhead expenses company uses five years

history and simple regression analysis method. Data in hand is as under:

Rated capacity 20,000

Direct labour hours at 100% capacity 25,000

Five year history of Other factory overhead expenses is as under:

Year Other factory overhead Direct labourexpenses (Rs.) hours

1999 90,775 23,7502000 83,125 18,750

2001 84,800 20,0002002 99,084 21,0002003 84,860 19,750

In the year 2002 other factory overhead expenses include a penalty of Rs. 12,734 on non

compliance of certain labour laws.

You are required to calculate fixed and variable portions of estimated other factory

overhead expenses at planned capacity. (10)

Q. 5 AAD Companys Budgeting Department has compiled following data for decision-making:

Product Demand Average Material Labour Openingin units sale price per unit per unit stock

Rs. Rs. Rs. Units

A 1,500 318 172 76 50

B 2,200 421 172 173 50C 3,700 280 172 32 -

Minimum order quantity of each product is 100 units. The company has Rs. 800,000working capital in hand and a running finance line of Rs. 500,000 at 24% per annum cost.

Production lead time and sales recovery period is estimated at one year.

Administrative and marketing expenditure per annum are Rs. 152,700 and Rs. 72,842respectively.

Opening stock carry same unit cost as given for current year.

You are required to:

(a) Prepare product sales mix that can generate maximum net profit. (08)(b) Projected Profit and Loss Statement according to your suggested product mix. (04)


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(3)

Q.6 Following is the data of Department B of EFG Company for December, 2003:

Work in process (opening) 8,500 units

(Completed as to material 20% and conversion

cost 25%) Rs. 43,860Work in process (ending) 11,540 units

(Completed as to material 50% and conversioncost 25%)

Current period transactions are:Cost transferred from Department A Rs. 45,600Units transferred from Department A 12,000 units

Units mishandled and lost before start ofany process 460 units

Material consumed Rs. 27,654Conversion cost incurred Rs. 47,689Units transferred out 7,500

Normal spoilage is 6% of units transferred out and inspection is done at the end of

process. Company uses FIFO method for inventory valuation.

You are required to prepare production report of Department B showing Quantity

Schedule, Cost Charged to Department and Heads of Account where costs have beenaccounted for. (20)

Q.7 ABC Limited intend to commence production from July 1. They have provided

following information for the first four months of operation:

PARTICULARS 1st 2nd 3rd 4th

Sales in units 9,500 9,300 9,900 10,000

Selling price per unit 60 58 59 60

Cost per unitMaterial 20 18 19 20Labour 10 10 10 10

Overhead 5 5 5 5Depreciation 5 5 5 5

Administrative 3 3 3 3Marketing 2 2 2 2

Capital expenditure - - - 50,000


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(4)

Additional Information

1) Material will be purchased on cash basis. The company intends to keepstock for one month.

2) Wages to be paid at the end of the month.

3) Other costs will be accrued for one month.

4) Production for 5th month is expected to be 6,500 units.

5) Sales collections are as follows:

50% collection in first month30% collection in second month

20% collection in third month

6) Loan from sponsors Rs 300,000 to be repaid in 5 equal monthly

installments beginning from second month of operation.

7) Cash in hand to be maintained at Rs 50,000. Deficit, if any, will befinanced from bank. Any surplus funds to be utilized towards paymentof bank liability. Markup, if any, will be paid @ 8% p.a. every six

months.

8) Cash in hand as on July 1, Rs 50,000.

Required:-

(a) Budgeted profit & loss for the four months. (06)

(b) Budgeted Cash flow statement for the four months. (10)

Q.8 From the following information, allocate overheads of service departments to individual

producing departments by adopting algebraic method:

Departmental overheadsbefore distribution of Service Provided

Departments Service Departments Dept Y Dept Z

Producing Dept A Rs 6,000 40 % 20 %Producing Dept B Rs 8,000 40 % 50 %

Service Y Rs 3,630 - 30 %Service Z Rs 2,000 20 % -

________ ______ ______Total Departmental Overheads Rs 19,630 100 % 100 %

======= ===== ===== (10 )

(THE END)


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September 11, 2004

COST ACCOUNTING (MARKS 100)MODULE D (3 hours)

Q.1 (a) Describe briefly THREE major differences between: (i) financial accounting,and (ii) cost and management accounting. (06)

(b) The incomplete cost accounts for a period of Company A are given below:

Stores ledger control account

Rs. 000

Opening balance 2,640Financial ledger control A/c 3,363

Production wages control account

Rs. 000Financial ledger control A/c 2,940

Production overhead control account

Rs. 000Financial ledger control A/c 1,790

Job ledger control account

Rs.000Opening balance 1,724

The balances at the end of the period (in 000) were:

Stores ledger Rs.2,543Job ledger Rs.2,295

During the period 65,000 kilos of direct material were issued from stores at aweighted average price of Rs.48 per kilo. The balance of materials issued from

stores represented indirect materials.

Two thirds of the production wages are classified as direct. Average grosswage of direct workers was Rs.20 per hour. Production overheads areabsorbed at a predetermined rate of Rs.30 per direct labor hour.

