ZAMBIA INSTITUTE OF CHARTERED ACCOUNTANTS

CHARTERED ACCOUNTANTS EXAMINATIONS

TECHNICIAN LEVEL
T2: COST ACCOUNTING
SERIES: JUNE 2012
TOTAL MARKS 100 TIME ALLOWED: THREE (3) HOURS
INSTRUCTIONS TO CANDIDATES
1.

You have fifteen (15) minutes reading time. Use it to study the examination paper
carefully so that you understand what to do in each question. You will be told when
to start writing.

2.

This paper is divided into TWO sections:

Section A:

Ten (10) multiple choice Compulsory questions.

Section B:

Five Questions. Attempt any four (4).

3.

Enter your student number and your National Registration Card number on the front
of the answer booklet. Your name must NOT appear anywhere on your answer
booklet.

4.

Do NOT write in pencil (except for graphs and diagrams).

5.

The marks shown against the requirement(s) for each question should be
taken as an indication of the expected length and depth of the answer.

6.

All workings must be done in the answer booklet.

7.

Present legible and tidy work.

8.

Graph paper (if required) is provided at the end of the answer booklet.

SECTION A
Attempt ALL multiple choice questions in this section.
Each of the following questions has only ONE correct answer. Write the LETTER of the
correct answer you have chosen in your answer booklet. Marks are allocated against each
question.
QUESTION ONE
1.1

1.2

1.3

A direct cost is a cost which;

A.
is incurred as a direct consequence of a decision
B.
can be economically identified with the item being costed
C.
cannot be economically identified with the item being costed
D.
is immediately controllable.

(2 marks)

Which of the following are characteristics associated with relevant costs?

(i)
(ii)
(iii)
(iv)

Future costs
Un avoidable costs
Common costs
Differential costs

A.
B.
C.
D.

(ii) and (iii) only

(i) and (iii) only
(ii), (iii) and (iv) only
(i) and (iv) only

(2 marks)

The purchase price of an inventory item is K25,000 per unit. Quarterly consumption
rate for this item of inventory is 20,000 units. The annual holding costs associated
with one unit equate to 6% of its purchase price and the cost of placing an order for
the item is K20,000
To the nearest whole number, what is the economic order quarterly (EOQ) for the
inventory item?
A. 1,461
B.
894
C. 1,433
D.
730

1.4

(2 marks)

An organisation has the following total costs at two activity levels:Activity level (units) 16,000
20,000
Total costs (K000)
135,000
165,000
The total cost at an activity of 22,000 units is;
A.
B.
C.
D.

K165,000,000
K 15,000,000
K180,000,000
K150,000,000

(2 marks)

1.5

Which of the following should be classified as indirect labour?

A.
B.
C.
D.

1.6

Assembly workers on a car production line

Brick layers in a house building company
Machinists in a factory producing clothes
Forklift truck drivers in the stores of an engineering company.

(2 marks)

A manufacturing company has the following budgeted information for the next
period.
Production
Sales
Fixed production costs
Fixed selling costs

14,000 units
12,000 units
K63,000,000
K12,000,000

The normal level of activity is 14,000 units per period.

Using marginal costing, the profit for next period has been calculated as
K27,000,000.00 What would be the profit for next period using absorption costings?
A.
B.
C.
D.

K36,000,000
K27,000,000
K37,000,000
K45,000,000

(2 marks)

The following information relates to questions 1.7 and 1.8

A company uses standard costing to monitor and control its costs. The standard
variable overhead cost for a product is;
6 direct labour hours @ K10,000 per hour.
Last month when 3,900 units of the product were manufactured, the actual
expenditure on variable overheads was K235 million and 24,000 hour were actually
worked.
1.7

The total variable overhead cost variance was;

A.
B.
C.
D.

1.8

K6,000,000 (A)
K6,000,000 (F)
K1,000,000 (A)
K1,000,000 (F)

(2 marks)

The variable overhead efficiency variance was;

A.
B.
C.
D.

K6,000,000 (A)
K6,000,000 (F)
K1,000,000 (A)
K1,000,000 (F)

(2 marks)

1.9

An organisation operates a piecework system of remuneration, but also guarantees

its employees 80% of a time-based rate of pay which is based on K20,000 per hour
for an eight hour working day. Three minutes is the standard time allowed per unit
of output. Piecework is paid at the rate of K18,000 per standard hour.
If an employee produces 200 units in eight hours on a particular day, what is the
employees gross pay for that day?
A.
B.
C.
D.

