Accounting for Costs

Thursday 10 June 2010

Time allowed: 2 hours This paper is divided into two sections: Section A ALL 20 questions are compulsory and MUST be attempted Section B ALL FOUR questions are compulsory and MUST be attempted

Do NOT open this paper until instructed by the supervisor. This question paper must not be removed from the examination hall.

The Association of Chartered Certied Accountants

Paper T4

Certied Accounting Technician Examination Intermediate Level

Section A ALL 20 questions are compulsory and MUST be attempted Please use the space provided on the inside cover of the Candidate Answer Booklet to indicate your chosen answer to each multiple choice question. Each question within this section is worth 2 marks. 1 Are the following statements true? (1) Completed questionnaires, as part of a market research survey, are examples of data (2) Monthly management accounting reports, resulting from the processing of nancial transactions, are examples of information A B C D Both statements are not true Only statement (1) is true Only statement (2) is true Both statements are true

The following is an extract from the list of accounts of a washing machine manufacturer: Direct materials Direct labour Direct expenses Production overheads Cost codes 10001999 20002999 30003999 40004999

Which of the following are coded correctly? A B C D Code 4160 2430 1670 3020 Description wages of operatives who work on the product wages of production department supervisor cleaning materials royalties for component used in manufactured product

Machine parts are assembled in a factory. One of the components used in assembling machine part MP7 is component C6. Which of the following is an example of a cost unit in the factory? A B C D A unit of component C6 A unit of machine part MP7 The cost per unit of component C6 The cost per unit of machine part MP7

Which of the following statements are true and which are false? (1) In an integrated accounting system there will be a cost ledger control account (2) An integrated accounting system has one combined set of ledger accounts (3) An interlocking accounting system has separate cost and nancial ledger accounts A B C D Statement (1) False False True True Statement (2) False True True False Statement (3) True True False False

Which of the following cost classications can be applied to the straight-line depreciation of ofce equipment? (1) (2) (3) (4) A B C D Indirect Period Production Variable 1 and 2 only 1 and 4 only 2 and 3 only 3 and 4 only

Costs have been recorded at three output levels: Production output Total costs 100,000 units $207,000 105,000 units $213,000 110,000 units $218,200

Using the highlow method, what is the variable cost per unit (to two decimal places of $)? A B C D $089 $104 $112 $120

The costs incurred in the manufacture of 1,000 units of a product are: Direct materials Direct labour Variable overheads Fixed overheads $4,000 $6,000 $2,000 $8,000

If output increases by 25%, what will be the effect, if any, on the total cost per unit? A B C D Decrease by $160 per unit Decrease by $200 per unit Decrease by $500 per unit No effect

At the beginning of a period, 150 units of a component, which had been purchased at $640 per unit, were in inventory. During the period, 290 units of the component were purchased (160 units at $650 followed by 130 units at $690). 315 units of the component were issued to production at the end of the period when the cost of the 125 units remaining was $800. Which method is being used to price the issues of the component? A B C D First-in First-out Last-in First-out Periodic weighted average Weighted average

Which of the following may be used to support claims for overtime payments for salaried staff? A B C D Employee record cards Job cards Payslips Timesheets

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10 The gross wages of the direct operatives in a production cost centre for a period are analysed as follows: Productive hours at basic rate Overtime premium Idle time Group bonuses Direct operatives ($) 37,640 2,440 590 3,130

How much of the gross wages would normally be accounted for as direct labour? A B C D $37,640 $40,080 $40,670 $43,210

11 In a factory operating job costing which of the following costs will be overheads allocated to individual cost centres? A B C D Salaries of supervisors, each of whom are responsible for two cost centres, where no record is kept of their time in each cost centre Wages of skilled operators assigned to individual jobs, in particular cost centres, with time recorded on time sheets Wages of labourers who are moved from cost centre to cost centre and who maintain detailed time sheets. They are not assigned to work on specic orders in each cost centre. Wages of labourers only Wages of skilled operators only Wages of labourers and salaries of supervisors Wages of skilled operators and salaries of supervisors

12 Which of the following is the most appropriate basis for apportioning the canteen costs in a factory? A B C D Direct labour hours Direct wages Indirect labour hours Number of factory employees

13 A company has two production cost centres (PC1 and PC2) and two service cost centres (SC1 and SC2). Overhead allocation and apportionment is as follows for a period: Overheads Reapportionment of SC1 Reapportionment of SC2 PC1 $460,200 35% 30% PC2 $520,800 45% 70% SC1 $122,000 SC2 $96,600 20%

What are the total overheads in PC2 after reapportionment of the service cost centre overheads? A B C D $605,500 $643,320 $660,400 $667,720

14 The following data are available relating to overheads in two production cost centres: Budget Actual Absorbed Over/under-absorbed Cost centre A $54,030 ? $54,960 ? Cost centre B $76,910 ? $76,250 $520 under-absorbed

What is known on the basis of the available data above? A B C D Actual overheads in cost centre B were less than budget Overheads absorbed in cost centre B exceeded actual overheads Overheads were over-absorbed in cost centre A Overheads were under-absorbed in cost centre A

15 An accountancy practice had an overhead budget of $21,060 for a period. Actual overhead expenditure in the period was $21,720. Overheads are absorbed on the basis of client hours worked which totalled 2,375 in the period and resulted in under-absorption of $345. What was the budgeted overhead absorption rate per client hour? A B C D $872 $915 $900 $929

16 What production overheads are included in product costs using absorption costing? A B C D Direct overhead costs only Fixed overhead costs only Variable overhead costs only Both xed and variable overhead costs