Required:

Complete the cost accounts for the period. (08)


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2

Q.2 ABC Company has been manufacturing 7,280 units per month of a product andselling the same at a price of Rs.154 per unit. With the increase in competition the

customers are now asking for new contracts at a rate of Rs.140 per unit. Thecompany has started cost/benefit analysis of various options like extra shift working,buying new technologies etc. However, as an immediate step they are going to

implement 100% bonus wages plan for improvement in production capacity. Mixedexpectations of the outcome of this plan are:

Owners 7,800 units per monthProduction manager 8,190 units per month

Labour contractor 9,100 units per month

Other data is as under:

Fixed overheads Rs. 264,368 per month

Variable overhead Rs. 73 per machine per hourDaily wages (8 hours shift) Rs. 200 per person

Number of machines 10Number of labour required 2 per machineStandard capacity 28 units per machine

Direct material Rs. 75 per unitWorking days in a month 26

Required:

Prepare a table showing per unit cost at present and various expected levels ofproduction. (16)

Q.3 The AJFA & Co is preparing its production overhead budgets and therefore need todetermine the apportionment of these overheads to products. Cost center expenses

and related information have been budgeted as below:

Total Machine

Shop A

Machine

Shop B

Assembly Canteen Maintenance

Direct Wages (Rs) 518,920 128,480 99,640 290,800

Indirect Wages (Rs) 313,820 34,344 36,760 62,696 118,600 61,420

Consumable

Materials(incl.

Maintenance) (Rs) 67,600 25,600 34,800 4,800 2,400

Rent & Rates (Rs) 66,800

Building Insurance(Rs) 9,600

Heat & Light(Rs) 13,600

Power(Rs) 34,400

Depreciation ofMachine (Rs) 160,800

Area (Sq Ft) 90,000 20,000 24,000 30,000 12,000 4,000

Value of Machines(Rs) 1,608,000 760,000 716,000 88,000 12,000 32,000

Power Usage (%) 100% 54% 40% 3% 1% 2%

Direct Labour (Hours) 72020 16020 12410 43590

Machine Usage (Hours) 54 422 14 730 37 632 2 060


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3

The proportion of Maintenance cost center time spent for other cost centers is:

Machine Shop A 45%Machine Shop B 40%Assembly 13%

Canteen 2%

Required:

Allocate the overhead expense by using the appropriate bases of apportionment. (12)

Q.4 The incomplete process account relating to period 4 for a company which

manufactures paper is shown below:

Process account

Units Rs. Units Rs.Material 4,000 16,000 Finished goods 2,750Labour 8,125 Normal loss 400 700

Production overhead 3,498 Work in progress 700

There was no opening work in process (WIP). Closing WIP consisting of 700 units

was complete as shown:Material 100%

Labour 50%

Production overhead 40%

Losses are recognized at the end of the production process and loss units are sold atRs.1.75 per unit.

Required:

Calculate the values of abnormal loss, closing WIP and finished goods. (08)

Q.5 (a) Explain the straight line equation Y = a + bx with reference to cost behaviour. (04)

(b) What are the limitations and problems of the equation? (05)

(c) Using the data provided below, determine the variable cost per unit and fixed

cost of 14,000 units.

Output (Units) Total Cost (Rs)

11,500 204,952

12,000 209,46012,500 212,526

13,000 216,04213,500 221,45414,000 226,402

(05)


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4

Q.6 PQR Company manufactures product E in 1,000 units batches and sells them in100 unit packs. Cost data of the said product is as under:

Raw material 42 kg per unitRaw material price Rs.37 per kg for annual buying

upto 3.5 million kgs.Rs.36.90 per kg for annualbuying over 3.5 million kgs.

Direct labour Rs. 850 per unitFactory Overhead-Variable Rs.300 per unit

Factory Overhead-Fixed Rs. 500,610 per monthPrice Rs. 2,862 per unit.

Current production level is 80,000 units per annum, which is 100% of rated capacityof the plant. For any increase in production, there will be an increase in fixed

overhead by Rs.25,000 per month.

Cost accountant of the company is of the view that the company can achieve

break-even level at lesser quantity if production is increased to avail purchasediscount of Rs.0.10 per kg.

Required:

Verify the opinion of the Cost Accountant.

(10)

Q.7 GHI Company produces 817 kgs Y for which following standard chemical mix isused:

Material Standard Quantity (Kgs) Standard Rate per kg.(Rs)

A 750 38.00B 150 53.00

C 50 59.50

Purchase department knowing the standard mix made efforts for reducing the

average price of material mix and achieved the results as under:

Rate (Rs.)A 37.00B 56.25

C 62.75

Production department concentrating on yield aspect experienced a different ratio of

raw material mix and got 876 kgs out of following mix:

Quantity (Kgs)A 750

B 185C 65

Required:

Find out the effect of deviation from standards by calculating:(a) Price Variance (05)

(b) Mix Variance (05)


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5

Q.8 Khan Company is a small business which has the following budgeted marginalcosting profit and loss account for the month ended June 30, 2004:

Rs. Rs.

SALES 96,000Cost of Sales:

Opening stock 6,000Production 72,000

Closing stock (14,000)(64,000)32,000

Other Variable Cost - selling expenses (6,400)Contribution 25,600

Fixed Costs:Production Overhead (8,000)Administration (7,200)

Selling (2,400)Net Profit 8,000

The standard cost per unit is:Rs.

Direct material (1 Kg) 16Direct labour (3 hours) 18

Variable cost (3 hours) 6

Budgeted selling price per unit is Rs. 60

The companys normal level of activity is 4000 units per month. It has budgeted

fixed production costs at Rs.8,000 per month and absorbed them on the normal levelof the activity of units produced.

Required:

Prepare budgeted profit and loss under absorption costing for the month ended June30, 2004. (10)

(THE END)


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March 12, 2005


Q.1 (a) It is often stated that actual product cost cannot practically be worked out.

(i) Why do you think this statement is made?(ii) If the statement is correct, is the whole cost accounting process

worthwhile?

(05)

(04)

(b) (i) Explain with reasons the significance of chart of accounts for thepurpose of cost accounting. (03)

(ii) Give reasons why over- or under-absorptions of overheads may arise. (03)

Q.2 A company manufactures and retails clothing.

You are required to group costs which are listed below and numbered 1 to 20 in thefollowing classifications (each cost is intended to belong to only one classification):

(i) Direct material(ii) Direct labour(iii) Direct expenses(iv) Indirect production overhead(v) Research and development costs(vi) Selling and distribution costs(vii) Administration costs(viii) Finance costs

1. Lubricant for sewing machines2. Floppy disks for general office computer3. Maintenance contract for general office photocopy machine4. Telephone rental plus metered calls5. Interest on bank overdraft6. Performing Rights Society charge for music broadcast throughout the factory7. Market research undertaken prior to a new launch8. Wages of security guards for factory9. Carriage on purchases of basic raw material10. Royalty payable on production of XY11. Road licenses for delivery vehicles12. Parcels sent to customers13. Cost of advertising products on television14. Audit fee15. Chief accountants salary16. Wages of operatives in the cutting department17. Cost of painting advertising slogans on delivery vans18. Wages of storekeepers in a material store19. Wages of fork lift drivers who handle raw materials


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(2)Q.3 Omega Limited is a manufacturer producing various items. One of its main

products has a constant monthly demand of 20,000 units. The production of thisproduct requires two kg of chemical A. The cost of the chemical is Rs.5/- per kg.

The supplier of the chemical takes six days to deliver the same from the date of theorder. The ordering cost is Rs.12/- per order and the holding cost is 10% perannum.

Required:

(a) Calculate the following :(i) The economic order quantity(ii) The number of orders required per year(iii)The total cost of ordering and holding the chemical A for the year.

(b) Assuming that there is no safety stock and that the present stock level is4000 kg, when should the next order be placed?

(c) Assuming that a safety stock of 4,000 kg of chemical is maintained, whatwill be the holding cost per year?

(d) Discuss the problems which most firms would have in attempting to applythe EOQ formula. (12)

Q.4 The yield of a certain process is 80% as to the main product and 15% as to the by-product. Remaining 5% is the process loss. The material put in process (10,000units) costed Rs.21 per unit and all other charges amounted to Rs.30,000 of which

power cost accounted for 33? %. It is ascertained that power is chargeable to themain product and by-product in the ratio of 10:9.

Required:

Draw up a statement showing the cost of the by-product. (06)

Q.5 Total Surveys Limited conducts market research surveys for a variety of clients.Extracts from its records are as follows:

2003

Rupees in million

2004

Rupees in millionTotal Costs 6.000 6.615

Activity in 2004 was 20% greater than in 2003 and there was an increase of 5% ingeneral costs.

Activity in 2005 is expected to be 25% greater than 2004 and general costs areexpected to increase by 4%.

Required:

(a) Derive the expected variable and fixed costs for 2005.(b) Calculate the target sales required for 2005 if Total Surveys Limited wishes to

achieve a contribution to sales ratio of 80%.(c) Discuss briefly the problems in analyzing costs into fixed and variable

elements.

(07)

(03)

(05)


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(3)Q.6 Gala Promotions Limited is planning a concert in Karachi. The following are the

estimated costs of the proposed concert:

Rs.(000)Rent of premises 1,300Advertising 1,000

Printing of tickets 250Ticket sellers, security 400

Wages of Gala Promotions Limited Personnel employed at the concert 600Fee of artist 1,000

There are no variable costs of staging the concert. The company is considering aselling price for tickets at either Rs.4,000/- or Rs.5,000/- each.

Required:

(i) Calculate the number of tickets which must be sold at each price in order tobreak-even.

(ii) Recalculate the number of tickets which must be sold at each price in order tobreak-even, if the artist agrees to change from fixed fee of Rs. 1 million to afee equal to 25% of the gross sales proceeds.

(iii) Calculate the level of ticket sales for each price, at which the company wouldbe indifferent as between the fixed and percentage fee alternative.

(iv) Comment on the factors, which you think, the company might consider inchoosing between the fixed fee and percentage fee alternative.

(03)

(04)

(04)

(04)

Q.7 Ali Limited makes and sells one product, the standard production cost of which isas follows for one unit:

Rs.

Direct labour 3 hours at Rs.6 per hour 18Direct materials 4 kilograms at Rs.7 per kg 28Production overhead Variable 3

Fixed 20

Standard production cost 69

Normal output is 16,000 units per annum and this figure is used for the fixed

production overhead calculation.

Costs relating to selling, distribution and administration are:

Variable 20 percent of sales value

Fixed Rs.180,000 per annum

The only variance is a fixed production overhead volume variance. There are nounits in finished goods stock at 1 October 2003. The fixed overhead expenditure isspread evenly throughout the year. The selling price per unit is Rs.140.

For each of the six monthly periods, the number of units to be produced and sold

are budgeted as :


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(4)Six months ending

31 March 2004

Six months ending

30 September 2004Production units 8,500 7,000

Sales units 7,000 8,000

Required:

(a) Prepare statements for the management showing sales, costs and profits for

each of the six monthly periods, using(i) marginal costing(ii) absorption costing (05)(08)

(b) Prepare an explanatory statement reconciling for each six monthly period theprofit using marginal costing with the profit using absorption costing. (03)

Q.8 Pink Ltd. is considering proposals for design changes in one of a range of soft toys.

The proposals are as follows:

(a) Eliminate some of the decorative stitching from the toy.(b) Use plastic eyes instead of glass eyes in the toys.(c) Change the filling material used. It is proposed that scrap fabric left over from

the body manufacture be used instead of synthetic material which is currentlybeing used.

