EXAMINATION : FOUNDATION LEVEL

SUBJECT : COST ACCOUNTING

CODE : A4

EXAMINATION DATE : TUESDAY, 4TH MAY, 2021

TIME ALLOWED : THREE HOURS (9:00 A.M. – 12:00 NOON)

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GENERAL INSTRUCTIONS

1. There are FOUR questions in this paper.

2. Answer ALL questions.

3. Marks are shown at the end of each question.

4. Show clearly all your workings in the respective answers where applicable.

5. This question paper comprises 8 printed pages.

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QUESTION 1

(a) For each of the questions given below, choose the most correct answer among the four
given alternatives. Indicate your answer by writing the appropriate letter A, B, C or D in
your answer booklet.
(i) What type of cost is supervisor salary, where one supervisor is added for every ten
employees added to the staff?
A. A fixed cost
B. A variable cost
C. A mixed cost
D. Step cost
(ii) Which of the following best describes a period cost?
A. A cost that relates to a time period which is deducted as expenses for the
period and is not included in the inventory valuation.
B. A cost that can be easily allocated to a particular period, without the need for
arbitrary apportionment between periods.
C. A cost that is identified with a unit produced during the period, and is
included in the value of inventory. The cost is treated as an expense for the
period when the inventory is actually sold.
D. A cost that is incurred regularly every period, e.g. every month or quarter.

(iii) A company has prepared flexible budgets at two activity levels. The cost per unit
of three costs are as follows:
Activity level units
10,000 units 15,000 units
Cost
X TZS.300 per unit TZS.200 per unit
Y TZS.100 per unit TZS.100 per unit
Z TZS.350 per unit TZS.300 per unit
All three costs behave in a linear manner with respect to activity.
How should each of these costs be classified?
X Y Z
A. Variable Fixed Semi-variable
B. Variable Fixed Variable
C. Fixed Variable Semi-variable
D. Fixed Variable Fixed

(iv) Last month, when a company had an opening inventory of 16,500 units and a
closing inventory of 18,000 units, the profit using absorption costing was
TZS.4,000,000. The fixed production overhead rate was TZS.1,000 per unit.

What would the profit for last month using marginal costing?
A. TZS.1,500,000
B. TZS.2,500,000
C. TZS.5,500,000
D. TZS.6,500,000
(v) A semi-variable cost is a cost that:

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A. increases in direct proportion to output.
B. increase throughout the year.
C. contains an element of both fixed and variable cost.
D. remains constant irrespective of the level of output.

(vi) If production volume increases then:

A. Total variable cost decreases while variable cost per unit is constant.
B. Variable cost per unit is constant while total variable cost increases.
C. Total variable cost remains constant while variable cost per unit increases.
D. Variable cost per unit decrease while total variable cost is constant.

(vii) A company’s total overhead varies with output level. It has recorded the following
observations of output and total overhead cost:
Output Level 100,000 units 400,000 units
Total overhead costs TZS.80,000,000 TZS.250,000,000
It is known that there is an increase in fixed costs of TZS.20,000,000 when output
exceeds 300,000 units.
Using the high low method, what is the variable overhead cost per unit?
A. TZS.500
B. TZS.567
C. TZS.625
D. TZS.660

(viii) The demand for a product is 12,500 units for a three month period. Each unit of
product has a purchase price of TZS.15,000 and ordering costs are TZS.20,000 per
order placed. The annual holding cost of one unit of product is 10% of its purchase
price.

What is the Economic Order Quantity (to the nearest unit)?

A. 577 units
B. 816 units
C. 866 units
D. 1,155 units

(ix) A company has over-absorbed fixed production overheads for the period by
TZS.600,000. The fixed production overhead absorption rate was TZS.800 per unit
and is based on the normal level of activity of 5,000 units. Actual production was
4,500 units.

What was the actual fixed production overheads incurred for the period?
A. TZS.3,000,000
B. TZS.3,600,000
C. TZS.4,000,000
D. TZS.4,200,000

(x) A company manufactures two products, P1 and P2 in a factory divided into two cost
centres, X and Y. The following budgeted data are available:
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Cost centres
X Y

Allocated and apportioned fixed overhead TZS.8,800,000 TZS.9,600,000

costs
Direct labour hours per unit:
Production P1 3.0 1.0
Production P2 2.5 2.0
Budgeted output is 8,000 units of each product. Fixed overhead costs are absorbed
on a direct labour hour basis.

What is the budgeted fixed overheads cost per unit for Product P2?
A. TZS.1,000
B. TZS.1,100
C. TZS.1,200
D. TZS.1,300
(20 marks)

(b) For each of the following statements, state whether the statement is true or false.
Indicate your answer by writing “TRUE” for the correct statement and “FALSE” for
incorrect statement in your answer booklet:
(i) A cost that is incurred as a consequence of general, overall operating activities,
rather than a specifically identified activity, is known as a common cost.
(ii) Factory rent is included in overheads costs, and office rent is included in period
costs.
(iii) One of the major assumptions underlying the simplest form of Cost Volume
Profit (CVP) analysis, such as the break-even formulas, is that the costs are non-
linear throughout the entire relevant range.
(iv) The amount of cost attached to units of product that have been received from a
prior processing department is called a first-in cost.
(v) Like financial accounting, because of the rapid increase and advances in
technology, managerial accounting is mandatory whenever a company produces
a product.
(10 marks)

