ICMA.

FALL 2013 (FEBRUARY 2014) EXAMINATIONS

Tuesday, the 18th February 2014
COST ACCOUNTING
(AF-201)

Pakistan

Time Allowed: 2:30 Hours

(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)

SEMESTER-2
Maximum Marks: 75

Roll No.:

Attempt all questions.

Answers must be neat, relevant and brief.
In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.
Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
Use of non-programmable scientific calculators of any model is allowed.
DO NOT write your Name, Reg. No. or Roll No. anywhere inside the answer script.
Question Paper must be returned to invigilator before leaving the examination hall.

Marks
Q.2

(a)

M/s. Abdullah Bhai is a small manufacturer deals in manufacturing and supplying of

auto parts for which he has no proper accounting system. Abdullah Bhai has now
decided to keep update records of all transactions from January, 2014 onward. The
following transactions incurred in the month of January, 2014:
(i)
Material purchased for Rs. 500,000.
(ii)

(iii)

(iv)
(v)
(vi)
(vii)
(viii)

Material issued for production:

Direct materials
Rs. 200,000.
Indirect materials
Rs. 100,000.
Gross payroll for the month was Rs. 2,000,000. The distribution of payroll was
50% direct labour, 20% indirect labour, 20% administrative staff salaries, and
10% sales staff salaries.
The gross payroll of Rs. 2,000,000 was paid to employees. No deduction was
made.
Other total factory overhead costs incurred during the month was Rs.800,000.
Factory overheads applied to production during the month were @ 80% of the
direct labour cost.
During the month goods manufactured were at Rs.1,500,000.
Goods costing for Rs. 1,000,000 were sold for Rs. 1,200,000.

Required:
Being Accountant of M/s. Abdullah Bhai, prepare general entries to record above
transactions for the month of January, 2014.
(b)

10

M/s. Interlink Corporation manufactures customized furniture. Listed below is some of

the cost incurred by the company.
(i)
The wood used to make sofa sets cost Rs. 5,000 per sofa.
(ii)
The chairs are assembled by workers at the wage of Rs.2,000 per chair.
(iii) Company has recently hired a factory supervisor to monitor the work done by
the labours. He will be paid monthly salary of Rs.35,000.
(iv) Electrical cost is Rs.200 per machine-hour. Four machine-hours are required to
manufacture one sofa.
The depreciation cost of the machines used to make furniture is total
(v)
Rs.10,000 per year. The machines have no resale value.
(vi) The CEO of the company is paid a monthly salary of Rs.200,000.
(vii) The company spends Rs.1,500,000 per year on advertisement of its products.
(viii) Sales persons are paid monthly salary of Rs. 5,000 each and a commission @
2% for each product sold.

Required:
Classify each of the above cost into fixed, variable and semi-variable costs.
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PTO

Marks
Q.3

(a)

Apricot Internationals, is an international brand of garments operating in several

countries. Apricot international has recently acquired an order to supply customized
jackets to one of its customers. The company is already working at its full capacity and
cannot hire additional workers to meet the demand. Therefore, the senior
management of the company is planning to introduce an incentive wage plan to fulfil
the order.
The maximum production of Apricot International is 2,000 jackets in a 40 hours
work/week (i.e., 50 jackets per hour) and in order to fulfil demand timely, the company
has to produce 2,500 jackets per week. Hourly wage rate is Rs.100.

Required:
Compute the employees earnings under each of the following plans and help the
senior management in choosing the best incentive plan:
(i)
If an incentive plan is used, with the worker receiving 90% of the time saved
each day, and records reveal the followings:
Units
Hours
Monday
400
8
Tuesday
450
8
Wednesday
500
8
Thursday
550
8
Friday
600
8
(ii)

(b)

If the 100% bonus plan is used and 2,520 jackets are manufactured in a 40hour work week.

04

02

Masko Pharma is a pharmaceutical company, uses Calcium Carbonate as a major raw

material for the production of its main product. In the month of December, 2013 the
company made the following purchases and issued Calcium Carbonate for the
production:
December,
2013
1
5
8
11
14
19
22
24
27
28
29
30

Opening balance 4,000 units @ Rs.30 per unit.