On above proposals following information has been gathered by management:

(1) Plastic eyes will cost Rs.30 per hundred whereas the existing glass eyes costRs.40 per hundred. The eyes will be more liable to damage during insertion. Itis estimated that scrap plastic eyes will be 10% of the quantity issued from

stores as compared to 5% in case of glass eyes.(2) The synthetic filling materials costs Rs.1,600 per ton. One ton of filling is

sufficient for 2,000 soft toys.(3) Scrap fabric to be used as filling material will need to be cut into smaller

pieces before use and will cost Re.1 per soft toy. Scrap fabric is sufficiently

available for this purpose.(4) The elimination of decorative stitching is expected to reduce the appeal of the

product, with an estimated fall in sales by 10% from the current level. It is notfelt that the change in eyes or filling material will adversely affect salesvolume. The elimination of the stitching will reduce production costs by Rs.6

per soft toy.(5) Current sales level of the soft toy is 300,000 units per annum. Apportioned

fixed costs per annum are Rs.4,500,000. The net profit per soft toy at thecurrent sales level is Rs.30.

Required:

Prepare an analysis which shows the estimated effect on annual profit if all threeproposals are implemented and which enables management to evaluate eachproposal. The proposals for plastic eyes and the use of scrap fabric should be

evaluated after the stitching elimination proposal has been evaluated. (11)

(THE END)


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September 10, 2005


Q.1 (a) Without an effective system of cost accounts it is doubtful whether any

business can survive in the intensely competitive conditions prevailing today.

Briefly state how a cost accounting system can be used by a business entity to

gain competitive advantage. (06)

(b) Management is often faced with a situation where a component which is

manufactured by their own organization has a cost, as disclosed by the cost

accounts, in excess of that which would have to be paid if it were bought in the

open market. However a decision whether to manufacture or buy cannot bemade simply by comparing internal costs with open market prices. List the

other factors which management would have to consider, both of a financial

and non-financial nature, while making such a decision. (05)

Q.2 Alpha manufacturing Co. Ltd. maintains stocks on perpetual inventory system. The

bin card for stock item code No. N96 in the company's stores contains the following

information for the month of June 2005:

Opening stock on 01 June: 60 units, value Rs. 3,600.

DateReceipts

Units

Invoice

price per unitUnits issued

5 June

10 June

14 June

17 June

20 June

24 June

25 June

120

40

20

100

59.00

60.50

62.00

63.00

80

80

80

The market price per unit was Rs. 60.00 on June 1, rising to Rs. 62.00 on June 10,Rs. 62.50 on June 15 and Rs. 64.00 on June 30. The standard cost may be assumed

as Rs.60.00 per unit.

The following methods of stock pricing are being considered:

(a) LIFO(b) Weighted average(c) Standard cost(d) Replacement costRequired:

Under each of these methods, determine the cost of issues and the closing stock as at

June 30. (15)

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(2)

Q.3 A factory manufactures three components A, B and C.

During a week, the following was recorded:

Labour

grade

Number of

employees

Rate per hour

(Rs.)

Individual hours

worked

III

III

IV

618

4

1

4032

28

16

4042

40

44

Actual output and standard times are given below:

Component OutputStandard minutes

per component

A

B

C

444

900

480

30

54

66

The normal working week is of 38 hours. Overtime is paid at a premium of 50% of

the normal hourly rate.

A group incentive scheme is in operation and a bonus is paid based on the time

saved. The rate of bonus payment is 75% of normal hourly rate. The time saved is

allocated to each labour grade in proportion to the number of hours worked by each

group.

Required:

Calculate the total payroll showing the basic pay, overtime premium and bonus pay

for each grade of labour. (12)

Q.4 The factory overhead budget of a manufacturing company for the year ending June

30, 2006 is as follows:

Rupees

Indirect wages 1,627,920

Insurance labour 114,240

Supervision 514,080

Machine maintenance wages 485,520Supplies 257,040

Power 828,240

Tooling cost 285,600

Building insurance 14,280

Insurance of machinery 399,840

Depreciation - machinery 856,800

Rent and rates 371,280

5,754,840

At present, overheads are absorbed into the cost of the companys products at 70%

of direct wages. The company is considering changing to a separate machine hourrate of absorption for each of its four different machine groups.



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(3)

The following are some further details of costs and machine groups:

Machine groups

A B C D TOTAL

Tooling costs (Rs.) 115,958 88,042 55,832 25,768 285,600

Supervision (Rs.) 159,340 145,471 111,877 97,392 514,080Supplies (Rs.) 118,634 79,089 19,772 39,545 257,040

Machine maintenance hours 3,000 2,000 4,000 1,000 10,000

Number of indirect workers 6 6 2 2 16

Total number of workers 26 34 15 10 85

Floor space (Sq.ft.) 3,000 2,400 1,600 1,000 8,000

Capital cost of machines

(Rs.000) 3,200 2,400 1,000 1,800 8,400

Horse-power hours 55,000 27,000 8,000 15,000 105,000

Machine running hours 30,000 60,000 25,000 10,000 125,000

Required:

(a) Calculate a machine hour rate for each group of machines;(b) Calculate the overhead to be absorbed by product no. 123 involving:

Machine group Hours

A 8

B 3

C 1

D 4

(c) Calculate the overhead to be absorbed by each unit of product 123 if the labour

cost is Rs.1,200 and the present method of absorption is used. (15)

Q.5 The Quetta Cement Company produces a product branded as Falkon. It has

estimated the cost per bag of 100 kgs. as under:

Rs.

Direct material 100

Direct labour 160

Factory overhead 120

380

The selling price of Falkon is Rs. 450 per bag.

During the month of December, the actual costs of production were as follows:

Rs.

Materials 200,000

Direct labour 320,000

Factory overhead 220,000

All materials are added at the beginning of production process.