(c) Given the following cost items, you are required to pair each item from LIST A with
the statements from LIST B appropriately. In pairing the items with statements, write
the roman number in list A against the corresponding letter from list B in your answer
booklet:

LIST A
(i) Standard costing
(ii) Opportunity cost
(iii) Sunk cost
(iv) Value engineering
(v) Prime costs

LIST B
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A. A systematic and organized approach to providing the necessary functions in a
project at the lowest cost.
B. The cost of the previously purchased machines.
C. Potential benefits that is given up when one alternative is selected over another.
D. Company’s expenses directly related to the materials and labour used in
production.
E. An accounting system used by some manufacturers to identify the differences
between actual costs and costs that should have occurred for the actual goods
produced.
F. Is the cost that make the difference among alternatives.
G. Is the value created through mechanical or engineering process.

(10 marks)
(Total: 40 marks)
QUESTION 2

You have been provided with the following data for BURE Plc for the month of September
2020:
Accounting method
Variances Absorption Marginal
TZS. TZS.
Selling price 19,000(A) 19,000(A)
Sales volume 4,500(A) 7,500(A)
Fixed overhead expenditure 2,500(F) 2,500(F)
Fixed overhead volume 1,800(A) N/A

During September 2020, production and sales volumes were as follows:

Sales Production
Units Units
Budget 10,000 10,000
Actual 9,500 9,700

REQUIRED:

(a) Calculate:
(i) The standard contribution per unit (4 marks)
(ii) The standard profit per unit (4 marks)
(iii) The actual total fixed overhead cost (4 marks)

(iv) Using the information presented above, explain why different variances are
calculated depending upon the choice of marginal or absorption costing.
(4 marks)
(b) The investigation of variance is a fundamental element in the effective exercise of control
through budgetary control and standard costing systems. The systems for identifying the
variances may be well defined and detailed yet the procedures adapted to determine
whether to pursue the investigation of variance may not be formalised.

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REQUIRED:

Critically examine the situation, discussing possible effective approaches to the

investigation variances. (4 marks)
(Total: 20 marks)

QUESTION 3

(a) Explain the following terms as used in Cost – Volume – Profit analysis:
(i) Break-even point
(ii) Contribution margin
(iii) Relevant range
(iv) Margin of safety
(8 marks)

(b) Below is a break-even chart of ABC Company Limited at year ended 30th December,
2019. Of interest is the level of activity shown as ‘D’. At this level, point ‘A’ totals
TZS.5,000,000; ‘B’ totals TZS.4,500,000 and point ‘C’ totals TZS.1,000,000.

A
Cost and
Revenue B
(TZS.)

D
Activity (units of output)

REQUIRED:

(i) What are the total costs at activity D? (2 marks)

(ii) What are the total variable costs at activity D? (2 marks)
(iii) What is the total contribution margin at activity D? (2 marks)

(iv) From the data given above, what are the break-even sales? (4 marks)

(v) From the data given above, what is the margin of safety in terms of sales?
(2 marks)
(Total: 20 marks)

QUESTION 4
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(a) What is inventory reconciliation? (2 marks)
(b) Briefly differentiate between “stock taking” and “stock valuation”. (2 marks)
(c) Explain the cause of difference between physical stock and the recorded stock.
(2 marks)
(d) Plaid - Clad Co. manufactures golf bags in a two-department process: Assembly and
Finishing.
The Assembly department uses weighted average costing and the percentage of
completion of overheads in this department is unrelated to direct labour.
The Finishing department adds hardware to the assembled bags and uses FIFO costing.
The overheads in this department is applied on a direct labour basis. For the month of
June, the following production data and costs were gathered:
Assembly department Units:
Units
Beginning WIP Inventory (100% complete for Direct Material:
40% complete for Direct Labour; 30% complete for Overheads) 250
Units started 8,800
Ending WIP Inventory (100% complete for Direct Material:
70% complete for Direct Labour; 90% complete for Overheads) 400
Assembly department: Costs
Direct Direct Overheads Total
Material Labour
TZS. TZS. TZS. TZS.
‘000’ ‘000’ ‘000’ ‘000’
Beginning WIP Inventory 3,755 690 250 4,695
Current Period 100,320 63,606 27,681 191,607
Total costs 104,075 64,296 27,931 196,302

Finishing department: Units

Units
Beginning WIP Inventory (100% complete for transferred in:
15% complete for direct material; 40% complete for conversion costs) 100
Units transferred in 8,650
Ending WIP Inventory (100% complete for transferred in:
30% complete for direct material; 65% complete for conversion costs) 200

Finishing Department: Costs

Transferred in Direct Conversion Total
Material
TZS. ‘000’ TZS. ‘000’ TZS. ‘000’ TZS. ‘000’
Beginning Inventory 2,176 30 95 2,301
Current Period 188,570 15,471 21,600 225,641
Total costs 190,746 15,501 21,695 227,942

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REQUIRED:

Prepare cost of production report for:

(i) The Assembly department. (7 marks)
(ii) The Finishing department. (7 marks)
(Total: 20 marks)

________________  _______________

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