17 A company had total revenue of $169,000 in a period from the sale of 6,500 units of its single product. There was no nished goods inventory at the beginning of the period and 200 units were in inventory at the end of the period. Production costs in the period were: Variable costs Fixed costs $93,130 $41,540

Fixed costs are absorbed on an actual basis using units produced. What was the gross prot in the period? A B C D $30,055 $34,330 $35,570 $38,350

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18 A company, which manufactures and sells a single product, has the following sales and production data for a period: Production Sales 20,100 units 18,900 units

Prot has been calculated for the period, using both absorption costing and marginal costing. Which combination of prot gures are consistent with the above production and sales data? A B C D Absorption prot $10,000 $12,000 $12,000 $10,000 Marginal prot $12,000 $10,000 $12,000 $11,200

19 Costs for Job 123 are: Direct materials Direct labour Overheads $460 $600 120% of direct labour cost

A prot margin of 20% of selling price is required. What is the selling price of Job 123? A B C D $2,136 $2,225 $2,856 $2,975

20 In a period, a manufacturing process incurred raw materials costs of $26,950 and conversion costs of $17,260. There were no process losses. Completed output from the process in the period was 1,600 units and 400 units remained unnished, complete for materials and with 60% of the conversion costs applied. There was no opening work-in-progress. What was the production cost per unit in the period (to two decimal places of $)? A B C D $2211 $2286 $2328 $2403 (40 marks)

Section B ALL FOUR questions are compulsory and MUST be attempted 1 (a) A company manufactures three joint products (A, B and C) in a common process. The following data relate to the period just ended (P1): Production and sales (units) Selling price ($ per unit) Administration and selling expenses ($) Product A 1,200 2500 6,000 Product B 680 5000 5,500 Product C 960 3750 7,000

Joint production costs totalled $71,000 in the period. Required: For Period P1, calculate the total net prot or loss of: (i) the common process; (3 marks) (4 marks)

(ii) Product A, if joint production costs are apportioned on the basis of sales value.

(b) In the new period (P2) just commencing, joint production costs will be apportioned to products on the basis of units of output. The joint production cost per unit is expected to be $25. Selling prices and administration and selling expenses are expected to be unchanged from Period P1. The process overall is expected to be protable. It has now become possible to further process Product A, at an incremental production cost of $6 per unit, to form Product ATWO. The selling price of Product ATWO would be $33 per unit. No additional administration and selling expenses would be incurred. One of the managers in the company has made the following suggestion: Product A should be further processed because if sold at the split-off point a loss would be made in P2. Required: (i) Comment on the managers basis for justifying the further processing of Product A; (4 marks) (4 marks) (15 marks)

(ii) Recommend, with supporting calculations, whether Product A should be further processed.

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The following data relate to Material X, one of the raw materials used by a company in the manufacture of its products: Annual average usage Annual maximum usage Annual minimum usage Purchase price Annual holding cost Ordering cost Average lead time Maximum lead time Minimum lead time Required: Calculate for Material X the: (a) Economic order quantity, based on average usage, using the formula 2CoD Ch. (b) Minimum inventory control level. (c) Maximum inventory control level. (4 marks) (6 marks) (4 marks) (14 marks) 12,250 kg (assume 1 year = 50 weeks) 14,500 kg 10,000 kg $650 per kg $080 per kg $2500 per order 2 weeks 21/2 weeks 11/2 weeks

A company manufactures and sells three products (X, Y and Z). Estimates relating to the three products for the next period follow: Sales demand (units) Selling price ($/unit) Variable costs ($/unit): Direct materials Direct labour Variable overheads Direct labour (hours/unit) Product X 22,000 1000 220 225 075 015 Product Y 8,000 1500 225 450 150 030 Product Z 15,000 2400 640 600 200 040

11,100 direct labour hours will be available. Other resources will be readily available. All direct workers will be paid $15 per hour. Required: For the next period: (a) Calculate whether direct labour will be the limiting factor. (b) Calculate the contribution per unit and the contribution to sales ratio of each product. (c) Determine the output of each product that will maximise total contribution. (3 marks) (4 marks) (9 marks) (16 marks)

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(a) Discounted payback is used by a company for initial screening of potential investment projects. For a project to go to the next stage in the evaluation process, a discounted payback within three years is required. Discount factors at the cost of capital of 11% per annum are: Year 1 Year 2 Year 3 Year 4 Year 5 0901 0812 0731 0659 0593

Two projects (C and D) are to be screened: Project C: Initial investment (Year 0) Cash inows: Year 1 Year 2 Year 3 Year 4 Project D: Initial investment (Year 0) Cash inows: Years 1 to 5 Required: Determine, with supporting calculations, whether each project passes the initial screening. (8 marks) ($460,000) $160,000 per year ($180,000) $60,000 $80,000 $100,000 $60,000

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(b) Two other investment projects (A and B) have already passed initial screening. The graph below shows the net present values of the two projects over a range of discount rates from 0% to 24% per annum.
225

200

Project B
175

NPV $000
150

125

100

Project A

75

50

25

10

12

14

16

18

20

22

24

Discount rate %

(25)

(50)

(75)

Required: From examination of the graph, determine: (i) the internal rate of return (%) of each project; (4 marks)

(ii) which project is ranked higher on the basis of net present value at the cost of capital of 11% per annum. (3 marks) Note: brief explanations, but no calculations, are required in answer to (b)(i) and (b)(ii). (15 marks)

End of Question Paper

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