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(4)

Production records show completed production of 2,000 units for the month; sales

records show that 1,600 units were sold during the period. Inventory records exhibit

the following data:

Work in process inventory December 01:

Direct material, 250 units:

Direct labour, 250 units ( 40% completed)Factory overhead, 250 units ( 40% completed )

Work in process inventory December 31:

200 units estimated to be 60% completed as to labour and factory

overheads.

Required:

(a) Material price variance(b) Labour rate variance(c) Overhead budget variance(d) A statement of actual cost of Falkon per bag for December. (09)

Q.6 Industries Limited produces a single product and has a manufacturing capacity of

7,000 units per week of 48 hours. The output data for three consecutive weeks is

given below:

As cost accountant, you are asked by the company management to work out the

selling price assuming an activity level of 4,000 units per week and a profit of 20%

on selling price.

Units

Produced

Direct

Material

Direct

Labour

Total Factory

Overheads

(Variable & Fixed)

Rs. Rs. Rs.2,400 48,000 60,000 37,200

2,800 56,000 70,000 38,400

3,600 72,000 90,000 40,800

(07)

Q.7 The Sindh Engineering Company produces a bicycle which sells at Rs.1,000 per

unit. At 80% capacity utilization which is the normal level of activity, the sales areRs.180 million. Costs are as under:

Prime cost per unit Rs.400

Factory indirect cost Rs.30 million (including variable cost Rs.10 million)

Selling costs Rs.25 million (including variable cost Rs.15 million)

Distribution costs Rs.20 million (including variable cost Rs.11 million)

Administration costs Rs.6 million

Commission and discounts are 5% of sales value.



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(5)

Required:

(a) Calculate the break-even sales value.(b) Prepare statements showing sales, costs, profit and contribution margin at

each of the following levels:

i) at the normal level of activity;ii) if unit selling price is reduced by 5% thereby increasing sales and

production volume by 10% of the normal activity level;

iii) if unit selling price is reduced by 10% thereby increasing sales andproduction volume by 20% of the normal activity level. (12)

Q.8 As a cost accountant of Colombia Company, you are required to develop cash and

other budget information. The budget is to be based on the following assumptions:

Sales:

(a) Customers are allowed a 2% discount if payment is made within 10 days afterthe billing date. Receivables are recorded at the gross selling price.

(b) Sixty percent of the billings are collected within the discount period; 25% bythe end of the month; 9% by the end of the second month. Bad debts are

estimated at 6% of sales.

(c) Sales are billed on the last day of the month.Purchases:(a) Sixty percent of all purchases and other expenses except salaries and wages

are paid in the same month whereas the balance is paid in the following

month.

(b)

Raw materials inventory at the end of each month is equal to 130% of nextmonths production requirement.

(c) The cost of each unit of inventory is Rs.20.(d) Wages and salaries earned each month by employees total Rs.60,000.(e) Marketing, general, and administrative expenses (of which Rs.2,000 is

depreciation) are estimated at 15% of sales.

Actual and projected sales are as follows:

Rs. Rs.

August . 354,000 November .... 342,000

September 363,000 December 360,000 October 357,000 January 366,000

Actual and projected materials needed for production:

Units Units

August . 11,800 November .... 11,400

September 12,100 December 12,000

October 11,900 January 12,200



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(6)

Wages are paid weekly. The unpaid amount at the end of each month is projected as

follows:

Rs. Rs.

July .. 14,000 October 2,000

August . 6,000 November .... 6,000

September 10,000 December 12,000

On August 31, the following balances appeared in the companys books of account:

Rupees

Cash 44,000

Accounts receivable 349,600

Inventories 247,520

Accounts payable 106,444

The above balances are expected to increase by 25% during the month of

September.

Required:

Cash budget for the months of October, November and December. (19)

(THE END)



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March 11, 2006


Q.1 (a) An important feature in the installation of any accounting or costing system is

the proper classification of accounts. The Bottlers Limited, bottlers and

distributors of beverages, have recently introduced a new classification which

includes the following accounts:

1. Samples 13. Freight out

2. Sugar 14. Income tax

3. Factory payroll 15. Advertising

4. Foremans salary 16. Rent of office building5. Conveyance and travelling 17. Labels

6. Factorys clerical salaries 18. Depreciation on machinery

7. Drivers wages 19. Insurance

8. Gas, oil and grease 20. Water

9. Depreciation of furniture & fixtures 21. Truck tyres

10. Salesmens salary and commissions 22. Bottle breakages

11. Light and power 23. Telephone and communication

12. Legal and audit fee 24. Stationery

Classify each account under one or more of the following headings:

Manufacturing Selling and Distribution Administration (06)

(b) Distinguish between joint products and by-products, and briefly explain the

difference in accounting treatment between them. (04)

Q.2 Eastern Limited purchases product Shine for resale. The annual demand is 10,000

units which is spread evenly over the year. The cost per unit is Rs. 160. Ordering

costs are Rs. 800 per order. The suppliers of Shine are now offering quantity

discounts for large orders as follows:

Ordered Quantity Unit price Rs.Upto 999 units 160.00

1000 to 1999 units 158.40

2000 or more units 156.80

The purchasing manager feels that full advantage should be taken of discounts and

purchases should be made at Rs. 156.80 per unit, using orders for 2000 units or

more. Holding costs for Shine are calculated at Rs. 64 per unit per year, and this

figure will not be altered by any change in the purchase price per unit

Required:

Advise Eastern Limited about the best choice available to them. (10)



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(2)

Q.3 Mr. Azad has provided you the following information from his factory ledger for

the quarter ended 31 December 2005:

Control Account Balances as on October 1, 2005: RupeesMaterials 49,500

Work in process 60,100

Finished goods 115,400

Materials purchased 108,000

Direct wages 50,200

Payments for factory overheads 30,900

Depreciation of factory building and machines 42,000

Other related information is as under:

Closing stock of raw materials and finished goods at December 31, 2005amounted to Rs. 50,300 and Rs. 125,800 respectively.

