Accounting for Costs

Thursday 4 December 2008

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 Certified Accountants

Paper T4

Certified Accounting Technician Examination Intermediate Level

Section A ALL 20 questions are compulsory and MUST be attempted Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple choice question. Each question within this section is worth 2 marks. 1 Consider the following incomplete statements relating to features of management information: (1) (2) (3) (4) Communicated in writing Presented in report format Supported by calculations Timely and clear to the user

Which of the above are necessary features of useful management information? A B C D (1) and (4) (1), (2) and (3) (4) only (2) and (3) only

Which of the following performance measures would be appropriate for an investment centre rather than a profit centre or a cost centre? A B C D Contribution/sales ratio Cost per unit Labour efficiency ratio Residual income

Which of the following describes the term cost unit? A B C D A basis for cost classification A production or service department A unit of product or service The cost of a unit of output

The cost accounts of a business are kept separate from the financial accounts but the two sets of accounts are reconciled each period. What accounting system is being described? A B C D Cost control accounts Cost ledger accounts Integrated accounts Interlocking accounts

Cost Z is fixed in total for a period. If the level of activity in the period is increased by 50% what change would occur in Cost Z per unit of activity? A B C D Decrease by a third Decrease by a half Increase by a third Increase by a half

In a factory, a team of six maintenance staff are paid a guaranteed weekly wage. Which of the following is the most appropriate cost classification for their wages? A B C D Direct labour cost Indirect labour cost Semi-variable cost Variable overhead cost

Production costs incurred in the manufacture of 2,400 units of a product in a period are: Direct costs Variable overheads Fixed overheads $ 19,680 3,120 14,640

What would be the expected total cost of manufacturing 2,300 units of the product in a period? A B C D $35,880 $36,490 $36,620 $37,310

The following documents are used in the process of purchasing and using raw materials: (1) (2) (3) (4) (5) Despatch note Goods received note Materials requisition Purchase order Purchase requisition

Which of the documents would be used to update the stores ledger accounts? A B C D (2) only (2) and (3) (1), (2), (4) and (5) (1), (3), (4) and (5)

A company produced 6,200 units of a product in a period. The product used 80 kg of material per 100 units of output. The inventory holding of the material reduced by 380 kg in the period. What quantity of material was purchased in the period? A B C D 4,580 4,960 5,340 7,370 kg kg kg kg

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10 A firm has used the economic order quantity (EOQ) formula to arrive at an EOQ for Component C1 of 400 units. Annual demand for Component C1 is 12,000 units and the cost of placing an order for the component is $40. What is the cost of holding one unit of Component C1 in inventory for one year? A B C D $017 $033 $300 $600

11 Materials Stores is one of the service cost centres in a factory. What would be the most appropriate basis for the reapportionment of the overheads of Materials Stores to the cost centres it serves? A B C D Number of materials requisitions Number of purchase requisitions Reorder level of each material Value of materials inventory

12 Production cost centre X absorbs overheads on the basis of machine hours and has the following budgeted and actual figures: Overheads Machine hours Budget $20,290 560 Actual $19,110 514

What is the predetermined production overhead absorption rate in production cost centre X (to two decimal places)? A B C D $3413 $3623 $3718 $3947

13 There are two production cost centres in a factory. Production overhead absorption rates are: Cost centre A Cost centre B $1060 per direct labour hour $3620 per machine hour

Product P requires the following hours per unit of finished product in each cost centre: Cost centre A B 30 05 02 13

Direct labour hours Machine hours

What is the total production overhead cost per unit of Product P? A B C D $7886 $9140 $9908 $23400

14 Consider the following statements: (1) The difference between the profit reported by absorption costing and that reported by marginal costing is due to over or under absorption of overhead (2) Absorption costing profit will be higher than marginal costing profit if sales units exceed production units Are the above statements true or false? A B C D Statement (1) True True False False Statement (2) True False False True

15 In which of the following would job costing be most appropriate? A B C D College Hospital Car repairer Chemical manufacturer

16 Manufacturing process costs total $179,070 for a period. 9,000 kg of raw materials were processed with the following result: Completed good output Normal loss Abnormal gain 8,100 kg 1,200 kg 300 kg

What was the cost per kg (to two decimal places)? A B C D $1990 $2132 $2211 $2296

