ICMA.
COST ACCOUNTING
(AF-201)
Pakistan
SEMESTER-2
SPRING (AUGUST) 2014 EXAMINATIONS
Tuesday, the 19th August 2014
Time Allowed: 02 Hours 30 Minutes Maximum Marks: 75 Roll No:
(i) Attempt all questions.
(ii) Answers must be neat, relevant and brief.
(iii) Use of non-programmable scientific calculators of any model is allowed.
(iv) Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
(v) In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.
(vi) DO NOT write your Name, Reg. No. or Roll No. anywhere inside the answer script.
(vii) Question Paper must be returned to invigilator before leaving the examination hall.
Marks
Q. 2 Saima Pvt. Ltd., is a manufacturer of the Hand Bags. Its Controller of Accounts resigned in
April 2014. An inexperienced Assistant Accountant has prepared the following income
statement for the month of April 2014:
Saima Pvt. Ltd.
Income Statement
For the month ended April 30, 2014
Rupees
Sales (net) 1,340,000
Less: Operating expenses
Raw materials purchased 400,000
Direct labour cost 300,000
Advertising expense 150,000
Selling and administrative salaries 140,000
Rent for factory 120,000
Depreciation – Sales equipment 110,000
Depreciation – Factory equipment 70,000
Indirect labour cost 40,000
Factory utilities 20,000
Factory insurance 10,000 (1,360,000)
Net loss (20,000)
Prior to April 2014, the company had been profitable every month. The company’s CEO is
concerned about the accuracy of the income statement. As a Senior Accountant, you are
asked to review the income statement and make necessary corrections. After examining other
manufacturing cost data you acquired additional information as follows:
(i) Inventory balances at the beginning and end of April were: Rupees
April 1 April 30
Raw materials 39,000 66,000
Work in process 50,000 42,000
Finished goods 80,000 124,000
(ii) Only 60% of the utilities expenses and 70% of the insurance expense apply to factory
operations, the remaining amount should be charged to selling and administrative
expenses.
Required:
(a) Prepare cost of goods manufactured statement for the month of April 2014. 08
(b) Prepare statement of cost of goods sold for the month of April 2014. 02
(c) Prepare revised income statement for the month ended April 2014. 06
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Q. 3 (a) Attributing overhead costs to cost units/ centres involves a sequence of procedures?
Discuss. 04
(b) ABC Company has four producing departments: Mixing, Processing, Assembling and
Finishing and three service departments: Building Services, Health and Recreation and
Repair and Maintenance.
The following information for the month of May 2014 is available:
Actual Investment
Square No. of
Departments Expenses in Equipment
Feet Employees
(Rs.) (Rs.)
Mixing 80,000 24,000 80 160,000
Processing 112,000 12,000 20 80,000
Assembling 32,000 20,000 30 96,000
Finishing 64,000 8,000 10 32,000
Building Services 48,000 4,000 15 4,800
Health and Recreation 40,000 16,000 5 12,800
Repair and Maintenance 24,000 16,000 10 19,200
Total 400,000 100,000 170 404,800
The order and basis for distribution of the service departments are as follows:
Area square feet for Building Services.
Number of Employees for Health and Recreation.
Investment in Equipment for Repairs and Maintenance.
The company assigns service department expenses to other service departments.
However, after a service department’s expenses have been allocated, no expense is
assigned back to it.
Required:
Prepare a distribution sheet of service department expenses based on the data as
above. 12
Q. 4 (a) Hi-Tech Ltd., is an engineering company, it uses absorption costing to calculate its
monthly profit. Management has some reservations on the method of absorption costing
and decided to use direct costing method. Being a Management Accountant of Hi-Tech
Ltd., you are asked to calculate monthly profit on the basis of direct costing.
Following data has been extracted from financial records of Hi-Tech Ltd.:
Normal capacity of a plant is 40,000 units per month or 480,000 units a year.
Variable costs per unit are as follows: Rupees
Direct material 6.00
Direct labour 4.50
Variable factory overhead 1.50
Total 12.00
The sale price per unit is Rs. 20. Actual production, sale and finished goods
inventories in units are as follows:
Months
May June July August
Units in beginning inventory – – 6,000 2,000
Units produced 35,000 42,000 38,000 40,000
Units sold 35,000 36,000 42,000 33,000
Units in ending inventory – 6,000 2,000 9,000
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The following additional data is also available:
(i) Fixed factory overheads are Rs. 600,000 per year or Rs. 1.25 per unit at normal
capacity.
(ii) Company is using 'units of product' as basis for applying overheads.
(iii) Fixed administrative and selling expenses are Rs. 120,000 per year.
(iv) Variable selling and administrative expenses are Rs. 6,800, Rs. 7,200, Rs. 8,000,
Rs. 6,000 for the month of May, June, July and August respectively.
Actual and applied variable overheads remain same. Likewise no material or labour
variance exists. There is no work in process. Standard costs are assigned to finished
goods only.
Required:
Prepare income statement from May to August using direct costing method. 12
(b) State the difference between marginal and absorption costing. 03
Q. 5 Zeltex is an automobile oil company, engaged in processing three types of automobile oils
i.e., Reon, Neon and Zeon. These oils are extracted from a single crude oil. During July, the
following joint costs were incurred:
Rupees
Materials 300,000
Direct labour 240,000
Factory overhead 160,000
Quantities jointly processed:
Gallons
Reon 1,500
Neon 1,000
Zeon 800
Additional costs after split-off: Rupees
Product Direct Labour Factory Overhead
Reon 80,000 45,000
Neon 65,000 30,000
Zeon 50,000 30,000
Per gallon sales prices: Rupees
Reon 500
Neon 750
Zeon 1,000
Required:
(a) Calculate gross profit for each product, assuming that all units produced were sold and
joint cost is allocated using the market value method. 08
(b) Whether product ‘Reon’ should be sold at split-off point for Rs. 325 per unit or processed
further and sold for Rs. 500 per unit? 03
(c) Is accounting treatment of by-products different from joint product treatment? If yes, then
specify the procedure. 03
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Marks
Q. 6 Bosco Limited is a small chemical manufacturing company, which manufactures single
product for many years. Company uses standard cost system for controlling manufacturing
costs.
Following standard costs apply for the production of 100 units:
Rupees
Materials 250 kgs @ Rs. 80 per kg 20,000
Labour 10 hours @ Rs. 150 per hour 1,500
Fixed overheads 10 hours @ Rs. 100 per hour 1,000
The company is expected to produce 10,000 units on monthly basis. Standard selling price is
Rs. 300 per unit.
Following actual data is available for the month of May 2014:
Produced/ sold (units) 10,600
Sales value (Rs.) 3,150,000
Materials purchased and used (26,600 kgs) 2,125,000
Labour (1,020 hours) 155,000
Fixed overheads (Rs.) 110,000
Required:
Calculate the following:
(i) Material Price variance 02
(ii) Material quantity variance 02
(iii) Labour rate variance 01
(iv) Labour efficiency variance 02
(v) Fixed overhead expenditure variance 02
(vi) Fixed overhead volume variance 02
(vii) Sales margin variance 03
THE END
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