Cost of goods produced is Rs. 222,500. Factory overheads are absorbed in production @ 160% of direct wages. Diesel costing Rs. 2,000 included in the factory overheads was transferred to

head office for use in generator.

A bill for repairs amounting to Rs. 12,000 undertaken at the factory remainedunpaid at the end of the quarter.

Material costing Rs. 2,400 was destroyed by rain.Required:

Write up the following accounts:

i) Materialsii) Work in processiii) Finished goodsiv) Factory overheadsv) Cost of goods sold (10)

Q.4 AG Electronics manufactures transistors which are used for assembling flat screen

TV. During the current year 5,000 transistors were manufactured at the following

costs:Rupees

Direct material 1,000,000

Direct wages 560,000

Factory overheads:

Lease rentals equipments 90,000

Equipments Insurance 19,000

Equipments maintenance contract 200,000

Other overheads 600,000

The cost of direct materials include abnormal loss of Rs. 30,000.



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(3)

The following estimates have been made for the next year:

1. The production is estimated to increase by 60%.2. The cost of direct material will increase by 20%.3. In view of a government regulation which will become effective from July 1,

next year, the rate of wages will increase by 12%.

4. The rate of other overheads is expected to increase by 6% from the start ofnext year. 40% of the other overheads are fixed costs allocated by head office.

Moon Limited, a specialist in manufacturing transistors has offered to supply the

full requirement for the next year, at a price of Rs. 400 per unit. If it is decided to

discontinue the production of transistors, the plant currently in use would be

returned to the leasing company but the following additional costs would have to be

incurred:

Inspection Rs. 20,000 per annum

Insurance Rs. 8 per transistor

You are required to advise the companys management whether it should accept the

offer of Moon Limited or continue to manufacture the transistors in-house. (10)

Q.5 The manufacturing of a chemical is carried out in three continuous processes, P1,

P2 and P3. The following data is available in respect of production during

February 2006.

Particulars P1 P2 P3

Output litres 8,800 8,400 7,000

Costs in rupees:Direct Material introduced (10,000 litres) 63,840 - -

Direct wages 5,000 6,000 10,000

Direct Expenses 4,000 6,200 4,080

Work in process opening (litres) 200

Scrap value (Rs. per unit) 1 3 5

Normal loss 10% 5% 10%

At the end of P3, 420 litres of a by-product ZOLO were produced, which was

treated further at a cost of Rs. 2 per liter. Selling and distribution expenses of Re.1

per unit were incurred and it was sold at a price of Rs. 9 per litre.

Budgeted overheads for the month were Rs. 84,000. Factory overhead absorption is

based on a percentage of direct wages. The work in process at P1 comprised

material of Rs. 500 and labour and factory overheads of Rs. 1,000. There were no

closing work in process in any of the processes.

Required:

Prepare the following:

(a) Work in process account for each process.(b) By-product account. (12)



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(4)

Q.6 Nasib Ltd. has prepared the following budgeted income statement for the year 2006:

Product Caps Crowns Rings Pallets Tubes Total

(Rupees in thousands)

Sales 30,800 34,300 45,500 35,700 63,700 210,000

Manufacturing costsMaterials 1,540 4,620 9,240 7,700 11,550 34,650

Labour 3,500 5,600 10,500 9,800 12,600 42,000

Production overheads:

Variable 1,750 2,450 2,800 3,500 5,040 15,540

Fixed 2,450 4,200 7,700 7,000 6,650 28,000

9,240 16,870 30,240 28,000 35,840 120,190

Transportation 840 2,520 5,040 4,200 4,550 17,150

Packaging 1,400 700 1,400 700 2,100 6,300

2,240 3,220 6,440 4.900 6,650 23,450

Administrative costs 4,620 5,145 6,825 5,355 9,555 31,500

Selling and advertising

expenses 5,040 3,815

3,675

3,885

5,285 21,700

Total cost 21,140 29,050 47,180 42,140 57,330 196,840

Profit 9,660 5,250 (1,680) (6,440) 6,370 13,160

The Management Accountant of the company has provided the following additional

information which describes the basis on which budgeted income statement has been

prepared:

(i) Material costs include purchase cost plus 10% additional charge, which isadded in order to recover the fixed costs of storage and stores administration.

(ii) Labour cost is totally variable.

(iii) Fixed production overhead includes both directly attributable fixed costs and

general fixed production overheads. The general fixed production overheads

amount to Rs. 21 million and have been allocated in proportion to labour

costs. The attributable fixed cost is avoidable if the related product is not

produced.

(iv) Transport charges include fixed costs of Rs. 3,150,000 which have beenallocated to products in proportion to their material costs. Remaining costs

are variable.

(v) Selling and advertising expenses include commission of 5% of sales revenue.

The remaining amount is the advertising cost which is directly attributable to

each product.

(vi) Administrative cost is fixed and is apportioned in the ratio of sales revenue.

(vii) Packaging is a variable cost.

The Managing Director has shown his concern that Rings and Pallets are showing

loss and affecting the financial results of the company. A study which has been

carried out recently has analyzed as under:



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(5)

(a) Sales are influenced by advertising and can be increased upto 40% by

extensive advertising. However each 10% increase in sale would require a

75% increase in advertising expenditure.

