UNIVERSITY OF GHANA BUSINESS SCHOOL

ACCT403: COST ACCOUNTING

1. Businesses are established to achieve several objectives. However, scholars attest that the main
objective of a business is to maximize the wealth of its shareholders.
You are required to:
Justify the view that a major objective of commercial organizations is to broadly seek to maximize
future profits
2. Identify and describe the different users of accounting information.
3. Describe the differences between management Accounting and Financial Accounting. How does cost
accounting fit into the Financial-Management Accounting Relationship?

4. The distinction between direct and indirect costs also depends on the cost object. A cost can be treated
as direct for one cost object but indirect in respect of another.
A company has the following cost details
Details Amount
warehouse rental 2000
salaries of the storekeepers 1000
Suppose the cost object of the organization is (i) distribution channel (ii) product,
Required:
Classify these costs into direct and indirect considering the cost objects?

5. A company purchased raw materials for GHC1000 per unit and then found that it was impossible to use
them in future production or to sell them in their current state. A former customer is prepared to purchase
a product that will require the use of all these materials, but is not prepared to pay more than GHC2500
for this product. The additional costs of converting these materials into the required product are
GHC2000.
Required:
Identify the relevant and irrelevant costs to the decision. Provide justification

6. A manufacturing company has four types of cost (identified as M, N, O P). The total cost for each type
at two different production levels is
Cost type Total cost for 125 units Total cost for 180
units
M 1000 1440
N 1750 2520
O 2475 2826
P 3225 4644
Required:
Which cost types would be classified as being semi-variable?

7.
Cost Data Amount (GHC)
Cost of motor car 5500
Trade-in price after two years or 60000 miles 1500

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 is expected to be
Maintenance- six-monthly service costing 60
Spares/replacement parts, per 1000 miles 20
Vehicle insurance, per annum 80
Insurance per annum 150
Tyre replacements after 25000 miles, four at
GHC37.50 each
Petrol, per gallon 1.90
Average mileage from one gallon is 25 miles
From the above data, you are required
To prepare a schedule to be presented to management showing for the mileages of 5000, 10 000, 15 000
and 30 000 miles per annum:
a. total variable cost;
b. total fixed cost;
c. total cost;
d. variable cost per mile
e. fixed cost per mile
f. total cost per mile

8. Mrs Amangaa has taken out a lease on a shop for a down payment of GHC5000. Additionally, the rent
under the lease amounts to GHC5000 per annum. If the lease is cancelled, the initial payment of
GHC5000 is forfeit. Mrs Amangaa plans to use the shop for the sale of clothing, and has estimated
operations for the next 12 months as follows:
Details Amount (GHC) Amount (GHC)
Sales 115000
Less value added tax (VAT) 15000
Sales less tax 100000
Cost of goods sold 50000
Wages and wage related cost 12000
Rent including down payment 10000
Rates, heating, lightening and 13000
insurance
Audit, legal and general expenses 2000
87000
Net profit before tax 13000
In the figures, no provision has been made for the cost of Mrs Amangaa but it is estimated that one half of
her time will be devoted to the business. She is undecided whether to continue with her plans, because she
knows that she can sublet the shop to a friend for a monthly rent of GHC550 if she does not use the shop
herself
You are required to:
Explain and identify the ‘sunk’ and ‘opportunity’ costs in the situation depicted above;

9. For the relevant cost data in items (1)–(7), indicate which of the following is the best classification
(a) sunk cost; (b) incremental cost; (c) variable cost; (d) fixed cost; (e) semi-variable cost; (f) semi-fixed
cost; (g) controllable cost; (h) non-controllable cost; (i) opportunity cost
1 A company is considering selling an old machine. The machine has a book value of GHC20 000. In
evaluating the decision to sell the machine, the GHC20 000 is a ___________.

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2 As an alternative to the old machine, the company can rent a new one. It will cost GHC3000 a year. In
analyzing the cost-volume behavior the rental is a ___________.
3 To run the firm’s machines, there are two alternative courses of action. One is to pay the operators a
base salary plus a small amount per unit produced. This makes the total cost of the operators a
___________.
4 As an alternative, the firm can pay the operators a flat salary. It would then use one machine when
volume is low, two when it expands, and three during peak periods. This means that the total operator
cost would now be a ___________.
5 The machine mentioned in (1) could be sold for GHC8000. If the firm considers retaining and using it,
the GHC8000 is a ___________.
6 If the firm wishes to use the machine any longer, it must be repaired. For the decision to retain the
machine, the repair cost is a ___________.
7 The machine is charged to the foreman of each department at a rate of GHC3000 a year. In evaluating
the foreman, the charge is a ___________.

10. A company manufactures and retails clothing. You are required to group the costs that are listed
below and numbered (1)–(20) into the following classifications (each cost is intended to belong to only
one classification):
(i) direct materials; (ii) direct labour; (iii) direct expenses; (iv) indirect production overhead; (v) research
and development costs; (vi) selling and distribution costs; (vii) administration costs; (viii) finance costs
1 lubricant for sewing machines;
2 floppy disks for general office computer;
3 maintenance contracts for general office photocopying machine;
4 telephone rental plus metered calls;
5 interest on bank overdraft;
6 Performing Rights Society charge for music broadcast throughout the factory;
7 market research undertaken prior to a new product launch;
8 wages of security guards for factory;
9 carriage on purchase of basic raw material;
10 royalty payable on number of units of product XY produced;
11 road fund licenses for delivery vehicles;
12 parcels sent to customers;
13 cost of advertising products on television;
14 audit fees; 15 chief accountant’s salary;
16 wages of operatives in the cutting department;
17 cost of painting advertising slogans on delivery vans;
18 wages of storekeepers in materials store;
19 wages of forklift truck drivers who handle raw materials;
20 developing a new product in the laboratory

11. A company is estimating its costs based on past information. The total costs incurred by the company
at different levels of output were as follows:
Output (units) Total cost
160000 2420000
185000 2775000
190000 2840000
The company uses the high–low method to separate total costs into their fixed and variable elements.
Ignore inflation.
You are required to:

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Calculate the estimated total costs for an output of 205 000 units: