UNIT CODE: DAF1201 UNIT TITLE: COST ACCOUNTING

ANSWER QUESTION ONE AND ANY OTHER TWO

1. a) ABC Ltd has an aggregate demand of 1.2 million unit. Each time they
place an order there is an ordering cost of sh 1,000 holding cost is sh 100 per
unit. Determine:
i) Economic Order Quantity (EOQ)
ii) No of order to be made based EOQ
iii) Total cost of stocks based on the EOQ. (4 Marks)

Solution.

i). EOQ = 2DCo = 1200000X1000X2 = 4899 units

Ch 100

ii).No of order = 1200000 = 244.9 245 Orders

4899

iii) Total cost = DCo + QCh = 1200000 (1000) + (4899)100 = 489,900

Q 4899

b) Assume the following purchases were made in ABC Ltd.

Date of Purchases Units Purchased Price/Unit
1 January
st 500 100
2 January
nd 600 200
3rd January 800 400
Units used on 4th January are 900. .
Required: Determine the cost of units used and the value of closing stocks
using FIFO, LIFO and weighted average. (6 Marks)

1
2. a) Discuss 4 applications of absorption costing. (4 Marks)

b) The following is the budget of support Engineering works for the year 2002
Factory overheads ksh 62,000
Direct labor cost ksh 98,000
Direct labour hour 155,000
Machine hours 50,000
Actual labour hours were 40,000
Actual machine hours were 30,000
Actual direct labor costs were ksh 50,000
Actual direct material costs were ksh 45,000
REQUIRED:
a) Determine the overhead application rate on the basis of
i) Direct labour hours
ii) Direct labour cost
iii) Machine hours
iv) Overhead costs
v) Production cost. (6Marks)

3. a) Mini Bakeries Ltd has budgeted to produce and sell 100,000 unit of lakes
during the next period. The sellig price per cake is sh 20 are variable cost per
cake is sh 12. Fixed overheads are budgeted to at sh 6,000,000.

Additional information:
i) Fixed cost will increase to sh 700,000 where activity is in excess
of 110,000 units
ii) Variable cost will full by 5% per unit(cake) of all unit where
activites is in excess of 100,000 cakes because of the economies
of scale.

The actual result of the period in which 115,000 units(cakes were produced
and sold were:
a) Sales revenue sh 2,242,500
b) Variable costs sh 1,320,000
c) Fixed costs sh 67,000

2
Question 3

REQUIRED:
.
i).Prepare a summary which shows the budgeted results for activity levels from 80,000 to
120,000 cakes using the above information.

Solution
Flexible budget Summary.

Units 80,000 90,000 100,000 110,000 120,000

Sales Revenue 1,600,000 1800,000 2,000,000 2,200,000 2,400,000

Variable Costs 690,000 108,000 120,000 1,254,000 1,368,000

Contribution 640,000 720,000 800,000 946,000 1,032,000

Fixed costs 480,000 600,000 600,000 600,000 700,000

Net Profit 160,000 120,000 200,000 346,000 322,000

3
ii). Prepare a control statement comparing budgeted with actual results where a fixed
budget system is used based on 100,000 units. (5 Marks)

Solution.

Control Statement (Fixed Budget)

Budget Actual Variance

Units 100,000 115,000 15,000 (F)

Sales Revenue 2,000,000 2,242,500 242,500 (A)

Variable Costs 1,200,000 1,320,000 120,000 (F)

Contribution 800,000 922,500 122,500 (A)

Fixed Costs 600,000 670,000 70,000 (A)

Net Profit 200,000 252,500 525,000 (F)