(b) The sale of Caps or Crowns can be increased by reducing the production/sale

of the product Ring. However a reduction in sale of Ring by Re.1 would

generate a sale of 45 paisas of Caps or 50 paisas of Crowns sales. Thissubstitution will not entail any extra advertising expenditure.

The management is considering the following three options:

(i) To discontinue the product Ring and Pallets.(ii) To launch an advertising campaign which will increase the sale of each

product by 40%.

(iii) To substitute the sale of Rings with the sale of Caps or Crowns.Required:

Calculate the effect of each of the above options on the profitability of the

company. (25)

Q.7 A company produces mineral water. Based on the projected annual sales of 40,000

bottles of mineral water, cost studies have produced the following estimates:

Total annual costs

(in rupees) Variable cost percentage

Material 193,600 100

Labor 90,000 70Overhead 80,000 64

Administration 30,000 30

The production will be sold through dealers who would receive a commission of

8% of sale price.

Required:

(i) Compute the sale price per bottle which will enable management to realize aprofit of 10 percent of sales.

(ii) Calculate the break-even point in rupees if sale price is fixed at Rs. 11 perbottle. (10)

Q.8 The standard raw material mix for 2200 kgs of finished product is as follows:

Materials Weight (Kgs)Price per Kg

(Rs.)

Salt 1,200 1.50

Ash 600 2.00

Coata 200 3.00Fog 400 4.00



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(6)

Materials used during an accounting period were as follows:

Materials Weight (Kg)Price per Kg

(Rs.)

Salt 6,000 1.6

Ash 4,800 1.8

Coata 1,600 2.6Fog 2,500 4.1

Actual production was 12,100 kg. Calculate the following materials variances:

(i) Cost variance (ii) Price variance

(iii) Usage variance (iv) Mix variance

(v) Yield variance (13)

(THE END)



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September 09, 2006


Q.1 Hi-way Engineering Limited uses budgeted overhead rate for applying overhead to

production orders on a direct labour cost basis for department A and on a machine hour

basis in department B.

The company made the following forecasts for August 2006:

Dept A Dept BBudgeted factory overhead (Rs.) 216,000 225,000

Budgeted direct labour cost (Rs.) 192,000 52,500

Budgeted machine hours 500 10,000

During the month, 50 units were produced in Job no. CNG-011. The job cost sheet for

the month depicts the following information:

Dept A Dept BMaterial issued (Rs.) 1,500 2,250

Direct labour cost (Rs.) 1,800 1,250

Machine hours 60 150

Actual data for the month were as follows:

Dept A Dept BFactory overhead (Rs.) 240,000 207,000

Direct labour cost (Rs.) 222,000 50,000

Machine hours 400 9,000

Required:

(a) Compute predetermined overhead rates for each department. (02)(b) Work out the total costs and unit cost of Job no. CNG-011. (04)(c) Compute the over / under applied overhead for each department. (02)

Q.2 (a) Optimum inventory level can only be determined after comparing the holding

costs with the cost of ordering.

Required:(i) Briefly discuss the impact of holding and ordering costs on optimum

inventory level. (03)

(ii) Give three examples of costs which fall under each category. (03)(iii) What are the problems which may arise in determining the above costs? (02)

(b) Two-way Engineering Limited has been experiencing stockouts on one of its

important product RD-11. Using the EOQ formula, the company places orders of

1,250 units whenever the stock level reduces to 1500 units. The records of the

company show the following data relating to the usage of Product RD-11 during

lead times:



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(2)

Usage (Units) 1,800 1,600 1,400 1,200 1,000

Usage Probability (%) 4 6 10 20 60

The company sells RD-11 at a price of Rs. 500 per unit. The annual carrying cost of one

unit is Rs. 30. The company estimates that the cost of being out of stock is Rs. 125 for

each unit.

Required:

The management of the company asks you to establish an optimal safety stock for this

material and also ascertain the probability of being out of stock on your proposed safety

stock level. (10)

Q.3 Tram-way Hardware Store has been owned by Mr. Petrol. He had himself made all

investment in the business and had not obtained any financing. He appointed a junior

accountant to maintain the manual accounting records. During the month of August, he

asked his accountant to provide certain information including estimates as he was

planning to withdraw some amount for his personal use.

After the failure of his accountant to provide the required information, he has hired yourservices for this purpose. You have gathered the following information from the

records:

(i) Sales for August 2006 amounted to Rs. 5,000,000.

(ii) Sales forecast for the next three months was as follows:

Rs.

September 6,000,000

October 5,000,000

November 5,500,000

(iii) Based on past experience, collections are expected to be 56 percent in the month

of sale and 43 percent in the month following the sale. One percent remains

uncollected(iv) Gross margin on sales is 20% and cost of goods sold comprises of purchase cost

only.

(v) 80 percent of the goods are purchased in the month prior to the month of sale and

20 percent are purchased in the month of sale. Payment for goods is made in the

month following the purchase.

(vi) Other monthly recurring expenses which are paid in cash amount to Rs. 40,700.

(vii) Annual depreciation on fixed assets is Rs. 555,600.

(viii) Annual staff salaries are budgeted at Rs. 600,000.

(viii) Bad debts provision as at August 31, 2006 stands at Rs. 190,400.

(ix) Balances of some other accounts as at August 31, 2006 are as follows:

Rs.

Fixed assets 9,940,000Acc. depreciation 1,900,500

Owners capital 2,800,000

Profit and loss 8,380,000

Cash and bank 1,980,940

Required:

(a) Prepare a balance sheet as at August 31, 2006. (06)(b) Calculate the projected balance in accounts payable as on September 30, 2006. (02)

(c) Prepare a projected income statement for the month of September 2006. (03)



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(3)

Q.4 One-way Limited is engaged in manufacturing and sale of socks. The sales of the

company are mostly to USA and European Countries. At the end of the first quarter, the

results of operations of the company are as follows:

Rs.

