EXAMINATION NO.

____________________

2017 EXAMINATIONS

ACCOUNTING TECHNICIAN PROGRAMME

PAPER TC 9: COSTING & BUDGETARY CONTROL

THURSDAY 1 JUNE 2017 TIME ALLOWED: 3 HOURS

9.00 AM - 12.00 NOON

INSTRUCTIONS

1. You are allowed 15 minutes reading time before the examination begins during
which you should read the questions and, if you wish, make annotations on the
question paper. However, you are not allowed, under any circumstances, to open the
answer book and start writing or use your calculator during this reading time.

2. There are 5 questions in this paper.

3. Answer ALL questions.

4. Each question carries 20 marks.

5. Show all your workings in order to gain full marks.

6. Marks will be awarded for clarity, correctness and logical presentation.

7. Use of non-programmable calculators is allowed.

8. Begin each answer on a fresh page.

9. DO NOT OPEN THIS PAPER UNTIL YOU ARE INSTRUCTED BY THE

INVIGILATOR

This question paper contains 6 pages

.
1. (a) State any two advantages of an Activity Based Costing (ABC) system.
2 Marks
(b) State any two disadvantages of an ABC system. 2 Marks

(c) Kolwe Ltd produces three products: X, Y and Z. Management is considering

switching from a costing approach, for the three products, based on a labour
hour absorption rate, to an ABC system.

The following information relates to previous week’s production of the three products:

Product X Y Z

Direct material (K) 8,840 7,550 11,780

Direct labour (K) 46,040 16,670 37,220

Labour hours 6,520 2,360 5,480

Units produced 1,320 770 1,180

Production overhead is currently absorbed using labour hours, based on the following
weekly budget:

Cost item K
Machine set-up 9,890
Machine processing costs 20,060
Purchasing and inventory costs 12,840
Maintenance 11,520
54,310

In preparation for switching to an ABC system, Kolwe Ltd has recorded the following
cost drivers for the three products, over the week’s production:

Product
Activity Cost Driver X Y Z
Machine set-up Number of set-ups 15 10 20
Machine processing Machine hours 630 310 760
Purchasing & inventory Number of requisitions 30 25 50
Maintenance Maintenance hours 80 50 60

Required:

(i) Using labour hour absorption costing (current system), calculate:

(1) the overhead absorption rate per hour 1 Mark

(2) the total unit cost for each of the three products 6 Marks

(ii) Calculate the unit cost for each of the three products using the ABC system.
9 Marks
(TOTAL: 20 MARKS)
Page 2 of 6
2. (a) Other than FIFO, state any other thre e methods used in stock valuation.
3 M arks

(b) The following information relates to one of the products retailed by Tayamba
Ltd, which completed its first year of trading on 31 May 2017. During the
first year of trading, the following transactions took place :

Purchases of P roduct Q:
December 2016 1,000 units at K30 per unit
February 2017 1,400 units at K35 per unit
May 2017 1,100 units at K40 per unit

Sales of product Q:
January 2017 800 units at K50 per unit
March 2017 600 units at K56 per unit
April 2017 900 units at K60 per unit

There was no opening stock at the beginning of the financia l year.

It is the accounting policy of Tayamba Ltd to use the F irst In First O ut (FIFO) method
of stock valuation.

At 31 May 2017, a stock- take ascertained the following, in relation to Product Q:

(1) 950 units were in perfect condition.

(2) 150 units were in a damaged condition and would be sold at K20 per unit
after repairs. Repairs cost K3 per unit.
(3) Any missing units are to be treated as uninsured loss.

Required:

(i) Using the FIFO method of stock valuation, prepare a stores card to show the
value of the closing stock before taking into account the damaged stock or
any other stock losses. 7 M arks

(ii) Calculate the value of stock to be included in the compa ny’s statement of
financial position (balance sheet) as at 31 May 2017. 4 M arks

(iii) Calculate the profit on product Q for the year ended 31 May 2017. 6 M arks
(TOTAL: 20 M ARKS)

Continued/…

Page 3 of 6
3. (a) (i) Mention any two uses of budgets. 2 Marks

(ii) State any three disadvantages of incremental budgets. 3 Marks

(b) Mathero Ltd is preparing budgets for the year to 31 December 2018. The
company manufactures and sells one product. The selling price is K150 per unit,
but this will increase to K160 with effect from 1 July 2018.

The budgeted sales volumes are as follows:

January to March 40,000 units

April to June 50,000 units
July to September 30,000 units
October to December 45,000 units

Sales for January to March 2019 are expected to be 40,000 units.

Each product uses 3 kg of component X, 2 kg of component Y, and 1 kg of

component Z, the current unit prices of which are as follows:

Component X K9 per kg
Component Y K6 per kg
Component Z K25 per kg

The prices for components X and Y are expected to increase by 10% from
1 April 2018 while that for component Z is expected to rise by 5% from the
same date. The labour cost for the product is K30 per unit and this will
increase by 5% from 1 October 2018.

The variable production overhead will be K10 per unit. The fixed production
overhead is budgeted at K264,000 for the year, and is incurred evenly over
each three-month period.

Stock of finished units is budgeted at 20% of the next three month period’s sales.
No stocks of components are held.

Required:

Prepare the following budgets for Mathero Ltd for each of the four three-
month periods of 2018:

(i) Sales budget in value and units 2 Marks

(ii) Production budget in units 4 Marks

(iii) Component usage budget in kg 3 Marks

(iv) Production cost budget 6 Marks

(TOTAL: 20 M ARKS)

Continued/……
Page 4 of 6
4. (a) Define the term ‘limiting factor.’ 2 Marks

(b) A company manufactures two types of c o mp o ne nts - the Supreme and

the Standard. Both undergo similar production processes and use similar
materials and grades of labour. A shortage of direct labour has recently
been identified and the company will not be able to produce the required
number of components for the six months ending 31 December 2017.
During these six months, the direct labour capacity will be restricted to
235,000 hours.

The standard selling prices and prime costs for each component are as follows:

Supreme Standard
K K
Selling price 250 150
Direct materials 95 22
Direct labour (rate of K10 per hour) 50 40
Estimated sales demand (in units) 10,000 50,000

Other information:

Fixed Variable
(1) Production overhead K400,000 K5 per direct labour hour
(2) Selling and distribution overhead K70,000 10% of selling price
(3) Administration overhead K100,000

Required:

Calculate:

(i) the contribution per unit for each of the two types of components. 5 Marks

(ii) the production plan that will maximise profit for the six months ending
31 December 2017. 5 Marks

(iii) the profit that will be earned for the six months ending 31 December 2017
(use your answer to 4(b)(ii)). 6 Marks

(iv) the amount of profit, based upon the estimated sales demand, which will be
lost by the company as a result of the limiting factor. 2 Marks
(TOTAL: 20 M ARKS)

Continued/…

Page 5 of 6
5. (a) In line with decision-making;

(i) Define the term ‘margin of safety’. 2 Marks

(ii) State any four assumptions behind the cost-volume-profit (CVP)

analysis.
4 Marks

(iii) Give four situations where marginal costing can be used as a decision-
making aid. 4 Marks

(b) In the context of cash budgets:

(i) Mention any two advantages of preparing cash budgets. 2 Marks

(ii) State any three reasons why there might be differences between profit and
cash balance at the end of a period. 3 Marks

(c) In the context of standard costing :

(i) State any two types of standards. 2 Marks

(ii) Explain any three uses of standards. 3 Marks

(TOTAL: 20 MARKS)

END

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