1.10

K128,000
K180,000
K144,000
K160,000

(2 marks)

A companys accounting system operates so that the cost accounts are independent
of financial accounts. The two sets of accounts are reconciled on a regular basis to
keep them continuously in agreement. This type of accounting system is known as;
A.
B.
C.
D.

Independent accounts
Reconciled accounts
Integrated accounts
Interlocking accounts

(2 marks)
(Total: 20 marks)

SECTION B
Attempt any FOUR questions in this section
QUESTION TWO
Smart Boutique commenced business of buying and selling shirts on 1 st July 2011. During
the next six months, the following transactions occurred:
Shirt purchases:
13 July
8 August
11 September
12 October
15 December
Shirt sales:
10 August
20 October
15 November
25 December

20 shirts
40 shirts
60 shirts
40 shirts
50 shirts

@
@
@
@
@

K72,000 per
K76,000 per
K80,000 per
K70,000 per
K56,000 per

shirt
shirt
shirt
shirt
shirt

50 shirts
60 shirts
30 shirts
40 shirts

@
@
@
@

K100,000 per shirt

K 90,000 per shirt
K 80,000 per shirt
K 76, 000 per shirt.

Closing inventory, counted on 31 December 2011, is 30 shirts. Smart Boutique incurred and
paid in cash expenses amounting to K460,000.
Required:
(a)

Prepare the stores ledger card using the following methods of inventory valuation:
(i)

First In First Out

(FIFO) (5 marks)
4

(ii)
(iii)
(b)

Last In First Out (LIFO)

(5 marks)
Cumulative Weighted Average Cost (AVCO),
calculating issues prices to the nearest thousand Kwacha

(5 marks)

Calculate the profit under each of the above methods.

(5 marks)
(Total: 20 marks)

QUESTION THREE
The following details have been extracted from the standard cost card for product X:
Direct material
Direct labour
Fixed overhead
Standard cost

2kg @ K4,000 per kg

4 hours @ K8,000 per hour

K per unit
8,000
32,000
20,000
60,000

During March 2012, 5,450 units of the product were made compared to a budgeted
production target of 5,500 units.
The actual costs incurred were:
Direct material
Direct labour
Fixed overhead

K42 million
K176 million
K109 million

The actual number of labour hours was 22,000 and the actual number of kilograms of
material was 10,800.
Required:
(a)

Calculate:
(i)
(ii)
(iii)

(b)

Direct material price and usage variances

Direct labour rate and efficiency variances
Fixed production overhead expenditure, capacity and
efficiency variances

(4 marks)
(4 marks
(6 marks)

Prepare a statement reconciling the standard cost of actual production and the actual
cost.
(6 marks)
(Total: 20 marks)

QUESTION FOUR
Njanji Plc, a construction company makes up its accounts to 31 March each year. The
following details have been extracted in relation to one of its contracts:Contract M
Commencement date
Completion date
Retention %
Contract price
Materials to site
Materials returned to stores
Plant to site
Materials transferred to contract N
Materials on site (March 31,2012)
Plant hire charges
Labour cost incurred
Central overhead cost
Direct expenses incurred
Value certified
Cost of work not certified
Cash received from client
Estimated cost of completion

April 1, 2011
May 31, 2012
4
K000
2,000,000
700,000
80,000
1,000,000
40,000
75,000
200,000
300,000
75,000
25,000
1,545,000
160,000
1,440,000
135,000

Depreciation is charged on plant using the straight line method at a rate of 12% per annum.

Required:
(a)

Prepare contract M account clearly showing the amount to be transferred to the

income statement.
(14 marks)

(b)

The details below relates to the main process of Njanji Plcs paint manufacturing
section.
Opening Work-In-Progress:
2,400 litres

fully complete as to materials and 30% complete as to

conversion cost.

Closing Work-In-Progress
3,000 litres

fully complete as to materials and 50% complete as to

conversion cost.

Material input

58,000 litres

Normal loss is 5% of input

Output to the next process

52,500 litres

All losses occur at the end of the process.