Sales (Rs. 40 per unit) 5,300,000

Less: Material 1,987,500

Wages 795,000

Variable overhead 397,500

Fixed overhead 848,000

4,028,000

Gross profit 1,272,000

The factory was working at 40% capacity in the first quarter. Management of the

company has estimated that the quantity sold could be doubled next quarter if the selling

price was reduced by 15%. The variable costs per unit will remain the same, but certain

administrative changes to cope with the additional volume of work would increase the

fixed overhead by Rs. 15,000.

Required:

(a) Evaluate the managements proposal. (05)(b) What quantity would need to be sold next quarter in order to yield a profit of Rs.

2,000,000 if the selling price was reduced as proposed, variable cost per unit

remains the same and fixed overheads increased as estimated above? (02)

(c) Calculate the selling price needed to achieve a profit of Rs. 2,000,000 if the

quantity sold last quarter cannot be increased, material prices increase by 12%,

wage rates increased by 15%, variable overheads are higher by 10% and fixed

overheads increase by Rs. 15,000. (04)

Q.5 Mid-way Services Limited received an urgent order for installation of 4 machines in a

textile mill. Immediately after receiving the order, the company deputed four engineers

on the job. Each engineer was responsible for installation of one machine. The standard

time to complete this job was 50 hours.

It is the policy of the company to pay its engineers on job to job basis. The minimum

amount the company pays is based on standard hours. The payment is made at the rate

of Rs. 100 per hour.

In order to speed up the installation work, the company offered the engineers Time

Saving Bonus (TSB) under which they would be entitled for the following incentives:

Percentages of time saved

to time allowedTSB

0% to 10% 10% of time saved x hourly rate



In addition to the agreed amount, the customer has agreed to pay the company Rs. 150

for every hour saved on installation of each machine.

The jobs were completed successfully and the time spent by each engineer is as follows:

Engineers A B C D

Hours spent 41 36 46 50



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(4)

Required:

(i) Calculate the total earning of each engineer and their earning per hour. (08)

(ii) Compute the net additional revenue earned by the company. (03)

Q.6 Broad-way Manufacturing Limited produces two products DL-1 & DL-2. The

production involves two processes, I and II. The following data is available in respect of

production during the month of August 2006.Process I Process II

Rs. Rs.

Material issued 375,000 100,000

Direct wages paid 150,000 200,000

Direct expenses incurred 100,000 100,000

During the month of August, materials issued to Process I and Process II were 1,250

tons and 230 tons respectively. The cost of output of Process I is charged to Process

II. Incidental to production, two by-products i.e. PT-1 and PT-2 are generated in the first

process and treated as a credit to Process-I.

Following additional information is also available:

SalesProduct

Tons Rs.

Packing

Cost

DL-1 100 600,700 20,070

DL-2 900 1,203,500 100,350

PT-1 200 10,000 -

PT-2 50 2,500 -

A shortfall occurs in Process II due to evaporation which is considered as normal loss.

There were no opening or closing stocks.

Required:

(a) Calculate joint processing costs and apportion them between DL-1 and DL-2 on

the basis of sales value. (08)(b) Prepare summary trading account for the month showing net profit of each

product. (02)

Q.7 Run-way Pakistan Limited has provided you the following information about its sales,

production, inventory and variable/ fixed costs etc. for the second quarter of the year

2006.Rupees

Sales

Operating profit

Variable manufacturing costs per unit

Fixed factory overhead per unit

Marketing & administrative expenses (Fixed Rs. 250,000)

75,000,000

5,171,100

10

11

450,000

UnitsSales

Actual production

Budgeted production

Ending inventory

Normal capacity

Production in quarter I

Sales in quarter I

3,000,000

2,420,100

3,000,000

320,200

3,500,000

3,100,150

2,200,050



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(5)

The Sales Manager claims that the operating profit of the quarter has been wrongly

calculated and is much higher than Rs. 5,171,100.

It is the policy of the company to compute applied factory overhead on the basis of

quarterly budgeted production volume and charge over or under applied factory

overhead to the cost of goods sold account at the end of each quarter.

Required:(a) You are required to prepare income statements under the present method being

used by the company and also under marginal costing method for the satisfaction

of Sales Manager. (09)

(b) Reconcile the difference in operating profit under the two methods. (04)

Q.8 Sub-way Furnishers (Pvt.) Limited manufactures three garden furniture products

Chairs, Benches and Tables. The budgeted data of each of these items is as under:

Chairs Benches Tables

Budgeted sales volume 4,000 2,000 1,500

Selling price per unit (Rs.) 3,000 7,500 7,200

Cost of Timber per unit (Rs.) 750 2,250 1,800Direct labour per unit (Rs.) 600 1,500 1,600

Variable overhead per unit (Rs.) 450 1,125 1,200

Fixed overhead per unit (Rs.) 675 844 1,350

The budgeted volume was worked out by the sales department and the management of

the company is of the view that the budgeted volume is achievable and equal to the

demand in the market.

The fixed overheads are allocated to the three products on the basis of direct labour

hours. Production department has provided the following information:

Direct labour rate Rs. 40 per hour

Cost of timber Rs. 300 per cubic meter

A memo from Purchase Manager advises that because of the problem with the supplier

only 25,000 cubic meters of timber shall be available.

The Sales Director has already accepted an order for the following quantities which if

not supplies would incur a financial penalty of Rs. 200,000.

Chairs 500

Benches 100

Tables 150

These quantities are included in the overall budgeted volume.

Required:

Work out the optim

cost accounting past papers ca

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