Purchased 5,000 units @ Rs. 35 per unit.
Purchased 3,000 units @ Rs. 36 per unit.
Issued 6,000 units.
Purchased 8,000 units @ Rs.33 per unit.
Purchased 2,500 units @ Rs.36 per unit.
Issued 9,000 units.
Issued 2,000 units.
Purchased 7,000 units @ Rs.38 per unit.
Issued 5,000 units.
Purchased 4,500 units @ Rs. 38 per unit.
Issued 10,000 units.

Required:
Find out cost of issued raw material and the cost assigned to December 31, 2013
inventories under each of the following costing methods by using perpetual system of
inventory valuation:

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(i)

First In First Out (FIFO)

04

(ii)

Last In First Out (LIFO)

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Marks
Q.4

(a)

Sadiq Industries has multiple processing departments i.e., Moulding, Painting, and
Finishing. Costs charged to the Moulding department for December, 2013 were as
follows:
Rupees.
Work in process December 1, 2013
Materials
80,000
Labour
100,000
Overhead
120,000
300,000
Cost incurred during the month:
Materials added
Labour
Overhead

1,200,000
360,000
800,000
2,660,000

Production records show that 25,000 units were in work-in-process at beginning (40%
complete as to conversion costs). 475,000 units were started into production, and 50,000
units were in work-in-process at ending (20% complete as to conversion costs). Materials
are issued at the beginning of each process. Sadiq industries uses average costing
method:
Required:
Prepare and calculate the following:

(b)

Q.5

(i)

Quantity schedule

02

(ii)
(iii)

Equivalent production
Cost of production report

02
03

(iv)

Statement of total cost accounted for.

03

How could a company decide whether to use a job order or process costing system?

04

Deakin Limited produces chocolate syrup used by the best bakers of the city for baking
cakes and tarts. Following data has been extracted from the budget and standard cost of
Deakin Limited:
Rupees
Budgeted sales price
120 per litre
Direct material cost
25 per litre
Direct labour cost
15 per litre
Production overheads
Variable overheads
5 per litre
Fixed overheads (per annum)
1, 200,000
Marketing and selling overheads
Variable overheads 20% of revenue
Fixed overheads (per annum)
600,000
Administration overheads
Variable overheads 04% of revenue
Fixed overheads (per annum)
300,000
Normal annual capacity of Deakin Limited is 400,000 litres. Activity levels for the first six
months can be expected as follows:
Litres
Sales

150,000

Production

170,000

Assume that the accounting year of the company ends on December 31, 2013. There will
be no stock of finished goods held on January 1, 2013.
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Required:
Prepare income statement for the period ending on June 30, 2013 under each of the
following methods:

Q.6

Marks

(i)

Marginal costing

07

(ii)
(iii)

Absorption costing
Explain the reasons for differences in profit calculated under the marginal
and absorption costing. Why do the direct costing theorists exclude fixed
manufacturing costs from inventories?

07

(a)

Enumerate advantages of standard costing system.

(b)

Tariq & Company has a budgeted normal monthly capacity of 4,800 labour hours
with a standard production of 4,000 units at this capacity. Standard costs are as
follows:
Materials to produce one unit
Labour to produce one unit
Factory overheads at normal capacity:
Fixed expenses
Variable expense to produce one unit

04
03

2 kgs @ Rs.5.50/kg
1.2 Hours @ Rs.8 per hour
Rs.6,000 per month
Rs.2 per Labour hour

During November, total actual factory overheads were Rs.8,500/- and 4,500 labour
hours cost Rs.38,250. During the month 3,500 units were produced using 7,200 kgs
of materials at a cost of Rs.6 per kg.
Required:
Calculate the following:
(i)

Material price variance

02

(ii)

Material quantity variance

02

(iii)

Labour rate variance

02

(iv)

Labour efficiency variance

02

(v)

Variable overhead spending variance

02

(vi)

Variable overhead efficiency variance

02

THE END

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