Required:
Determine the number of equivalent units to be used in the calculation of the cost
per equivalent unit using weighted average basis of valuation.
(6 marks)
(Total: 20 marks)
QUESTION FIVE
An engineering company which uses Job costing to attribute costs to individual products and
services provided to its customers has began the preparation of its fixed production
overhead cost budget for 2013.
Costs have been identified as follows:-

Apportioned
cost

Machining
K000
6,000

Assembly
K000
2,500

Finishing
K000
1,500

Stores
K000
1,000

Maintenance
K000
800

The stores and maintenance departments are production service departments and
provide services as follows:

Stores
Maintenance

Machining
K000
40%
55%

Assembly
K000
30%
20%

Finishing
K000
20%
20%

Stores
K000
5%

Maintenance
K000
10%
-

The number of machine and labour hours budgeted for 2013 is:
Machine hours
Labour hours

Machine
50,000
10,000

Assembly
4,000
30,000

Finishing
5,000
20,000

Required:
(a)

Calculate appropriate overhead absorption rates for each production department for
2013.
(12 marks)

(b)

Prepare a quotation for Job K34 to be commenced early in 2013, assuming it has;
Direct materials
Direct labour
and requires:
Machining department
Assembly department
Finishing department

Costing
Costing

K24,000
K15,000

Machine
Hours
45
5
4

and that profit is 20% of selling price.

Labour
hours
10
15
12
(8 marks)
(Total: 20 marks)

QUESTION SIX
PD manufacturing company makes and sells two products, P and D. The direct costs of
production are K120 per unit of P and K240 per unit of D.
Information relating to annual production and sales is as follows:P
24,000 units
1.0
10
12
1
1

Annual production and sales

Direct labour hours per unit
Number of orders
Number of batches
Number of setups per batch
Special parts per unit

D
24,000 units
1.5
140
240
3
4

Information relating to production overhead costs is as follows:

Cost driver
Set up costs
Special parts handling
Other materials handling
Order handling
Order overheads

Number
Number
Number
Number
-

of
of
of
of

Annual Cost

set ups
special parts
batches
orders

K
732,000
600,000
630,000
198,000
2,160,000
4,320,000

Other overhead costs are recovered on a direct labour hours basis.

Required:
(a)

Calculate the production cost per unit of P and D based on Activity Based Costing
(ABC).
(14 marks)

(b)

The following data relates to work in one of PD manufacturing companys

department.
Normal working day
Basic rate of pay per hour
Standard time allowed to produce 1 unit
Premium bonus

8 hours
K6,000
2 minutes
75% of time saved at basic rate

Find the total labour cost in a day when 340 units are made.
END OF PAPER

(6 marks)
(Total 20 marks)

SOLUTIONS

Question 1
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
1.10

B
D
A
C
D
A
C
A
B
D

QUESTION 2
(a)

(i)

FIFO Stores Ledger Card

RECEIPTS
Quantity Unit Cost
(Shirts)
(K000)
20
72

DATE
13 July
8 Aug.

40

76

Value
(K000)
1,440

Quantity
(Shirts)

ISSUES
Unit Cost
(K000)

Value
(K000)

3,040

10 Aug.

Quantity
(Shirts)
20
60

50

20@72
30@76

3,720

10

11 Sept.

60

80

4,800

70

12 Oct.

40

70

2,800

110

20 Oct.

60

15 Nov.

30

15 Dec.

50

56

10@76
50@80
10@80
20@70

50

2,200

20

2,800

25 Dec.

70
40

(ii)

4,760

20@70
20@56

LIFO Stores Ledger Card

2,520

30

BALANCE
Unit cost
(K000)
72

Value
(K000)
1,440

20@72
40@76
76

4,480

10@76
60@80
10@76
60@80
40@70
10@80
40@70
70

5,560

20@70
50@56
56

4,200

760

8,360
3,600
1,400

1,680

RECEIPTS
Quantity Unit Cost
(Shirts)
(K000)
20
72

DATE
13 July
8 Aug.

40

76

Value
(K000)
1,440

Quantity
(Shirts)

ISSUES
Unit Cost
(K000)

Value
(K000)

3,040

Quantity
(Shirts)
20
60

10 Aug.

50

10@72
40@76

3,760

10

11 Sept.

60

80

4,800

70

12 Oct.

40

70

2,800

110

20 Oct.

60

15 Nov.

30

15 Dec.

50

56

(iv)

50

2,400

20
70

40

56

2,240

30

Quantity
(Shirts)

ISSUES
Unit Cost
(K000)

Value
(K000)

