Question 1 ZABZUGU TATALE produces a specialized product KANZO. The product passes through three (3) cost centers namely: machining, assembly and painting shop. Data relating to the cost centers is

Question 1  

ZABZUGU TATALE produces a specialized product KANZO. The product passes through three (3) cost centers namely: machining, assembly and painting shop. Data relating to the cost centers is as below:  

Machinin g  

Assembly  Painting shop  

Engineering shop  

Stores  

Number of employees  

81  51 39 30 24  

Engineering shop– service  

18,000 12,000 10,000 – –  

Stores (orders)  180 135 90 45 – At a management meeting dated 24th September 20X0, the following overheads were budgeted for the production and service cost centers exclusively for the ensuing period:  

Cost centers  GHS 000 Machining  180,000 Assembly  160,000 Painting shop  130,000 Engineering shop   84,000 Stores  52,000 Canteen  75,000 Equally, the following budgeted data relates to the production cost centers:  

Machining  Assembly  Painting shop  Machine hours  9,200 8,100 6,600 Labor hours  8,300 11,250  9,000 Labor cost (GHS)  40,000 88,000 45,000 Actual results for the production cost centers were:  

Machining  Assembly  Painting shop  Machine hours  10,000 8,200 6,600 Labor hours  4,500 7,800 6,900 Labor cost (GHS)  25,000 42,000 35,000 Actual overheads (GHS) 290,000 167,000 155,000 Required:   a. Apportion the production overhead costs of the service cost centers to the production   cost centers and determine predetermined overhead absorption rates for the three (3) production cost centers on the following basis:  Machining – Machine hours.   Assembly – Labor hours.    

Ibrahim Anyass Ahmed                                                            4 of 5  

Paint shop – Labor costs.                                                              (15 marks)  b. Prepare a statement showing the under/over absorption per cost center for the period under review.                                                                                (10 marks) TOTAL MARKS (25 MARKS)  

Question 2  a. Differentiate between contract costing and service costing. Provide your answer in tabular form with three differences.   (3 marks)  b. List five (5) industries which are most likely to apply contract costing in their operations. (5 marks)  c. In a tabular form, provide two (2) similarities and two (2) differences each between Activity Based Costing (ABC) method and the Traditional method of charging overheads.                                    (4 marks)  d. How different in management accounting from cost accounting? Provide a brief commentary in two paragraphs.    (2 marks)  

TOTAL MARKS (14 MARKS)  

Question 3  a. Consider the following information for a given business.  Sales revenue GHS 40,000 VC per unit = GHS 20 Activity level = 1,000 to break even    

Required:  i. Determine the TFC. (1 mark)  ii. Express the contribution as a percentage of sales. (1 mark)   iii. The company plans to sell 1,500 units in the next period. What will be the percentage Margin of Safety (MoS)?   (1 mark)  iv. What margin should the business employ for planning purposes? (1 mark)  v. What total profit should the business expect in order to achieve its planned sales? (1 mark)  

b. SHATTA MOVEMENT Ltd produces a single product. The company’s directors want to explore new markets, and they require an accurate analysis of the firm’s cost structure for both forecasting and pricing purposes. An attempt to provide this analysis from the aggregation of individual costs has produced a poor correspondence between actual and predicted costs. You are an accountant employed by SHATTA MOVEMENT Ltd, and you have been asked to provide a statistical approach to the problem.  The financial director has given you the following data:  

Ibrahim Anyass Ahmed                                                            5 of 5  

Period  Output (units)  Average unit cost (GHS) July  9,000 12.8  August  14,000 13 September  11,000 11.4  October  8,000 12 1November  6,000 13 December  12,000 11.7  You obtain the following further information:   The costs from which the averages have been computed consist of the firm’s entire costs for the relevant month.    Fixed costs can be assumed to be unaffected by seasonal factors except for harmattan heating. In July and August a supplementary heating system was employed;   this cost GHS 10,000 per month to operate.  

Required:  Estimate SHATTA MOVEMENT Ltd.’s normal fixed and variable cost of production using linear regression.   (16 marks) 

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