17 Consider the following two descriptions: (1) A product which is incidental to the main purpose of a process (2) A product which has an insignificant value relative to other products from a process Do the above describe a by-product? A B C D Description (1) No No Yes Yes Description (2) No Yes No Yes

18 Which of the following statements is true of service costing? A B C D A composite cost unit may be used Indirect costs normally represent a small proportion of total costs Output is often tangible The cost of direct materials tends to be high in relation to other costs

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19 Budgeted sales of a companys single product in a period are 20,000 units, producing a total contribution of $180,000 at a selling price of $24 per unit. Fixed costs are $6 per unit based on the budgeted sales quantity. What is the budgeted variable cost per unit? A B C D $3 $9 $15 $18

20 A firm makes a single product. Budgets have been prepared for the year ahead and include production and sales of 60,000 units with a break-even point of 45,000 units. What is the margin of safety ratio? A B C D 25% 33% 75% 133% (40 marks)

Section B ALL FOUR questions are compulsory and MUST be attempted 1 A company is considering whether to add a new product to its range. Machinery costing $280,000 would have to be bought at the start of the project (Year 0). The project life would be five years with no disposal value at the end of the project. Sales of the new product are forecast at 12,000 units in each of Years 1 and 2, rising to 15,000 units in each of Years 3, 4 and 5. The selling price per unit will be $15 in Year 1 and $16 thereafter. Variable costs are estimated at $9 per unit. Straight-line depreciation of the machine would be $56,000 in each year. No other future incremental fixed costs would be incurred. However, the company has already incurred expenditure of $6,000 for a market research survey and has decided to write this off against profits made in the first year if the investment takes place. Assume that all cash flows, apart from the investment in machinery, occur at the end of each year. The cost of capital is 14% per annum. Discount factors at 14% are: Year Year Year Year Year 1 2 3 4 5 0877 0769 0675 0592 0519

Required: (a) Calculate the net cash flows for each year of the project (Year 0 to 5). (b) Calculate the net present value of the project (working in $000). (c) State whether the internal rate of return is above or below 14% and justify your conclusion. (8 marks) (6 marks) (2 marks) (16 marks)

A garage operates a vehicle repair service. Space is limited and, although the garage is usually busy, the owner is concerned about the amount of profit that can be generated. Summarised data concerning vehicle repairs follows: Average number of repairs per period Average variable cost of each repair Average sales value of each repair 85 $126 $210

The owner is considering extending the garage opening hours. This would result in an increase in fixed costs from $6,972 to $7,728 per period. The average variable cost and the average sales value of each repair would be expected to remain the same. Required: (a) For the current situation, calculate per period the: (i) profit; (3 marks) (4 marks)

(ii) break-even sales revenue.

(b) For the proposed extended opening hours, calculate the average number of repairs required per period to achieve the current level of profit. (4 marks) (11 marks)

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The following data is provided for a chemical process for a period: Materials input Conversion cost Opening work-in-progress Closing work-in-progress 29,000 kg (kilograms) at a total cost of $162,342 $74,700 Nil 3,000 kg, 60% complete as to conversion costs

There is a preparation loss at the start of the process operation. Actual losses in the period were at the normal level of 10% of the materials input. Required: For the period: (a) Calculate the cost per kg (kilogram) of production. (b) Prepare the process account (showing kg as well as value). (6 marks) (9 marks) (15 marks)

(a) Describe briefly how the following are used in the accounting for labour: (i) time sheets; (3 marks) (3 marks)

(ii) job cards. (b) The following details relate to the labour in a production cost centre for a period: Direct personnel Hourly rates of pay: Basic Overtime Payroll hours: Productive Idle Total $1000 $1300 310 18 328 Indirect personnel $700 $910 118 4 122

Additional information: 1. The basic rates of pay apply to a normal working week of 38 hours 2. There are eight direct personnel and three indirect personnel in the cost centre 3. Overtime is worked from time to time to meet the general requirements of production 4. Idle time is regarded as normal. Required: Calculate the total amounts: (i) paid to the direct personnel and the indirect personnel respectively; (6 marks)

(ii) charged as direct wages to work-in-progress and indirect wages to overheads respectively (show clearly the make-up of the indirect charge). (6 marks) (18 marks)

End of Question Paper