Quantity
(Shirts)
20

Value
(K000)
1,440

20@72
40@76
72

4,480

10@72
60@80
10@72
60@80
40@70
10@72
40@80
10@72
10@80
10@72
10@80
50@56
10@72
10@80
50@56

5,520

720

8,320
3,920
1,520
4,320
2,080

AVCO Stores Ledger Card

13 July

Quantity
(Shirts)
20

RECEIPTS
Unit Cost
(K000)
72

Value
(K000)
1,440

8 Aug.

40

76

3,040

DATE

4,400

2,800

25 Dec.

(i)

20@80
40@70
80

BALANCE
Unit cost
(K000)
72

10 Aug.

50

75

3,750

BALANCE
Unit cost
(K000)
72

Value
(K000)
1,440

60

75

4,480

10

75

750

11 Sept.

60

80

4,800

70

79

5,550

12 Oct.

40

70

2,800

110

76

8,350

20 Oct.

60

76

4,560

50

76

3,800

15 Nov.

30

76

2,280

20

76

1,520

70

62

4,320

30

62

1,860

15 Dec.
25 Dec.

50

56

2,800
40

62

10

2,480

Weighted Average Costs:

8 August
AVCO =

3,040,000 1,440,000
40 20

= 74,666.67
= K75,000
(b)

Income Statement

Sales revenue
Cost of sales
Gross profit
Expenses
Net profit

FIFO
K000
15,840
(13,200)
2,640
(460)
2,180

LIFO
K000
15,840
(12,800)
3,040
(460)
2,580

AVCO
K000
15,840
(13,020)
2,820
(460)
2,360

Workings:
1. Cost of sales

Opening inventory
Purchases
Closing inventory
Cost of sales

FIFO
K000

LIFO
K000

AVCO
K000

14,880
(1,680)
13,200

14,880
(2,080)
12,800

14,880
(1,860)
13,020

2. Expenses

Expenses paid in cash

FIFO
K000

LIFO
K000

AVCO
K000

460

460

460

11

QUESTION 3
(a)

(i)

Direct material cost variances

Price variance
10,800 kg should cost (x K4,000)
But did cost
Material price variance
Usage variance
5,450 units should use (x 2kg)
But did use
Usage variance in kg
X standard material cost per kg
Material usage variance

(ii)

K000
43,200
42,000
1,200 (F)
10,900kg
10,800kg
100 (F)
K 4,000
K400,000 (F)

Direct labour cost variances

Rate variance

(iii)

22,000 hours of labour should cost

(xK8,000)
But did cost
Labour rate variance
Efficiency variance
5,450 units should take (x 4 hours)
But did take
Efficiency variance in hours
X standard labour cost per hour
Labour efficiency variance
Fixed production overhead variances:

K000
176,000
176,000
Nil
21,800 hours
22,000 hours
200 (A)
K8,000
K1,600,000 (A)

Expenditure variance
Budgeted fixed overhead expenditure
(5,500 units x K20,000 per unit)
Actual fixed overhead expenditure
Fixed overhead expenditure variance

K000
110,000
109,000
1,000 (F)

Capacity variance
Actual hours worked
Budgeted hours of work (4 hrs x 5,500)
Capacity variance

22,000 hours
22,000 hours
Nil

Efficiency variance
Standard hours produced (5,450 x 4 hrs)
Actual hours worked
Efficiency variance
X standard fixed overheard cost per hour

12

21,800 hours
22,000 hours
200 hours (A)
K 5,000
K1,000,000 (A)

(b)

Reconciliation Statement
Standard cost of (5,450 units x 60,000)
Production cost variances:
Material price
Material usage
Labour rate
Labour efficiency
Fixed overhead expenditure
Fixed overhead capacity
Fixed overhead efficiency
Total cost variance
Actual product cost

K000

K000

F
1,200
400
000
1,000
_____
2,600

1,600
1,000
2,600

K000
327,000

327,000

Check:
Actual production cost

K000
42,000
176,000
109,000
327,000

Direct material
Direct labour
Fixed production overhead
SOLUTION FOUR
(a)

Contract M Account
K000
Materials to site
Plant to site
Plant hire
Labour
Overhead
Expenses

700,000

Material returns

80,000

Transfers to N

40,000

200,000

Materials c/fd

75,000

300,000

Plant c/fd W1

880,888

75,000

Cost of work not certified

160,000

25,000

Cost of work certified

1,000,000

2,300,000
Cost of work certified
Profit taken W2
Profit not taken
Cost of work not certified b/fwd
Plant b/fwd
Materials b/fwd

K000

1,065,000

1,065,000
2,300,000

Attributed sales revenue

1,545,000

460,800
19,200
1,545,000
160,000
880,000
75,000

13

1,545,000

Working:
1.

Plant value as at 31 march 2012:

Value

2.

12 x1,000,000,000 x 12
)
100
12

1,000,000,000 (

K880,000,000

Profit taken
K000
1,065,000
160,000
135,000
1,360,000
2,000,000
640,000

Cost of work certified

Cost of work not certified
Estimated cost to completion
Total contract cost
Total contract value
Estimated profit
Profit taken

Cash held value

x estimatedp rofit
Contract price

1,500,000,000 x 640,000,00
2,000,000,000

= K460,800,000
(b)
Output
Next process
Normal loss
Closing work in
Progress
Abnormal loss
Equivalent units

Statement of
Total
52,500 100%
2,900
3,000
100%

Equivalent Units
Materials
52,500
100%
3,000
50%

Conversion Costs
52,500
1,500

2,000

2,000
57,500

2,000
56,000

100%

14

100%

SOLUTION FIVE
(a)
Apportioned cost
Stores
Maintenance
Budgeted overhead

Basis of
Machining
appointment
6,000
Percentages
418
Percentages
498
6,916

Assembly
2,500
314
181
2,995

Repeated distribution method may also be used.

Overhead Absorption Rates
Machining
OAR

K 6,916,000
50,000machinehou rs

K138.32/machine hour

K 2,995,000
30,000 labour hours

K99.83 per labour hour

K1,890,000
20,000 labour hours

K94.5 per labour hour

= K138

Assembly
OAR

= K100

Finishing
OAR

=K95

Workings:
Algebraic method:
Let

x
y
Then y
x

=
=
=
=

stores
maintenance
800,000 + 0.1x
1,000,000 + 0.05y

Rearranging the above equations:

x 0.05y = 1,000,000
-0.1x + y =
800,000

(1)
(2)

Multiplying equation (1) by 1 and equation (2) by 10:

x 0.05y
= 1,000,000
-x + 10y
= 8,000,000
Adding the above equations:
9.95y = 9,000,000
y
= 904,523
= K905,000 (nearest thousand)

15

Finishing
1,500
209
181
1,890

Substituting for y in equation (1)

x 0.05(904,523)
= 1,000,000
x = 1,045,226
=K1,045,000 (nearest thousand)
(b)

Quotation for JobK34

Direct material
Direct labour
Production overheads:
Machining Dept. (45xK138.32)
Assembly Dept. (15xK99.83)
Finishing dept. (12xK94.5)

6,224.4
1,497.45
1,134.0

Job cost
Profit

(20 x 47,85.85)
80

JobK34 price

K
24,000
15,000

8,855.85
47,855.85
11,963.96
59,819.81

SOLUTION SIX
(a)

Activity based costing

PRODUCT
P
K
12,000
120,000
13,200
30,000
864,000
1,039,200
24,000

Set up costs
Special parts
Order handling costs
Materials handling
Other overheads
Number of units

K
120
43.3
163.3

Direct costs
Overhead cost per unit
ABC cost
Working:1.

Recovery rate per direct labour hour

Budgeted labour hours
Product P (24,000 units x 1)
Product D (24,000 unts x 1.5)
Budgeted overhead

Hours
24,000
36,000
60,000

K4,320,000

16

D
K
720,000
480,000
184,800
600,000
1,296,000
3,280,000
24,000
K
240
136.67
376.67

Recover rate =

K 4,320,000
60,000 labour hours

=
2.

K72.0 per direct labour hour

Cost driver rates

PRODUCT
TOTAL
P
D
10
140
150
12
240
252
12
720
732
24,000
96,000
120,000

Orders
Batches
Set ups
Special parts
Set up costs

(a)

K 732,000
732

= K1,000 per set up

Special parts handling =

K 600,000
120,000

K5 per part

Order handling

K198,000
150

K1,320 per order

Materials handling

K 630,000
252

K2,500 per batch

Other overheads

K 2,160,000
60

K36 per hour

Standard time for 340 units (x 2 mins)

Actual time (8 hours per day)
Time saved

680 minutes
480 minutes
200 minutes
K

Basic pay (8 hours x K6,000)

Bonus (75%

48,000
15,000

200
x K6,000)
60

63,000

17

18